Audit Disruption: The Case of Outside Job Opportunities for External Auditors and Audit Quality

AbstractPublic accountants are in high demand by nonaccounting firms. While this demand attracts highquality accountants to public accounting, it can negatively impact audit quality by distracting auditors. We find that the number of metropolitan statistical arealevel busy season job postings for public accountants by nonaccounting firms is positively associated with misstatements. Results are most pronounced (1) when outside job opportunities are from nonpublicly traded companies, which likely provide better worklife balance, and (2) when auditors are under a heavier workload, as captured by higher audit feetoauditor ratios and increased job postings by audit offices leading into the busy season. Results also suggest that accounting firms that provide large pay increases before the busy season can mitigate the negative auditquality effects of busy season job postings for public accountants. These results suggest that accounting firms are not immune to negative effects of auditor distraction from outside job opportunities despite accounting firms knowing that their auditors are highly sought after by nonaccounting firms.

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