Foreign labor and audit quality: Evidence from newly hired H‐1B visa holders

Abstract

Foreign workers have been an important part of the labor force in public accounting firms over the past two decades. In this paper, we investigate whether and why foreign workers influence audit quality. We find that audit offices with more newly hired foreign labor have a lower mean absolute value of discretionary accruals and a smaller rate of restatements for their clients. The effect is more pronounced for audit offices that face more resource constraints or require greater foreign expertise. The results of improved audit quality are robust to alternative measures of immigrant intensity and audit quality, alternative samples, and using different ways to address endogeneity concerns. Overall, our paper contributes to the literature by showing the impact of foreign labor in the auditing profession and provides public policy implications for the recent H‐1B visa debate.This article is protected by copyright. All rights reserved.