Global Audit Characteristics Across Cultures and Environments

8/3/2019 Global Audit Characteristics Across Cultures and Environments

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GLOBAL AUDIT CHARACTERISTICS

ACROSS CULTURES AND

ENVIRONMENTS: AN EMPIRICALEXAMINATION

Efforts to harmonize auditing globally have met with limited success. If cultural and

environmental,factors, endemic to each nation represent the underlying barrier to globalaudit harmonization, then a relationship between these factors and audit characteristics

should be expected. This study clarifies the linkages among cultural and environmental

factors and auditing while empirically testing these relationships using canonicalcorrelation. The results suggest that globally, audit characteristics are associated with

cultural and environmental factors. Further, the legal system, literacy level, and

economic' wealth o,f the country appear to be the most influential determinants of acountry's auditing environment. This may have ramifications for the globalharmonization of auditing.

Key Words: auditing; canonical correlation; cultural; environment; global;

harmonization.

Harmonization of auditing standards has received considerable attention in recent yearsas markets.have become increasingly globalized (Needles, Jr. 1995; Roussey 1992), yet

efforts to harmonize standards globally have met with limited success. It has been

suggested that difficulties in standardization may stem from cultural and environmental

differences among nations (Beresford 1990; Choi and Mueller ! 992). If cultural andenvironmental characteristics unique to each nation present the underlying barrier to

harmonization, then an empirical association among those same factors and auditing

practices should exist. This study will attempt to provide insight on the suggestedassociation while empirically testing the existence of those relationships.

PRIOR RESEARCH

The prior international accounting literature contains substantial research into the

similarities and differences of accounting practices and disclosures across countries(Doupnik and Salter 1993; Nair and Frank 1980; Nobes 1983). However, the

international aspects of auditing have received less attention. While much of the literaturedescribes characteristics of the audit function that vary across countries, few studies haveexplored the potential underlying reasons. These descriptive studies attempt to delineate

differences in auditing characteristics without examining country specific influences that

may lend some explanation as to why these differences exist.

There are notable exceptions which examine the cross-cultural differences in auditingcharacteristics. Several studies have selected one auditing characteristic and analyzed the
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cultural differences and the similarities among countries for this one characteristic. One

study (Hussein, Bavishi, and Gangolly 1986) grouped 27 countries into related clusters

based upon the adherence to International Auditing Guideline 13 found in each country'saudit report. Considering similarities within clusters, they conclude "that audit reports

may be associated with differences in the level of securities market activities, the origin

of the legal system, who sets accounting standards, and whether auditing standards arecodified." Thus, their study provides some evidence that audit reports may be related to

environmental factors.

A later study (Welton and Davis 1990) revealed that perceptions of auditor ethics in the

United States and New Zealand may be influenced by cultural norms. It was also foundthat education in auditor ethics changed those perceptions. Perceptions still differed

across these countries for students who received ethics instruction and those who did not;

however, the ethics educated groups had smaller differences. These results may indicatethat while each country's culture influences auditor ethics perceptions, it may be possible

for countries' perceptions to be influenced through auditor ethics education.

Another study (Agacer and Doupnik 1991) demonstrated that perceptions of auditor

independence varied significantly across the United States, West Germany, and thePhilippines. Again it was suggested that these differences stemmed from underlying

cultural and environmental division among the countries. However, linkages were not

provided between the perceptions of auditor independence and culture and theenvironment.

The current study, while making use of many of the variables identified in the prior

literature differs significantly from these previous studies by taking a more all-inclusive

approach. Rather than examining one audit characteristic and its potential cross-cultural

determinants, the study analyzes several audit characteristics. In this way the impact ofcultural and environmental factors on the total auditing process can be studied along with

linkages among audit characteristics and the environment within which they operate.

