Unhealthy audit teams lead to healthy audit fees

Companies should beware of Big Four auditors suffering from flu – not only are they inefficient at their work but the cost of those inefficiencies are passed on to auditees

Research from Landi Morris and Rani Hoitash of Bentley University found that in those US states with the highest numbers of flu cases, the quality of the audit falls and it takes longer than usual to file the audit report.

Writing in Accounting Today, the academics also found that flu has a knock-on effect on audit fees, which increase as a result. “This suggests that as auditors experience inefficiencies due to sick personnel, the costs of these inefficiencies are passed on to clients, resulting in higher fees,” they say.

This is especially so where the auditee’s business is more complicated. The more complex the work, the more likely the impact of flu will result in a deterioration in the quality of the auditors’ work, the research found.

Interestingly, the results are only pertinent to the Big Four firms. Morris and Hoitash found that smaller audit firms tend to place a greater emphasis on work-life balance, and so might well encourage sick audit staff to stay at home until they are better.

The pair say the Big Four can learn important lessons from these findings, particularly as the heaviest audit workload falls during the peak flu season between December and March. For instance, they should look at their work culture.

“Workplace cultures that promote a strong work-life balance may lessen threats to the quality of work that happen when employees feel pressure to go to work when they are sick,” Morris said.

Another step could be scheduling additional personnel. The firms should “assess whether they have sufficient resources to make up for productivity losses when employees are out sick”, she adds.