Why Shouldn't Higher IQ Audit Partners Deliver Better Audits?: A Discussion of Kallunki, Kallunki, Niemi and Nilsson

Abstract

Kallunki, Kallunki, Niemi, and Nilsson (2018, hereafter KKNN) obtain a comprehensive dataset of cognitive abilities (i.e., intelligence quotient or IQ) for 407 male audit partners in Sweden. They find negative associations between partner IQ and the propensity to make errors in the issuance of going concern opinions and income-increasing discretionary accruals, as well as a positive association between partner IQ and audit fees. KKNN argue that this evidence is consistent with smarter auditors delivering higher quality audits. While the evidence in KKNN may not appear too surprising, I discuss how it advances our understanding of whether individual engagement partner characteristics matter from an audit quality standpoint. This discussion highlights the factors that could strengthen or moderate the relation between partner IQ and audit quality. IQ likely can affect audit quality through several channels, such as a more effective application of prior knowledge, a higher ability to learn, and reduced incentives to shirk. I highlight particularities of KKNN’s setting and show that their evidence probably cannot be directly generalized to publicly traded corporations outside of Sweden. Finally, I provide suggestions for future research.