External Audit Research Articles

Penta helix collaboration in the completion of follow-up of public financial audit results in Indonesia

Penta helix collaboration in the completion of follow-up of public financial audit results in Indonesia

International Standard on Auditing (220), Quality Management for an Audit of Financial Statements, and its Role in Enhancing Audit Quality (A Field Study on some Audit Offices in Sudan)

The main objective of this study is to know the role of the International Standard on Auditing (220) in enhancing the audit quality. To achieve this goal, (170) questionnaires were distributed to the study population which represented in some audit offices in Sudan, and (150) questionnaires were retrieved and analyzed. The study relied on the inductive approach and descriptive analytical approach. The study found several results, among which is, the audit office adopts policies and procedures for what can be consulted in meetings that, contribute to enhancing audit quality, and continuous monitoring of the progress of the audit process enhances the quality of the audit. The study concluded with a number of recommendations, the most important of which is that, necessity of spreading the culture of audit quality and its positive results among external and internal auditors in the Sudanese environment through workshops, seminars and scientific conferences.

Competition and Certification: Theory and Evidence from the Audit Market

Abstract We study how financial certifier competition influences loan contracting in the context of financial auditing. Exploiting the unexpected demise of Arthur Andersen that exogenously decreased auditor competition, we find a greater decrease in loan spread for borrowers in markets in which certifier competition declined more. Additional analyses suggest the result stems from enhanced audit quality and reduced credit risk. The effect of certifier competition is stronger for borrowers with weaker external monitoring and those generating significant revenue for their auditors. Our evidence highlights negative consequences of financial certifier competition. (JEL D43, G21, M42, M49)

The Use of Artificial Intelligence in Financial Statement Audit

The rapid advancement of Artificial Intelligence (AI) has transformed various industries, including financial auditing, by improving efficiency, accuracy, and fraud detection. This study investigates the extent of AI adoption in financial audits in Indonesia, with a focus on both Big 4 audit firms and smaller, local firms. Through a literature review and interviews with auditors from eight firms, the research explores the current state of AI utilization and the barriers to its implementation. The results indicate that while Big 4 firms are in the developmental phase of integrating AI into their auditing processes, smaller firms face significant obstacles, such as financial limitations, lack of expertise, and regulatory uncertainties, which hinder AI adoption. Despite the challenges, auditors from larger firms anticipate that AI will play a crucial role in future audits. The study concludes that AI adoption in Indonesian financial audits is uneven, and further efforts are required to support smaller firms through accessible AI tools, clearer regulations, and targeted training. These measures are essential for closing the gap in audit quality between large and small firms, ensuring broader AI implementation in the auditing sector.

Auditors’ Trust in Audit Committees and Audit Quality

ABSTRACTIn light of global advancements in corporate governance, it is imperative for external auditors and audit committees to engage in communication and interactions to ensure that external audits are conducted to a high standard and quality. While many studies report that audit committee expertise, diligence, and independence are associated with monitoring, often they do not provide explanation of the mechanisms through which these happen. There is limited research on how external auditors’ trust in audit committees affects their interactions and therefore audit quality. This paper examines external auditors’ trust and their interactions with audit committees. We find that external auditors’ perceptions of audit committee members’ competence, goodwill, and integrity shape their trust in audit committees. Overall, our findings suggest that auditors’ trust in audit committees enhances their perception of the quality of their interactions, affects information sharing and the conduct of the audit, and thus helps to improve the quality of auditing.

Artificial Intelligence's Impact on the Quality of External Auditor Reports in Saudi Domestic and International Audit Companies

This study investigates how external auditors perceive using artificial intelligence (AI) in the Kingdom of Saudi Arabia (KSA). It examines how external auditors perceive the impact of artificial intelligence on audit quality. It also seeks to determine whether local and foreign external auditors have different perspectives on AI's application and how it affects audit quality. Data were gathered using a questionnaire distributed to 44 regional and 20 international companies to accomplish research goals. The auditing manager, audit partners, senior auditors, and other staff members with possible accounting and auditing experience were among the participants. SPSS was used to analyze the data; in our analysis, we used descriptive analysis, validity and reliability testing, and data analysis to test our hypotheses. This investigation reveals that the perceived impact of artificial intelligence (AI) on audit quality does not vary significantly between domestic and foreign audit firms. Regarding audit quality, the perceived contributions of all audit firms—local and foreign—are equal. It also adds to the importance of using AI and how it will enhance the quality of firms and reduce any act of fraud. Lastly, it recommends that firms contribute to training employees on using AI to face and compete with the changes and challenges happening around the world.

