Affect Audit Quality Research Articles

The Impact of Ethic and Competence on Audit Quality (Accountability as Moderating Variable)

Purpose: This study used accountability as a moderating variable to examine the impact of ethics and competence on audit quality. Methodology: The data used in this study were derived from a questionnaire survey distributed to respondents from October to December 2023. The respondents for this study were Badan Pemeriksa Keuangan (BPK) head office auditors at State Financial Auditor III. The respondents were selected using purposive sampling criteria. The final sample comprised 69 respondents. This study used the structural equation Modelling (SEM) approach with Smart Partial Least Square (PLS) software to analyze the data. Results: The findings show that ethics and competence positively affect audit quality. Accountability as a moderating variable strengthens the impact of ethics on audit quality. However, accountability does not influence the effect of competence on audit quality. Limitations: This research used a method of distributing questionnaires to several respondents online so that the questions from respondents regarding the questionnaires could not be confirmed directly. In addition, this study uses only two audit attributes as determinants of audit quality. Contribution: This research will provide an understanding of BPK stakeholders regarding the importance of ethics and competence for BPK auditors. Additionally, it is expected that they will not attempt to influence BPK auditors to commit ethical violations. Furthermore, this research is meritorious for BPK to investigate the factors that can encourage the accountability of auditors’ attitudes to improve audit quality.

Faktor-faktor Yang Memengaruhi Kualitas Audit

This research aims to explore the factors influencing an auditor's audit quality. The researcher is interested in conducting an in-depth study to examine the impact of audit tenure, auditor switching, and audit firm size on audit quality. This study is quantitative descriptive research utilizing secondary data derived from financial statements and annual reports of property and real estate sector companies listed on the IDX during 2018–2022. The sample used in this study consists of 168 companies, which were analyzed using IBM SPSS Statistics 25. The results of this study indicate that auditor switching significantly and positively influences audit quality. This suggests that auditor switching serves as a mechanism to maintain a less tight relationship between clients and auditors, thereby preserving auditor independence and ultimately enhancing audit quality. Conversely, audit tenure and audit firm size do not significantly affect audit quality.

Does Convergence with International Standards on Auditing Improve Audit Quality?

ABSTRACT Many countries have converged their domestic auditing standards with International Standards on Auditing (ISA). This study provides global empirical evidence on first-order determinants of audit quality by examining whether and how convergence affects audit quality through utilizing data on 41 jurisdictions and using a staggered difference-in-differences approach. We find that ISA convergence leads to higher audit quality on average. The positive effect is stronger for clients of domestic audit firms, in jurisdictions with stronger enforcement, and when the ISA convergence level is higher. Insights from textual features suggest that changes in principle-orientation, comparability, readability, and size (or length) of auditing standards are positively related to audit quality. Exploratory analyses of textual content using machine learning reveal that the emphases of ISA on going-concern assessment and legal compliance, fraud risk assessment and internal control evaluation, and related-party transactions and subsequent events contribute to enhanced audit quality. JEL Classifications: M40; M42; M48.

Independence, Competence, Objectivity, Ethics And Auditor Experience On Auditor Quality

This study aims to examine and analyse the influence of Independence, Competence, Objectivity, Auditor Ethics, and Auditor Experience on the Audit Quality of Auditors of Public Accountant Offices in South Jakarta in 2023. The sample in this study was an auditor who worked in 10 public Accountant Offices in South Jakarta. The sampling method used is a Purposive Sampling Method. The primary data used in this study was obtained directly from respondents. The data collection method used was a questionnaire method with 98 respondents as many respondents. Analysis of the data used is multiple linear regression analysis and using the Partial Least Square (SmartPLS) program version 3.2.9 for Windows Partial Least Square (SmartPLS) version 3.2.9 for Windows. The results of the tests showed that independence, competence, objectivity, auditor ethic, and auditor experience significantly positively affect audit quality.

