Audit Firm Culture and Audit Quality

• In Event: Audit Offices

Abstract

This study examines if audit firm culture relates to audit outcome quality. Audit firm culture is operationalized by the dimensions of error climate, tone at the top, voicing climate, and quality threatening pressures. We compare these four dimensions of firm culture surveying 1,137 auditors across the “Mid-Five” international PIE audit firms in the Netherlands and their offices and find that cultures vary significantly between firms and between offices. Next, based on data of 90 percent of statutory audits performed by these firms, we find that office culture dimensions positively relate to variance in audit quality, measured by the propensity to issue a modified or going concern audit opinion. We find the strongest effects for quality threatening pressures followed by error climate. Our findings suggest that audit firm culture is an effective social control mechanism for delivering high quality audits.

Authors

• Tjibbe Bosman, University of Amsterdam

• Olof Bik, Nyenrode Business Universiteit

• Jan Bouwens, University of Amsterdam