EXAMINING THE CURRENT PRACTICE OF GOVERNANCE IN ZAKAT IN A MUSLIM MINORITY COUNTRY: THE CASE OF SRI LANKA

Zakat constitutes one of the pillars of Islam and religious practice in Islam aimed at supporting those in need. It also plays a major role in contributing to the socioeconomic development of society. To achieve efficient zakat management, institutions must focus on strong governance and proper management practices. This focus is essential due to the institution’s responsibility to manage effectively and provide transparent information to the public. Therefore, to meet stakeholder needs, non-profit organizations must prioritize governance. In Sri Lanka, the absence of specific laws or regulations governing zakat practice such as the Marriage and Divorce (Muslim) Act, the Muslim Intestate Succession Ordinance, and the Muslim Mosques and Charitable Trusts or Wakfs Act has led to a need for examination of current governance practices related to zakat collection and distribution. This study explores these practices and highlights how applying governance principles can help achieve the objectives (Maqasid) of zakat management in Sri Lanka. The research employs a doctrinal analysis of primary and secondary data, including statutes, practices, journals, and reports. Additionally, the study analyzes current zakat management practices through interviews with five respondents, including zakat practitioners and Shari’ah scholars, using thematic analysis. The findings reveal several issues: the causes of inefficient governance in zakat management, theoretical and practical problems with existing practices in Sri Lanka, gaps in the zakat governance framework, and conceptual and management deficiencies within zakat institutions. The study recommends developing a new governance framework for zakat management. This should include modern rules and practices based on Islamic law, staff training in fundamental Islamic knowledge, improved internal and external audit processes, and increased awareness among managers, donors, beneficiaries, and members of society.

Determinant of Local Government Performance Based on the SDG (Indonesian Evidence)

Objective: The purpose of this study is to ascertain how report quality, e-government, and accountability affect local governments' financial performance both inside and outside of Java. Theoretical Framework: When implementing regional autonomy in Indonesia, it is necessary to take into account the issue of disparities in the financial performance of regional governments within and outside of Java. The financial performance of local governments is anticipated to increase with the introduction of e-government, accountability, and high-quality financial reports. Method: From 2021 to 2022, the study was carried out on all local governments in Indonesia. The Ministry of Home Affairs database, the official websites of local governments, and the financial audit agency's official website were the sources of the data. Panel data regression was used to analyze the data. Results and Discussion: According to the study's findings, local governments' financial performance both inside and outside of Java was unaffected by accountability. The financial performance of governments on the island of Java is positively impacted by e-government, whereas governments outside of Java experience negative effects. Both inside and outside of Java, regional governments' financial performance is unaffected by the caliber of their financial reports. Research Implications: The study's findings can be used as a guide when formulating policies to raise of local government financial performance. Originality/Value: This is one of the few studies that compares the local governments' financial performance within and outside of Java Island, Indonesia.

The Role of Financial Performance, Audit Quality, and Corporate Social Responsibility on Firm Value Through Cost of Capital as Mediation

This study analyzes and determines the impact of financial performance, audit quality, corporate social responsibility (CSR) on firm value through cost of capital as mediation. This type of quantitative research uses an explanatory approach and causality of as many as 565 samples for 5 years in the ASEAN banking industry. The results of this study show that financial performance, audit quality, and CSR affect the company value . Banks with good financial performance, quality audits, and good CSR distribution will be able to improve the company’s image. For this reason, banking companies must improve financial performance, audit quality, and properly carry out responsibilities. Cost of capital becomes a mediating variable that strengthens the relationship of financial performance, audit quality, and CSR to company value. For banks when their financial performance is good, checks are carried out with good audit quality, channeling social responsibility well will be a trigger for increasing company value and will indirectly reduce capital costs that must be incurred by the company. Keywords: financial performance, audit quality, CSR, firm value, cost of capital

