Welcome to a research seminar organized by the Accounting Department at SSE. The speaker,  Tobias Svanström (Umeå University), will present the paper  “The Effect of Portfolio Composition on Audit Quality Across Career Stages: Evidence from Individual Auditor Sanctions.”

Abstract
We investigate the extent to which client portfolios characteristics affect the likelihood of disciplinary sanctions against individual auditors and test whether this relationship varies across different stages of their careers. Using an eleven-year panel dataset of auditors in Sweden from 2005-2015, we show that portfolio characteristics are significantly associated with the likelihood of disciplinary sanctions and evolve with auditors' age, our proxy for career stages. Consistent with busyness argument, we find that portfolio size- interestingly both in terms of total audited assets and number of audit engagements- is positively associated with the likelihood of disciplinary sanctions. Moreover, portfolio risk is positively associated with sanctions. In contrast, portfolio industry concentration is negatively associated with sanctions suggesting that higher specialization enhances auditors' expertise and efficiency in identifying industry specific risks, thereby reducing the likelihood of sanctions. Our findings further show that the relationship between portfolio characteristics and sanctions varies over auditor career stages. Large portfolios consistently increase sanction risk while diverse industries in portfolios are more problematic in early career stage. Moreover, handling risky clients become more challenging in later career phases potentially due to reduced effort or motivation. Our additional analysis results indicate that despite the higher risk stemming from larger and riskier portfolios, being affiliated with a Big 4 firm overall reduces the likelihood of sanctions. Overall, this study enhances our understanding of how client portfolio characteristics evolve over auditors’ career stages and how various portfolio characteristics effect audit quality. Our results have important implications for audit firms in managing auditor workloads and career development.

Please contact irina.gazizova@hhs.se if you have any questions.