UNVEILING THE NEXUS BETWEEN INTELLECTUAL CAPITAL AND AUDIT QUALITY IN ACCOUNTING FIRMS

Abstract

With the frequent occurrence of corporate financial fraud cases in China, the audit quality (AQ) of accounting firms has attracted great attention. As a knowledge-intensive organization, the intellectual capital (IC) which represents the intangible assets seems closely related to AQ. The present study aims to investigate the relationship between IC with AQ among China’s top 100 accounting firms (CTAFs) and if the extent of association varies between IC components and AQ. Data were collected through a questionnaire survey with a total of 81 firms through their responsible official. The findings demonstrate that IC significantly affects AQ of CTAFs. Surprisingly, structural capital emerged as the strongest component of IC influencing AQ, followed by relational capital, spiritual capital, and human capital. These results suggest that improving any element of IC can lead to an improvement in AQ while distinguishing the varying degrees of association. This study acts as a trailblazer, by using primary data offering empirical evidence regarding the connection between IC and AQ within the landscape of CTAFs. The particular note is the illumination of varying impact levels across elements of IC, providing unique and applicable insights for future research and practitioners.