External Audit Quality Research Articles

The Role of External Auditors in Improving the Tax Audit Process in Yemen

The aim of the research is to investigate the role of external auditors in improving the tax audit process in Sana'a, Yemen. Primary data was collected using a questionnaire survey administered to a sample of 60 participants, including 33 employees from the tax authority and 27 licensed external auditors by the Ministry of Industry and Trade in Yemen. The study revealed that external auditors play a significant role in enhancing the quality of tax audits by raising taxpayer awareness of the importance of compliance with tax laws and regulations, thereby improving the levels of trust and credibility in the financial information provided in tax returns. The study recommended the application of international audit quality standards and emphasized the need to enhance trust and credibility among tax examiners in the tax returns prepared by external auditors according to audit quality standards, ensuring fairness, accuracy, and reliability of tax return data. The research highlights the importance of external auditing in improving the tax audit process in Yemen and underscores the importance of increasing awareness and adherence to external audit quality standards.

A Suggested Mechanism to Measure External Audit Quality and Failure

This study reviews measures of external audit quality and failure cases through discussing many studies which present them as cases, definitions, and failure reasons. The differences between both cases of audit, as procedures, are theoretically tested by a set of requirements in a suggested designed mechanism titled Audit Quality and Failure Measurement Mechanism (AQFMM) that based on 10 assumptions and includes 5 stages to measure audit. The conclusions of the study point out that the best way to measure audit is by separating between both cases of audit quality and failure and finding their differences and boundaries by the suggested mechanism.

External audit quality, auditor selection and hostile takeovers: evidence from half a century

PurposeExploiting a unique measure of hostile takeover exposure principally based on the staggered adoption of state legislations, the authors investigate how external audit quality is influenced by the discipline of the takeover market. External auditors and the takeover market both function as important instruments of external corporate governance.Design/methodology/approachThe authors execute a standard regression analysis and run a variety of robustness checks to minimize endogeneity, namely, propensity score matching (PSM), entropy balancing, an instrumental-variable analysis, Generalized method of moment (GMM) dynamic panel data analysis and Lewbel's (2012) heteroscedastic identification.FindingsThe authors’ immense sample spans half a century, encompassing nearly 180,000 observations and 17 takeover-related state legislations, one of the largest samples in the literature in this area. The authors’ results suggest that firms with more takeover exposure are significantly less likely to use Big N auditors. Therefore, a more active takeover market results in poorer external audit quality, corroborating the substitution hypothesis. The discipline of the takeover market substitutes for the necessity for a high-quality external auditor. Specifically, a rise in takeover susceptibility by one standard deviation lowers the probability of using a Big N auditor by 4.29%.Originality/valueThe authors’ study is the first to examine the effect of the takeover over market on audit quality using a novel measure of hostile takeover susceptibility mainly based on the staggered implementation of state legislation. Because the enactment of state legislation is beyond the control of any firm individually, it is plausibly exogenous. The authors’ results therefore probably reflect a causal influence rather than merely a correlation.

Women in top executive positions, external audit quality and financial reporting quality: evidence from Vietnam

PurposeThis study aims to investigate the effect of the presence of women in top executive positions on financial reporting quality (FRQ) and the role of external audit in enhancing the role of women in top executive positions.Design/methodology/approachThis study uses a sample of 644 Vietnamese-listed firms from 2010 to 2020 and applies fixed-effect and dynamic system generalized method of moments techniques for empirical models to test the related hypotheses.FindingsFirst, this study found a U-shaped relationship between women on the board and FRQ as well as women on the audit committee and FRQ. Second, female CEOs are positively associated with FRQ in small firms but there is no evidence of this in large firms. Third, a female chief accountant can enhance FRQ. Finally, external audit quality can reduce the negative effect of women on the board and the audit committee on FRQ and increase the positive impact of female chief accountants on FRQ.Practical implicationsThe results support all risk-averse, ethical sensitivity and glass ceiling hypotheses in different contexts. This study provides important implications for firms to enhance FRQ by nominating women in a majority of top executive positions and simultaneously using high-quality external audit services.Originality/valueThe impact of women in top executive positions on controlling FRQ in different contexts is an original contribution to gender in management literature.

