Do highly satisfied employees produce better audits?

By Rishika Jain

Aug. 5, 2021

It’s no secret in the accounting community that auditors must commit to late nights and early mornings. Working in public accounting often means long hours, lots of travel and tight deadlines. 

Yet for most accounting students, a job at a Big Four accounting firm is the ultimate dream job. 

According to the Public Company Accounting Oversight Board (PCAOB), which oversees the audits of public companies, higher quality of input and output factors at accounting firms leads to a higher quality of audits. Jagan Krishnan, professor of accounting at the Fox School, and Joshua A. Khavis, PhD ’19, assistant professor of accounting at the University of Buffalo, measure the role of two input factors—employee satisfaction and work-life balance—and study how these relate to the quality of the audits performed. 

Their research, Employee Satisfaction and Work-Life Balance in Accounting Firms and Audit Quality, was recently published in Auditing: A Journal of Practice & Theory. 

The researchers examined data from Glassdoor, a crowd-sourced employee reviews site, to understand how employees perceive their employers and determine which of these characteristics best-explained employees’ overall job satisfaction. They used a set of five characteristics: career opportunities, compensation and benefits, work-life balance, senior management, and culture and values. 

Employees rated characteristics like career opportunities, senior management and culture higher than work-life balance or compensation and benefits. “It seems that young people who join the workforce are willing to trade short-term inconvenience in terms of high workload and low work-life balance for long-term opportunities,” Krishnan explains. 

The researchers also explored the association between employees’ perceived overall job satisfaction and the quality of audits performed by the firm. Krishnan and Khavis predicted that auditors who are more satisfied and enjoy a better work-life balance most likely also produce audits of superior quality. While they found no association between employees’ perceptions of job satisfaction and audit quality, they did see a positive association between work-life balance and audit quality.

Krishnan explains, “Accounting firms generally have mechanisms in place, like quality control and layers of supervision, to ensure that audit quality doesn’t suffer even if employees are unhappy. But we found that if work-life balance is lower, it could be detrimental to audit quality.” 

Recruiting and retaining employees is another indicator of employee satisfaction. “The Big Four have historically been a good starting place for young students entering the workforce,” says Krishnan. But with the influx of Gen Zers into the workforce, he continues, “Things will have to be done differently to be able to make sure that public accounting keeps attracting and retaining the best talent.”

For example, accounting firm Deloitte UK introduced a policy encouraging employees to work from home permanently. More generally, Iceland recorded a successful four-day work week trial across a range of workplaces. Since public accounting frequently hires a fresh crop of young minds every year, these young Gen Z students may not be willing to accept a work-life imbalance anymore. 

In the end, Krishnan clarifies that, while this study begins to shed light on how employees’ perceptions may be related to a firm’s audit quality, more research is needed in this area.

“Although accounting firms may keep their employees highly satisfied by offering greater career opportunities,” says Krishnan, “even highly satisfied employees cannot produce high-quality outputs when they are overworked.”