The power of belief: party organization construction of accounting firms and audit quality

Abstract

We examine the impact of party organisation construction of accounting firms on audit quality. We find that although there is no relationship between the party membership status of auditors and audit quality, the audit quality of party-member auditors significantly improves after accounting firms strengthen party organisation construction. Additional analyses show that the positive impact of auditor party membership on audit quality does not generate a contagious effect in the presence of party organisation construction. Moreover, cross-section results show that the impact of party organisation construction on audit quality is more pronounced in Non-Big4 audit firms, and in audit firms having a higher proportion of party-member partners/employees. Finally, we find that party organisation construction of accounting firms plays a more significant role in improving audit quality in state-owned firms. We believe our paper to be the first to investigate the governance role of party organisation construction in accounting firms.