Gender of firm leadership, audit committee gender diversity and audit quality through the lens of audit fee: a Ghanaian insight

PurposeThis study aims to examine how woman leadership (i.e., woman board chairperson, woman chief executive officer (CEO) and board gender diversity) affects audit fee and also ascertained the interactive effect of woman leadership and gender diversity on audit committee on audit fee.Design/methodology/approachThe study applied ordinary least square and fixed-effect estimators on the data of 21 universal banks in Ghana for the period 2010–2021 to estimate the empirical results.FindingsIt is revealed that under the leadership of women (woman CEO and board gender diversity), higher external audit quality is ensured as higher audit fee is paid. Interestingly, it was found that with the presence of women on the audit committee, the integrity of internal controls and internal audit procedures are enhanced, which leads to quality financial reporting, calls for lower audit effort, hence lower audit fee.Practical implicationsThe result indicates that firms can rely on the leadership of women in ensuring quality external audit and quality financial reporting, which ultimately helps to minimize the information risk to all stakeholders.Originality/valueThe paper contributes to extant literature by establishing that, under the leadership of women in banking entities from a developing country context, external audit quality and financial reporting are achieved.

Determinants of Financial Reporting Fraud in the Perspective of Fraud Hexagon

The purpose of this study is to detect fraud in financial statements using Fraud Hexagon analysis which includes stimulus proxied by financial stability and external pressure, opportunity proxied by effective monitoring and quality of external, rationalization proxied by change in auditors, capability proxied by change in directors, arrogance proxied by the size of CEO photos, and collusion proxied by cooperation between companies and govermemnt. This study uses the Beneish M-Score measurement to detect fraudulent financial statements. The sampling method is purposive sampling consisting of 51 companies that meet the criteria of 80 infrastructure, utility and transportation companies listed on the IDX for 2017-2022. The hypothesis in this study was tested using logistic regression analysis. The results of the study show that the variables of supervisory effectiveness, changes in directors, and cooperation between companies and the government have an influence on fraudulent financial statements. Meanwhile, the variables of financial stability, external pressure, quality of external auditors, changes in auditors, and CEO photo size have no effect on fraudulent financial statements.

The Informative Value of CG Code Voluntary Disclosure on Firm Performance When Moderated by External Auditors

The study aims to empirically examine the voluntary disclosure of the corporate governance code (CG Code) of Thai-listed companies. It also examines the effects of the information value of the CG Code on firm performance and the moderating role of external audit quality in this effect. A disclosure specification comprising 137 voluntary items recommended by the OECD is employed to judgmentally evaluate the CG Code disclosed by the 95 fully implementing firms listed on the Stock Exchange of Thailand. The analysis is performed using multivariate regression techniques along with Hayes’s regression-based analysis and shows that CG Code and audit quality have a statistically significant positive effect on firm performance. In addition, audit quality was found to moderate the positive effect of the CG Code on firm performance, such that the effect of the CG Code on firm performance is strengthened as the quality of audits increases. Specifically, the positive effect of CG Code on firm performance is stronger when the audit quality is at the average value and above, whereas CG Code shows no statistically significant effect on firm performance when audit quality is below average. The paper has contributed to the academic literature that managers should be motivated to voluntarily disclose the CG Code and also engage with high-quality auditors in general and Thailand in particular.

Corporate Governance and Profitability of Manufacturing and Allied Firms Listed at the Nairobi Securities Exchange, Kenya

The study examined the effect of corporate governance on the profitability of manufacturing and allied firms listed at the Nairobi Securities Exchange, Kenya. The study was anchored by agency theory and stakeholder theory. Nine manufacturing and allied firms listed at the Nairobi Securities Exchange, Kenya constituted the target population and a census approach was adopted. The study found that board size had significant implications on the profitability of manufacturing and allied firms listed at the Nairobi Securities Exchange, Kenya (p= 0.009, β= -0.023). It was established that board independence is significant in predicting profitability (p= 0.011, β= -0.001). External audit quality had a significant effect on profitability (p= 0.001, β= 0.258). Institutional ownership was significant in determining profitability (p= 0.000, β= 0.002). The study recommends that listed manufacturing and allied firms should ensure that an effective board is constituted which is optimum in size. The study further recommends that a blended board should be ensured comprising of both executive and non-executive directors which reflects the level of independence of the board. It was also recommended that firms should ensure that a highly reputable external auditor is appointed. In addition, firms should strive towards having a higher proportion of institutional shareholding to outstanding shareholdings. Given the 53.53 percent unexplained variation in profitability, further studies on manufacturing and allied firms listed at the Nairobi Securities Exchange, Kenya can consider other corporate governance attributes.

