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Corporate auditing is not normally seen as a creative act. Yet in-house audit guidelines at the Big 4 firms grant individual auditors a significant degree of discretion. And it turns out that there is a way to predict how far an auditor will be willing to bend auditing norms — simply look at their name.
Young Hoon Kim, assistant professor of accounting at the Donald G. Costello College of Business at George Mason University, points to prior research finding that people with less common first names are more individualistic on the whole. His recent paper in Contemporary Accounting Research not only shows this pattern applies to corporate audits, but also probes its larger market implications.
Kim’s co-authors were Yinghua Li of Arizona State University and Dechun Wang of Texas A&M University.
The researchers analyzed filings from 2,829 publicly traded companies over the period 2016-2020. They classified the first names of the associated audit partners as either common or uncommon, depending on whether the names were among the 50 most frequent first names by gender as per the Social Security Administration database. Comparing filings from otherwise similar companies, the researchers concluded that financial reports audited by uncommonly named auditors exhibited up to 8.3 percent more deviation than those done by their commonly named counterparts.
This pattern held true for firms that switched from an unusually named auditor to one with a conventional name, or vice versa. Another follow-up analysis concentrated on auditors hailing from the U.K. and Ireland, thus ruling out concealed cultural differences as a possible driver of the disparity.
Why is this issue worth looking into? Kim highlights that earnings comparability — that is to say, consistent application of reporting standards across filings — is generally seen as a good thing for market efficiency. That rule of thumb could lead one to conclude that individualistic auditors, including those with non-standard first names, are a liability for the Big 4. But the reality is much more complicated, Kim says.
“In many cases, better comparability is a good thing. But truthful representation is more important. And we do not find that individualistic auditors produce low-quality outcomes.”
In fact, the less popular names had a quality edge in at least one respect. Their clients suffered less from the stock price contagion effects that often follow financial restatements — where the market impact of one restatement ripples across an audit firm’s entire client base.
“Markets tend to respond to all clients of the same audit firm negatively if there is a failure announcement,” Kim says. “But clients of these individualistic partners had a less negative reaction.” He surmises that market actors are at least dimly aware of the connection between a less-likely name and individualism. Investors may assume that individualism among auditors functions as a kind of firewall, protecting clients from the organizational blind spots of audit firms.
Additionally, the researchers found that the effect of uncommonly named auditors was less pronounced for clients subject to greater SEC scrutiny, due to having received a comment letter from the agency.
“This individualism is seen as a personal trait, an innate characteristic,” Kim says. “However, if there are other forces, such as stronger regulatory scrutiny, they might not exercise personal judgment. Instead, they would follow the rules.”
For Kim, this research puts a finer point on distinctions between individualism and often-adjacent attributes, such as risk tolerance. “For example, one paper found that auditors with a speeding ticket history were more aggressive in auditing and therefore quality deteriorated,” Kim says. But while individualism may be a partial motivator of risk-taking, it is not always a liability.
“Someone who is more individualistic, someone with an uncommon first name, might be in a better position to understand that quality comes first, and rules cannot be broken or bent, but interpreted in such a way that gets you to a higher-quality result,” says Kim.