Quality of information disclosed: Effects of corporate governance and the audit committee

This research aims to analyze the effect of corporate governance and the Audit Committee, on disclosing the quality of information of publicly traded companies listed on [B]3, with financial information in the reference form and in the Economática database ® for the years 2014 to 2023. Study is based on qualitative disclosure of information and corporate governance, combined with the Audit Committee based on disclosure and stakeholder theories and audit committee analysis. The research is descriptive, quantitative, documentary, with the population being companies listed on [B]3 S.A., made up of 400 companies. To compose the sample, 320 publicly traded companies were selected with information on the constructs raised. The results showed that there are significant statistical differences with the presence of the Audit Committee and companies with external audits conducted by the big four, which favors the quality of the information that is disclosed, compared to companies that are not audited by them. In the results it was possible to verify that more profitable companies have greater commitment to disclosures and, therefore, are more likely and committed to the responsibility of disclosing information. The research contributes to the understanding that, in Brazil, the majority of companies have highly concentrated ownership, the pressure exerted by controlling shareholders may be reducing the positive impact of corporate governance practices.

The Impact of Solvency and Liquidity on Going Concern Audit Opinion

Purpose: This research aims to examine how a company's ability to meet its financial obligations and maintain adequate cash flows influences an auditor's assessment of going concern uncertainty for manufacturers listed on the Indonesia Stock Exchange.Method: A quantitative analysis of secondary data was performed using financial information from 228 randomly selected manufacturing firms traded on the Indonesia Stock Exchange. Logistic regression was used to analyze the effect of solvency metrics and liquidity ratios on going concern audit opinions.Findings: The study uncovered that both decreasing solvency and dwindling liquidity have a statistically significant negative correlation with avoiding a going concern flag. Lower ratios for meeting debt obligations and maintaining cash were associated with a higher likelihood of an auditor expressing doubt about a company's ability to continue as a going concern.Novelty: This research provides new insights into the role of solvency and liquidity in shaping auditors' decisions within the context of manufacturing companies in Indonesia, contributing to the broader literature on financial stability and audit practices in emerging markets.Implications: The study’s findings suggest that companies should prioritize maintaining strong solvency and liquidity positions to avoid receiving going concern audit opinions. For auditors, the research underscores the need to closely monitor these financial metrics when assessing a company’s ability to sustain operations, particularly in emerging economies like Indonesia.

Peran Moderasi Dewan Komisaris Independen dan Auditor External Dalam Hubungannya Diantara Pengungkapan Akuntansi Lingkungan dan Nilai Perusahaan

Research objective: To provide empirical evidence of independent boards of commissioners and external auditors in moderating the influence of environmental accounting disclosures on firm value. Method/approach: This research uses multiple regression analysis and purposive sampling method with the sample criteria being firms that take part in the environmental management assessment of the Ministry of Environment and Forestry. A total of 112 companies in 2021 and 2022 were used from various sectors except the financial sector. Results: Environmental accounting disclosures, company size, profitability and audit committee were found to have no influence on company size. Meanwhile, the independent board of commissioners and the big four external auditors were found to have an influence on environmental accounting disclosures, however only the independent board of commissioners could moderate the influence of environmental accounting disclosures on firm value. Practical implications: Independent boards of commissioners in natural resource, service and manufacturing firms have exercised their independence as proven by being able to moderate the influence of the spread of environmental accounting on firm value. This may attract the attention and investment interest of investors and stakeholders. Originality/novelty: Making the independent board of commissioners and external auditors as moderating variables, adds evidence to agency theory that simply giving power and appointing firm management is not enough but the independent board of commissioners must carry out independent supervision so that it can increase firm value.

