Diversity of Signing Auditors and Audit Quality

Abstract

Using data for listed firms in China, where two auditors sign the audit report, we examine whether the diversity of signing auditors’ characteristics affects audit quality. We find a positive association between diversity and audit quality, consistent with the notion that diversity facilitates team performance. Further analyses show there is a stronger association between cognitive, rather than demographic, diversity of signing auditors and audit quality. Our results are robust to the inclusion of client firm and engagement auditor fixed effects. Cross-sectional results indicate stronger effects of the cognitive diversity of signing auditors on audit quality in complex, opaque, less important clients or firms without industry specialist auditors. Findings from our study suggest that audit firms should allocate staff to audit teams in a manner that results in cognitively diverse audit teams because such teams are more likely to deliver high quality audits.