Narcissism and Audit Quality
Auditing is not just a matter of rules, procedures, and international standards. Behind every audit judgment there is also a person, with their own decision-making style and character traits. A new study of the UK market shows that the narcissism of audit partners can influence how auditors evaluate financial statements, set fees, and manage the delicate balance between professional rigor and commercial pressures.
This is the starting point for "The Consequences of Audit Partner Narcissism: Evidence from the UK Market" by Mara Cameran (Department of Accounting, Bocconi University), Peiwei Lyu (Stirling Business School, University of Stirling), and Pietro Perotti (School of Management, University of Bath), published in the Journal of Accounting, Auditing & Finance. The study takes an in-depth look at the impact of audit partner narcissism on audit outcomes in the UK and offers unexpected findings compared to previous literature.
From the global context to the British case
In recent years, accounting research has shifted its focus from auditing firms to individual audit partners, showing that it is the latter—rather than the various auditing firms or specific offices—that explain many differences in audit quality. Auditing is not a mechanical process: it requires fair judgment, risk assessment, and individual choices. The researchers start with a simple but unusual question: what happens when these decisions are guided by an auditor with a big ego?
Big firms, big personalities
The research involved over 3,000 observations of companies listed in the United Kingdom between 2010 and 2016. The most original element is the measure of narcissism: the size of the signature by the partner responsible for the audit below the statement issued on the annual financial report. According to established psychological literature, larger signatures reflect a more grandiose perception of the self.
Narcissism, the authors note, is a stable and enduring trait associated with "exploitation, self-inflation, a lack of empathy, a sense of entitlement, and a need for constant admiration". Translated into the world of auditing, this set of characteristics can influence how the auditor assesses risks and interacts with clients.
More tolerance on earnings, but no crashes
The first key finding concerns audit quality. Unlike the findings of studies conducted in China and Taiwan, in the United Kingdom, more narcissistic auditors do not produce higher quality audits. On the contrary, there is greater tolerance for earnings management practices.
As the authors write, "as narcissism increases, the propensity of auditors to tolerate clients' earnings management increases". In practice, more narcissistic partners seem willing to accept more aggressive earnings management, as long as it remains within the boundaries set by accounting standards.
However—and this is a crucial point—this greater flexibility does not translate into serious errors. Narcissism is not significantly associated with either the likelihood of material errors in financial statements or the need to make corrections to past financial statements. The authors themselves conclude that the relationship between narcissism and audit quality is "only weakly negatively associated".
Lower fees, more clients
The second significant finding concerns fees. More narcissistic auditors charge less for each assignment. An increase in narcissism of one standard deviation is associated with an average reduction in fees of about 4%.
The explanation is strategic rather than technical. According to the study, more narcissistic partners use lower fees as leverage to expand their client portfolio. "Narcissistic audit partners attract a greater number of listed clients" (p. 1), thus generating higher overall revenues, despite discounts on individual assignments.
In other words, the ego does not drive them to maximize immediate margins, but rather visibility and power within the profession.
A question of culture (not just character)
Why are these results so different from those in Asia? The authors point to cultural differences. In the UK, a form of grandiose narcissism prevails, associated with greater self-confidence and risk-taking. In Asia, on the other hand, "vulnerable" narcissism is more prevalent, which is more sensitive to external judgment.
In a market such as the UK, which is increasingly oriented towards price competition and the commercialization of auditing, narcissism therefore seems to favor a pragmatic balance: more clients, more visibility, but without crossing the line that leads to audit failure.