Audit firm informatization and audit quality during COVID-19

PurposeCOVID-19 has forced audit firms to change the way they operate. One change has been to rely more on information technology (IT) and IT human capital to overcome COVID-19-related challenges. We refer to audit firms’ use of these two resources as audit firm informatization (AFI). It is important to understand whether AFI helps audit firms address challenges created by the pandemic. Thus, this study examines the impact of AFI on audit quality during the COVID-19 pandemic in China with a focus on IT human capital.Design/methodology/approachWe use a mixed-methods approach. First, we perform multivariate regression analyses on archival data. Specifically, we investigate the relationship between IT human capital and audit quality and the two mechanisms (i.e. improved efficiency and reduced audit risk) underlying the relationship. We also investigate how this relationship is moderated by features of clients, audit firms and individual auditors. Then we use interviews to corroborate the results of our regression analyses.FindingsOur analyses of archival data show that IT human capital positively affects audit quality through improved efficiency and reduced audit risk and that this positive impact is more pronounced for clients in non-manufacturing industries, those with a more opaque information environment, audit firms with greater industry coverage and individual auditors with less experience. Our interview data indicate that audit firms with more advanced AFI and a higher level of IT human capital in particular are less disrupted by the pandemic and are better able to use IT to address challenges associated with COVID-19. Furthermore, the results confirm that improved efficiency and reduced audit risk are the mechanisms through which AFI enhances audit quality. Finally, we identify issues associated with the use of IT.Originality/valueThis study is the first to investigate how IT human capital (and by extension AFI) influences audit quality in the context of the COVID-19 pandemic. Our findings should be of interest to practitioners and setters of auditing standards.

CHALLENGES AND OPPORTUNITIES OF DIGITAL AUDITING: A LOOK BEYOND THE YEAR 2020

Digital technologies, including artificial intelligence (AI), big data, and blockchain, have significantly changed the auditing landscape. This study aims to explore the impact of these technologies on audit practices in the future, focussing on the challenges and opportunities auditors face. Using a qualitative approach, the study involved in-depth interviews, case studies, and participatory observations of several companies adopting digital technology in their audits. The study results show that applying digital technology can increase efficiency, accuracy, and transparency in the audit process. AI and big data enable faster and more comprehensive data analysis, while blockchain improves the reliability and integrity of audited data. However, the study also reveals significant challenges, such as a lack of technology skills among auditors, concerns related to data security and privacy, and potential changes in the role of auditors that could affect audit quality. On the other hand, the digital era also opens opportunities for auditors to engage in multidisciplinary collaboration and develop new competencies relevant to modern technology. However, to make the most of these opportunities, auditors need to maintain strong ethical principles and comply with applicable regulations.

Leader versus lagger: How the timing of financial reports affects audit quality and investment efficiency

AbstractThis paper examines how relative timing affects the quality of financial reports in a staggered reporting system in which some firms report earlier than others. We show that the audit quality of the leading firm exceeds that of the lagger. Investment efficiency also differs systematically across firms, depending on the relative reporting timing as well as the audit market structure. Audit regulations mitigate the misalignment of interests between auditors and investors but limit the effect of information spillovers. We characterize the socially optimal auditing standards and show how and why imposing minimum audit quality requirements complements and/or substitutes for adjusting auditors' legal liability. Overall, we show that a staggered reporting system dominates a simultaneous reporting system in enhancing audit quality and investment efficiency through regulation.

Do Bank Governance Mechanisms and Financial Report Lag Affect Audit Quality?

ABSTRACT In the aftermath of banking failures in Africa, the survival of firms has thus been placed with the application of good corporate governance practice and the oversight role of internal and external auditors. This study examines whether audit quality is related to corporate board of directors and financial reporting timeliness in the context of developing countries. Using sample data from 21 universal banks in Ghana and 31 commercial banks in Kenya for the periods 2010 to 2019. The study employs the Generalized Least Square(GLS), using fixed effect to estimate the relationships. The empirical results document that board size, average 9, and board independence, 59% on average, increase audit quality in Africa. However, the relationship between board gender and audit quality is not significant. Financial report lag is not significant to audit quality in Africa. However, financial report lag in Kenya is negative and significant to quality audit. Our findings recommend that commercial banks in Africa should implement policies that would increase the size of their boards and the number of independent directors to enhance maximum benefits from good corporate governance practices.

