The determinants of the decisions between integrated and non-integrated audits from the perspective of corporate governance

SOX requires that the audit of internal control over financial reporting (ICFR) is “integrated” with the audit of the financial reports, which means the same audit firm conducts these two audits. Prior studies found that audit costs and quality were lower for non-integrated audits in the Chinese context (Gunn et al. in Account Rev, 2021). This paper reports the association between firms’ internal corporate governance mechanisms and the decision between integrated and non-integrated audits in Chinese companies. The empirical results demonstrate that firms with a larger proportion of controlling owners or those in which the same person is the BOD chairman and CEO, or those that are state-owned or have a smaller proportion of independent directors, are more likely to choose non-integrated audits than integrated audits. Our study implies that firms with weak internal corporate governance mechanisms choose non-integrated audits or switch to non-integrated ones if integrated audits are not mandatory. Our conclusions provided evidence that helps regulators understand the consequence of the regulation enforcement on public companies with different corporate governance models if these regulation compliance options are available.