External Audit Quality Research Articles

Environmental, Social, and Governance Performance and Corporate Sustainable Development in China

Purpose - With the acceleration of global integration and the deepening of the market economy, sustainable development is receiving unprecedented attention worldwide. Corporate environmental, social, and governance (ESG) performance is one of the most important ways of promoting sustainable development. Companies with good ESG performance excel both operationally and financially, maintaining their competitive advantage and achieving sustainable corporate growth. This study examines the impact of ESG performance on corporate sustainability and identifies factors that influence this relationship from the perspective of external governance structures.
 Design/Methodology/Approach - This study investigates the impact of corporate ESG performance on corporate sustainability using a fixed-effects model with Chinese A-share listed companies from 2011 to 2020. It also explores the moderating roles of external audit quality, the shareholding ratio of institutional investors, and analyst attention on the impact of ESG performance on corporate sustainability.
 Findings - The findings show that corporate ESG performance can contribute to sustainable development. External audit quality, the shareholding ratio of institutional investors, and analyst attention have positive moderating effects on ESG performance, which can contribute to sustainable development.
 Research Implications - This study enriches theoretical research in ESG performance and sustainability, and identifies external governance factors that contribute to the relationship between the two. Consequently, it provides suggestions for listed company growth and sustainability practices

The Influence of Time Budget Pressure, Time Deadline Pressure and Work Stress on Audit Quality of External Auditor

The purpose of this study was to try the goods of time pressure, deadline pressure, and work pressure on test quality among PAF observers in Malang City. The logical model exercised is a multitudinous retrogression dissection where the dependent variables are time pressure( X1), deadline pressure( X2), job pressure( X3) and the independent variable is test quality( Y). The study population was his PAF accountants in Malang, totaling 86. The sample exercised comported of her 52 repliers, utilizing a accessible sample of his eight account enterprises( PAF) in Malang megacity. A Likert scale( 1- 4) questionnaire is exercised for the dimension. Data source is primary. This study shows that time pressure, deadline pressure, and job pressure don't affect the quality of foreign checkups. terminations of this study are that the questionnaire effects don't give his 100 valid comebacks due to lack of management, that the repliers are pacified by youthful observers, and that the study effects are in this range. Secondly, it can not be generalized to multitudinous regions in Indonesia. Research will be limited to a defined bone in Malang City.

DETERMINANTS OF VOLUNTARY DISCLOSURE: EMPIRICAL ANALYSIS OF PUBLIC LISTED ENTITIES IN INDONESIA

This experimental research explored the association between corporate governance mechanisms and the quality of voluntary corporate disclosure. Corporate governance structures encompass of the ownership structure, the effectiveness of the audit committee, and the quality of external auditors. The used technique of research is a quantitative methodology. The main emphasis of the study are the annual reports of public companies listed on the Indonesia Stock Exchange (IDX) between 2017 and 2021. In addition, the primary website of the stock market, www.idx.co.id, and issuer websites are reviewed for secondary data. The method of data analysis employed is panel regression analysis. 817 firms from all sectors of the Indonesia Stock Exchange make up the sample population generated by stratified sampling. The findings of this study indicate that the audit committee size and the age of the company incur impact on the voluntary disclosure of Indonesian issuers. On the other hand, it has been established that the structure of foreign ownership in Indonesia degrades the quality of voluntary disclosure. Also, research reveals that the audit quality of external auditors cannot consistently influence the company's information sharing. This report provides an overview of the quality of voluntary disclosures made by issuers in Indonesia. In addition, this study includes information on the drivers of voluntary disclosure that must be improved to increase stakeholders' competitiveness and trust.

Governance and Financial Statement Fraud: Evidence from Indonesia Listed Banking

The purpose of this study is to obtain empirical evidence regarding the effectiveness of audit committees and the quality of external auditors on the possibility of fraudulent financial statements. The population in this study are banking companies listed on the Indonesia Stock Exchange. The method used in this study is a quantitative method using secondary data which is measured using ratios and statistical processing. The research results show that the audit committee effectiveness variable partially does not significantly influence the possibility of fraudulent financial reporting. The reason underlying the results of this study is that the independence contained in the audit committee has not contributed to avoiding the likelihood of fraudulent financial reporting in a company. External auditor quality does not significantly influence the possibility of fraudulent financial reporting. This is because most companies use the services of non-Big Four Audit Firms to audit their financial statements. Simultaneously, it can be stated that the effectiveness of the audit committee and the quality of the external auditors significantly influence the possibility of fraudulent financial reporting. It is also concluded that the predicting power of the model is high.

External audit quality : revue of literature

External audit quality : revue of literature

An Analysis of Pentagon Fraud Theory to Detect Fraudulent Financial Reporting (a Case Study at Sub Sector Transportation That Listed in Indonesian Stock Exchange 2014-2018)

The aim of this study is to examine the element of fraud in fraud pentagon theory against indications of fraudulent financial reporting. The Fraud pentagon model is a further development of classical fraud triangle theory and fraud diamond theory. It includes pressure on financial targets, financial stability, external pressure, institutional ownership, nature of industry, ineffective monitoring, quality of external auditor, change in auditor, change of directors, and duality CEO. The indication of fraudulent financial reporting as dependent variable. Samples were selected using a purposive sampling method from 175 mining companies listed on Indonesia Stock Exchange during the year period 2014 – 2018, resulting in 70 firm-observations. Data analysis was conducted using the logistic regression method. The results of this study show that the change of directors is significant in detecting the occurrence of fraudulent financial reporting.

