Topic:

Client Restatement Announcement, Audit Office Human Capital Investment, and Audit Quality Improvements

Time&Date: 

10:30 am - 12:00 pm, September 20, 2024 (Friday)

Venue

Room 619, Teaching A Building

Speaker:

Prof. Hong Wu (Fudan University)

This paper examines audit offices’ human capital investment in response to client restatement announcements and the resulting effects on audit quality and audit office client base. We find that audit offices attempt to acquire human capital and talent by posting more audit-related job positions just after a client announces a restatement. The increase in job postings follows restatements with more negative announcement returns and restatements of annual financial statements, and is concentrated among more senior and experienced positions. Importantly, the increased job postings are not driven by replacement hiring due to individual auditor departures and reflect more auditors joining the office. These human capital investments reduce future client misstatements and losses in client portfolios, indicating improvements in actual and perceived audit quality. Audit offices are also more likely to replace audit managing partners and prevent the signing partners of the misstated financial statements from signing new audit reports after restatement announcements.

Biography:

Hong Wu is an Associate Professor (with tenure) at Fudan University. His research focuses on financial accounting, auditing, empirical corporate finance, and corporate governance. His work has been published in leading academic journals in accounting and finance, including The Accounting Review and Journal of Financial and Quantitative Analysis.