Factors Affect the Audit Quality of External Auditor at Klang Valley

Abstract

Investors evaluate and make their decisions based on the financial statements of the company, thus they will be always concern about the quality of the external auditor's report. External auditors will express their opinion on the fairness of the financial statements. When there is a high audit quality, it gives a greater assurance of high financial reporting quality to the investor. Higher audit quality gives confidence to investor to make their decision on the financial reporting. However, some investors do not consider that the audit report is helpful in their decision- making process, while other users were of the opinion that the financial statements fail to satisfy their information needs. This indicates that the investors are losing their confidence and reliance on the audit reports. Therefore, this study is done to identify the major factors that will influence the audit quality of external auditor. Based on the past researchers work it was identified corporate governance, size of audit firm and industry specialization are some of the major factors that affect the audit quality. This study is done to confirm the same factors are also applicable to the audit firm in Malaysia. The study was conducted among 30 targeted audit firms in Klang Valley, Malaysia, since most of the audit firms in Malaysia are situated here. Questionnaires were sent out to these firms and the results were analysed using the SPSS tools. The results indicate that factors such as corporate governance, size of audit firm and industry specialization have a positive relationship with the audit quality of external auditor. This research will be beneficial to the external auditor to understand the important of the corporate governance, size of audit firm and industry specialization when comes to the quality and reliability of the financial information by the users as well as enhance the credibility of the organizations.