Audit Partner Engagement in Charities and Client Financial Reporting Quality

Abstract

SUMMARY This study uses large-sample archival data to examine the relation between audit partners’ charity engagement and their full-time job performance. Volunteering in a critical position at a charity may reflect innate personality traits that lead to better partner performance. However, charity engagement can decrease audit partners’ available working time and may, therefore, negatively impact their performance and clients’ financial reporting quality. Using accounting misstatements as our primary measure of financial reporting quality, we find a positive relation between volunteering and job performance: financial reporting quality is higher for the clients of audit partners who volunteer at a charity. The relation is more pronounced when the partner volunteers to serve as the charity’s board chair or donates to the charity. Although we study just one type of professional, our results speak to the broader question of the benefits and costs of volunteering. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M40; M42.