External Audit Quality Research Articles

Auditor distraction: The case of outside job opportunities for external auditors and audit quality

AbstractPublic accountants are in high demand by non‐accounting firms. While this demand attracts high‐quality accountants to public accounting, it can negatively impact audit quality by distracting auditors. We find that the number of metropolitan statistical area–level busy season job postings for public accountants by non‐accounting firms is positively associated with misstatements. Results are most pronounced (1) when outside job opportunities are from non–publicly traded companies, which likely provide better work‐life balance, and (2) when auditors are under a heavier workload, as captured by higher audit fee‐to‐auditor ratios and increased job postings by audit offices leading into the busy season. Results also suggest that accounting firms that provide large pay increases before the busy season can mitigate the negative audit‐quality effects of busy season job postings for public accountants. These results suggest that accounting firms are not immune to negative effects of auditor distraction from outside job opportunities despite accounting firms knowing that their auditors are highly sought after by non‐accounting firms.

The Influence of External Audit Quality on Discretionary Accruals and Real Earnings Management Practices: An Analysis of Malaysian Firms

This paper aims to analyse the mitigating effects of external audit quality (EAQ) factors on earnings management (EM) practices. Data were collected from firms listed on Bursa Malaysia’s main market, covering the years 2011 through 2022. Panel regression was employed to analyse the data. The findings of this study confirmed a significant negative association between audit reputation, audit quality, audit opinions, and EM of listed firms in Malaysia. Audit fees and audit tenure were found to be not significant in relation to EM. The study included five control variables in the analysis, and only economic value added (EVA) was found to be significant. The findings suggest that a number of audit quality factors are indicative of EM among listed firms. The authors extend, as well as contribute to, the growing literature on the EAQ, and therefore, wider corporate governance literature. Thus, it provides originality by presenting empirical evidence and outcomes to fully understand how discretionary accrual and real EM affect EAQ in the Malaysian context. Therefore, stakeholders should place higher concern on the selection of an external auditor, and investors should take into account the external audit factors when making investment decisions. Measuring the effectiveness of EAQ allows decision-makers to evaluate how effective employed governance measures are in improving shareholders’ perceptions of financial information quality and mitigating EM practices.

The Fraud Pentagon Analysis In Financial Companies On The Indonesia Stock Exchange

This research was conducted to examine the effect of the fraud pentagon theory developed by Crowe Horwath on the possibility of fraud in financial statements. The sample used in this study came from 105 financial companies listed on the Indonesia Stock Exchange (IDX) during the 2020-2022 period. Sampling was carried out using the purposive sampling method. The data analysis method is logistic regression test analysis, processed using the Eviews application. The Pentagon theory posits five key factors: pressure, opportunity, competence, arrogance, and rationalisation. Our analysis revealed that while pressure and opportunity, as proxied by financial targets, stability, external pressure, and ineffective supervision, did not significantly influence fraud risk, the quality of the external auditor emerged as a significant determinant. Conversely, changes in auditors (rationalisation), directors (competence), and the frequency of CEO pictures (arrogance) did not appear to be significant predictors of fraud. This study suggests that external audit quality is more significant in preventing financial statement fraud than the traditional fraud triangle (pressure, opportunity, rationalisation) or other factors like competence and arrogance.

External Audit Quality and its Factors in Palestinian Municipalities: Moderating Effect of Supreme Audit Institutions

Objectives: The study aims to investigate the relationship between external audit quality and its factors (i.e., auditor characteristics, audit firm attributes, and effectiveness of municipal internal control), as well as the moderation effect of supreme audit institutions between external audit quality and its selected factors, as perceived by accountants and internal auditors in Palestinian municipalities. Methods: To achieve the objectives, questionnaires were distributed to 309 accountants and internal auditors in 155 Palestinian municipalities. They have firsthand knowledge of the financial statements under audit and are in constant communication with external auditors. Smart PLS 3 was used for statistical analysis. Results: The results revealed that the direct relationships between audit quality, auditor characteristics, and effectiveness of municipal internal control were positive. These relationships were also positively moderated by supreme audit institutions. The relationship between audit quality and audit firm attributes was also positive, but it was negatively moderated by supreme audit institutions. Conclusion: Audit firms, audit profession regulators, and municipality administrators can use these findings as useful guidelines in determining the factors of audit quality required in municipal audit engagements. This study encourages future research to examine other moderators, such as politics and public elections.

