THE INFLUENCE OF COUNTRY CULTURE ON EXTERNAL AUDIT MONITORING

Silva, Thiago Santos da; Moreira, Nádia Cardoso; Monte-Mor, Danilo Soares; Nossa, Silvania Neris; Oliveira, Willams da Conceição de

doi:10.1590/S0034-759020240505x

Thiago Santos da Silva

Analysis

Investigation

Methodology

Software

Writing

original draft

Conceptualization

Data Curation

Formal

Fucape Business School, Vitória, ES, Brazil

https://orcid.org/0000-0003-4923-197X

Nádia Cardoso Moreira

Administration

Software

Supervision

Validation

Writing

original draft

Formal Analysis

Methodology

Project

Fucape Business School, Vitória, ES, Brazil

https://orcid.org/0000-0002-9085-6595

Danilo Soares Monte-Mor

Analysis

Methodology

Validation

Visualization

Writing

original draft

Writing

review

editing

Redação

revisão

edição. Formal

Fucape Business School, Vitória, ES, Brazil

https://orcid.org/0000-0002-5677-5804

Silvania Neris Nossa

Administration

Supervision

Validation

Visualization

Project

Fucape Business School, Vitória, ES, Brazil

https://orcid.org/0000-0001-8087-109X

Willams da Conceição de Oliveira ^**Autor correspondente

Analysis

Investigation

Methodology

Software

Validation

Visualization

Writing

review

editing

Conceptualization

Formal

Universidade Estadual de Alagoas, São Miguel dos Campos, AL, Brazil

https://orcid.org/0000-0003-0845-5109

*Autor correspondente

CONFLICTS OF INTEREST

The authors have no conflicts of interest to declare

Treatment process (in number of observations)	Exclusion	Subtotal
Number of observations in Thomson Reuters Eikon®		199,765
Exclusions:
	-2,531	197,234
	-30,076	167,158
	-240	166,918
	-78,490	88,428
Total observations		88,428

Country	Quantity	Percentage	Country	Quantity	Percentage
Colombia	122	0.10%	Indonesia	2,236	2.50%
Argentina	159	0.20%	Germany	2,689	3.00%
Mexico	327	0.40%	France	2,850	3.20%
Finland	546	0.60%	Thailand	3,061	3.50%
Philippines	815	0.90%	Singapore	3,097	3.50%
Italy	900	1.00%	Australia	4,576	5.20%
Brazil	1,016	1.10%	Malaysia	4,655	5.30%
Turkey	1,171	1.30%	UK	4,903	5.50%
Israel	1,225	1.40%	USA	14,137	16.00%
Sweden	1,875	2.10%	India	15,043	17.00%
Russia	2,173	2.50%	China	18,653	21.10%
Poland	2,199	2.50%	Total	88.428	100.00%

Country	Number of observations	Standard deviation	Mínimum	Mean	Maximo
Germany	2,689	0.2688	0.0007	0.3151	1.6060
Argentina	159	0.2488	0.0037	0.2948	1.2080
Australia	4,576	1.1721	0.0100	0.5543	12.8873
Brazil	1,016	0.1359	0.0029	0.2518	0.8292
China	18,653	0.2338	0.0000	0.3434	1.5201
Singapore	3,097	0.2903	0.0006	0.3148	1.6581
Colombia	122	0.1195	0.0021	0.2319	0.5590
USA	14,137	0.9125	0.0057	0.5267	7.0137
Philippines	815	0.2950	0.0007	0.3212	4.2638
Finland	546	0.2374	0.0006	0.2930	1.3942
France	2,850	0.1750	0.0002	0.2507	0.8707
India	15,043	0.8668	0.0001	0.4528	8.1423
Indonesia	2,236	0.3492	0.0002	0.3447	2.0589
Israel	1,225	0.2686	0.0002	0.3001	2.9844
Italy	900	0.1471	0.0005	0.2404	0.7877
Malaysia	4,655	0.2152	0.0000	0.2639	1.3399
Mexico	327	0.1596	0.0038	0.2921	0.8782
Poland	2,199	1.4597	0.0008	0.6125	14.7575
UK	4,903	0.5017	0.0000	0.3640	5.3462
Russia	2,173	0.2898	0.0004	0.3475	1.5868
Sweden	1,875	1.0004	0.0002	0.5673	7.6571
Thailand	3,061	0.2745	0.0000	0.3101	1.5329
Turkey	1,171	0.2292	0.0001	0.2908	1.1768
Total/Mean	88,428	0.4283	0.0015	0.3515	3.5678

