Audit Engagements

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What makes audit engagements profitable?

Alberta School of Business researcher finds...

  • Profitability is associated with the technical expertise of the lead senior audit manager (but not the partner).
  • Soft skills like communication, responsiveness, and customization are also associated with profitability.
  • Auditors do not sacrifice audit quality to boost profitability.

Research Abstract:

We examine determinants of audit engagement profitability using proprietary data from the national office of a Big 4 public accounting firm in Canada. We verify through interviews with senior audit partners that the audit realization rate is the primary measure used to assess engagement-level profitability, and use the former to proxy for engagement profitability in our archival analysis. We find that engagement profitability is positively associated with the firm's assignment of lead senior audit managers, as identified by the national office, and its delivery of intangible client service dimensions, such as communication, customization, and responsiveness (obtained from satisfaction surveys of client management and audit committee chairs). We find no evidence that audit quality, measured by discretionary accruals and audit adjustments, is sacrificed to attain higher engagement profitability. We discuss implications for regulation and competition in audit markets.

The article, "Determinants of audit engagement profitability" is co-authored by Karim Jamal and is published in The Accounting Review.

Karim Jamal Karim Jamal research interest is in developing cognitive models of expert decision making in accounting, auditing and financial markets. He earned a BComm (Hons) at the University of Manitoba, studied business administration earning a MSc at the University of British Columbia and received a PhD at the University of Minnesota. Karim is currently the Chartered Professional Accountants' Distinguished Chair in Accounting and the Department Chair and Professor of Accounting and Business Analytics at the Alberta School of Business.