Public accountants are highly sought after by non-accounting firms for their financial expertise and analytical skills. While this demand offers career advancement opportunities, it also presents a challenge for public accounting firms: auditor distraction.

A study published in Contemporary Accounting Research by Matthew Ege, professor and Vincent D. Foster Endowed Chair in Accounting at Texas A&M University’s Mays Business School, along with Dechun Wang, Mays Business School professor and Philip Ljungdahl/PwC Chair in Accounting, and Young Hoon Kim of George Mason University, reveals how outside job opportunities during the busy audit season can compromise audit quality. Their analysis of job posting data from 2010 to 2019 uncovers concerning patterns that suggest auditor distraction could negatively impact audit quality.

The Distraction Challenge

The research highlights a significant challenge facing public accounting firms: During their typical busy season (January through March), auditors are frequently approached with attractive job opportunities. The study found that 78% of auditors report being contacted by headhunters weekly or more often during the busy season. Even more concerning, 15% of auditors spend over five hours per week considering these opportunities during peak audit periods.

These distractions occur precisely when auditors face their heaviest workloads. The timing creates a perfect storm where external opportunities compete for attention during periods requiring intense focus on completing the audit, which could affect audit quality.

Job Postings and Audit Quality

The study finds an empirical link between outside job opportunities and audit quality, measured by the likelihood of financial misstatements:

• Higher Job Postings, Lower Audit Quality: The number of busy season job postings for public accountants by non-accounting firms is positively associated with financial misstatements.
• Attractive Roles Intensify the Impact: Busy season job postings from non-publicly traded companies, which often offer better work-life balance, have a stronger positive association with financial misstatements.
• Heavy Workloads Exacerbate the Problem: The positive association between busy season job postings for public accountants by non-accounting firms and financial misstatements is stronger when auditors already under heavy workloads.

The evidence shows a clear connection between busy season job opportunities and audit quality. The findings suggest that when job postings for public accountants increase in a given market, the likelihood of financial misstatements rises correspondingly. This effect becomes particularly pronounced under specific conditions.

The findings suggest that busy season job opportunities at non-publicly traded companies have an especially strong negative impact on audit quality. These positions often promise better work-life balance, making them particularly appealing to auditors during the demanding busy season. Also, the effect intensifies when auditors already face heavy workloads, as measured by higher audit fee to auditor ratios and by a greater number of audit office job postings for auditors just before the busy season. This suggests that understaffed audit teams are particularly vulnerable to distraction from external opportunities.

Compensation as a Shield

However, the research also identifies effective strategies for maintaining audit quality. Findings suggest that accounting firms that provide significant pay increases before the busy season see fewer negative audit quality effects from busy season outside job postings. This proactive compensation approach appears to help maintain auditor focus and commitment during the busy season.

Practical Solutions

The findings point to actionable strategies for accounting firms. Firms should be aware of the potential distraction effect of busy season job opportunities and should take appropriate steps to mitigate potential negative effects on audit quality. The findings suggest that strategies such as increasing compensation and ensuring balanced workloads across audit teams can help mitigate potential negative effects on audit quality.

Industry Implications

These findings carry broader implications for the accounting profession. As demand for public accountants continues to grow, firms must adapt their approaches to talent management and quality control. For example, this study highlights the need for robust quality control processes that can maintain standards even when individual auditors become distracted.

 Research Takeaways

• Distraction Impact: Outside job opportunities during busy season are positively associated with the likelihood of financial misstatements.
• Workload Effects: Heavy workloads amplify the association of job opportunities on the likelihood of financial misstatements, suggesting the need for better resource management.
• Timing Matters: Proactive pay increases before busy season mitigate the association of job opportunities on the likelihood of financial misstatements.