Does Country-Level Governance Influence Auditing and Financial Reporting Standards? Evidence from a Cross-Country Analysis

This article highlights the influence of country-level governance on auditing and financial reporting standards. We have used the governance indicators developed by World Bank as proxies for country-level governance. Using a cross-sectional sample of 396 years observations covering 132 countries over 2009-2011, the article provides empirical evidence that good governance has a significant effect on the strength of auditing and reporting standards (SARS). The findings suggest that government effectiveness, regulatory quality and rule of law are highly significant factors for SARS. The aim is to emphasize the need for accounting and audit scholars to be sensitive to the complex of determinant factors on SARS, and their potential impact on standards-setting process. This article also proposes a cross-country empirical analysis in order to further investigate the effects of legal environment factors on auditing and reporting standards.