Dependent variable: Modulated discritionary accruals estimated using the model by Dechow et al. (1995)Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. Accounting Review, 70(2), 193-225. http://www.jstor.org/stable/248303 http://www.jstor.org/stable/248303...
Independent variables	Power distance (H1)	Uncertainty aversion (H2)	Institutional Collectivism (H3)	Group Collectivism (H4)	Development Orientation (H5)	Future Orientation (H6)	Human Orientation (H7)	Assertiveness (H8)
Big Four	-0.0262^* ***** ,	-0.0176^* ***** ,	-0.0247^* ***** ,	-0.00489	-0.00381	0.00319	-0.0377^* ***** ,	0.0101^* * Culture variable represented the interaction between the variables Big Four and Culture. The variable Size represents the natural logarithm of total assets. The ROA variable represents the division of net profit by total assets. The Indebtedness variable represents the ratio between total liabilities and net equity. The Developed variable is a dummy that identifies developed countries with 1 and emerging countries with 0. The IFRS variable is a dummy that identifies the countries that have adopted the international standardization of accounting standards with 1 and 0 otherwise. The symbols
Culture	0.0717^* ***** ,	-0.0224^* ***** ,	-0.151^* ***** ,	0.0141^ , and	0.0307^* ***** ,	0.0523^* ***** ,	-0.0712^* ***** ,	-0.123^* ***** ,
Big Four ^* * Culture variable represented the interaction between the variables Big Four and Culture. The variable Size represents the natural logarithm of total assets. The ROA variable represents the division of net profit by total assets. The Indebtedness variable represents the ratio between total liabilities and net equity. The Developed variable is a dummy that identifies developed countries with 1 and emerging countries with 0. The IFRS variable is a dummy that identifies the countries that have adopted the international standardization of accounting standards with 1 and 0 otherwise. The symbols Culture	-0.0341^* ***** ,	-0.0369^* ***** ,	0.0677^* ***** ,	0.0167^ , and	0.0146^* * Culture variable represented the interaction between the variables Big Four and Culture. The variable Size represents the natural logarithm of total assets. The ROA variable represents the division of net profit by total assets. The Indebtedness variable represents the ratio between total liabilities and net equity. The Developed variable is a dummy that identifies developed countries with 1 and emerging countries with 0. The IFRS variable is a dummy that identifies the countries that have adopted the international standardization of accounting standards with 1 and 0 otherwise. The symbols	0.0268^* ***** ,	0.0681^* ***** ,	-0.0274^* ***** ,
Size	-0.0686^* ***** ,	-0.0669^* ***** ,	-0.0646^* ***** ,	-0.0654^* ***** ,	-0.0648^* ***** ,	-0.0684^* ***** ,	-0.0660^* ***** ,	-0.0667^* ***** ,
ROA	-0.701^* ***** ,	-0.7050^* ***** ,	-0.688^* ***** ,	-0.704^* ***** ,	-0.703^* ***** ,	-0.703^* ***** ,	-0.712^* ***** ,	-0.698^* ***** ,
Indebtedness	0.00545^* ***** ,	0.0038^ , and	0.00369^ , and	0.00338^ , and	0.00247	0.00474^* ***** ,	0.00295^* * Culture variable represented the interaction between the variables Big Four and Culture. The variable Size represents the natural logarithm of total assets. The ROA variable represents the division of net profit by total assets. The Indebtedness variable represents the ratio between total liabilities and net equity. The Developed variable is a dummy that identifies developed countries with 1 and emerging countries with 0. The IFRS variable is a dummy that identifies the countries that have adopted the international standardization of accounting standards with 1 and 0 otherwise. The symbols	0.00286^* * Culture variable represented the interaction between the variables Big Four and Culture. The variable Size represents the natural logarithm of total assets. The ROA variable represents the division of net profit by total assets. The Indebtedness variable represents the ratio between total liabilities and net equity. The Developed variable is a dummy that identifies developed countries with 1 and emerging countries with 0. The IFRS variable is a dummy that identifies the countries that have adopted the international standardization of accounting standards with 1 and 0 otherwise. The symbols
Developed	0.0116^* * Culture variable represented the interaction between the variables Big Four and Culture. The variable Size represents the natural logarithm of total assets. The ROA variable represents the division of net profit by total assets. The Indebtedness variable represents the ratio between total liabilities and net equity. The Developed variable is a dummy that identifies developed countries with 1 and emerging countries with 0. The IFRS variable is a dummy that identifies the countries that have adopted the international standardization of accounting standards with 1 and 0 otherwise. The symbols	-0.0271^* ***** ,	-0.0598^* ***** ,	0.0159^* ***** ,	0.0227^* ***** ,	0.0269^* ***** ,	0.0612^* ***** ,	-0.0550^* ***** ,
IFRS	-0.0217^ , and	-0.0576^* ***** ,	-0.0820^* ***** ,	-0.0615^* ***** ,	-0.0518^* ***** ,	-0.0842^* ***** ,	-0.0473^* ***** ,	-0.114^* ***** ,
Constant	1.677^* ***** ,	1.6799^* ***** ,	1.782^* ***** ,	1.657^* ***** ,	1.637^* ***** ,	1.748^* ***** ,	1.685^* ***** ,	1.801^* ***** ,
Observations	88,428	88,428	88,428	88,428	88,428	88,428	88,428	88,428
R²	12.7%	12.6%	13.0%	12.6%	12.6%	12.7%	12.7%	12.8%
Fixed effect year/sector	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
F Statistics	113.6	116.38	120.3	115.3	114.6	119.5	114.6	114.4
Average VIF	1.74	1.55	1.69	1.83	1.64	1.71	2.14	1.74

