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International standards on auditing and audit firms' audit manuals guide the teams’ audit work, but despite this, the quality of audits can vary greatly. Lasse Niemi, Professor of Auditing at Aalto University School of Business says, ‘Past research has focused on the difference of quality between large units, such as entire auditing firms or separate regional offices within the audit firm.  However, it has recently been discovered that the quality differences – measured as auditors' reporting, audited financial statements, and the fees paid for the audits - between individual auditors are even greater than between audit firms and the factors explaining these differences have not been previously known’. 

The lack of suitable research data has hampered research opportunities thus far, but Aalto University School of Business, University of Oulu and Stockholm School of Economics have succeeded in productive cooperation.

´We received extensive and comprehensive research data from Sweden, which contained information on a total of 407 lead auditors and their approved annual financial statements for listed and unlisted companies between 2000 and 2009. We also received the results of the carefully controlled intelligence tests that the lead auditors were to conduct before their military service in the Swedish Army. Because of this data, we were able to analyse whether the audit quality was related to the IQ of the auditor-in-charge of the audit’ Niemi adds.

Service tailored to each client

The research also shows that the better the cognitive abilities of a lead auditor, the more accurate the business continuity forecasts will be which is crucial data in order not to hinder operations with over-pessimistic predictions. However, the financiers are warned about the heightened uncertainty of continuity of operations if need be.  Additionally, it’s been shown that the fee paid by the client companies increased with the cognitive abilities of the auditor-in-charge of the audits.

Niemi points out, ‘We are researchers in accounting, not in intelligence, but our research data shows that lead auditors are a smart group of people. Still, there are differences in their abilities that appear to have an impact on the quality of audits’.

Auditing is a teamwork-driven service by qualified accounting professionals who create products that are tailor-made for each client. However, despite strict regulations, the planning and leading of the audit require a great deal of judgement and decision-making. ´The auditor-in-charge plays a key role in a successful audit, so the audit firms, their clients and standard setters need to be made aware of this’ Niemi concludes.

Publication Details:

Kallunki J, Kallunki J-P, Niemi L, Nilsson H. IQ and Audit Quality: Do Smarter Auditors Deliver Better Audits? Contemporary Accounting Research 2019. doi: 10.1111/1911-3846.12485.

Further information:

Lasse Niemi
Professor of Auditing
Aalto University School of Business
Tel. + 358 40 353 8058
lasse.niemi @ aalto.fi