Understanding the Relation between Financial Reporting Quality and Audit Quality

TLDR

Both financial reporting and audit research aim to identify determinants of quality, with many variables known to enhance or impair it. The paper defines financial reporting and audit quality, applies a person/task/environment framework to synthesize prior determinants, explores their interrelations, and outlines future research opportunities. Using this framework, the authors examine how determinants of financial reporting and audit quality interact and influence one another. The discussion offers insights and suggestions for cross‑disciplinary learning to improve understanding of financial reporting and audit quality.

Abstract

SUMMARY A primary goal of both financial reporting research and audit research is to understand the determinants of quality, and researchers in both areas have identified a wide set of variables that enhance or impair quality. In this paper, we define financial reporting quality and audit quality and use a person/task/environment framework to summarize prior findings on the determinants of each. We use this framework to discuss the links between the financial reporting and audit academic literatures and highlight the recursive relation between financial reporting quality and audit quality. Our discussion provides insights and suggestions on how financial reporting and audit researchers can learn from each other to improve our collective understanding of financial reporting and audit quality. Using this framework, we also identify opportunities for future research.