In this study, we examine whether Chinese Certified Public Accountant (CPA) firms with more partners available to perform audit engagements deliver higher quality services. Based on a sample of 2,990 company-year observations over the period of 2002 to 2015, we find that CPA firms with smaller staff–partner ratios are associated with a lower likelihood of restatements of their clients’ financial statements. Interestingly, we find that this association is less evident when engagement partners have excessive workloads, suggesting the need to balance workloads across partners within a firm. Overall, our results highlight the importance of considering partner availability and its impacts on audit quality, which echo regulators’ growing concern about the inadequate mix of audit experience, expertise, and supervision within CPA firms. Our study is timely and the results are informative to the recent policy debate. From a public policy perspective, our results suggest that CPA firms should be required to disclose information about the deployment of audit partners to help financial statement users make inferences about the quality of their work.
Bibliographical noteThe authors thank the Editor, Professor Bharat Sarath, the Associate Editor, Professor Kannan Raghunandan, and the anonymous referee for their insightful comments and constructive suggestions. They also thank Michael Firth, Jeong-Bon Kim, and Clive Lennox for their helpful advice and discussions on earlier drafts of the paper. In addition, they acknowledge the constructive feedback received from conference participants at the 2017 International Conference on Business and Information and the International Conference on Accounting and Finance 2017.
A.W.Y.L. acknowledges the financial support from Lingnan University, Hong Kong.
- audit quality
- auditor availability
- partner workload
- staff–partner ratio