The Effect of Portfolio Composition on Audit Quality Across Career Stages: Evidence from Individual Auditor Sanctions

We investigate the extent to which client portfolio characteristics affect the likelihood of disciplinary sanctions against individual auditors and test whether this relationship varies across different stages of their careers. Using an eleven-year panel of Swedish auditors from 2005-2015, we find that larger and riskier portfolios are positively associated with sanctions, while industry specialization reduces risk. Our findings further show that the impact of portfolio characteristics differs across career stages. Large portfolios consistently increase sanction risk over the career stages while diverse industries in portfolios are more problematic in early career stage. Moreover, handling risky clients becomes more challenging in the mid-career phases. Our additional analysis results indicate that despite the higher risk stemming from larger and riskier portfolios, affiliation with Big4 firm overall reduces the likelihood of sanctions. Overall, this study enhances our understanding of how client portfolio characteristics evolve over auditors’ career stages and how these characteristics affect audit quality. Our results have important implications for audit firms in managing auditor workloads and career development.