Dependent Variable: Modulated discretionary accruals estimated by Pae’s (2005) model
Independent variables	Power distance (H1)	Uncertainty aversion (H2)	Institutional Collectivism (H3)	Group Collectivism (H4)	Development Orientation (H5)	Future Orientation (H6)	Human Orientation (H7)	Assertiveness (H8)
Big Four	-0.00404^* ***** ,	-0.00518^* ***** ,	-0.00526^* ***** ,	-0.00627^* ***** ,	-0.000676	-0.000359	-0.00474^* ***** ,	-0.000907
Culture	0.0108^* ***** ,	-0.0241^* ***** ,	-0.0234^* ***** ,	0.00601^* ***** ,	0.00108	-0.00144	-0.00567^* ***** ,	-0.0179^* ***** ,
Big Four ^* * Culture variable represented the interaction between the variables Big Four and Culture. The variable Size represents the natural logarithm of total assets. The ROA variable represents the division of net profit by total assets. The Indebtedness variable represents the ratio between total liabilities and net equity. The Developed variable is a dummy that identifies developed countries with 1 and emerging countries with 0. The IFRS variable is a dummy that identifies the countries that have adopted the international standardization of accounting standards with 1 and 0 otherwise. The symbols Culture	-0.0107^* ***** ,	-0.00634^* ***** ,	0.00586^* ***** ,	0.00479^* ***** ,	-0.00225	-0.00172	0.00454^ , and	-0.00742^* ***** ,
Size	-0.0116^* ***** ,	-0.0114^* ***** ,	-0.0110^* ***** ,	-0.0110^* ***** ,	-0.0111^* ***** ,	-0.0112^* ***** ,	-0.0112^* ***** ,	-0.0113^* ***** ,
ROA	-0.260^* ***** ,	-0.261^* ***** ,	-0.258^* ***** ,	-0.261^* ***** ,	-0.261^* ***** ,	-0.261^* ***** ,	-0.262^* ***** ,	-0.260^* ***** ,
Indebtedness	-0.00208^* ***** ,	-0.00231^* ***** ,	-0.00237^* ***** ,	-0.00237^* ***** ,	-0.00243^* ***** ,	-0.00236^* ***** ,	-0.00243^* ***** ,	-0.00250^* ***** ,
Developed	0.00564^* ***** ,	-0.0767^* ***** ,	-0.00647^* ***** ,	0.00428^* ***** ,	0.00672^* ***** ,	0.00701^* ***** ,	0.00990^* ***** ,	-0.00477^* ***** ,
IFRS	-0.0110^* ***** ,	-0.0144^* ***** ,	-0.0180^* ***** ,	-0.0154^* ***** ,	-0.0150^* ***** ,	-0.0164^* ***** ,	-0.0139^* ***** ,	-0.0229^* ***** ,
Constant	0.328^* ***** ,	0.328^* ***** ,	0.344^* ***** ,	0.321^* ***** ,	0.324^* ***** ,	0.328^* ***** ,	0.327^* ***** ,	0.346^* ***** ,
Observations	88,428	88,428	88,428	88,428	88,428	88,428	88,428	88,428
R²	28.4%	29.3%	28.6%	28.3%	28.3%	28.3%	28.3%	28.4%
Fixed effect year/sector	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
F Statistics	259.8	262.3	266.9	263.1	266.6	259.6	259.1	261.2
Average VIF	1.72	1.53	1.67	1.82	1.62	1.69	2.13	1.72

