Reducing Risk by Understanding the Interplay of Critical Audit Matters and Culture

Arturo Pacheco-Paredes, Elizabeth Turner () and Clark Wheatley
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Arturo Pacheco-Paredes: A. R. Sanchez Jr. School of Business, International Banking and Finance Studies, Texas A&M International University, 5201 University Blvd., Laredo, TX 78041, USA
Elizabeth Turner: James M. Hull College of Business, Knox School od Accounting, Augusta University, 1120 15th St., AH E147, Augusta, GA 30912, USA
Clark Wheatley: College of Business, School of Accounting, Florida International University, 11200 S.W. 8th St, MANGO 346, Miami, FL 33199, USA

JRFM, 2025, vol. 18, issue 3, 1-24

Abstract: Prior research has called for the need to investigate how national cultural values can affect accountants’ interpretations of accounting standards. We focus on CAMs because they serve an important monitoring function, instilling credibility, trust, and confidence in the financial statements of emerging and international entities. Using a robust fixed effects regression on a sample of 1387 CAMs from companies who are listed on a US stock exchange with a non-US audit firm (2019–2021), we find that the number of CAMs reported is positively (negatively) associated with individualism and uncertainty (power distance). We also find a positive association between the strength of investor protections and the number of CAMs. Next, we find similar relationships between language (as proxied by the FOG Index) and the three measures of national culture. These findings contribute to the literature focusing on how the interplay of CAMs and culture can help investors manage investment risk.

Keywords: cultural values; disclosure; critical audit matters; Hofstede’s cultural dimensions; investor protections (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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