What is it about?

The purpose of this paper is to explore the role of external audit quality in reducing firm misreporting practices

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Why is it important?

This paper contributes to a better understanding of the mechanism to mitigate corporate misreporting practices. It is one of the few to empirically investigate auditor selections and the association between external audit quality and corporate misreporting practices in China.

Perspectives

The empirical results reveal that larger firms and firms having more tangible assets and greater retained earnings are more likely to employ a better-quality external auditor. Subsequently, higher audit quality leads to a deterioration in corporate misreporting. However, these results are not homogenous across firms. While we document similar findings in the case of non-state-owned firms, state-owned enterprises (SOEs) appear to have less tendency to hire a higher-quality auditor, and higher-quality auditors in turn do not play a significant role in reducing misreporting practices in SOEs.

Dr. Thinh Gia Hoang
RMIT University

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This page is a summary of: The role of audit quality in preventing firm misreporting: empirical evidence from China, International Journal of Managerial Finance, October 2019, Emerald, DOI: 10.1108/ijmf-04-2019-0122.
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