The impact of Confucianism on auditor judgment

Abstract

This study investigates the relationship between Confucianism and auditor judgment. Using a sample of Chinese listed firms from 2006 to 2019, we find that the Confucian atmosphere in auditors’ hometowns is positively associated with their audit adjustments. The mechanism analyses show that Confucianism in auditors’ hometowns can influence auditor morality and further affect their judgment. We also find that the positive relationship between Confucianism in auditors’ hometowns and audit adjustments is reinforced by auditor exposure to strong Confucian atmospheres in their places of education and workplaces but weakened by Western culture diffusion. Moreover, auditors who are more influenced by Confucianism are associated with more improvements in client financial reporting quality, more upward and downward adjustments, more small and large adjustments and more audit effort but not higher audit fees. Overall, this study provides evidence that supports the imprinting effect of traditional Confucianism on auditors.

Hometown religiosity and financial reporting quality: evidence from chairpersons

“…This study presents novel evidence in addition to existing findings related to the impact of the religiosity level of company headquarters on financial reporting quality (McGuire et al, 2012;Dyreng et al, 2012;Du et al, 2015;Montenegro, 2017;Kanagaretham et al, 2015;Abdelsalam et al, 2021). Furthermore, it contributes to the literature examining the effect of the religiosity level of individuals' hometowns on various corporate and audit outcomes (Tong et al, 2022;Xiong et al, 2020;Deng et al, 2024;Kuo et al, 2023;Xu et al, 2021).…”

“…However, recent papers do not consider where the executives are from and the religiosity levels of chairpersons' hometowns. Most recent studies highlight the importance of early-life experience of individuals (CEOs or individual auditors) on financial reporting quality or audit quality (Tong et al, 2022;Ocak et al, 2023;Deng et al, 2024;Xiong et al, 2020). To the best of the authors' knowledge, the current study is among the first studies to consider the significance of chairpersons' hometown religiosity on financial reporting quality and presents unique findings that chairpersons from more religious hometowns encourage higher-quality financial reporting.…”

“…Because the culture and its sub-components of a given area could also influence the economic decisions made by organizations that individuals are a part of, considering that it is humans who make essential corporate decisions, not companies as mere entities (Hilary and Hui, 2009). Studies on the importance of individuals' hometown in recent literature typically focus on individual auditors (Ocak et al, 2023;Tong et al, 2022;Xiong et al, 2020;Deng et al, 2024) or CEOs (Kuo et al, 2023;Zhu et al, 2022).…”

“…According to them, being from a religious hometown or growing up in one could influence individual auditors to act more ethically and be risk-averse when auditing the financial statements of clients. Deng et al (2024) state that individual auditors from a hometown dominated by Confucianism are associated with more improvements in a company's financial reporting quality. This is because Confucianism emphasizes individuals' moral cultivation and can guide individual auditors to become more independent, competent and skeptical, leading them to provide higher quality audit work and induce higher financial reporting quality.…”