Does Audit Partner Location Matter?

We use hand-collected audit partner data to show that approximately one-third of clients are audited by partners located more than 100 kilometers away from the clients' corporate headquarters. We explore the role that partner location plays in audits by first modeling how it affects the matching of partners to clients. Our analysis reveals that partners' geographic location relative to potential clients is an important matching criterion; however, tradeoffs are made when other partner characteristics (e.g., industry specialization) are likely to be important. Next, we show that audit quality is lower when partners reside farther from their clients. This finding is robust to using propensity score matching to ensure balanced covariates, and to using the availability of nearby partners as an instrument for partner distance to account for the non-random selection of partners. We also show that the negative association between partner distance to clients and audit quality is mitigated when partners have access to direct flights to their clients' headquarters and when clients are geographically dispersed. Combined with our initial findings on partner matching, our audit quality results suggest that the role of partners' physical location in the performance of a quality audit may be underappreciated in practice