Code of Ethics and Audit Quality: The Role of Fraud Detection Capability as a Mediating Variable
I Putu Budi Anggiriawan *
Department of Accounting, Faculty of Economics and Business, Warmadewa University, Indonesia.
I Gst. B. Ngr. P. Putra
Department of Accounting, Faculty of Economics and Business, Warmadewa University, Indonesia.
*Author to whom correspondence should be addressed.
Abstract
This research investigates how adherence to professional ethical standards shapes audit quality and examines whether auditors’ fraud detection capability functions as an intervening mechanism in this relationship. A quantitative approach was employed, using a structured questionnaire distributed to external auditors working in public accounting firms in Bali, with a minimum experience requirement of two years. A total of 67 valid responses were collected through purposive sampling. The dataset was analyzed using Partial Least Squares–Structural Equation Modeling (PLS-SEM) to evaluate both direct and indirect effects among the variables. The results show that code of ethics compliance have a positive effect on audit quality (b=0.503, r=0.000), fraud detection capability have a positive effect on audit quality ((b=0.773, r=0.000), code of ethics compliance has a positive effect on fraud detection capability ((b=0.282, r=0.027), and fraud detection capability indirectly mediates the effect of code of ethics compliance on audit quality ((b=0.218, r=0.039). The findings highlight the importance of ethics training and fraud detection capability to enhance audit quality.
Keywords: Code of ethics compliance, fraud detection capability, audit quality, auditor external, audit firm