RESEARCH OBJECTIVES

The first objective in the study is to determine the association among individual culturaland environmental variables and auditing characteristics on a global basis. For example,

the overall literacy rate within a country may constrain the educational level to which that

country can hold auditors. This analysis, in turn, could help in determining the auditcharacteristics that are most amenable to harmonization efforts. Audit characteristics that

have strong linkages with cultural and environmental determinants may have less chance

for successful harmonization until the underlying determinants can be changed.

The second objective is to examine the relationship of cultural and environmentalvariables to audit characteristics overall. It is possible that not only do cultural and

environmental factors relate to any one audit characteristic, but by influencing one

characteristic other characteristics might also be affected. A country may pay limitedattention to auditor ethics issues because its auditor independence requirements are so


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stringent. Thus while the country's legal system may not be directly affecting its concern

for auditor ethics, it is directly affecting auditor independence and the association it may

have with auditor ethics.

AUDITING VARIABLE SELECTION

To analyze the association that cross-cultural and environmental factors may have on

auditing, the first step is to select audit characteristics. These characteristics must not

only be descriptive of the auditing process, but operationalized while allowing forvariations across countries. An examination of the previously mentioned descriptive

literature of similarities and differences in audit characteristics leads to five general audit

characteristics: (a) Auditor Requirements for Licensing, (b) The Attest Function, (c)

Ethical Standards, (d) Independence, and (e) Audit Reports. These categories dominatethe international auditing research literature (Campbell 1985; Choi and Mueller 1992;

Needles, Jr. 1985).

Measurable variables for each audit characteristic must next be developed. While no onevariable, or even several for that matter, can completely describe or define any audit

characteristic, it is important to capture an overall sense of how each characteristic could

vary across countries. Given the exploratory nature of this study, formal hypotheses are

not presented for these variables but rather general statements regarding linkages aresuggested. They are presented as follows.

Auditor Requirements for Licensing

In the literature in international auditing (e.g., Needles, Jr. 1985), three general

requirements dominate the area of licensing. These requirements are education,

experience, and examination. Nearly all countries have at least one of these as a licensingrequirement, If licensing requirements represent a standard for all auditors, then

measurement of these licensing requirements will capture the minimum requirementsacross all countries. As a group these variables are intended to measure auditor ability.

The Attest Function

The attest function can be summarized as the process of rendering an opinion on the

financial statements taken as a whole. While it would be interesting to examine the

specific auditing procedures and standards used in various countries, it is beyond thescope of this study. As a proxy, the existence of standards for field work and reporting,

that is codified auditing standards, will be used. When standards for field work andreporting are established, more uniform and higher quality audits should be expected.Comparing countries with codified auditing standards to those without codified standards

would provide some measure of each country's concern for the quality of the attest

function.

Ethical Standards


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Attempting to measure a country's concern or perceptions of what constitutes ethical

auditor behavior would be a monumental task. It may be impossible to accomplish this

for many countries with different cultures and beliefs about what is ethical behavior. Aswith the attest function, a more rudimentary approach is warranted. The establishment of

ethical standards for auditors would be a justifiable proxy. Countries with codified ethical

standards, at least officially, would seem to have greater concern over the ethical conductof their auditors as opposed to countries that do not have codified standards.

Independence

Independence is an important attribute of the audit process, lending credibility to the

profession and acting as a prerequisite to reliable audits. Independence is usually insured

by means of restrictions placed upon the auditor and client relationship. Two restrictionsfor which data is available are investment restrictions and restrictions on providing other

services. While other types of auditor restrictions could also be used, these two

restrictions dominate the literature and represent measures of independence in fact and

appearance (Agacer and Doupnik 1991).

Audit Report

The audit report represents the culmination of the audit process and is the statement on

which interested parties rely. No examination of audit characteristics would be completewithout some representation of the differences in audit reports. The audit report may take

on added importance for international investors who may have more limited access to

information about foreign entities and so rely more heavily on published financial

statements.

