Public company audit partners are trusted as watchdogs of the capital markets. A forthcoming study by the authors of this article finds that audit partners’ gender, education, and social connections vary widely and are important to the economic outcomes of the audit.
The research, forthcoming in Auditing: A Journal of Practice and Theory, is enabled by a new rule from the PCAOB that requires CPA firms to disclose the name of the partner in charge of each public company audit. For the first time, interested parties know who leads the audits of U.S. public companies. The authors collected the reported audit partners’ gender, education, and social connections, which vary considerably across firms.
Gender, Education, and Social Connections
Although an estimated 50% of CPA firm employees are female, reported data shows that women make up only 17% of public company audit partners (Exhibit 1). While female partners audit the same number of public company clients as men, they are on average assigned smaller clients. In major metropolitan areas like Philadelphia, Washington D.C., and San Jose, women make up less than 10% of audit partners (Exhibit 2). Strikingly, in the telephone and television, utilities, and oil and gas industries, less than 12% of audit partners are female (Exhibit 3). This is in contrast to cities like Los Angeles, New York, and Minneapolis, as well as industries like healthcare and consumer nondurables, where female representation is higher.
Exhibit 1
Audit Partner Characteristics
Exhibit 2
Major Markets Percentage of female audit partners
Exhibit 3
Industry Breakdown Number of audit partners, by gender
In terms of educational background, only 1% of partners attended an Ivy League institution, while 61% attended a public school. The University of Texas at Austin, University of Illinois at Urbana-Champaign, Boston College, and University of Notre Dame produce the most audit partners. Female audit partners most commonly attend Boston College, Texas A&M University, and the University of Illinois (Exhibit 4).
Exhibit 4
Top 10 Undergraduate Programs Number of audit partners, by gender
Audit partners are well connected to networks built while attending their alma mater and online networks made on LinkedIn. For example, more than half of audit partners remain living in the same state or within 100 miles of their undergraduate institution, thus building a strong local social network. This is a particularly prevalent phenomenon in Philadelphia and Boston, but much less common in Atlanta and San Jose. Partners in San Francisco are well connected on LinkedIn, which is less true for partners in Chicago, Dallas, and Houston (Exhibit 5).
Exhibit 5
Major Markets Percentage with social connections
What Next?
The research also found that, in the first year that audit partners have been publicly identified, audit quality and audit fees have increased, while the delay in issuing the audit report has decreased. These changes suggest audit partners seek to avoid reputational consequences now that their identity is known. The research further finds that the gender, education, and social connections of audit partners are useful for predicting the pricing and efficiency of audits.
Whether Form AP will have a long-term impact on the performance of audits or the retention of auditors remains to be seen, but this first year of data provides a baseline for investors and others interested in understanding more about who leads the audits of public companies and whether this population will change over time.
