Auditor independence in post-reform China: A neo-Durkheimian approach

Author:

Han Wenqi1,Cull Michelle2ORCID

Affiliation:

1. Crown Institute of Higher Education, Sydney, Australia

2. Western Sydney University, Sydney, Australia

Abstract

This study builds on the work of Durkheim (1915) by applying a neo-Durkheimian theoretical framework to audit failure in China following the implementation of economic reform and international auditing standards to highlight how embedded cultural norms, such as guanxi (a social network system involving the mutually beneficial and reciprocal exchange of personalised favours), limit adaptation and influence auditor independence. Specifically, this study adopts the grid-group dimensions proposed by Douglas (2003) to assist in understanding how Chinese auditors interpret their social relations based on cultural beliefs and overlaid them with characteristics of Chinese culture to demonstrate the influence of guanxi. The study is based on publicly available data focusing on the financial scandals of Yin Guang Xia (YGX) and Yunnan Green Land Biological Technology (Green Land) in China. We argue that Chinese auditing failure occurred because of socially embedded cultural values which limited thought processes and prevented adherence to formal international auditing standards. Policymakers and regulators must consider emerging economies’ unique cultural environments when introducing economic reform. Different cultural contexts call for different interventions by a range of stakeholders to improve audit independence. The neo-Durkheimian (NDT) theoretical framework used in this study may be extended to examine auditing practices in other emerging economies across a range of cultures, and may also be relevant to other areas of professional practice

Publisher

Virtus Interpress

Subject

General Medicine

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