Racial bias and discrimination are still prevalent in the accounting industry, namely among audit partners, according to new research.
Gopal Krishnan, trustee professor of accountancy at Bentley University, and a research team found that ethnic minority audit partners still face significant levels of discrimination compared to their white counterparts, who often hold more senior roles.
While the ratio of minority students graduating with a bachelor’s or master’s degree in accounting continues to rise (42% in 2018, according to the AICPA), the research team noted that auditing firm partners today remain overwhelmingly white, with 91% identifying as such in 2018.
Krishnan and his research team examined 3,038 audits filed for U.S. companies between 2016 and 2019. Of these audits, 128 (4.2%) were signed by an ethnic minority audit partner, with 711 (23.4%) conducted by firms with at least one person of color on their executive teams.
The main takeaways from the research include:
- Ethnic minority audit partners are more likely to work with clients of color. Further, audit partners are more likely to work with clients of the same ethnicity.
- Minority audit partners are more likely to work in offices 60.5% smaller and with 22% fewer clients than white audit partners. Minority audit partners were also 13% less likely to work for a Big Four firm.
- Minority audit partners were found to deliver more high-quality work than their white counterparts, according to three measures of audit quality — earnings persistence, predictive value of earnings for future cash flows, and signed discretionary accruals. The research team said it found “robust evidence that ethnic audit partners are associated with higher-quality audits.”
- Despite this, minority audit partners were more likely to be replaced following a financial restatement. Chances of replacement were found to be 38% higher for ethnic minority partners compared to their white counterparts.
“It’s particularly disheartening to see that discrimination persists for ethnic minorities even after they advance to partner status," Krishnan said in a statement. "You would expect it to stop after you’ve ‘proven’ yourself, but as our research shows, that’s not the case."
“Audit firms need to get serious not just about recruiting more ethnic minorities, but creating supportive and inclusive environments to ensure their retention," he continued. “In professional organizations like accounting firms, where service is the main product, human capital is your most valuable asset."
For more on the research findings, head to Bentley University's
