Auditor university education: does it matter?

Auditors are certified as having the proper qualifications, so does the educational background of such an auditor matter? A new study co-authored at Cambridge Judge Business School finds that it does, as those with quantitative backgrounds produce better audits.

woman accountant working on a computer

Auditors with an undergraduate university degree focusing on quantitative analysis – including accounting, engineering and maths – produce more accurate audited financial reports (as measured by recorded levels of “abnormal accruals”) than do auditors with a bachelor’s degree in fields with a more qualitative approach such as history, classics or law, says the study published in the European Accounting Review.

The study finds further that companies pay more for auditors with a degree in a quantitative subject, by 14.5% in the auditor sample studied.

“Taken together, our findings suggest that, from the perspective of the audit profession, auditors with university educations involving relatively high levels of quantitative and well-defined, domain-specific knowledge are associated with (higher quality) audit outcomes,” the study says.

The study – entitled “Auditor university education: does it matter?” – is co-authored by Dr Jenny Chu of Cambridge Judge Business School, and Professor Annita Florou and Professor Peter F Pope, both of the Department of Accounting at Bocconi University in Milan.

“The study is the first of its kind in a Western economy, so it should be useful to both regulators and educators,” says study co-author Dr Jenny Chu, University Senior Lecturer in Accounting and Deputy Director of the Centre for Financial Reporting & Accountability at Cambridge Judge. “The study is made possible by the fact that regulations in the UK – in contrast to many other countries – allow individuals from any degree discipline (and some without) to train to be an auditor. The UK also required disclosure of signing auditors – those who sign off on the final audit of companies – earlier than most other countries.”

The research looks at the educational background of auditors operating in the UK in the years 2011 (when disclosure of a lead auditors name became mandatory) to 2014.

The studys initial sample included 1,107 unique signing auditors and 2,026 unique clients. Following the hand-collection of university-level educational background of signing auditors including degree subject, completion date and postgraduate studies, the final sample comprises 695 unique signing auditors, of whom only 24% held an undergraduate degree in accounting.

The studys results are based on two proxies of audit quality: performance-adjusted abnormal accruals and abnormal working capital accruals – which were both 2.7% lower for auditors with a quantitative education. Financial sector companies are excluded from the study because the financial information required is not comparable with other firms.

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