How hours allocated to year-round auditing procedures affect audit quality

PurposeThis paper aims to examine how the allocation of audit hours to the year-round procedures, based on the risk of material misstatements in financial statements, impacts audit quality.Design/methodology/approachUsing a data set on audit hours spent on year-round and year-end procedures, the authors build an empirical model for testing the effectiveness of year-round auditing of Korean public firms during the period of 2014–2018.FindingsThe initial tests do not show that proportionate increases in year-round procedures increase audit quality. However, after the authors control for the risk of material misstatements, the authors find that proportionate increases in year-round audit hours generally increase audit quality, except for high-risk firms where audit quality increases only as year-end hours proportionately increase. For high-risk firms, the results suggest that increases in year-round audit procedures occur at the cost of the essential year-end work. Similarly, except for high-risk firms, the authors find that the allocation of more audit effort to year-round procedures improves audit efficiency.Originality/valueTo the best of the authors’ knowledge, this study provides some of the first empirical evidence showing how a risk-based approach to allocating audit effort over the duration of an audit can impact audit quality and efficiency. Regulatory bodies, such as the International Auditing and Assurance Standards Board and Public Company Accounting Oversight Board, which consider the proper allocation of audit hours as a key audit quality indicator, should find the results useful.

The Effect of Auditor Competence and Independence on Audit Quality at AYZ Company

The aim of this research is to see how auditor competence and independence affect audit quality. The background to this research is the importance of audit quality for stakeholders and the role of auditor competence and independence in improving audit quality. Data was collected through auditor reviews from various Public Accounting Firms (KAP). The research results show that the auditor's expertise and independence contribute significantly and positively to audit quality. In addition, the relationship between expertise and independence was also found to strengthen audit quality. This research shows that improving auditor education, training and experience and maintaining auditor independence are critical to producing high-quality audits.

Do major public emergencies affect audit quality? —Evidence from China

ABSTRACT Taking Chinese listed firms from 2019 to 2021 as research samples, we examine the impact of major public emergencies on audit quality using COVID-19 as exogenous shock. Distinguishing the location of audit clients and that of auditors, we find that if major public emergency occurs in the city of audit clients during the period of annual report audit, audit quality will be significantly reduced. If emergency occurs in auditor’s city, audit quality has improved instead of declining. Through the heterogeneity test, we find that the information level of audit clients has a double effect. When public emergencies in audit clients’ locality have a negative impact on audit quality, the information level of clients can alleviate the negative impact. However, when emergencies occur in auditor’s locality, the higher information level of the client may lower audit quality. However, whether public emergence occurs in the city of clients or auditors, auditing firms’ information technology level and more information technology personnel in auditors’ team are conducive to improve audit quality. The research has enriched the relevant research on audit quality in the context of public emergencies, and provided a theoretical basis for the urgency of digital transformation of accounting and auditing industry.

Financial investment by non-financial firms: does it affect audit quality?

AbstractIn the context of the global trend of increasing financial investment by non-financial firms, this study investigates how this process affects the audit quality of these firms. Employing data of Chinese listed non-financial firms from 2011 to 2020, we first examine whether the increasing proportion of financial assets in the total assets has an adverse impact on the audit quality of these firms. We then analyze the mediation effect of operational volatility on such impact by adopting the mediation test of the modified Sobel’s z and the bootstrap test. We find that a higher proportion of financial assets to total assets lowers the audit quality, confirming that the financialization of non-financial firms deteriorates their audit quality. Furthermore, the mediation tests show that operational volatility is an important channel for this negative effect.

Does the adoption of artificial intelligence by audit firms and their clients affect audit quality and efficiency? Evidence from China

PurposeThis study aims to examine whether the adoption of artificial intelligence (AI) by audit firms and their clients affects audit efficiency and audit quality.Design/methodology/approachThis study empirically examines the abovementioned research question based on data from China for the years 2011 to 2020. It uses audit report lag as a proxy for audit efficiency and the likelihood of annual report restatement as a proxy for audit quality. It adopts the propensity score matching and the two-stage OLS regression model to address the endogeneity issue led by firms’ innate complicated functions.FindingsThe findings show that when audit firms and their clients use AI separately, there's a positive link between AI use and audit report lag. However, when audit firms and clients use AI together, there's a negative link between AI use and audit report delays that enhance overall audit efficiency. Next, the authors observe a negative link between AI use and the likelihood of a restatement. Finally, the authors find that the association between AI adoption and audit quality is driven by increased audit effort lag. Results are consistent and robust to endogeneity tests and sensitivity analyses.Originality/valueFindings can complement the audit quality and corporate governance literature by clarifying that external audit must evolve through digitalization and the incorporation of newly developed digital tools, such as AI.

