The impacts of interaction of audit litigation and ownership structure on audit quality

Riyadh Jassim Al Abdullah,Mawih Kareem Al Ani

doi:10.1186/s43093-021-00067-8

Abstract

This study examines the impact of the interactions of audit litigation and ownership structure on audit quality by Big 4 and non-Big 4 audit firms in Oman. This study uses modified audit opinion as proxies for audit quality, binary variable for audit litigation and percentage of shares owned by large shareholders and minority shareholders (consisting of Arab [non-GCC] shareholders) for ownership structure. The study uses size, risk, types of activity and ages of the firms as control variables. For the analysis and explanation of results descriptive statistics, correlation, regression techniques and T-test are used. Based on a sample of 107 listed companies on Muscat Securities Market (MSM) for 2013–2017, we find that audit litigation has a significant impact on audit quality for Big 4 audit firms, but not for non-Big 4 audit firms. Also, the results indicate that there is no difference between Big 4 and non-Big 4 audit firms as far as litigation risk is concerned.

Highlights

Since 2005, the Capital Market Authority (CMA) which is responsible for the control of the audit firms in Oman issued warning letters to some audit firms, suspended one audit firm from conducting audits for firms regulated by CMA for one year and suspended eight audit firms for three months due to their violations of articles of the Omani Commercial Companies
This study examines how the audit litigation affects the audit quality moderated by the ownership structure
Two models were tested: the audit litigation and audit quality moderated by ownership structure of clients audited by Big 4 audit firm and non-Big 4 audit firm

Summary

Introduction

Since 2005, the Capital Market Authority (CMA) which is responsible for the control of the audit firms in Oman issued warning letters to some audit firms, suspended one audit firm from conducting audits for firms regulated by CMA for one year and suspended eight audit firms for three months due to their violations of articles of the Omani Commercial Companies. The credibility of audited financial statements issued by audit firms remains questionable. Since 2000, the number of litigations related to audit issues has increased to 32,000 [4]. 2250 cases were against the Big 4 firms. This study fills the gap in the literature by evaluating audit litigations and auditees’ ownership structures on audit quality.

Methods

Results

Discussion

Conclusion