Category Management Insights
23 July 2020

Birds of a Feather Flock Together: How Auditors Select their Companions for Audits and How this Selection Influences Audit Quality

Teamwork is important for the success of all businesses. When choosing team members, people have an implicit preference for others who are similar. This so-called homophily shapes all types of social networks, including friendship, marriage, and working relationships. The main reasons homophilous relationships develop are (1) preference, i.e. people tend to associate with similar others simply because they prefer to do so and (2) opportunity, i.e. others who are similar are more likely to be found within their geographical and organizational environment. This study examines whether homophily also plays a role in the case of dyads between the two auditors responsible for an audit, which in contrast to typical teams are hierarchically structured and highly-regulated.

In a forthcoming article in Accounting, Organizations and Society, Professor Christopher Koch at the University of Mainz, as well as Prof. Dr. Jürgen Ernstberger and Dr. Benedikt Downar, both of the TUM School of Management, address this question. For their analyses, they draw on the German professional register, which covers the entire pool of auditors available for audits and which provide information on their background. The authors investigate the role of gender, age, and ethnicity (the latter measured on the basis of a shared local dialect) as important similarity factors between an incumbent lead auditor and a newly-selected concurring auditor. The authors find that auditor dyads are more likely to form based on the same gender and dialect than the average characteristics of the potential pool of candidates would suggest. These findings indicate that despite the comprehensive regulations in place to promote an expertise-based choice of incoming auditors, homophily is a key consideration in the creation of auditor dyads. Further, the authors observe that being the same age reduces the likelihood of dyad formation. An explanation for the latter finding may be the desire to establish legitimacy in hierarchical differentiation.

Next, the authors examine whether dyads sharing similar characteristics are associated with higher or lower quality audits. They find that auditor dyads with the same dialect produce lower audit quality. Thus, homophily matters in auditor dyad formation with potentially adverse consequences for quality. Auditors in homophily-based work relationships might exhibit insufficient levels of skepticism when evaluating the work performed by colleagues with similar backgrounds. In contrast, the quality of audit is not influenced by auditors of the same age and gender.

Overall the study warns of a (subconscious) preference for similar auditors as companions. Although homophily in other areas of team collaboration has positive effects such as better communication, it can have negative consequences in the hierarchical and regulated setting of an audit.




Prof. Dr. Jürgen Ernstberger
Financial Accounting


Chair: Financial Accounting