This paper examines the relationship between the extent of knowledge flow during audit practice (measured by the local network clustering coefficient) and auditor compensation. We exploit a unique bipartite (i.e. two-mode) network composed of individual auditors assigned to different audit engagements from an audit firm for one full year to determine our local network clustering coefficient and auditor compensation data from this audit firm’s personnel records. Informed by social networks theory and determinants of wage in labor economics, we find a positive association between local network clustering and auditor compensation, which is both statistically and economically significant. Our results are robust to alternative measures of local network clustering coefficient, alternative explanations of structural holes and centrality, alternative linear specification and endogeneity concern. Furthermore, we find that this positive association may be primarily driven by seniors working on audit engagements. Overall, our results suggest that embeddedness within knowledge networks plays an important role for auditor compensation.  

KEY TAKE-AWAYS Audit firms rely on audit teams where memberships are frequently shared, shifted and dissolved. In practice, this means that many auditors are part of multiple engagement teams for a given period of time. This paper examines why and when such multiple team memberships (MTMs) may lead auditors to engage in audit quality-threatening behaviors. We analyze data from a survey of 202 auditors—ranging from assistants to partners—working at Dutch audit firms. Our findings demonstrate that serving on MTMs can undermine auditor learning, and in so doing leads auditors to engage in audit quality threatening behaviors. Analyses show that less resilient auditors—those who are less able to bounce back from experienced difficulties—appear most susceptible to these deleterious effects. In addition, exploratory analyses suggest that the negative effect of serving on many MTMs appears to be more pronounced for field-level auditors than for management-level auditors.