To include all possible audit report differences would take far more sample countries thanthis study has available, and so a choice is necessary. One variable that prior literature

concentrates on is the reference in the audit report to the reliance the interested party canplace upon the financial statements. Statements such as "true and fair" or "present fairly"

are used to provide the interested party with the level of assurance that the profession is

granting the financial statements, while other audit reports make reference to compliance

with the law. This leads to a variable that measures the language structure by assessing ifthe audit report language is specified, whether reference is made to compliance with the

law, "true and fair" or similar terminology, or both.

CULTURAL AND ENVIRONMENTAL VARIABLE SELECTION

It is necessary to develop cultural and environmental variables[ 1] that can differentiateacross countries and provide for possible linkages to the audit characteristics found in

each country. There are three general categories of background interest that demonstrate

the differences that exist across countries: the cultural, the economic environment, andthe legal systems of countries.

Culture
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Even though the effect of culture on the development of auditing characteristics is

discussed extensively in the literature (e.g., Agacer and Doupnik 1991; McKinnon 1984;

Perera 1989), the nebulous nature of the term culture limits its usefulness. Whendiscussing the appropriateness of culture to explain country phenomenon, it must be

remembered that cultural values represent broad tendencies for the selection of one state

of affairs over others. Since auditing represents the choice of one behavior over others,auditing characteristics should represent a subculture of societal values. Four indexes

were developed that are intended to measure relative societal values across four

dimensions (Hofstede 1986). Two of these indexes, power distance and uncertaintyavoidance, are appropriate for this study.

Power distance attempts to measure a society's acceptance that power in organizations is

distributed unequally. Countries measuring high on this index accept as a fact that a

hierarchical order of power exists. Countries with low power distance questioninequalities and strive towards equalization. High power distance countries have less

need for information since preserving the inequalities is important. Conversely, low

power distance countries will require more information in order to equalize the quest forpower. Since the audit process is concerned with the reporting of relevant informationand with providing some assurance of its quality, these same arguments would seem to

hold for audit characteristics as well (Gray 1988).

The uncertainty avoidance index may also measure an important societal value that mayinfluence a country's audit characteristics. Uncertainty avoidance is likened to the

classification of individuals as being risk averse or risk taking. In high uncertainty

avoidance countries, society places great weight on consensus and is intolerant to change.

Low uncertainty avoidance countries have more tolerance for change and deviations fromthe norm, as well as less need for formal rules of conduct. It would seem that strict rules

governing the licensing of auditors, auditor independence, and rules governing auditorethics would be far less necessary in low uncertainty avoidance countries (Gray 1988).

Last, the literature in the management and behavioral sciences agrees that the literacy rateplays an important role in defining a culture (Harris and Moran 1979). Nations with an

overall low literacy rate may not be able to place exorbitantly high licensing requirements

on its auditors. If literacy is low, it might be argued that less demand will be placed uponthe audit function itself since fewer individuals will need the information provided by the

attest function. This could lead to a less developed auditing practice in countries with low

literacy levels. The literacy variable follows the common definition as the percentage ofthe adult population with the ability to read and write at an elementary school level.

Economic Environment

The economic environment is often cited as influencing the development of accounting

and auditing (Hussein et al. 1986; Mueller, Gernon, and Meek 1991). More developed

countries generally have a more highly developed auditing profession. In underdevelopedcountries, creditors and investors play a minimal role and so a less developed auditing


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profession would be expected. As the economy develops, the social need for auditing

would be expected to increase as well (Needles, Jr. 1985).

However, an internal need for a more sophisticated audit profession is not the onlypossible influence. A country's need for a more sophisticated audit profession could be

driven not only by the economic development of the country itself, but also by its tradingpartners. Countries with a more highly developed trade economy could be coerced to

have a more sophisticated audit profession in order to maintain trade alliances. Inaddition, the mere closeness of a dominant trading partner could influence the

development of a similar auditing profession. These arguments lead to the two variables

to represent the economic environment, per capita gross national product and the relativelevel of international trade. The latter is the sum of annual exports plus imports divided

by the gross domestic product. Both of these variables are measured in U.S. dollars and

are adjusted for the overall size of the economy.

