Study Suggests Early Audit Partner Retirement Costing CPA Firms Fee Income

Chris Gaetano
Published Date:
Apr 16, 2021

A recent study has found that early retirement by audit partners at CPA firms is costing the firms money, as older partners bring in higher fees while performing as well, or better, than younger auditors, reported Accounting Today. Based on age data for 3,148 U.S. public company audit partners drawn from the Public Company Accounting Oversight Board (PCAOB), the study found that many of the concerns firms have regarding older workers, namely that their performance will flag as they age, don't really materialize. While such fears are the basis for mandatory early retirements at many firms (in Big Four firms, it's between the ages of 55 to 62, lower than in other industries), the study said that, when looking at performance, it doesn't really make sense.

"Since there is no evidence older U.S. partners provide inferior audit quality, there does not appear to be an audit quality rationale for mandatory retirement policies in the U.S.," said the study.

Indeed, given their experience and connections, sometimes older auditors might be better, and their fees reflect that. Older auditors are positively associated with higher audit fees and with total fees in general. When non-audit fees are separated out from the total, there is no statistical relationship, leading the researchers to conclude that "the total fee result is driven by audit fees."

Therefore, the study says, mandatory retirement policies are having the effect of pushing out high-earning auditors when their work is no worse, and might even be better, than their younger colleagues.

At the same time, however, these same policies have been linked with wider diversity in both staff and clients, especially when it comes to gender.

"We confirm that retiring partners are positively associated with the likelihood of rotation to a partner five or ten years younger, and negatively associated with the likelihood of the partner being in a similar age group," said the study. "This provides initial evidence that audit firms are growing the client pool of younger audit partners through mandatory retirement policies." 

The researchers found that this actually does carry a relationship with audit quality. They found that rotation between partners with an age difference of at least five years is associated with a higher likelihood of restatement disclosure by the new partner. However, they also found that while retirements create room for the promotion of female partners, it does not yet appear that they are being assigned to lead the lucrative engagements of retiring partners. The study said this might change as the new partners themselves approach retirement, but at the moment, it is unknown whether this will be the case.

The study—conducted by professors Jenna Burke of the University of Colorado Denver; Rani Hoitash of Bentley University; and Udi Hoitash and Summer Xiao of Northeastern University—will be published in the Journal of Accounting and Public Policy.

Click here to see more of the latest news from the NYSSCPA.