June 24, 2018

The Number of Female Audit Partners Is Terrible

audit-firms-women-partners

A new study shows that women are drastically underrepresented as audit firm partners, averaging only around 16 percent for audit partners with U.S. audit clients. In some cities such as Washington, D.C. and San Jose, California, the percentage of female partners was around 10 percent. Yikes.

The Big 4 firms performed a little better than their non-Big 4 counterparts, with the representation of women being 16.4 percent and 15.4 percent, respectively.

The research of Professor Jenna Burke of the University of Colorado Denver, Rani Hoitash of Bentley University, and Professor Udi Hoitash of Northeastern University focuses on the recently released Rule 3211 from the PCAOB. As you probably know, the rule requires registered public accounting firms to disclose the name of the audit partner for every public company issuer. The study showed that the new disclosure requirements resulted in increased audit quality, increased audit fees, and a significant decrease in audit delays.

It seems that the PCAOB’s argument was correct. Putting your name on your homework encourages you to turn it in on time and do a better job.

What was especially interesting is that the researchers also studied the differences between having a male or female audit partner. Some of the major conclusions were:

  1. Audit quality increases for female partners due to a lower percentage of discretionary accruals.
  2. Clients with female partners pay 2.4% more in audit fees due to a risk premium increase or higher effort.
  3. Female partners at Big 4 firms did not have an increase in audit delays. Female partners at non-Big 4 firms had only a slight increase in delays.

Okay, female audit partners have superior audit quality, charge more in audit fees, and at the Big 4 firms, have no increase in audit delay. Seems like the female audit partners are doing a damn fine job. So why is the auditing profession is still hanging out at 16%?

Aside from the benefits above, women add a unique perspective to a client’s business or their CPA firm as a whole. According to the new study’s research, women provide the following unique benefits:

  • Women have better acquisition and debt issuance decisions as well as more conservative earnings management strategies.
  • Having more women in board-level positions results in better firm monitoring and performance.

Plus, another study of over 21,000 global, publicly-traded companies found that having more women yields better financial performance. This study states that having at least 30% of women in leadership positions led to an increase in a company’s net profit margin of 6%.

None of this is complicated. Sixteen percent of women at the audit partner level is not good enough. Guess we should work on that.

[Audit Partner Identification: Early Evidence from U.S. Form AP Filings via AT]

Image: iStock/Sudowoodo

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[BDO Seidman Press Release]