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Do social ties between individual auditors and client CEOs/CFOs matter to audit quality?

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  • Baolei Qi
  • Rong Yang
  • Gaoliang Tian

Abstract

The objective of this paper is to investigate whether and how the social ties between individual auditors and client chief executive officers (CEOs)/chief financial officers (CFOs) affect audit quality using a large sample of publicly traded firms in China. We define social ties between individual auditors and client CEOs/CFOs as ‘working or educational alumni.’ We find that clients with social ties are significantly and positively associated with abnormal accruals and the presence of reporting small profits, and are more likely to receive clean audit opinions compared to clients without social ties. Moreover, we find that the working-tie effect on audit quality is stronger than the school-tie effect. Furthermore, we find that socially connected clients are more likely to downward restate their audited earnings in subsequent years. In addition, we find that the social-tie effect on audit quality can be mitigated by several personal characteristics of individual auditors, such as partner, female, accounting major, auditing experience, etc. Overall, our study sheds new light on the impact of social ties between individual auditors and client executives on audit quality.

Suggested Citation

  • Baolei Qi & Rong Yang & Gaoliang Tian, 2017. "Do social ties between individual auditors and client CEOs/CFOs matter to audit quality?," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 24(3-4), pages 440-463, October.
  • Handle: RePEc:taf:raaexx:v:24:y:2017:i:3-4:p:440-463
    DOI: 10.1080/16081625.2015.1135067
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    Cited by:

    1. Mohammad Nasih & Raden Roro Widya Ningtyas Soeprajitno & Iman Harymawan & John Nowland, 2023. "Top Company Officers and Auditor School-ties on Audit Fee: Evidence From Indonesia," SAGE Open, , vol. 13(4), pages 21582440231, December.
    2. Xin Wang & Xiayun Song & Mingyang Sun, 2023. "How Does a Company’s ESG Performance Affect the Issuance of an Audit Opinion? The Moderating Role of Auditor Experience," IJERPH, MDPI, vol. 20(5), pages 1-17, February.
    3. Chen, Guang-Zheng, 2023. "Social ties and related party transactions," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 53(C).

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