Is Audit Behavior Contagious? Teamwork Experience and Audit Quality by Individual Auditors

58 Pages Posted: 2 Aug 2016 Last revised: 2 Jun 2019

See all articles by Lixin (Nancy) Su

Lixin (Nancy) Su

Department of Accountancy, Lingnan University

Donghui Wu

The Chinese University of Hong Kong; Center for Institutions and Governance

Date Written: March 30, 2019

Abstract

Using a comprehensive sample of audits for public companies in China, we demonstrate whether and how bad audit behavior spreads among individual auditors (i.e., CPAs). CPAs are deemed to be “diseased” during the period when their audits fail, and are subsequently sanctioned by the regulators. We first confirm that sanctioned CPAs systematically provide low-quality audits in terms of audit reporting and accounting irregularities during the diseased period. We then document that CPAs who have teamed up with the sanctioned CPAs are also more likely to issue lenient audit opinions and have accounting irregularities in their audited financial reports during the sanctioned CPAs’ diseased period. This contagion effect is, however, hardly present among CPAs who work in the same audit firm as sanctioned CPAs but are only indirectly connected to them. Our findings highlight the importance of analyzing social learning via teamwork experience in understanding how audit quality at the individual level is shaped.

Keywords: audit quality, contagion, teamwork, sanction

JEL Classification: M40, M42, M48, D83

Suggested Citation

Su, Lixin (Nancy) and Wu, Donghui, Is Audit Behavior Contagious? Teamwork Experience and Audit Quality by Individual Auditors (March 30, 2019). Available at SSRN: https://ssrn.com/abstract=2816435 or http://dx.doi.org/10.2139/ssrn.2816435

Lixin (Nancy) Su

Department of Accountancy, Lingnan University ( email )

8 Castle Peak Road
Lingnan University
Hong Kong, New Territories
China

Donghui Wu (Contact Author)

The Chinese University of Hong Kong ( email )

Sha Tin
N.T.
Hong Kong
852-3943 7836 (Phone)
852-2603 5114 (Fax)

HOME PAGE: http://www.bschool.cuhk.edu.hk/staff/wu-donghui/

Center for Institutions and Governance ( email )

Room 1033, 10/F
Cheng Yu Tung Building, No. 12 Chak Cheung Street
Hong Kong
China

HOME PAGE: http://www.bschool.cuhk.edu.hk/centres/centre-for-institutions-and-governance/

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