Source of Capital

Another possible determinant of audit characteristics is the need placed upon the audit

profession by those making use of the auditor's services. In other words, the primary

source of corporate capital may influence the degree to which the audit profession has

evolved. Certain providers of corporate capital may have more need for reliance uponaudited financial statements. Economies in which the primary source of capital is

absentee owners, and creditors may have a much greater need for audit services and more

sophisticated audit characteristics (Ng 1978). Other economies in which state controlledbanks or commercial banks are the primary source of capital may not have the same

needs for auditor requirements or reliance on public financial information (Choi and

Mueller 1992). The position of the capital provider to obtain internal information may

lessen the need for reliance on audited financial reports. To measure countries' relativepositions, the number of exchange listed domestic companies is divided by the gross

domestic product for each country. This variable is expected to increase as the ownership

of public companies becomes more widespread (Nobes and Parker 1988). This variable isalso adjusted for the size of the economy. Only the largest stock exchange is used in

countries where more than one exists. For countries without an organized stock exchange,

a value of zero is assigned.

Legal System

The type of legal system may influence directly or indirectly not only the conduct of

auditors, but also the role the auditor plays. A codified Roman law system, being a more

rigid legal system, may impact auditing characteristics by requiring more reliance on thestated legal objectives of the auditing profession. A country with a common law system,

relying on a more case by case approach, may allow audit characteristics to develop more

freely or rely more on the auditing profession to set a general tone for the profession. The

measure of the type of legal system will be referred to as the "legal system origins"(Rhyne 1978; Hussein et al. 1986). This measure allows for a country's legal system to

have significant elements of either Roman law, common law, or both.


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In summary, nine dependent variables representing five audit characteristics (licensing,

attest function, ethics, independence, and reporting) are identified. These variables are

selected based upon their ability to describe the auditing profession and their ability todifferentiate among countries. Seven independent cultural and environmental variables

are selected based upon their ex ante association to the auditing practice found

internationally. These 16 variables are used to analyze the associations among auditcharacteristics and cultural and environmental factors.

SAMPLE

Data for the auditing, cultural, and environmental variables is obtained from several data

sources that spanned the time period 1985 to 1987. This was necessary to obtain

complete information for all the countries included in the sample. This is not consideredto be a significant limitation however since all the variables were relatively stable over

this period. The final sample, consisting of 48 countries, is limited to the same countries[

2] used by Hofstede (1986) since this study makes use of cultural variables and data

defined in that study. Data for the auditing variables is obtained primarily from the PriceWaterhouse International "Doing Business In" series (Price Waterhouse International

1985-1987), the University of Illinois Center for International Education and Research(University of Illinois 1985a, 1985b, 1988), and American Accounting Association

research publications (Needles, Jr. 1985). The principal data sources for the cultural and

environmental variables are the International Monetary Fund (IMF 1989), the WorldBank (World Bank 1988), the International Finance Corporation (IFC 1992), Rhyne

(1978), and Hofstede (1986). Certain data collection problems are encountered during

this process. For example, when different states or provinces within a country have

different licensing requirements, the prevalent national requirement is adopted for use inthis study. This same approach is applied for countries with more than one type of

auditor. In those situations, the numerically dominant auditor is selected.

STATISTICAL METHODS

There are two overriding considerations in selecting a statistical application with which toexamine the objectives. First, in order to analyze the association among all the cultural

and environmental variables and auditing characteristic variables, a multivariate method

is required. Secondly, not all of the variables are intervally scaled, nor is a normaldistribution assumed. Canonical correlation analysis is a multivariate approach that may

be used when situations like this are encountered, particularly when the study is

descriptive in nature (Cooley and Lohnes 1976; Thompson 1984). When assessing the

overall association among the variables, the individual coefficients will not be used sincethey are most affected by distributional violations. Instead, stepwise canonical

correlations, eigenvalues, the canonical correlation, and the Stewart and Love redundancy

index are examined.