Dependent Variable: Modulated discretionary accruals estimated based on a balanced panel
Independent variables	Power distance (H1)	Uncertainty aversion (H2)	Institutional Collectivism (H3)	Group Collectivism (H4)	Development Orientation (H5)	Future Orientation (H6)	Human Orientation (H7)	Assertiveness (H8)
Big Four	-30.064^* ***** ,	-26.179^* ***** ,	-62.307^* ***** ,	-26.162^* ***** ,	-24.038^* ***** ,	-56.029^* ***** ,	-34.106^* ***** ,	-29.870^* ***** ,
Culture	-604.9	-63.540^* ***** ,	-41.008^* ***** ,	37.214^* ***** ,	44.920^* ***** ,	-43.766^* ***** ,	21.120^ , and	64.712^* ***** ,
Big Four ^* * Culture variable represented the interaction between the variables Big Four and Culture. The variable Size represents the natural logarithm of total assets. The ROA variable represents the division of net profit by total assets. The Indebtedness variable represents the ratio between total liabilities and net equity. The Developed variable is a dummy that identifies developed countries with 1 and emerging countries with 0. The IFRS variable is a dummy that identifies the countries that have adopted the international standardization of accounting standards with 1 and 0 otherwise. The symbols Culture	-31.244^* ***** ,	-28.957^ , and	33.275^* ***** ,	-22.677^* ***** ,	-44.364^* ***** ,	27.730^* ***** ,	-22.652^ , and	-37.043^* ***** ,
Size	-0.0206^* ***** ,	-0.0210^* ***** ,	-0.0217^* ***** ,	-0.0195^* ***** ,	-0.0196^* ***** ,	-0.0225^* ***** ,	-0.0200^* ***** ,	-0.0213^* ***** ,
ROA	-0.395	-0.39	-0.389	-0.389	-0.392	-0.391	-0.393	-0.389
Indebtedness	0.00305	0.00322^* * Culture variable represented the interaction between the variables Big Four and Culture. The variable Size represents the natural logarithm of total assets. The ROA variable represents the division of net profit by total assets. The Indebtedness variable represents the ratio between total liabilities and net equity. The Developed variable is a dummy that identifies developed countries with 1 and emerging countries with 0. The IFRS variable is a dummy that identifies the countries that have adopted the international standardization of accounting standards with 1 and 0 otherwise. The symbols	0.00292	0.00332^* * Culture variable represented the interaction between the variables Big Four and Culture. The variable Size represents the natural logarithm of total assets. The ROA variable represents the division of net profit by total assets. The Indebtedness variable represents the ratio between total liabilities and net equity. The Developed variable is a dummy that identifies developed countries with 1 and emerging countries with 0. The IFRS variable is a dummy that identifies the countries that have adopted the international standardization of accounting standards with 1 and 0 otherwise. The symbols	0.00328^* * Culture variable represented the interaction between the variables Big Four and Culture. The variable Size represents the natural logarithm of total assets. The ROA variable represents the division of net profit by total assets. The Indebtedness variable represents the ratio between total liabilities and net equity. The Developed variable is a dummy that identifies developed countries with 1 and emerging countries with 0. The IFRS variable is a dummy that identifies