How do auditors price financial secrecy culture? An international study

Author Identifier

Xuan Sean Sun: https://orcid.org/0000-0002-6432-2688

Document Type

Journal Article

Publication Title

Asian Review of Accounting

Publisher

Emerald

School

School of Business and Law

Comments

Sun, X. S., Houqe, M. N., Bhuiyan, M. B. U., & Zaman, M. (2025). How do auditors price financial secrecy culture? An international study. Asian Review of Accounting. Advance online publication. https://doi.org/10.1108/ARA-10-2023-0279

Abstract

Purpose: This research examines the influence of financial secrecy culture on audit fees. Additionally, we investigate the potential moderating effect of adopting International Financial Reporting Standards (IFRS) on the relationship between financial secrecy culture and audit fees. Design/methodology/approach: We use an international dataset comprising 249,217 firm-year observations from 30 countries/regions listed between 1996 and 2022. Our analysis includes regression analysis, the Heckman self-selection bias test, change analysis and various robustness tests. Findings: Our results reveal a significant positive association between audit fees and firms listed in secretive jurisdictions, suggesting that auditors charge higher fees to accommodate additional audit effort or risk premiums. Furthermore, our empirical findings indicate that implementing IFRS in countries/regions with higher levels of secrecy introduces complexities or ambiguities in audit procedures, leading to increased audit fees. These results hold up under rigorous endogeneity tests and remain consistent across alternative measures and tests. Research limitations/implications: Our findings establish a direct link between financial secrecy and audit fees, demonstrating higher costs for firms with greater secrecy. Additionally, they show that implementing IFRS in secretive jurisdictions intensifies audit complexities, resulting in higher fees. These findings emphasize the critical importance of transparency, regulatory compliance and risk management in financial reporting, with implications for investor confidence and regulatory strategies. Originality/value: This study contributes to the literature by exploring the previously unexamined relationship between financial secrecy culture and audit fees while also assessing the moderating effect of IFRS adoption. By utilizing a comprehensive international dataset spanning multiple jurisdictions and years, our research provides valuable insights into cross-border variations in audit practices and their broader implications.

DOI

10.1108/ARA-10-2023-0279

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