Corporate Governance Dimension and Return on Assets: Evidence from the Nigerian Health Care Sector

The healthcare sector in Nigeria continues to be a hub of innovation, drawing global attention due to its complex and inventive approach in delivering life-improving products and services that cater to diverse healthcare needs. However, the integration of these innovations demands substantial investments, a venture made viable only through effective corporate governance strategies. This research delves into the impact of corporate governance on the returns generated from assets within several healthcare companies listed on the Nigerian Stock Exchange (NSE). Focusing on ten healthcare companies listed on the NSE, this study employs an ex-post facto research methodology. Secondary data sourced from various references are subjected to analysis using the generalized least squares (GLS) regression method. The outcomes of the analysis distinctly demonstrate that the facets of corporate governance exert a palpable influence on the asset returns of the chosen healthcare enterprises. The findings underscore the pivotal role of corporate governance in influencing companies' asset returns. In light of these outcomes, it is deduced that a substantial correlation exists between corporate governance practices and companies' asset returns. Consequently, it is strongly suggested that healthcare enterprises diligently adhere to the principles of corporate governance to augment their profitability in both immediate and enduring contexts. Keywords: Board gender diversity, Board independence, Board size, corporate governance, External audit quality, Return on assets.

External Audit Quality, Auditor Selection, and Hostile Takeovers: Evidence From Half a Century

External Audit Quality, Auditor Selection, and Hostile Takeovers: Evidence From Half a Century

Analisis Teori Fraud Triangle dalam mendeteksi Financial Statement Fraud

The purpose of this research is to examine the influence of financial stability, external pressure, personal financial need, financial targets, nature of industry, ineffective monitoring, quality of external auditor, auditor change, and audit opinion on financial statement fraud. The sample used in this research is the manufacturing companies listed in Indonesia Stock Exchange (IDX) for the period 2019 to 2021. The sample was selected using purposive sampling method and the results obtained were 75 companies or 225 data. The data of this research was tested using logistic regression analysis. The result of the analysis shows that financial stability, personal financial needs, nature of industry, and quality of external auditor have an influence on financial statement fraud, while external pressure, financial targets, ineffective monitoring, auditor change, and audit opinion have no influence on financial statement fraud.

감사인의 기말 재고자산 실사입회의 효과에 대한 실증연구

This study investigates whether the number of due diligence about inventories on the external audit implementation details recorded since 2014 has information effect to restrain earnings management. Earnings management using inventories is based on a measure derived from real earnings management related abnormal inventories change introduced on Roychowdhury(2006) and earnings management using allowance for overvaluation of inventories introduced on Guidry et al.(1999). By using Korean firms listed on KOSPI from 2014 to 2017, this study analyses the effect of due diligence about inventories on earnings management using inventories and verifies the impact of the attendance inspection on the suppression of earnings management using regression analysis.
 Followings are the findings of this study. First, the number of due diligence about inventories is negatively correlated with real earnings management related abnormal inventories change, a proxy for earnings management using inventories. Second, the effect of restraining earnings management in the number of the attendance inspection shows that it serves as an audit quality when the number is more than three days compared to less than three days.
 The contribution of this study is as follow. This study finds a significant relationship between due diligence about inventories on the external audit implementation details and audit quality that restrains earnings management using inventories. This study os contributing to the expansion of research on earnings management by presenting empirical evidence of the impact of external auditing disclosure on earnings management as a proxy the quality of accounting information. Moreover, the number of the attendance inspection is effective as a proxy for audit quality, indicating that such detailed disclosure has an institutional effecting on improving audit quality. Therefore, it seems to be meaningful that this study has policy implications by providing a basis for judgment of decision making and policy making related to the disclosure of the external audit implementation details.

The Audit Committees, Internal Audit and External Audit Quality Effects on Earnings Management: An Analysis of Malaysian Government-Linked Companies