Fraudulent Financial Reporting Indications In Banking Before And During The COVID-19 Pandemic

Fraudulent Financial Reporting Indications In Banking Before And During The COVID-19 Pandemic

Pengaruh Corporate Governance dan Auditor Eksternal dalam Pencegahan Kecurangan Menggunakan Model Beneish dan Model OMI

Fraud cases have occurred since 2001. This has an impact on the decline in the world economy. In 2019, there was another decline in the world economy due to the Covid-19 outbreak which had an impact on reducing the quality of company financial reports. To prevent a decline in the quality of company financial reports which results in increased fraud, corporate governance and the quality of a company's external auditors must be improved. This study aims to empirically examine the role of corporate governance attributes, consisting of boards of directors, commissioners, audit committees, and institutional ownership, as well as the role of the quality of external auditors which is proxied by differences in Big 4 and Non Big 4 auditors in fraud prevention. The research sample is non-financial companies listed on the Indonesia Stock Exchange (BEI) during the 2017-2021 period, with observations of 307 companies. The regression method used to test the hypothesis is, the Beneish Model uses the logistic regression method with the help of SPSS ver 21 and the OMI Model uses the OLS regression method with the help of Eviews 12. The results of the research between the two regression models are that only the external auditor quality variable has a significant relationship with prevention. fraud. However, when tested using the logistic regression method, the variables that are significant in preventing fraud are institutional ownership and the quality of external auditors. Meanwhile, when tested using the OLS regression method, the research results showed that the variable that was significant in preventing fraud was the quality of the external auditor. So the use of the OMI Model in this research can strengthen the probability results of the Beneish Model to measure fraud in a company.

The Impact of External Outsourcing of Internal Audit on The Quality of External Audit - A Field Study

The study dealt with the impact of external outsourcing of internal audit on the quality of external audit in a field study. The study aimed to identify the concept and importance of external outsourcing for internal auditing, and to identify the concept and importance of the quality of external audit. The problem of the study was represented by the business establishments' lack of interest in qualifying and developing the employees of the Internal Audit Department, which results in the adoption of the establishments management to perform these tasks from an external source. The study reached results, the most prominent of which is the benefit of business establishments from the expertise of external parties by allowing the outsourcing process in its various branches (total, partial, joint) to them. The study recommended the need for academic and professional bodies to hold seminars and training courses regarding attribution in its various branches to clarify its advantages and the possibility of benefiting from it. Keywords: Outsourcing of the internal audit, Full-Outsourcing, Partial-Outsourcing, Partnering/Co-sourcing, Quality of external audit.

Research on the Relationship between Internal Audit Externalization, Executive Power and Audit Quality

Audit quality is divided into internal audit quality and external audit quality, and the independence of the former has always been weaker than that of the latter. By selecting the two variables of internal audit outsourcing and executive power, combined with the method of empirical research, we compared the above two variables with audit quality. We will study the relationship between them and explore measures to strengthen audit independence from two perspectives, ultimately achieving the effect of improving audit quality. Based on the collation of domestic and foreign literature on factors affecting audit quality, this paper studies the relationship between internal audit outsourcing, executive power and audit quality, defines the concepts respectively, and determines the theoretical basis required for the research. From three Starting from the relationship between variables, a total of three hypotheses were put forward. An investigation was conducted using A-share listed companies in the Shanghai Securities Market from 2014 to 2018 as a research sample. Based on previous research, appropriate methods were selected to quantify the three variables and establish a model. Through empirical analysis, all three hypotheses have been verified. The first conclusion is that executive power is negatively related to corporate internal audit quality, that is, the greater the executive power, the lower the audit quality. The second conclusion is that internal audit outsourcing is positively related to audit quality, that is, the more reasonable the allocation of internal audit outsourcing services, the higher the audit quality. The third conclusion is that internal audit outsourcing will inhibit the negative relationship between executive power and audit quality.