Digital sustainability tracing in smallholder context: Ex-ante insights from the Peruvian cocoa supply chain

Global demand for sustainable agri-food products creates opportunities for smallholder farmers. But on-farm verification of sustainable practices is costly, making third-party certification inaccessible to many poor farmers. Digital technologies for tracing agri-food products from farm to fork could help: novel traceability systems, based on blockchain technology, can make data about on-farm practices transparently available to downstream stakeholders, enabling them to verify sustainability claims without external audits. There is limited understanding, however, of how such digital tracing systems fit local needs and capacities in smallholder contexts. Through a grounded theory approach, we explore the potential of digital traceability for sustainability monitoring in a case study in the Ucayali region of Peru. Based on interviews with local cocoa sector stakeholders, we identify two major challenges: first, setting up digital traceability systems requires investments that do not seem justified by corresponding increases in income. And second, relying on farmer-supplied data creates the risk of inaccurate information due to insufficient capacity as well as incentives for providing distorted data. Our findings suggest that strong cooperation along the supply chain is needed to ensure adequate return on farmer-side costs and investments. Focusing on sustainability metrics at the community level, in addition to the farm level, may be promising, as these metrics can be reliably collected by external stakeholders and add value beyond existing third-party certification standards. Our case study provides recommendations for local policy makers and supply chain stakeholders to develop inclusive digital sustainability tracing systems with smallholder farmers.

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.

Pengaruh Penerapan Standar Akuntansi Pemerintahan Berbasis Akrual & Sistem Pengendalian Internal Pemerintah Terhadap Kualitas Laporan Keuangan SKPD Di Pemerintah Kota

Management of state finances is carried out on an ongoing basis to ensure orderliness, efficiency, effectiveness, transparency and accountability, as well as meeting demands for public accountability and submission of financial reports in accordance with regulations. Regional Governments are obliged to submit Regional Government Financial Reports (LKPD) as a form of transparency and accountability, which are assessed for credibility by the Financial Audit Agency of the Republic of Indonesia, with the quality of financial reports that are relevant, reliable, comparable and can be understood as a measure of good regional financial management. This research aims to test and analyze whether the quality of implementing Government Accounting Standards (SAP) and the Government Internal Control System (SPIP) has an effect on the quality of financial reports. This research uses an explanatory research method to understand known phenomena, with descriptive verification research to test causal relationships between variables through hypothesis testing. The implementation of Government Accounting Standards and the Government Internal Control System has a positive and significant effect on the quality of the Bandung City Government's financial reports partially, in accordance with the proposed hypothesis. The findings of this research are in line with previous research, which shows that good implementation of SAP and SPI improves the quality of local government financial reports

Internal Audit of an Oral Pathology Laboratory: Perspectives on Finances and Operational Management.

Background Internal audits are essential tools for enhancing the operational efficiency, quality, and effectiveness of healthcare departments. Audits enable the departments and laboratories to meet the changing needs of the healthcare environment by giving a detailed picture of the department's operations and highlighting areas for possible growth and development. Aims and objectives This study focuses on the biopsies received in the Oral Pathology Department at Saveetha Dental College, aiming to evaluate biopsy trends, financial performance, and resource utilization over one year. Materials and methods The oral pathology department audit covered the period from 1st April 2023 to 31st March 2024. The institutional human ethical committee and scientific review board approved the retrospective audit. It involved a comprehensive analysis of biopsy data, financial records, and material usage. Data on different biopsy types (excisional, incisional, frozen sections), immunohistochemistry, cytology, and special stains were collected and analyzed across four quarters. Financial performance was assessed by comparing total income and expenses, while resource utilization was examined through the use of histopathological blocks and other consumables. Statistical analysis (chi-square) was performed using IBM SPSS Statistics for Windows, Version 23 (Released 2015; IBM Corp., Armonk, New York, United States). A P-value less than 0.05 was considered statistically significant. Results We received 1100 cases during the study period. Excisional biopsies were the most common, with 474 (43.09%) cases, followed by incisional biopsies with a total of 432 (39.27%). Out of total cases of 1100, the second quarter (July-September 2023) had the highest case volume of 305 (27.72%), while the third quarter (October-December 2023) recorded the lowest of 250 (22.72%) cases. A financial audit revealed an annual deficit of ₹1,03,321 primarily due to higher expenses towards laboratory reagents. The overall expense incurred per case was ₹448.5. Tissue blocks cost ₹85.23 per case (19.00%) of the average cost per case. The chi-square test analysis was insignificant among the different types of biopsies and the reagent consumption across the four quarters. Conclusion The audit identified critical areas for improvement in both clinical workload and financial management. High volumes of biopsies, but net financial deficits highlight the need for better cost management and resource utilization strategies to maintain sustainability without compromising diagnostic quality.

