Client corruption culture and audit quality: the conditioning effect of the competitive position of the incumbent auditor

Simon Fung (), Viet Tuan Pham () and K. K. Raman ()
Additional contact information
Simon Fung: LB3.111, Deakin University Burwood Campus
Viet Tuan Pham: Susquehanna University
K. K. Raman: The University of Texas at San Antonio

Review of Quantitative Finance and Accounting, 2022, vol. 59, issue 3, No 10, 1133-1171

Abstract: Abstract Prior research suggests that corporate corruption culture captures an audit client’s general attitude towards opportunistic behavior. In this paper, we examine whether the relation between client corruption culture and audit quality is attenuated or exacerbated by the competitive position of the incumbent auditor in the local audit market. We find that the incumbent auditor’s weak competitive position in the local audit market exacerbates the negative effects of client corruption culture on audit quality. By the same token, we show that the incumbent auditor’s strong competitive position in the local audit market attenuates the adverse audit quality effects associated with client corruption culture. Our findings speak to the interplay between client corruption culture and the competitive position of the incumbent auditor in US local audit markets and is of potential interest to regulators concerned about the impact of client corruption culture and audit market competition on audit quality.

Keywords: Client corruption culture; Audit quality; Competitive position of incumbent auditor; Discretionary accruals; Financial misstatements; Internal control audit opinion shopping; M14; M42; Z10 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11156-022-01072-w

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