Institutional Possession, Supervisory Board Size, External Auditor Quality, and Profit Quality

Institutional Possession, Supervisory Board Size, External Auditor Quality, and Profit Quality

Unleashing the impact of environmental information disclosure on corporate green innovation: The role of audit quality and media attention

Green innovation is critical for enterprises to achieve sustainable development, although academics and entrepreneurs often associate it with financial performance. However, more research is needed on the boundary and mechanism of the effect of environmental information disclosure on corporate green innovation. Based on the data of A-share listed companies from the years 2008–2022 in China, this study discusses the impact of environmental information disclosure on green innovation. It analyzes the moderating effects of external audit quality and media attention. The results show that environmental information disclosure promotes green innovation. Further, audit quality and media attention have a positive moderating effect. In addition, this effect is more evident in non-state and heavily polluting industries. Finally, alleviating financial constraints is a critical mechanism for how environmental information disclosure affects green innovation.

The Effect of External Audit Quality, Related Party Transactions, Political Connec-tions, Esg Performance and Independent Assurance on Sustainability Reports on Firm Value

This research is based on the importance of companies knowing the factors that can affect the value of the firm in accordance with the development of the times so that the company can continue to survive in success in the long term. This study combines factors related to the company's non-financial performance, including sustainability performance such as ESG performance and the use of independent assurance in sustainability reports as well as other non-financial performance such as the quality of external audits, related party transactions, and political connections to determine the influence of these factors on the firm's value. The method used in this study is a panel data regression analysis method using e-views 9 with a sample of companies in the energy and basic materials sectors listed on the Indonesia Stock Exchange (IDX) in 2021-2023. The results of this study show that the quality of external audits, related party transactions, political connections, environmental performance (ESG_Environment), social performance to employees (ESG_Social Employees) and the use of independent assurance in sustainability reports have no effect on firm value while, social performance to the community (ESG_Social Community) and governance performance (ESG_Governance) have a positive effect on firm value.

Risk Governance Unlocks Islamic Banks’ Dual Performance Goals

This study investigates the moderating effect of risk governance structures on the relationship between risk management—covering insolvency, financing, and operational risks—and the financial and social performance of Islamic banks in Indonesia. Using dynamic panel data regression, the analysis draws on annual report data from 11 Islamic commercial banks over the period from 2012 to 2021. The findings show that certain risk governance structures, such as the size and independence of the audit committee, the expertise of its members, the frequency of meetings, and the quality of external audits, significantly enhance the effectiveness of risk management in improving both financial and social outcomes. Moreover, unique Islamic banking structures, such as the size of the Shariah Supervisory Board and the frequency of its meetings, further strengthen these effects. These results highlight the importance of robust governance in optimizing risk management and improving the overall performance of Islamic banks, with implications for regulatory bodies and Islamic financial institutions aiming to improve governance frameworks.

A study of mediating and moderating effects on the relationship between audit quality and integrated reporting quality among Jordanian firms

PurposeThe purpose of this research is to investigate the link between external audit quality and integrated reporting (IR) quality in the Jordanian market, a developing market. Furthermore, the research model considers the mediating effect of earnings management practices and the moderating effect of board gender diversity. As a result, it intends to provide further empirical evidence in this area.Design/methodology/approachThis research investigates its model using data from Jordanian services companies listed on the Amman Stock Exchange (ASE) during the period 2013–2022. With 430 company-year observations, the current research’s sample includes all companies in the research population for which complete data were available during the period under investigation. Data relevant to the research setting were obtained from annual disclosures and the ASE's database.FindingsThe findings of this research show that audit firm size and audit firm specialty have a positive influence on IR quality, but audit firm tenure does not. External audit quality (as proxied by the size, specialty and turnover of the audit firm) had a negative impact on earnings management practices, while earnings management practices had a negative impact on IR quality. Additionally, the findings reveal that earnings management practices completely mediate the relationship between two external audit quality proxies (audit firm size and audit firm specialty) and IR quality. Furthermore, in terms of the moderating impact of board gender diversity, it is obvious that board gender diversity favorably moderates the relationships between all external audit quality proxies and IR quality.Originality/valueUsing agency theory and stakeholder theory, this investigation fills a gap in previous literature by adding scientific explanations and empirical evidence from the Jordanian market, a developing market, in the context of the impact of audit quality on IR quality, mediated by earnings management and moderated by board gender diversity.

