Is integrated auditing superior to separate auditing? Evidence from China

ABSTRACT The purpose of this study is to compare audit effectiveness and audit efficiency between companies that have integrated auditing of internal control over financial reporting (ICFR) and financial statements and companies that have separate auditing. We analyse a sample of Chinese public companies that disclosed their ICFR audit reports from 2011 to 2015. Using the full sample, sub-samples, and a propensity score matching (PSM) sample, we consistently find that companies having integrated auditing exhibit higher financial reporting quality measured by excess non-operating income. The findings regarding audit efficiency are mixed, with limited evidence indicating that an integrated auditor is potentially able to complete two audits without further delay. Overall, our results seem to suggest that integrated auditing is superior to separate auditing in that it enhances audit effectiveness and might improve audit efficiency. Such superiority might be due to knowledge spillover when two related audit services are jointly provided.