Auditors' Religious Beliefs and Audit Quality: Some Evidence from Taiwan

The research problem Adding to the literature in auditing, this study examines whether there is an association between the religious beliefs of audit partners and audit quality in Taiwan. Motivation Previous studies have found that firms head-quartered in areas with strong religious social norms are associated with higher audit quality. However, prior studies measured religiosity in terms of whether the audit practice offices were in more religious metropolitan statistical areas. No work had examined whether the religious beliefs of the individual auditors affect auditor decision making. In addition, prior studies using US data were mainly confined to one group who are, in the main, Christians. We examined this issue in Taiwan where the auditors come from three main religious groups: Christian, Buddhist, and Taoist. This setting provides another cultural environment for understanding the links between religiosity and financial reporting issues. The test hypotheses H-1: Audit engagement partners with a religious belief are associated with higher audit quality. H-2: The positive association between auditors' religion and audit quality is more pronounced for auditors with industry specialization than auditors without specialization. Target population Various stakeholders include investors, auditors, financial analysts, and users of financial reports. Adopted methodology Ordinary least squares (OLS) regression and logistics regression. Analyses We conducted the study in Taiwan where audit partners are required to sign audit reports. We obtained data on the religious beliefs of auditors by distributing a questionnaire to individual auditors in the Big 4 in Taiwan. We used four measures of audit quality: (a) discretionary accruals, (b) accrual estimation errors, (c) the probability of a client meeting an earnings benchmark, and (d) the propensity to issue modified audit opinions. We tested whether there is a positive association between auditors' religious beliefs and audit quality. Findings Our study finds that firms with an audit partner who professes a religion are associated with higher audit quality. However, unlike evidence from the United States, we do not find that auditors in an area with strong religious social norms exhibit better audit quality than auditors in less religious areas when the audit partner's religious belief is controlled in the analysis. The results suggest that auditor quality is more affected by auditor's personal characteristics than the social norms. We also find that the positive association between auditors with industry specialization and audit quality is stronger when the auditor has religious beliefs. The results suggest that ethics and competence are complements to each other.