Pengujian Hexagon Fraud Theory dalam Mendeteksi Fraudulent Laporan Keuangan

This research aims to test the fraud hexagon component for the possibility of fraudulent financial reports. The research population uses companies listed on the Indonesia Stock Exchange with a sample of 32 banking issuers. The research results show that only the change in director variable has a positive influence on fraudulent financial reports. The financial stability variable, the external auditor quality variable, the change of auditor variable, the CEO's picture variable, the project variable with the government are not proven to have an effect on fraudulent financial reports.

The Impact of Ownership Structure on Tax Avoidance: Audit Quality ss Moderating Variable

Purpose: This research is aimed at giving empirical evidence related to the correlation of ownership and corporate tax avoidance as well as describing the moderating effect of audit quality.Method: The sample comprises 315 observations from manufacturing companies listed on the IDX (Indonesia Stock Exchange) during the period of 2015-2019. For data analysis, panel data regression techniques were employed to ascertain the effect of ownership on tax avoidance moderated by audit quality.Findings: The results indicated that institutional, family, and foreign ownership were positively related to corporate tax avoidance. Nevertheless, the effect of audit quality was found to moderate the correlation of family and foreign ownership to tax avoidance. Originality/Value: This research contributed fresh evidence that elevated external audit quality held a moderating effect on tax avoidance in family-owned companies and those under foreign ownership.

Study of the Relationship between the Rotation of External Auditors and Audit Quality

Purpose - The objective of this research is to study the relationship between external auditor turnover and audit quality. To do this, we chose two measures of audit quality, namely discretionary accruals and the auditor's opinion. Design/methodology/approach - Using a sample of 37 Tunisian companies listed during the period from 2015 to 2021, the paper uses a logistic regression to investigate the association between the quality of the audit and the rotation of the auditors. Findings - The results obtained based on linear and logistic regression invalidate the two hypotheses which assume on the one hand that a long-term mandate negatively influences the quality of the audit, on the other hand the assumption that the rotation of the auditors has a positive impact on the quality of the audit. Contrary to what was expected in our research, the results of the logistic regression show that a long-term audit mandate has a positive effect on audit quality. Research limitations/implications – This research may be of interest to many developing countries that has not a lot of studies on the audit turnover. Future research should focus on the link between audit turnover consequences to overcome the gap which might exist in the literature. Practical implications – Previous studies has shown how it is important to focus on audit opinion to reduce asymmetric information between managers and stockholders. And, this study offers some insights about audit shipping that should be analyzed to understand audit turnover. Originality/value – This research highlights the role of audit opinion in the rotation of auditors in emerging markets. Consideration of this relationship may contribute to the understanding of the auditor turnover in developing countries.

Do Directors’ Network Positions Affect Corporate Fraud?

Corporate fraud poses a significant obstacle for sustainable business development. Drawing on social network analysis, this paper used data originated from Chinese-listed companies from 2009 to 2022 and found that directors’ network position significantly mitigates corporate fraud. Mechanism tests indicated that the quality of external auditors and internal control play a mediating role in this relationship. Further analysis showed that the network positions of independent directors, non-independent directors, and female directors individually inhibit the inclination of corporate fraud when considering various types of directors. Of note, the busy director hypothesis was not applicable in explaining the impact of directors’ network position on corporate fraud. This study provides a new approach to improving the sustainability of enterprises in newly emerging markets via the analysis of director networks. It is also beneficial to the research on director networks and corporate fraud in companies, offering insights for corporate governance and fraud prevention in companies and regulatory agencies.

Is it a matter of governance or judicial favoritism? Legal expertise at an executive level and its use in cases of corporate financial fraud

This study examines how executives’ legal expertise affects corporate financial fraud and the mechanism behind this using data from A-listed companies between 2011 and 2021. Findings show a positive correlation between executives’ legal backgrounds and corporate financial fraud, which is mainly driven by external audit quality and corporate social responsibility. This finding provides evidence of how the law affects small-scale corporate governance. This study emphasizes the value of firms leveraging their executives’ legal background, which helps regulators identify potential hazards in corporations.