the countries that have adopted the international standardization of accounting standards with 1 and 0 otherwise. The symbols	0.00282	0.00322^* * Culture variable represented the interaction between the variables Big Four and Culture. The variable Size represents the natural logarithm of total assets. The ROA variable represents the division of net profit by total assets. The Indebtedness variable represents the ratio between total liabilities and net equity. The Developed variable is a dummy that identifies developed countries with 1 and emerging countries with 0. The IFRS variable is a dummy that identifies the countries that have adopted the international standardization of accounting standards with 1 and 0 otherwise. The symbols	0.00309^* * Culture variable represented the interaction between the variables Big Four and Culture. The variable Size represents the natural logarithm of total assets. The ROA variable represents the division of net profit by total assets. The Indebtedness variable represents the ratio between total liabilities and net equity. The Developed variable is a dummy that identifies developed countries with 1 and emerging countries with 0. The IFRS variable is a dummy that identifies the countries that have adopted the international standardization of accounting standards with 1 and 0 otherwise. The symbols
Developed	34.043^* ***** ,	-13.100	25.063^* ***** ,	32.299^* ***** ,	25.943^* ***** ,	16.095^ , and	26.677^* ***** ,	46.256^* ***** ,
IFRS	-51.550^* ***** ,	-50.624^* ***** ,	-41.213^* ***** ,	-37.906^* ***** ,	-40.037^* ***** ,	-49.455^* ***** ,	-41.425^* ***** ,	528.4
Constant	99.485^* ***** ,	162.023^* ***** ,	123.733^* ***** ,	74.871^* ***** ,	77.254^* ***** ,	137.446^* ***** ,	89.656^* ***** ,	40.234^* * Culture variable represented the interaction between the variables Big Four and Culture. The variable Size represents the natural logarithm of total assets. The ROA variable represents the division of net profit by total assets. The Indebtedness variable represents the ratio between total liabilities and net equity. The Developed variable is a dummy that identifies developed countries with 1 and emerging countries with 0. The IFRS variable is a dummy that identifies the countries that have adopted the international standardization of accounting standards with 1 and 0 otherwise. The symbols
Observations	10,272	10,272	10,272	10,272	10,272	10,272	10,272	10,272
R²	1.70%	1.80%	1.90%	1.90%	2.00%	1.90%	1.70%	1.90%
Fixed effect year/sector	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
F Statistics	5.31	4.90	5.19	4.96	5.18	5.32	4.92	5.56
Average VIF	1.77	1.86	1.57	1.6	1.61	1.61	1.66	1.83

\begin{aligned} | D A |_{i t} = β_{0} + β_{1} {Big four}_{i t} + β_{2} {Culture}_{i t}^{j} + β_{3} (Big four * {Culture}_{i t} + \\ β_{4} {Size}_{i t} + β_{5} {ROA}_{i t} + β_{6} {Indebtedness}_{i t} + β_{7} {Developed}_{i t} + \\ β_{8} {IFRS}_{i} t + β_{9} {Fixed effect year}_{i t} + β_{10} {Fixed effect sector}_{i t} + ε_{i t} \end{aligned}

T A_{i t} = a (\frac{1}{A_{t - 1}}) + β_{1} (Δ R_{i t}) + β_{2} (P P E_{i t}) + β_{3} (F C O_{i t}) + β_{4} (F C O_{i t - 1}) + β_{5} (T A_{i t - 1}) + ε_{i t}

[1] *Autor correspondente

Brasil

Brasil

THE INFLUENCE OF COUNTRY CULTURE ON EXTERNAL AUDIT MONITORING

ABSTRACT