Code of Ethics and Audit Quality: The Role of Fraud Detection Capability as a Mediating Variable

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.