A theoretical approach to auditor independence and audit quality

Rahman Yakubu,Tracey Williams

doi:10.22495/cocv17i2art11

Abstract

Auditor independence and the quality of audit report is of growing concern to regulators, institutional investors and stakeholders as a series of accounting scandals have undermined the professionalism of auditors. The findings from this study produced an insight of how auditor’s independence improve audit quality and that abnormal audit fees is as a result of additional effort for auditor to carry out rigorous audit engagement as a result of wider audit scope; that mandatory audit firm rotation will enhance auditor independence, and that audit committee with nonexecutive independence will promote audit quality. The study also finds that in terms of auditor size, smaller audit firms that belong to professional bodies will provide higher audit quality. The main conclusion of this research is that where an auditor is fully independent in carrying out audit engagement with strong resistance to fees pressure will enhance audit quality. This research provides insight into the impact of IFRS adoption on audit fees.

Highlights

Auditor independence is gaining a lot of attention from researchers, regulators and public observers
The review of related literature on this study focuses on audit fees, auditor tenure, non-audit services, board composition and auditor size on audit quality
In terms of gender on audit fees and audit quality, most of the findings revealed that femaledominated audit partner and audit committee works towards achieving high audit quality (Al-Dhamari & Chandren, 2018; Cameran, Francis, Marra, & Pettinicchio, 2013; Lai et al, 2017; Montenegro & Bras, 2015)

Summary

Introduction

Auditor independence is gaining a lot of attention from researchers, regulators and public observers This has been described to have a major significant impact on audit quality. Several reasons have been given for the crucial importance of auditor independence to audit quality and this has formed a longstanding debate among academics, regulators and market observers on how best to protect auditors and mitigate concerns from users of the financial report (Tepalagul & Lin, 2015). Auditors play a very crucial role in capital market development, as some investors rely on the audit report, a scenario where auditors express the true and fair view of the financial statements This role goes beyond reviewing the financial statements, it involves providing support to market regulators and the audit committee in supervising management (Velte & Loy, 2018). There is an increasing number of studies that have explained the consequences of audit rotation/tenure, audit fees and non-audit service on audit quality (Mitra, Jaggi, & Al-Hayale, 2018; Velte & Loy, 2018; Zainudin & Hashim, 2016)

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Conclusion