Pengaruh kompetensi dan integritas pada kualitas audit dengan key audit matters sebagai moderasi

This research aims to determine the influence of competency and integrity on audit quality with key audit matters as moderation at public accounting firms in DKI Jakarta that are active and registered with the Financial Services Authority (OJK). This research uses primary data with a survey method, namely distributing questionnaires with sample determination using a random sampling method, which 127 respondents used to spread across several Public Accounting Firms in DKI Jakarta. The data analysis method used in this research is the multiple regression method. This research shows that competence and integrity positively affect audit quality, and related moderating variables show that key audit matters (KAMs) cannot strengthen the relationship between competence and integrity on audit quality. Public interest statements Ensuring auditors' competency and integrity and effectively utilizing key matters (KAM) makes the audit process more transparent. This fosters greater public confidence in audited financial reports and ensures the reliability of company-provided information. Regulating the influence of competence and integrity on audit quality through KAM is expected to enhance transparency in financial information management, allowing for more informed public investment and financial decisions.

The impact of remote auditing on audit quality: the moderating role of technology readiness

PurposeThis study aims to investigate the impact of remote auditing on audit quality and explore the moderating role of both the client’s and the audit firm’s technology readiness in this interaction.Design/methodology/approachData was collected through a questionnaire survey distributed to 360 audit professionals in Jordan, resulting in 208 valid responses. The data was analysed using SmartPLS – structural equation modelling.FindingsThe results showed that remote auditing significantly and positively affect audit quality. This study found that the technology readiness of both the audit firm and the client greatly influences audit quality. Notably, the technology readiness of the client positively enhances the relationship between remote auditing and audit quality, while the technology readiness of the audit firm does not play such a role.Practical implicationsThe findings are of value to policymakers in terms of the positive impact of remote auditing on audit quality, and the role of technology readiness in this regard. In particular, they allow policymakers and regulators of audit profession to make informed and relevant decisions pertaining to the adoption of remote auditing. The findings also indicate the significance for audit firms and business institutions to pay special attention to developing their technology capabilities to keep abreast of rapid technology advancements, ensuring the maximum benefits for auditing profession, thereby enhancing their efficiency and effectiveness.Originality/valueThe importance of this study lies in its unique contribution to bridging the research gap related to understanding the pivotal role of technology readiness in enhancing the relationship between the use of remote auditing and the achievement of high audit quality.

The Impact of Audit Committee Strength on the Influence of Management Team Likeability

ABSTRACT The dynamics of the auditor-client interaction can provide cues and information that may affect audit quality beyond the collection of evidence. However, more research is needed to understand how certain cues from these interactions might factor into auditor decisions. Using the Elaboration Likelihood Model as a theoretical framework, we provide insight into how auditors use client management team likeability in their audit judgments. Our results suggest that audit committee strength influences auditor elaboration, thereby shifting how auditors use likeability as an information cue. We find that, when there is a weak (strong) audit committee, auditors use less (more) elaboration, which causes their inventory write-down judgments to be more (less) influenced by unlikeable client management teams. Moderated mediation analyses support the Elaboration Likelihood Model, providing a starting point for future research to examine other auditing judgments that could be affected by this theory. Data Availability: Data are available at http://www.osf.io/ under doi number 10.17605/OSF.IO/8VZKQ.