The Effects of IT Management Certification Type and Corporate Social Responsibility Performance on Investors’ Responses to Cybersecurity Breaches

ABSTRACT We investigate the joint effects of IT management certification type (for example, International Organization for Standardization (ISO) 27001 certification, the certification of a company’s Information Security Management System against the ISO 27001 standard, the leading international standard focused on information security) and CSR performance on investors’ responses to cybersecurity breaches. We find that the ISO 27001 certificate issued by an independent certification body serves as a proactive remedial strategy for reputation management and attenuates investors’ negative reactions following data breaches. However, the connection between the certification body that issues the certificate and the financial audit firm of the audited company may impair the effectiveness of the certificate serving as a remedial strategy for cybersecurity breaches. Similarly, superior CSR performance provides insurance-like protection and spillovers to reduce investors’ negative responses to cybersecurity breaches. We also provide some evidence suggesting that IT management certification type and CSR performance are likely substitutive mechanisms.

Effect of perceived value on customer satisfaction on audit services of financial statements: Case study of auditing companies in Hanoi

This study investigates the impact of perceived value on customer satisfaction on the financial statement audit services of independent auditing firms in Hanoi.The study used quantitative research design, interpretation, and use of a survey questionnaire with a Likert-type scale to measure perceived value (including quality value, value based on price, human value, emotional value, and social value) and customer satisfaction. The survey was distributed to a random sample of 302 respondents, including CFOs; Accounting Managers; Business Owners; Audit Committee Members; and Internal Auditors of 168 selected client companies of different industries and sizes. Regression results with a standardized beta coefficient show that all five dimensions of perceived value have a positive impact on customer satisfaction, with Quality Value and Emotional Value having the strongest impact. Based on the research results, some recommendations are made for auditing companies such as prioritizing quality, improving emotional value, optimizing prices, building strong relationships with customers and leveraging social value to increase customer satisfaction. customer satisfaction on financial reporting audit services, so that auditing companies can improve competitive advantage and build long-term relationships with customers

Influence of Audit Opinion, Financial Distress, and Audit Delay on Voluntary Auditor Switching

Audit switching refers to the practice where an organization changes its external auditor after a certain period. This is often done to enhance the independence and objectivity of the audit process, mitigate risks of complacency, and ensure fresh perspectives on financial reporting. It can also be influenced by regulatory requirements or a desire to improve the quality of the audit. The purpose of this research is to examine and analyze the effect of audit opinion, financial distress, and audit delay on voluntary auditor switching in food and beverage subsector companies listed in Indonesia Stock Exchange from 2018-2022. The sampling method was purposive sampling. This research analysis technique uses binary logistic regression analysis using the SPSS 25 software. The results showed that audit delay affects voluntary auditor switching, while audit opinion and financial distress has no effect on voluntary auditor switching.

The Impact of Forensic Accountant Characteristics on Reducing Tax Evasion from the Perspective of External Auditors Working in Audit Firms and Companies in the Republic of Yemen: A Field Study

The study aimed to identify and measure the impact of forensic accountant characteristics on reducing tax evasion from the perspective of external auditors working in audit firms and companies in the Republic of Yemen. To achieve the study's objectives, an electronic questionnaire was used as a data collection tool from a population of 384 external auditors in audit firms and companies using a complete enumeration method. The number of retrieved questionnaires was 329, and the number of questionnaires valid for analysis was 260. The data were analyzed using the SPSS, where multiple regression analysis was used to test the hypotheses. The results of the field study showed a positive impact of forensic accountant characteristics (skills and qualifications) on reducing tax evasion. Skills had a high positive impact on reducing tax evasion, followed by qualifications, especially those holding a CFA certificate. The results also showed no impact of forensic accountant characteristics (experience and behaviors) on reducing tax evasion according to the study population's opinion. The study revealed that the most related dimensions to reducing tax evasion, according to the study population's perspective, are the justifications for tax evasion, followed by tax evasion opportunities, tax evasion capabilities, and then tax evasion pressures. The study recommends the need to establish a specialized professional association concerned with organizing the forensic accounting profession in the Republic of Yemen, adopting the forensic accounting subject within accounting curricula, and activating field training for those performing the duties of forensic accountants.