The effect of audit partners’ workload compression on audit quality across Europe

Abstract

The effect of audit partners’ workload compression on audit quality has received extensive attention. Prior literature presents mixed results in different audit market settings such as US, China and Australia. But little is known in the European audit market. Under the same audit market setting, using different methodologies also leads to inconsistent results. For example, studies using the OLS regression might show contradictory findings with that using the partner fixed effect model. To fill the evidence gap in EU, we study the data from 16 European countries spanning years 2010 through 2019. We first apply the OLS regression and partner fixed effect model, and then we use multilevel model to reconcile the inconsistent results due to different methodologies. We highlight the use of the multilevel model to address data dependence issues and contextualize the results from client level to partner level. Our aim is to test the association between EU audit partners’ workload compression and audit quality. Our findings suggest that higher workload compression is associated with longer audit report lag, more earnings manipulation, and higher cost of capital. We hope to raise regulators’ awareness of consequences of audit partners’ workload compression.