Determinan Kualitas Audit dimoderasi oleh Komite Audit

This study aims to analyze the factors that influence audit quality variables, especially audit tenure and the reputation of the Public Accounting Firm. In addition, this study examines whether the audit committee can strengthen or weaken the improvement of audit quality in the company. This study uses quantitative methods, and the data source is secondary data. The population of this study consists of 30 IDX companies listed on the Indonesia Stock Exchange (IDX) from 2016 to 2021. The population and sample in this study are IDX 30 companies listed on the IDX in the 2016-2021 period. The sample was selected using the purposive sampling method. There are 16 companies listed on the Indonesia Stock Exchange in IDX, 30 companies during 2016-2021 that match the researcher's criteria. The analytical methods used in this study include descriptive statistical analysis, logistic regression analysis, and moderation hypothesis testing using moderated regression analysis. This study found that audit tenure has no impact on audit quality. However, KAP size was found to affect audit quality significantly. The Audit Committee is unable to moderate the effect of Audit Tenure on Audit Quality; The Audit Committee is unable to moderate the effect of KAP size on audit quality.

MODERASI AUDITOR PROFESSIONAL SCEPTICISMPADA KOMPLEKSITAS TUGAS AUDIT, LOCUS OF CONTROLDAN KUALITAS AUDIT

Audit quality is the result achieved from financial statements that are presented fairly, all material matters or provide a true picture according to the financial reporting framework in order to increase the trust of users of financial statements. The purpose of this study is to investigate whether the complexity of the audit task, and locus of control can affect audit quality and auditor professional scepticism can moderate the effect of audit task complexity, and locus of control on audit quality. Type of research is quantitative research, in this study the data collection method is the distribution of questionnaires via g-form. The data collected in this study are the results of questionnaires distributed to auditors at public accounting firms in Indonesia. The results of this study audit task complexity and locus of control have a positive effect on audit quality, auditor professional scepticism cannot moderate the effect of audit task complexity and locus of control on audit quality.Keyword: Audit Quality, Audit Task Complexity, Locus of Control, and AuditorProfessional Scepticism.

Evaluating Internal Audit Excellence: Insights from Auditors and Auditees in Riau Province Regional Inspectorates The purpose of this study is to ascertain the variables that affect audit quality in the Pelalawan Regency, Riau Province, Indonesia, Regiona

The purpose of this study is to ascertain the variables that affect audit quality in the Pelalawan Regency, Riau Province, Indonesia, Regional Inspectorate. The Government Internal Supervisory Apparatus' (APIP) function has changed from that of a watchdog to that of a consultant and quality assurance agency in response to the public's growing desire for accountability and openness. This study uses auditor ethics as a moderating variable to investigate the effects of auditor competence, independence, reluctance culture, and professional correctness on audit quality using James Scott's patron-client theory. Using a survey approach, the study gathers primary data from 197 OPD leaders and 142 auditors. Partial Least Squares Structural Equation Modeling (PLS-SEM) is used for analysis. The findings show that while independence and a culture of reluctance have mixed impacts, competence and professional precision favorably affect audit quality. The association between competence and audit quality is strongly moderated by auditor ethics, but not that between independence, a culture of reluctance, or professional precision and audit quality. According to the findings, improving ethical standards and addressing the patron-client relationship are critical for efficient supervision and the reduction of corruption, even though boosting auditor independence and competency is also important. In order to accomplish good governance and raise the caliber of audits in regional administrations, this research emphasizes the necessity of regular training and bolstering the independence of the Regional Inspectorate.

The capital market consequence of sustained abnormal Audit fees: Evidence from stock price crash risk

Prior studies provide mixed interpretations for the effect of abnormal audit fees on audit quality. One interpretation is that abnormal audit fees reflect economic bonding which decreases audit quality, while the other interpretation is that they are associated with unobserved audit efforts and audit risk. We argue that long-term abnormal audit fees clarify mixed evidence, as they reflect the gradual formation and development of both economic bonding and sustained auditor efforts over time. We examine the effect of long-term abnormal audit fees on audit quality by focusing on client's future stock price crash risk. Using 42,604 firm-year observations of U.S. firms, we find that sustained positive abnormal audit fees (consistently positive long-term abnormal audit fees) are negatively associated with future stock price crash risk, supporting the auditor effort argument and negating the economic bonding argument. We also find weak evidence that current-period abnormal audit fees are positively associated with future stock price crash risk, supporting the audit risk argument. Overall, our evidence shows that the magnitude and the pattern of long-term abnormal audit fees jointly affect audit quality in mitigating a client's bad news hoarding behavior.