TY - JOUR
T1 - Paymasters and assurance providers
T2 - exploring firms’ discretion in selecting non-financial auditors
AU - Prajogo, Daniel
AU - Castka, Pavel
AU - Searcy, Cory
PY - 2021
Y1 - 2021
N2 - Ethical issues in non-financial auditing are increasingly under scrutiny and questions have been raised about the impartiality and independence of audits. Among many other problematic issues, firms have discretion to select their assurance providers and are also required to cover the cost of the audit. Previous literature highlighted several consequences of this competitive and client-driven environment. However, research has mainly focused on firm-level investigation of the consequences—in this paper, we enhance this research by also considering assurance providers. Our approach is grounded in legitimacy and institutional perspectives and we study how organizational motives and selection of assurance providers impact the benefits arising from the audit. In particular, we assume that firms select their assurance providers on the basis of audit strictness (substantial auditing) and market credibility (symbolic auditing) and we study the operational and market benefits that arise from the audit. Based on the data collected from 597 firms, we demonstrate that internal motives drive firms to be more likely to select assurance providers that offer audit strictness, while external motives drive firms to be more likely to select assurance providers that offer market credibility. The findings further show that assurance providers associated with auditing strictness have a stronger effect on operational benefits compared to assurance providers that offer market credibility. We also find that firms’ motives alone are important in driving the benefits achieved. These findings provide a basis for exploring the ethical implications of non-financial auditing.
AB - Ethical issues in non-financial auditing are increasingly under scrutiny and questions have been raised about the impartiality and independence of audits. Among many other problematic issues, firms have discretion to select their assurance providers and are also required to cover the cost of the audit. Previous literature highlighted several consequences of this competitive and client-driven environment. However, research has mainly focused on firm-level investigation of the consequences—in this paper, we enhance this research by also considering assurance providers. Our approach is grounded in legitimacy and institutional perspectives and we study how organizational motives and selection of assurance providers impact the benefits arising from the audit. In particular, we assume that firms select their assurance providers on the basis of audit strictness (substantial auditing) and market credibility (symbolic auditing) and we study the operational and market benefits that arise from the audit. Based on the data collected from 597 firms, we demonstrate that internal motives drive firms to be more likely to select assurance providers that offer audit strictness, while external motives drive firms to be more likely to select assurance providers that offer market credibility. The findings further show that assurance providers associated with auditing strictness have a stronger effect on operational benefits compared to assurance providers that offer market credibility. We also find that firms’ motives alone are important in driving the benefits achieved. These findings provide a basis for exploring the ethical implications of non-financial auditing.
KW - Certification
KW - Ethics
KW - Legitimacy theory
KW - Motives
KW - Non-financial auditing
UR - http://www.scopus.com/inward/record.url?scp=85085321161&partnerID=8YFLogxK
U2 - 10.1007/s10551-020-04539-9
DO - 10.1007/s10551-020-04539-9
M3 - Article
AN - SCOPUS:85085321161
SN - 0167-4544
VL - 173
SP - 795
EP - 811
JO - Journal of Business Ethics
JF - Journal of Business Ethics
ER -