Strategic organizational conditions for risks reduction and earnings management: A combined strategy and auditing paradigm

Abstract

Business world is complex and fast changing. This paper brings strategy paradigms to the auditing domain in an attempt to advance existing understanding on the audit risk reduction and firms’ economic performance. Grounded in existing literatures, we establish some crucial convergence points between the external auditors’ audit processes and the firms’ strategic management agendas. A theoretical framework that embeds some proposed strategic organizational conditions, which align organizational internal and external effects for performance, and the theories of the firm is then presented. The literature review suggests that the integration of the audit processes and the organizational conditions is inherently beneficial to both auditors and firms. The routine from such integration can be a tacit knowledge asset or capability hard to be emulated. It shall reduce audit risks and sustain earnings performance. Hence, the practices and leveragabilities of such routine merit further managerial and research attention. We highlight at the end how our works can be tested in future research.

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