Internal audit quality and accounting information comparability: Evidence from China

Area of Science:

• Accounting
• Corporate Governance
• Auditing

Background:

• The comparability of corporate accounting information is crucial for investment decisions and market efficiency.
• The role of internal audit quality in enhancing accounting information comparability remains an area requiring further empirical investigation, particularly in emerging markets.
• Existing literature has not fully elucidated the mechanisms through which internal audit influences accounting information comparability.

Purpose of the Study:

• To investigate the impact of internal audit quality on the comparability of accounting information in Chinese non-financial listed companies.
• To examine the mediating mechanisms through which internal audit quality affects accounting information comparability.
• To explore the moderating effects of internal control quality, industry characteristics, and major shareholder influence on this relationship.

Main Methods:

• Utilized manually collected internal audit data from non-financial A-share listed companies in China from 2007 to 2022.
• Employed regression analysis to assess the impact of internal audit quality on accounting information comparability.
• Conducted endogeneity tests, mechanism testing (mediation analysis), and moderation effect tests to validate findings.

Main Results:

• Internal audit quality demonstrates a significant positive effect on accounting information comparability, with higher quality yielding greater improvements.
• The positive relationship is mediated by the mitigation of agency costs and the enhancement of financial information transparency.
• Internal control quality and high-tech industry status strengthen the positive effect, while industry competition and major shareholder capital occupation weaken it.

Conclusions:

• Internal audit quality is a critical determinant of accounting information comparability in the Chinese market.
• Internal audits enhance comparability by addressing agency problems and improving information transparency.
• The effectiveness of internal audits is contingent upon internal control effectiveness, industry dynamics, and corporate governance structures.