Do Social Ties between External Auditors and Audit Committee Members Affect Audit Quality?

• 成果类型: Article
• 署名作者: He, Xianjie; Pittman, Jeffrey A.; Rui, Oliver M.; Wu, Donghui
• 署名单位: Shanghai University of Finance & Economics; Memorial University Newfoundland; China Europe International Business School; Chinese University of Hong Kong
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-51696
• 发表日期: 2017
• 页码: 61-87
• 关键词: CONFLICTS-OF-INTEREST; corporate governance; Sarbanes-Oxley; Ownership structure; Emerging markets; SMALL WORLD; boards; INDEPENDENCE; performance; earnings

摘要

We examine whether social ties between engagement auditors and audit committee members shape audit outcomes. Although these social ties can facilitate information transfer and help auditors alleviate management pressure to waive correction of detected misstatements, close interpersonal relations can undermine auditors' monitoring of the financial reporting process. We measure social ties by alma mater connections, professor-student bonding, and employment affiliation, and audit quality by the propensity to render modified audit opinions, financial reporting irregularities, and firm valuation. Our evidence implies that social ties between engagement auditors and audit committee members impair audit quality. In additional results consistent with expectations, we generally find that this relation is concentrated where social ties are more salient, or firm governance is relatively poor and agency conflicts are more severe. Implying reciprocity stemming from social networks, we also report some suggestive evidence that audit fees are higher in the presence of social ties between an engagement auditor and the audit committee. Collectively, our analysis lends support to the narrative that the negative implications-namely, worse audit quality and higher audit fees-of these social ties may outweigh the benefits.