Motivated by the view that many audit professionals perceive employment at large audit firms as a steppingstone to lucrative appointments in other companies, this study examines how Accounting and Auditing Enforcement Releases (AAERs) issued by the SEC spill over to affect the careers of auditors who are not personally culpable in client misconduct. We find that client AAERs reduce the likelihood that non-culpable audit professionals transitioning to other companies. Tainted audit professionals who transition after a client AAER are less likely to join prestigious companies in the industry and tend to secure lower subsequent salaries compared to peers from unaffected offices. Cross-sectional evidence shows that although greater seniority can cushion these effects, likely due to the experience and networks of senior auditors, client AAERs still diminish their chances of securing senior roles outside the audit profession. In addition, the negative labor market consequences are more pronounced when the AAER is severe or accompanied by negative media coverage. Together, these results show that client AAERs impose substantial contagion effects in the labor market for non-culpable auditors, highlighting the broader implications of client misconduct.

Professor Vic Naiker
The University of Melbourne | Google Scholar profile 

Bio: Vic Naiker is a Professor of Auditing and Director of the PhD Program in the Department of Accounting at the University of Melbourne. His research interests encompass audit committees, corporate governance, auditor industry specialisation, auditor remuneration, and the intersection between accounting information and capital markets. Professor Naiker currently serves as an Editor at Auditing: A Journal of Practice & Theory. He previously served as an editor at The Accounting Review (2020-2023) and at Auditing: A Journal of Practice & Theory (2013-2020). He is a recipient of awards from the American Accounting Association for his editorial work. Professor Naiker's research has been published in leading journals including The Accounting Review, Journal of Finance, Contemporary Accounting Research, Journal of Management, Journal of Banking and Finance, Journal of Corporate Finance, European Accounting Review, and Journal of Management Accounting Research. He serves on the editorial boards of several journals, including The Accounting Review.

Source: Adapted from https://findanexpert.unimelb.edu.au/profile/798347-vic-naiker