TY - JOUR
T1 - An empirical study on the impact of culture on audit‐detected accounting errors
AU - CHAN, Koon Hung
AU - LIN, Zhenpin, Kenny
AU - MO, Lai Lan, Phyllis
PY - 2003/9/1
Y1 - 2003/9/1
N2 - This study draws on the theoretical framework of Hofstede's model to examine the impact of different cultural dimensions on audit‐detected accounting errors. Based on the accounting errors detected in 80 foreign enterprises of different cultures operating in China, we test the direct effect of the cultural dimensions, power distance and individualism, on the magnitude of accounting errors. The results indicate that power distance and individualism have significant explanatory power in describing the differences in the relative magnitude of errors. Centralization of power in a few individuals, management override of controls, and less competent personnel are important attributes of a large power distance enterprise that contribute to larger errors. Enterprises of an individualist culture, which are characterized by higher personnel turnover and more reliance on accounting numbers for individual performance evaluation, are found to have larger errors. These results should be useful for auditors in assessing the likelihood of material errors from a cultural perspective.
AB - This study draws on the theoretical framework of Hofstede's model to examine the impact of different cultural dimensions on audit‐detected accounting errors. Based on the accounting errors detected in 80 foreign enterprises of different cultures operating in China, we test the direct effect of the cultural dimensions, power distance and individualism, on the magnitude of accounting errors. The results indicate that power distance and individualism have significant explanatory power in describing the differences in the relative magnitude of errors. Centralization of power in a few individuals, management override of controls, and less competent personnel are important attributes of a large power distance enterprise that contribute to larger errors. Enterprises of an individualist culture, which are characterized by higher personnel turnover and more reliance on accounting numbers for individual performance evaluation, are found to have larger errors. These results should be useful for auditors in assessing the likelihood of material errors from a cultural perspective.
KW - audit-detected accounting errors; cultural influence; individualism; power distance
UR - http://commons.ln.edu.hk/sw_master/1560
UR - http://www.scopus.com/inward/record.url?scp=3142616433&partnerID=8YFLogxK
U2 - 10.2308/aud.2003.22.2.281
DO - 10.2308/aud.2003.22.2.281
M3 - Journal Article (refereed)
SN - 0278-0380
VL - 22
SP - 281
EP - 295
JO - Auditing: A Journal of Practice and Theory
JF - Auditing: A Journal of Practice and Theory
IS - 2
ER -