The impact of corporate governance mechanisms on corporate failure: an empirical evidence from Palestine Exchange

PurposeThe purpose of this research is to examine the impact of governance mechanisms on corporate failure.Design/methodology/approachThis study used a hypothesis-testing research design to collect data from the annual reports of 35 companies listed on Palestine Exchange from 2010 to 2019. Descriptive and inferential statistics were employed, along with correlation analysis to evaluate linear relationships between variables. The variance inflation factor was used to test multicollinearity, and binary logistic regression was utilized to develop the research model.FindingsThere is a significant positive relationship between board of directors' independency, institutional ownership and the quality of external audit, and corporate failure reduction. No significant relationship has been found among corporate governance variables such as board size, board meetings' frequency, board members' remuneration and audit committee existence, and corporate failure reduction.Research limitations/implicationsSeveral empirical research studies have developed models to predict corporate failure using accounting and financial data. However, limited research has empirically investigated the impact of the different mechanisms of governance on corporate failure prediction.Practical implicationsThe research highlighted the significance of companies' commitment to governance principles and their impact on predicting failure. The study suggests that decision-makers and managers can adopt different governance mechanisms to support corporate success and avoid those that may lead to negative consequences and failure.Originality/valueThis research is the first in Palestine to use a comprehensive list of corporate governance mechanisms to predict the failure of companies listed on the Palestine Stock Exchange between 2010 and 2019.

Pengaruh Financial distress, Karakteristik Komite Audit dan Kualitas Auditor Eksternal terhadap Manajemen Laba Akrual

This study aims to examine the effect of financial distress, effectiveness audit committee, and external auditor quality on accruals earnings management. This type of research is causal associative with a quantitative approach. The data used is obtained from the annual reports of companies in the manufacturing listed on the Indonesia Stock Exchange 2017-2021. The sample selection method using purposive sampling obtained 435 samples from 87 companies. This study uses multiple linear regression analysis to test the hypothesis which is assisted by using the SPSS program. The results show that audit committee meetings have a significant and negative effect on accruals earnings management, while financial distress, audit committee size, audit committee expertise, and external auditor quality not have significant effect on accruals earnings management.

The Influence of Internal and External Quality Audit on The Sustainability of Surabaya Merchant Marine Polytechnic

Purpose: The era of globalization and free markets forces universities to organize themselves by introducing internal quality assurance to guarantee the quality of education and services. In addition to internal quality assurance, universities as labor producers also require quality assurance from certification bodies outside the university. Several previous studies examined the influence of internal and external quality audits on work productivity and employee performance. In this study, the effect was seen to be different from before, namely knowing the effect of internal and external quality audits on the sustainability of the Surabaya Merchant Marine Polytechnic. The purpose of this study was to determine whether internal and external quality audits affect the sustainability of the Surabaya Merchant Marine Polytechnic.
 Design/methodology/approach: This study uses quantitative research with a population and the sample is a work unit at the Surabaya Merchant Marine Polytechnic which is involved with internal and external quality audits. The data collection method in this study was to use questionnaires using multiple linear regression analysis. Tests in this study used SPSS statistics version 26.
 Findings: The conclusion of this study is that there is a significant influence between internal and external quality audits on the sustainability of the Surabaya Merchant Marine Polytechnic either partially or simultaneously. The variable that has the dominant influence on this study is the internal quality audit.
 Paper type: Research Paper.

Pengaruh Frekuensi Pertemuan Dan Keahlian Keuangan Komite Audit Serta Spesialisasi Dan Kualitas Auditor Eksternal Terhadap Pengungkapan Modal Intelektual

This study discusses the importance of the relationship between audit meetings, financial audit expertise, the specialization of external auditors, and the quality of external auditors on intellectual capital disclosure. Intellectual capital disclosure variable is measured by using the 61 checklists in 3 formats namely tables, images and numeric. In this study, the variables of audit committee’s characteristic are the frequency of meeting’s audit committee and financial expertise of the audit committee, while the variables of auditor external’s characteristic are the specialization of external auditors and the quality of external auditor. The population in this study is the Property and Real Estate sector companies listed on the Indonesia Stock Exchange (IDX) in 2014-2018. Total research sample is 18 companies that are selected by Non-Probability Sampling method. This research analyzes the company's annual report using the method of purposive sampling. Data analysis is tested by the test of classical assumptions, test of hypothesis, and simple linear regression analysis method. Based on the results of research conducted it can be seen that the frequency of audit committees influences the disclosure of intellectual capital.

