Common auditor, knowledge transfer and audit quality: international evidence

Siwen Fu and Jeong Bon Kim

Managerial Auditing Journal, 2024, vol. 39, issue 7, 753-778

Abstract: Purpose - Using an international sample of firms affiliated with a business group, this paper aims to investigate the audit quality of common auditors, i.e. auditors shared by multiple firms affiliated with the same business group. Design/methodology/approach - This paper utilizes a large sample of group-affiliated firms from 35 regions. Following the frameworks ofDeFond and Zhang (2014)andFunget al.(2017), this paper measures audit quality using the absolute value of abnormal accruals and modified audit opinions. Ordinary least squares (OLS) regression is used to address the research question. Findings - The findings demonstrate that audit quality improves for firms that share the same auditor with other group members. Importantly, cross-country analyses reveal that this relationship is stronger when auditors operate in countries with stricter local auditor inspection programs and an overall opaque information environment. Additionally, the impact of common auditors on audit quality is more pronounced for group affiliates that have a more opaque firm-level information environment and are monitored by heightened institutional ownership. Practical implications - While affiliates are more likely to select the same audit firms as common auditors, the evidence regarding the effects of common auditors is mixed. The results of this study provide further insights into auditor choices for group-affiliated firms and offer a potential avenue for better protecting shareholders' interests. Originality/value - The results of this study add to the ongoing debates regarding the costs and benefits of common auditor choice for group affiliates. To the best of the authors’ knowledge, this study is the first to demonstrate that the effects of common auditors may vary in different external environments.

Keywords: Audit quality; Business group; Common auditor; International accounting; F23; G15; G38; M42; N20 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:majpps:maj-12-2023-4167

DOI: 10.1108/MAJ-12-2023-4167

Access Statistics for this article

Managerial Auditing Journal is currently edited by Professor Jie Zhou

More articles in Managerial Auditing Journal from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().