Individual Auditor Social Responsibility and Audit Quality: Evidence from China

Posted: 10 Mar 2020 Last revised: 19 Dec 2020

See all articles by Jeffrey Pittman

Jeffrey Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Baolei Qi

Xi'an Jiaotong University (XJTU) - School of Management

Yi Si

The School of Management, Xi'an Jiaotong University

Zi-Tian Wang

Nanjing University

Chongwu Xia

School of Management, University of Science and Technology of China

Date Written: February 24, 2020

Abstract

Capitalizing on a unique setting in China where auditors disclose their prosocial activities, we examine the role that auditor social responsibility plays in shaping their performance. In one direction, behavior consistency theory implies that individual auditors exhibiting more social commitment in their off-the-job activities behave similarly during engagements, enhancing the quality of their audits. In the other direction, making social contributions may provide insurance-like protection for auditors to reduce regulatory and legal risks, lowering their incentives to provide high quality audits. In a staggered difference-in-differences design, we report a significant fall in the magnitude of companies’ discretionary accruals and the incidence of financial reporting irregularities after their auditors begin contributing to social welfare, relative to companies whose auditors refrain from contributing during the same timeframe. Additional evidence implies that the higher audit quality stems from auditors better protecting their independence and improving their competence in the post-contribution period. Collectively, our results provide insights into the importance of auditors’ prosocial attitudes to their external monitoring.

Keywords: Auditor Social Responsibility, Audit Quality, Auditor Competence, Auditor Independence

JEL Classification: M40, M41, M42

Suggested Citation

Pittman, Jeffrey A. and Qi, Baolei and Si, Yi and Wang, Zi-Tian and Xia, Chongwu, Individual Auditor Social Responsibility and Audit Quality: Evidence from China (February 24, 2020). Available at SSRN: https://ssrn.com/abstract=3543503

Jeffrey A. Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

Baolei Qi

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

Yi Si (Contact Author)

The School of Management, Xi'an Jiaotong University ( email )

No.28 Xianning West Road
Xi'an, Shaanxi 710049
China

Zi-Tian Wang

Nanjing University ( email )

Nanjing, Jiangsu 210093
China

Chongwu Xia

School of Management, University of Science and Technology of China ( email )

Hefei, Anhui
China

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