Determinants Of The Level Of Corporate Risk Disclosure In Manufacturing Companiesyear 2017-2021

This study aims to determine the effect of the Independent Board of Commissioners, External Auditor Quality, Competition, Company Size, Profitability and Leverage on Corporate Risk. The population in this study are manufacturing companies listed on the Indonesia Stock Exchange in 2017-2021, totaling 193 companies. While the sample obtained was 45 companies. The sampling technique used purposive sampling technique, the research method is quantitative method. The data analysis used in this study is multiple linear regression analysis processed using SPSS 26. The results showed that the independent board of commissioners has no effect on company risk, the quality of external auditors has no effect on company risk, competition has an influence on company risk, company size has an influence on risk, profitability has no effect on company risk, and leverage has an influence on company risk.

Pendeteksian Financial Statement Fraud dengan Menggunakan F-Score Model : Perspektif Fraud Pentagon Theory

This study aims to determine the partial effect of financial stability, financial targets, ineffective of monitoring, quality of external audit, change in auditors, change in directors, frequency number of CEO's picture on financial statement fraud in mining companies listed on the IDX. 2021. This study used a quantitative approach and the sample collection method in this study used purposive sampling and obtained as many as 18 companies as samples. The type of data used in this study is secondary data sourced from the company's financial reports and annual reports obtained directly from the Indonesia Stock Exchange (IDX). The data analysis method used is multiple regression analysis which is processed using the SPSS program. Based on the results of research conducted on 18 mining sector companies for the 2020 and 2021 periods it concluded that the financial stability variable as measured by ACHANGE did not have a significant effect on financial statement fraud, the financial target variable as measured by ROA had a significant effect on financial statement fraud, the ineffective variable of monitoring measured by BDOUT has no significant effect on financial statement fraud, the quality of external audit variable as measured by AUD has no significant effect on financial statement fraud, the change in auditor variable as measured by CPA has no significant effect on financial statement fraud, the change in director variable as measured with DCHANGE it has no significant effect on financial statement fraud and the frequency number of CEO's picture variable has no significant effect on financial statement fraud.

ANALISIS FAKTOR-FAKTOR YANG MEMPENGARUHI PENGUNGKAPAN RISIKO

The purpose of this research is to analyze the factors that influence risk disclosure. The population used is the primary consumer industrial sector companies listed on the IDX in 2018-2020. The sample used is as many as 195 companies selected with predetermined criteria. The data was processed using SPSS 25. The data processing method was descriptive statistical analysis and multiple linear regression analysis. The results of this study indicate that profitability has a significant effect on risks disclosure. Meanwhile, the independent board of commissioners, the quality of external auditors, and competition do not have significant effect on the risks disclosure.

Factors Affecting Risk Management in Industrial Companies in Jordan

This study aims to identify and rank the critical factors affecting risk management from the perspective of top and Lower Management in Jordanian industrial companies. Based on a rigorous literature review, critical factors affecting risk management are factors related to (1) flexibility and adaptation in the economic environment; (2) company characteristics; (3) external audit quality; (4) government rules and regulations; (5) top management and the board of directors; (6) organizational structure; (7) internal audit effectiveness; (8) trust; (9) human resources efficiency and training (10); communications (11); information technology (12); and the company’s culture. Quantitative research methods were used. A questionnaire was developed and distributed to a random sample of senior managers of industrial companies in Jordan. Kendall and Mann–Whitney tests, RII, and EFA were used to analyze the acquired data. The results show that all discussed factors have an effect on risk management, and there is no difference between top and Lower Management’s opinions regarding the ranking of the importance of those factors on risk management. This study provides an original perspective on the concept of risk management and the factors that impact it. These findings have important implications for Jordanian industrial companies’ decision makers. Companies should apply the results to their strategies and policies to reduce risks.