AUDIT QUALITY AND COST OF DEBT: FINANCIAL INFORMATION MEDIATION

Abstract

The essential role of the audit is to reduce to a large extent the asymmetry of information between managers and shareholders or third party contractors, but recent financial scandals have shown the inadequacy of traditional approaches. The difficulty in remaining independent stems from the specific position of the auditor. Shareholders or managers may exert pressure on auditors to avoid certain facts discovered, and accept an unqualified certification although some accounting treatments remain contentious. The inability of traditional approaches led us to use other indicators in this work, which aims to test the mediating effect of the quality of financial information in the relationship between audit quality and the cost of debt. With a sample of 205 and using the method of structural equations, the results show us that the quality of financial information plays a partial mediation with mediating effect and indicators such as the reputation of the audit firm, the organizational characteristics of the audit firm. The specific characteristics of the audit team improve the quality of financial information, although the quality of financial information certified by a reputable firm does not reduce the cost of debt.