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Common auditors and internal control similarity: Evidence from China

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  • Chen, Tao

Abstract

This study investigates how important common auditors are to internal control similarity between two firms. Based on a less concentrated audit market in China, we find that firm-pairs with common auditors enforce a similar internal control system. This inference holds after accounting for other social connections, examining internal control components, using alternative measures of internal control, adopting finer industry classifications, constructing alternative internal control similarity, running auditor switch tests, and addressing endogeneity problems. Additional analyses indicate that auditor style and information sharing serve two underlying mechanisms to undergird the documented relationship. Finally, our evidence suggests that high-centrality firms in auditor networks are associated with better financial reporting.

Suggested Citation

  • Chen, Tao, 2023. "Common auditors and internal control similarity: Evidence from China," The British Accounting Review, Elsevier, vol. 55(2).
    • Handle: RePEc:eee:bracre:v:55:y:2023:i:2:s0890838922001135
    DOI: 10.1016/j.bar.2022.101173
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    More about this item

    Keywords

    Common auditors; Internal control; Auditor networks; China;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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