Audit firm incentives and audit firm culture: the role of the auditee

There is a growing consensus among policymakers and regulators that distorted organisational cultures within audit firms are the culprit of flawed audits. We argue that client cultures and incentives of auditors to service the audited entity can clout audit firm cultures geared towards the auditor’s judgments – ultimately at the cost of audit quality. We further argue that auditors make many of such judgments that involve the processing of hard and soft information which increases the risk of misjudgements. In addition, empirical evidence suggests that many audited entities want their auditors to conduct audits quickly and cheaply and with minimum fuss (Brooke Masters, 2021). If audited entities maintain such cultures and are successful in pressuring auditors to minimize their efforts, it will arguably impair the auditors judgments and thus audit quality. We will discuss opportunity and pressure in turn.