Auditor Workforce Diversity and Client Inclusiveness: Evidence on Financial Reporting Quality
Keywords:
audit quality, audit team diversity, client diversity, financial misstatementsAbstract
This study investigates how organizational diversity affects financial reporting quality by extending prior research on audit team composition to include diversity within audited firms. Building on evidence that diverse audit teams are linked to improved audit outcomes, we introduce corporate inclusiveness—measured by the Human Rights Campaign’s Corporate Equality Index (CEI)—as a second dimension of diversity. This approach allows us to evaluate both auditor and client diversity in relation to reporting quality. Drawing on theories of cognitive diversity and social identity, we test whether client-side diversity moderates auditor diversity’s impact on reporting quality. Consistent with prior research, we confirm that audit office diversity is associated with lower financial misstatements. Moreover, CEI scores moderate the audit office diversity effect, exhibiting a substitution pattern where high client inclusiveness reduces the marginal benefit of auditor office diversity.
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