Eigenvalues and canonical correlation are used similarly in that they measure overallrelationships between groups of variables simultaneously. The latter approach also

provides the next to best correlation, next to next best correlation, and so on. These next
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best solutions or canonical pairs may provide insight among relationships. In order to

determine the most significant variables within each canonical pair the varimax

orthogonal rotation method is used (Kaiser 1958). Orthogonal rotation accentuates thedifferences in the variables without changing the relationships among variables. In this

way the more significant variables within each canonical pair can be determined. A

variation is stepwise canonical correlation, where variables are added one "step" at atime, so as to maximize the correlation at each step. This suggests the degree of

importance of individual variables in the overall correlation. The last statistic, the

redundancy index, measures the ability of one set of variables to account for variation inthe other set. It is essentially the multivariate equivalent of R2

RESULTS

Eigenvalues and canonical correlations for each step are provided in Table 1. A clear

demarcation between legal system origins and relative level of international trade

suggests that literacy rate, per capita gross national product, and origins of the legal

system are most highly correlated with the audit characteristic variables. Relative level ofinternational trade, number of exchange listed domestic companies, and uncertainty

avoidance are marginally associated with the audit characteristics. Finally, it appears thatpower distance adds very little once the other variables have entered the canonical

correlation.

The canonical pairs provide another basis for examining which cultural and

environmental variables are associated with which audit characteristics. The summarystatistics for the significant canonical variate pairs are presented in Table 2. Decisions as

to which of the canonical variate pairs should be retained and examined further are more

difficult. In general, redundancy indexes of 10 percent or more are considered statistically

significant with scores between 4 and 6 percent being marginally so (Collins andKillough 1992). Canonical pair I is retained, based upon redundancy indexes for both sets

of variables being greater than 10. Canonical pair II is also retained for further analysis

since one index is good, above 10 percent, while the other is at least marginallyacceptable, above 4 percent.

Table 3 lists the canonical loadings for the more significant variables (those with

coefficients greater than 0.5 after rotation) within canonical pairs I and II that wereretained for further study. Also presented are the communality scores that provide a

relative measure of significance when the two canonical pairs are combined.

The rotated canonical loadings from canonical pair I indicate that origins of the legal

system and the literacy rate are most associated with codified ethical standards andinvestment restrictions. Canonical pair II indicates that per capita gross national product

is associated with experience requirements, examination required, and restrictions on

providing other services. These results seem to indicate that as a country's literacy and

affluence become greater and as it moves toward a common law based legal system,requirements to become an auditor become greater (experience requirements increase and

an examination becomes more likely), ethics requirements are more likely codified, and


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there is a desire to have more control over independence issues (investment restrictions

and restrictions on other services). In addition, the significance (.01 level) of Wilks

Lambda in Table 2 indicates that in total the cultural and environmental variables areassociated with auditing when the audit characteristics are taken as a whole.

A summary of descriptive statistics for each of the variables is provided in Table 4 andTable 5. The only worrisome observation from these tables is an apparent outlier in the

relative level of international trade. The results however are unaffected when thiscountry, Singapore, is excluded. Therefore, the reported results include this observation.

Means, standard deviations, minimums, and maximums are provided for the intervally

scaled data on Table 4. The number of observations for each level, means, and standarddeviations are provided for those variables with nominal scales on Table 5. Bivariate

correlations between the variables were also computed. These are omitted since no

significant problems were illuminated.

CONCLUSIONS

This study provides empirical support for an association among auditing, and cultural,

and environmental factors. The results from the canonical correlation analysis indicate

that the cultural and environmental factors most associated with the audit characteristics

are literacy, per capita gross national product, and legal system origins. The cross-culturaland environmental factors are most associated with the audit characteristics of experience

requirements, examination requirements, codified ethical standards, and restrictions on

auditor investments and provision of other services to clients. Further, as a country movesfrom a codified Roman law system towards a common law legal system and as its

population becomes more literate and affluent, it appears that auditor independence

becomes more important, licensing requirements become more stringent, and more

formalization of auditor ethics issues takes place. Surprisingly, no significant relationshipwas found between power distance and uncertainty avoidance, variables used to represent

the auditing subculture (Gray 1988), and auditing characteristics.

