Examining Climate and Culture in Audit Firms: Insights, Practice Implications, and Future Research Directions

Abstract

SUMMARY This paper synthesizes research related to audit firm climate and culture. Organizational climate and culture are important to any organization but are particularly important in auditing because of the unique tension among being a regulated profession, a for-profit organization, and performing independent audits on behalf of the public interest. This paper's objectives include introducing the constructs of organizational climate and culture and their application to audit research, reviewing the audit literature to synthesize climate and culture findings, and suggesting future research opportunities. We find that the audit literature on firm climate and culture is vast but fragmented. We identify and discuss seven climate and culture themes (organizational control, leadership, ethical, regulatory, professionalism, commercialism, and socialization) rooted within audit firms and studied by audit academics. Beyond informing academics, our paper has implications for audit practitioners and regulators as they seek to manage auditors' behavior and audit quality through quality control initiatives.

Audit Leadership Diversity and Audit Quality

“…Despite the importance of culture within accounting firms, "relatively little empirical evidence exists about cultures within firms" (Jenkins et al 2008, 49). Andiola et al (2020) note the dearth of research on audit firm diversity and inclusion and audit quality and call for future research on how issues such as age, gender, race, nationality affect firm climates and cultures as well as audit outcomes. Audit firm leaders are expected to establish and uphold an appropriate tone at the top (PCAOB 2012a, b) and leadership climate is engendered not just at the overall firm level but also at lower levels within the firm, including the local office level (Andiola et al 2020).…”

“…Office leaders are more likely to have direct communication or acquaintance with the professional staff throughout an office. As such, the tone established by the office leadership is likely even more salient to office personnel than that of the firms' national leaders (Andiola et al 2020).…”

Audit Firm Culture: Recent Developments and Trends in the Literature

“…Our review also contributes to the organizational behavior literature, as auditing research applies theory to organizations with complex multiple levels of leadership, fluid multidisciplinary teams, and competing incentives of professionalism and commercialism. In noting the contribution of our analysis to the literature, we acknowledge another recent related review by Andiola et al (2020). While both our paper and theirs focus on broad themes of organizational culture, our paper differs in several ways.…”

“…Through this more structured approach, we arrive at a detailed overview that can be used by firms to identify effective embedding mechanisms and specific research questions for future research to help further develop our model of how firms and individuals formally and informally influence AFC. Second, while Andiola et al (2020) distinguish between firm culture and climate, we employ an integrative perspective of these concepts. 2 Third, we access a broader range of journals than Figure 1.…”

“…gender, age, rank/experience) that might influence inferences and consequences of culture. These are discussed in online Appendix C. Andiola et al (2020), incorporating additional journals with diverse research perspectives and geographical origin. 3 This paper is organized as follows.…”