Does the use of honorific appellations in audit reports connote higher financial misstatement risk? Evidence from China

Abstract

Purpose From the sociolinguistic perspective, the purpose of this paper is to examine whether the honorific and actual-name appellations that Chinese auditors use to address clients in audit reports connote differential financial misstatement risk. Specifically, the authors hypothesize that auditors’ use of honorifics signals their inferior social status relative to their clients, thereby leading to compromised auditor independence, lower audit quality, and higher financial misstatement risk. Design/methodology/approach The authors use a sample of manually coded appellation data from audit reports of Chinese public firms between 2003 and 2012 to conduct the research. Findings The authors find significantly greater financial misstatements, both in terms of likelihoods and magnitudes, for companies addressed by honorifics than for those addressed by actual names. Moreover, compared to auditors’ consistent honorific usage, discretionary honorific usage has a stronger positive association with misstatements. The authors further show that the positive association between honorific usage and client misstatement risk weakens when the audit firm is a Top 10 accounting firms in China, is an industry specialist, is formed as a partnership, or resides in a more concentrated audit market. Originality/value This study contributes to the sociolinguistics literature in accounting and provides evidence supporting the reform proposed by the International Auditing and Assurance Standards Board to enhance the usefulness of audit reporting.

Detecting future financial statement fraud using a machine learning model in Indonesia: a comparative study

“…In general, audit quality can be projected from the size of a public accounting firm, namely a Big 10 Public Accounting Firm or not. It is proven that financial statement misstatements decrease when audited by the Big 10 public accounting firms (Chen et al ., 2018). However, these projections are not the only ones to describe audit quality (Semba and Kato, 2019).…”

تقییم مداخل استخدام تقنیات التعلم الآلی فی المراجعة الخارجیة بغرض تحقیق فعالیة التنبؤ بتحریفات القوائم المالیة- دراسة تجریبیة على الشركات المقیدة فی البورصة المصریة

“…Cecchini et al, 2010b;Humpherys et al, 2011 Kotsiantis et al, 2006;Papík & Papíková, 2022 (Jan, 2018;R. Wang, Asghari, Hsu, Lee, & Chen, 2020;Yao et al, 2019) Loughran, & McDonald, 2013;Throckmorton, Mayew, Venkatachalam, & Collins, 2015 Wang et al, 2020;Yao et al, 2019 Wang et al, 2020;Yao et al, 2019 Chen et al, 2018( (Kirkos et al, 2007 CAT Wang et al, 2020;Yao et al, 2019 Wang et al, 2020;Yao et al, Beneish, 1999;Gepp, 2015;Papík & Papíková, 2022;Yao et al, 2019 ( .…”