The results of this study have ramifications for those interested in harmonizing auditingservices. Changes in socioeconomic conditions may be a prerequisite to the successful

harmonization of auditing if auditing and the cultural and economic environment are

indeed linked. Further, not all aspects of the environment need be changed to achieveharmonization and not all auditing characteristics are linked to the environment. As

suggested by the results, the level of economic development, the structure of the legal

system, the literacy rate of the populous, and all that those variables imply are the main

determinants of auditor qualifications (exam and experience requirements), thedevelopment of codified standards, and restrictions on investment and range of services.

None of the identified socioeconomic conditions are generally given to rapid change.

This may suggest a similar approach for harmonization efforts. A phased approach

towards harmonizing auditing may be appropriate. Interestingly enough, this approachseems to be mirrored in harmonizing accounting standards within the European

Community and in changes being made in Australia. If auditing characteristics are


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harmonized without consideration of linkages to the environment, then impediments to

change or de jure compliance may be the result.

LIMITATIONS

As with most studies, there is no assurance that the results presented are representative ofthe true state of nature for any one country or group of countries. Certainly it is a risky

proposition to apply the results to countries not included in the sample and even to apply

them to any one country within the sample. The results of a multivariate study apply tothe sample as a whole not to individual cases. This limitation can be extended to variable

selection. While the variables are representative of the areas of interest, no pretense is

made that they cover all relevant areas of interest nor are they the only variables that

could be developed. This is a necessary limitation in view of the trade off betweensample size and number of variables. While a larger sample size is desirable this study is

limited to the 48 countries used by Hofstede (1986) since it makes use of data from that

study.

The data used in this study is also subject to error. Error can arise of the purely

mathematical variety or error in using data in a situation for which it was not intended.

When possible, data was verified with more than one source to reveal any apparent

conflicts. In those few cases where inconsistencies were found the more authoritativesource was used. A more serious limitation of the data may be that it represents an

officially prescribed de jure position as opposed to what is actually done de facto. Some

countries are reputed for "bending" auditing rules when the necessity arises. A finallimitation resides in the validation of variables which have not been subjected to rigorous

replication and verification by other studies.

FUTURE RESEARCH

Opportunities exist to extend and improve upon the present work. Certainly a replicationstudy could be done for a different time period to study how the relationships may change

over time. This would also serve to validate or question variables used here or in other

studies. Variations on this study can be made using different variables. Variables could

be expanded for specific areas such as auditor ethics to obtain a greater understanding ofthat aspect of auditing.

Future research could also explore the relationship between the auditing subculture and

the larger cultural environment. The relationships suggested by Gray (1988) with power

distance and uncertainty avoidance were perhaps surprisingly not found by this study.Finally, cluster analysis could be used to group countries based upon similarities in

auditing, or in combination with cultural and environmental variables. This would refine

the results of this study by subdividing the countries based on variables more specificallyassociated with those groups of countries.

NOTES
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1. Not all of the data used in some of the variables (e.g., literacy rate, gross nationalproduct) are computed in precisely the same way by the countries included in the sample.

2. The countries include: Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile,

Columbia, Costa Rica, Denmark, Ecuador, Egypt, Finland, France, Germany, Greece,

Guatemala, India, Indonesia, Ireland, Italy, Jamaica, Japan, Jordan, Korea, Kuwait,Malaysia, Mexico, Netherlands, Norway, Panama, Peru, Philippines, Portugal, Saudi

Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey,

United Arab Emirates, United Kingdom, United States, Uruguay, and Venezuela.