The Influence of Auditor Professionalism, Independence, and Ethics on External Audit Quality

The Influence of Auditor Professionalism, Independence, and Ethics on External Audit Quality

Does Good Corporate Governance contribute to Tax Aggressiveness in the Banking Sector

This study aims to determine how much influence good corporate governance is measured by the gender of the board of commissioners, the quality of external auditors and institutional ownership on tax aggressiveness. This research was conducted on banking companies listed on the Indonesia Stock Exchange in 2020-2022. This study used quantitative methods with purposive sampling techniques with a total sample number of 69. The analysis methods used in this study are classical assumption test and multiple linear regression analysis with SPSS Statistics 22 tool. The results of this study show that the gender of the board of commissioners, the quality of external auditors and institutional ownership do not affect tax aggressiveness. The limitations of this study include limited independent variables, auditor quality measurement is not optimal, supporting theory references are limited, and many companies do not provide complete information, so the research sample is reduced. Researchers suggest adding independent variables, avoiding dummy variables in measuring the quality of external auditors, as well as increasing the research period for stronger analysis.

Budaya Mutu (Quality Culture) Universitas Ibnu Chaldun Jakarta

The objective study aims to describe in full and comprehensively related to the implementation of quality culture at Ibnu Chaldun University in Jakarta, the oldest Islamic Higher Education institution in Jakarta. Quality culture is expressed by starting with the development of the Internal Quality Assurance System, independently conducting Internal Quality Audit and External Quality Audit by authorized institutions, Independent Accreditation Institutions, according to the Study Program and the National Accreditation Board for Higher Education. This research was conducted using the Research and Development (R&D) method, developing the Borg and Borg stages, namely the ten Borg steps for Research and Development (R&D), so that in the end the researcher concluded that Quality Culture was created from the commitment of all parties to implement, implement and control the Internal Quality Assurance System in all institutional units that work continuously and collaboratively, so that sustainable quality is created to get the best.

The Influence of Governance Mechanisms on the Quality of External Audits, Case of Moroccan Companies Listed on the Stock Exchange

The Influence of Governance Mechanisms on the Quality of External Audits, Case of Moroccan Companies Listed on the Stock Exchange

APPEAL: a toolkit for attracting people who inject drugs with hepatitis C to healthcare systems

Abstract Aim The “APPEAL” toolkit was developed to address the challenges in diagnosing people who inject drugs (PWID) with hepatitis C (HCV) and engaging them with healthcare systems. It introduces an ecosystemic approach based on health and well-being literacy across awareness, prevention and diagnosis dimensions of the hepatitis C’s care cascade (CC) for PWID. Subject and methods The framework incorporated a scoping review and thematic analysis of 54 studies, alongside contributions from 57 hepatitis C key opinion leaders across seven countries. The toolkit is structured around five main axes: problems, solutions, outputs, outcomes and feedback process, employing a holistic perspective that considers economic, legal and social contexts. Eighteen policy prescriptions (PP) are proposed and supported by selective references to ensure relevance and applicability. Results The APPEAL toolkit facilitates a strategic workflow for policymakers, health authorities and patient advocacy organizations, guiding them through action flowcharts to evaluate and enhance their interventions within the hepatitis C’s CC for PWID. Notably, its implementation demonstrated potential in identifying and attracting PWID to hepatitis C treatment pathways, contributing to increased diagnostics, education on risk behaviours and raising overall disease awareness. The toolkit’s intelligent cycle system supports accountability, enabling continuous data-driven improvement and innovation in addressing hepatitis C. Conclusion The APPEAL toolkit was developed to attract PWID living with HCV to healthcare systems in a proactive manner. By managing information and fostering education on HCV, it aims to amplify awareness, prevention and diagnosis. The toolkit’s design and functionality underscore the importance of continuous quality improvement and the potential for its use in internal or external quality audits of healthcare services related to hepatitis C.

Executive financial background, external audit quality and shadow banking in non-financial firms

The absence of formal financial services in the face of the actual economy's transition from old to new sources of energy and development modes has led to the emergence of a widespread shadow banking sector. Based on the high-order ladder theory, this paper examines the influence of executives' financial background on non-financial firms' shadow banking. The finding reveals a positive impact of executive financial backgrounds on non-financial firms' shadow banking, mainly driven by the executives' non-banking financial experiences, primarily contributing to the shadow credit chain model. Additionally, high-quality external audits discourage management from engaging in blind shadow banking activities.