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This study examines whether and how top management internationalization is associated with accounting quality. We combine upper echelons perspectives, agency theory, human capital theory and accounting research, and demonstrate that top management internationalization mitigates the level of managerial discretion in financial reporting. By decomposing the top management team, our analysis reveals that higher levels of accounting quality are associated with the internationalization of the CFO, not the internationalization of the CEO. In particular, we find that CFO’s international education and international work experience are important factors in higher accounting quality.
This study iestigates the economic auditor–client dependency issue by examining the association between abnormal audit fee pricing and audit quality. Our study is the first to analyze this phenomenon empirically for the institutional setting of German IFRS firms by using a sample of 2,334 firm-year observations for the period from 2005 to 2010. Our empirical results demonstrate that positive abnormal audit fees are negatively associated with audit quality and imply that the audit fee premium is a significant indicator of compromised auditor independence due to economic auditor–client bonding. Audit fee discounts generally do not lead to a reduced audit effort, or respectively, audit quality is not impaired when client bargaining power is strong. The association of positive abnormal audit fees and audit quality is robust to different audit quality surrogates such as absolute discretionary accruals, financial restatements, and meeting or beating analysts’ earnings forecasts.