Trust and Financial Reporting Quality

• In Event: Trust, Human Resources, International Aid and Reporting Quality
  In Paper Session: Trust, Human Resources, International Aid, and Reporting Quality

Abstract

Using unique survey data from Great Place to Work® Institute, we investigate the association of intra-organizational trust (i.e., employees’ trust in management) with four aspects of financial reporting: accruals quality, misstatements, internal control quality, and audit fees (as a proxy for auditor perceptions of financial reporting risk). We find that trust is associated with better accrual quality, lower likelihood of financial statement misstatements, lower likelihood of internal control material weakness disclosures, and lower audit fees. These results enhance our understanding of the role of trust in organizations and can potentially be of benefit to boards, auditors, and other stakeholders who could use measures of trust to improve decision making.

Authors

• Jace Garrett, Bentley University

• Rani Hoitash, Bentley University

• Douglas F Prawitt, Brigham Young University