Advances in Management and Applied Economics

Audit Quality and Auditors' Party Membership: An Insightful Viewpoint into Financial Restatements

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• Abstract

   

  This study aims to explore the impact of communist culture as a variable in auditing research. We focus on auditors' party membership and how it empirically influences party culture in audit firms and, in turn, audit quality. Using financial restatements as a proxy variable for audit quality, our results indicate that auditors who are members of the party demonstrate higher audit quality. Our robustness test, using non-discretionary accruals as an alternative proxy for audit quality, consistently supports these findings. Additionally, we observe that the enhancing effect of party culture on audit quality is less significant for Big4 auditors and auditors with industry expertise, who already possess strong reputational constraints. Our findings suggest that party culture in audit firms, as an informal institution, can compensate for the deficiencies of formal institutions, particularly in areas where audit reputation mechanisms are relatively weak, thus significantly contributing to improving audit quality.

   

  Keywords: BIG4, CPA, Party membership, Audit quality, Financial restatements.