Audit Firm Employee Turnover: Implications for Audit Quality

Using data from Belgian audit firm human capital disclosures that provide direct measures of employee turnover, voluntary departures, and dismissals, we examine the association between audit firm-level employee turnover and audit quality. First, we confirm that turnover is negatively associated with audit quality in a setting dominated by private firms, corroborating recent U.S. evidence from listed companies. Second, we find that voluntary and abnormal turnover are associated with lower audit quality, whereas dismissals are not. Third, the negative association between turnover and audit quality is more pronounced in firms with lower partner staffing leverage and lower employee replacement. Our study contributes to research and practice by demonstrating that (1) the negative association between turnover and audit quality generalizes to private company audits, (2) voluntary and abnormal turnover are associated with lower audit quality, and (3) firms can mitigate employee turnover through higher staffing leverage and higher employee replacement rates. Data Availability: The data are available from the sources we identify in the paper. JEL Classifications: M42.