TABLE 1

Stepwise Canonical Correlation Results

Cultural and Environmental Variables

Canonical

Eigenvalue Correlation

Literacy Rate (LR)[*] 0.595 0.443

LR and Per Capita Gross National Product(GNP)[*] 1.081 0.618

LR, GNP, and Legal System Origins (LO)[*] 1.543 0.773

LR, GNP, LO, and Relative Level of

International Trade (IT) 1.738 0.799

LR, GNP, LO, IT, and Source of Capital (SC) 1.927 0.816

LR, GNP, LO, IT, SC, and Uncertainty

Avoidance Index (UA) 2.090 0.822

LR, GNP, LO, IT, SC, UA, and Power Distance

Index 2.098 0.823

Notes: [*]Variable is highly correlated to auditing characteristics

TABLE 2

Summary Statistics for Full Model and Canonical Pairs

Squared

Canonical Canonical

Eigenvalue Correlation Correlation

All Independent Variables 2.098 0.82[a] 0.68

Canonical Pairs:

I 1.580 0.78[a] 0.61

II 0.510 0.58[a] 0.34

III 0.440 0.55[b] 0.30

Redundancy Index

Criterion Predictor

All Independent Variables 12.85 10.46
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Canonical Pairs:

I 11.48 18.43

II 4.23 11.73

III 3.39 10.76

Notes: [a] and [b] represent .01 and .05 levels of significance

respectively for the Wilks Lambda test of the Canonical

Correlation.

TABLE 3

Rotated Canonical Correlation Results

Canonical Pairs

Variables I II Communality

Audit Characteristic

Experience Requirements 0.80 0.64Examination Required 0.84 0.72

Codified Ethical Standards 0.95 0.90

Investment Restrictions 0.87 0.76

Restrictions on Providing Other Services 0.81 0.66

Cross-Cultural and Environmental

Per Capita Gross National Product 0.96 0.93

Origin of Legal System 0.89 0.82

Literacy Rate 0.99 0.98

TABLE 4

Descriptive Statistics For lntervally Scaled Variables

Standard

Variables Mean Deviation


Education Requirements (years) 12.56 6.23

Experience Requirements (years) 2.60 2.04

Cultural and Environmental

Power Distance Index 59.02 21.87

Uncertainty Avoidance Index 65.94 24.07

Literacy Rate (%) 86.17 15.96

Per Capita Gross National Product ($) 6132.08 5469.75

Relative Level of International Trade 55.60 41.77

(% relative to Gross Domestic Product)

Number of Exchange Listed DomesticCompanies (% relative to each $10,000 44.41 55.52

of Gross Domestic Product)

Variables Minimum Maximum


Education Requirements (years) 0.00 17.00

Experience Requirements (years) 0.00 10.00


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Power Distance Index 11.00 104.00

Uncertainty Avoidance Index 8.00 112.00

Literacy Rate (%) 36.00 100.00

Per Capita Gross National Product ($) 290.00 17680.00

Relative Level of International Trade 13.70 276.70

(% relative to Gross Domestic Product)

Number of Exchange Listed Domestic

Companies (% relative to each $10,000 0.00 260.00

of Gross Domestic Product)

TABLE 5

Descriptive Statistics For Nominally Scaled Variables

Counts for the Number of Times Observed

Possible Values

Variables 0 1 2 3


Examination Required 21 27

Codified Auditing Standards 17 31

Codified Ethical Standards 25 23

Level of Enforcement of Ethical Standards 11 37

Investment Restrictions 13 35

Restrictions on Providing Other Services 36 12

Audit Report Language 7 15 13 13


Origin of Legal System 32 6 10

Standard

Variables Mean Deviation


Examination Required 0.52 0.50

Codified Auditing Standards 0.62 0.49

Codified Ethical Standards 0.50 0.51

Level of Enforcement of Ethical Standards 0.81 0.39

Investment Restrictions 0.71 0.46

Restrictions on Providing Other Services 0.25 0.44

Audit Report Language 1.69 1.06


Origin of Legal System 0.52 0.82REFERENCES

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By Rahnl A. Wood

Rahnl A. Wood. Northwest Missouri State University, Department of Accounting andFinance, 800 University Drive, Maryville, MO 64468-6001.

Documents

Global Audit Characteristics Across Cultures and Environments