Audit Quality Determinants and Their Influence on Financial Reporting Reliability
Keywords:
audit quality, financial reporting reliability, systemic determinants, assurance elasticity, audit judgment, organizational culture, mixed-methodsAbstract
This research paper investigates the multifaceted determinants of audit quality and their
subsequent influence on the reliability of financial reporting, proposing a novel, integrated
framework that diverges from traditional, siloed approaches. While prior literature has examined individual factors such as auditor independence, expertise, or firm size, this study
uniquely synthesizes these elements with under-explored dimensions including cognitive biases in audit judgment, the role of organizational culture within audit firms, and the impact
of emerging, non-financial information assurance. The central research question addresses
how an interconnected system of technical, behavioral, and institutional determinants collectively shapes audit outcomes, moving beyond linear cause-effect models. Methodologically,
the paper employs a mixed-methods design, combining a longitudinal analysis of archival
audit failure data from 1995 to 2004 with a qualitative, grounded theory analysis of in-depth
interviews with audit partners and technical reviewers. This approach allows for the identification of latent patterns and interactive effects not captured by standard regression models.
The results reveal a critical, non-linear relationship between determinants; for instance, high
technical expertise can be negated by a pervasive culture of commercialism within the audit
firm, and formal independence safeguards are often subverted by subtle, relational biases.
A key novel finding is the identification of ’assurance elasticity’—a threshold effect where
incremental improvements in individual determinants yield diminishing returns on reporting
reliability until a systemic, holistic enhancement is achieved. The conclusion argues for a
paradigm shift in audit regulation and firm management towards integrated quality ecosystems, emphasizing that the reliability of financial statements is not a product of isolated
inputs but of their complex, synergistic interaction. This research contributes original insights by reframing audit quality as a dynamic, systemic property, offering a new theoretical
lens and practical implications for standards setters, audit firms, and corporate governance
bodies seeking to enhance trust in financial markets