The role of audit governance mechanisms as part of the corporate governance architecture has been promoted to ensure the integrity of the financial reporting process. In order to get insights on their effectiveness, this study investigates the effects of the audit governance mechanism, specifically audit committee, internal audit function and external audit quality on earnings management in Malaysian government-linked companies. Using a cross-sectional variation of the modified Jones Model (1995) to estimate discretionary accruals, this study examined 38 GLCs from 2009–2018, which consisted of 340 firm-year pair observations. Panel data regression analysis was carried out using the generalised least square method to analyse the effect of audit governance mechanisms on earnings management. The findings suggest that lower likelihood of earnings management is associated with the internal audit function. Further analysis on the proxy of internal audit measures suggests that in-house internal audit function is negatively associated with earnings management. This research would provide insights for regulators and management to strengthen in-house internal audit function in order to mitigate earnings management in Malaysian government-linked companies. Keywords: Earnings management; audit committee; internal audit function; government-linked companies; external auditor ABSTRAK Peranan mekanisme tadbir urus audit sebagai sebahagian daripada seni bina tadbir urus korporat digalakkan untuk memastikan integriti proses pelaporan kewangan. Untuk mengetahui keberkesanannya, kajian ini menyiasat kesan mekanisme tadbir urus audit khususnya jawatankuasa audit, fungsi audit dalaman dan audit luaran terhadap pengurusan perolehan dalam syarikat berkaitan kerajaan Malaysia. Kajian ini menggunakan variasi keratan rentas Model Jones yang diubah suai (1995) untuk menganggarkan akruan mengikut budi bicara, dengan mengkaji 38 GLC dari 2009–2018, yang terdiri daripada 340 pemerhatian tahun-syarikat. Analisis regresi data panel telah dijalankan menggunakan kaedah rawak persegi terkecil (GLS) untuk menganalisis kesan mekanisme tadbir urus audit ke atas pengurusan perolehan. Penemuan mencadangkan kemungkinan pengurusan perolehan yang lebih rendah dikaitkan dengan audit dalaman. Analisis lanjut mencadangkan audit dalaman sendiri dikaitkan secara negatif dengan pengurusan perolehan. Penyelidikan ini akan memberikan pandangan kepada pengawal selia dan pengurusan syarikat untuk mengukuhkan aspek fungsi audit dalaman sendiri bagi mengurangkan pengurusan perolehan dalam syarikat berkaitan kerajaan Malaysia. Kata kunci: Pengurusan pendapatan; jawatankuasa audit; fungsi audit dalaman; syarikat berkaitan kerajaan; audit luaran

Political Connection, Auditor Quality, Family Ownership, and Earnings Management: Real and Accrual

This study aims to explore the effect of political connections, external auditor quality, and family ownership on real and discretionary accrual earnings management practices in public companies in Indonesia. So far, previous studies have shown inconclusive and mixed results. The samples used in this study are companies listed on the Indonesia Stock Exchange (IDX) for the last 10 years (2010-2019) prior to the Covid-19 pandemic. The results of this study show that political connections have an effect on reducing both real and discretionary accrual earnings management practices in public companies. High quality external auditors have a significant effect on reducing discretionary accrual earnings management practices only. Meanwhile, the high level of family ownership has an effect on reducing real earnings management practices. The results of this study can be a consideration for public companies to appoint former ministers or high-ranking state officials as company directors or commissioners to suppress earnings management practices.

The Influence of the Audit Committee and External Audit on the Quality of Financial Reports in Manufacturing Companies

This study aims to analyze the effect of the audit committee and the external audit on the quality of financial statements. The population in this study are manufacturing companies listed on the Indonesia Stock Exchange (IDX) for the chemical sub-sector for the period 2018-2021. The data used in this study is secondary data, which comes from the annual report. The sampling technique used is purposive sampling with the number of companies as many as 12 times 4 periods to 48 sample data. Methods of data analysis using SPSS version 26 program, namely descriptive statistics, classical assumption test and multiple regression analysis. The results of this study indicate that partially the Audit Committee has a significant negative effect on the quality of financial reports and External Audit has a positive effect on the quality of reports. Simultaneously, the audit committee and the External Audit have an effect on the quality of financial reports.

PENGARUH TATA KELOLA PERUSAHAAN DAN KUALITAS AUDIT TERHADAP AGRESIVITAS PAJAK

The study aims to analyze the effect of corporate governance and audit quality on tax aggressiveness. The corporate governance incorporates the elements of institutional ownership, managerial ownership, independent commissioners, and audit committee. The population of this study consists of all companies listed on Indonesia Stock Exchange (IDX) between 2019 and 2020 including 454 observable samples selected through purposive sampling technique. This study utilized the secondary data from the financial statements and annual reports of all companies listed on the Indonesia Stock Exchange (IDX) between 2019 and 2020, analyzed by multiple linear regression utilizing application of Statistical Product and Service Solution version 25. The results indicated that tax aggressiveness can be reduced by increasing audit quality and managerial ownership. Meanwhile, tax aggressiveness was not affected by institutional ownership, independent commissioners, and audit committee. This study implies that increasing the number of managerial ownership and the quality of external audits alleviates tax aggressiveness.

Analisis Pengaruh Fraud Pentagon Terhadap Fraudulent Financial Reporting Menggunakan Beneish Model

This study discusses the analysis of the influence of Pentagon Fraud on Fraudulent Financial Reporting using the Beneish Model. Pentagon fraud is an independent variable in this study. Proxies that can be used for this research include pressure which is proxied by financial targets and financial stability. Opportunity (opportunity) which is proxied by ineffective monitoring and quality of external auditors. Rationalization (Rationalization) which is proxied by change in auditor and auditor's opinion. Capability which is proxied by the change of the company's directors. Arrogance is proxied by the frequent number of CEO's picture and CEO politician. The dependent variable uses Fraudulent Financial Reporting which is measured using the Beneish Model. This model uses 8 (eight) calculation ratios, namely, Days Sales in Receivable Index (DSRI), Gross Margin Index (GMI), Asset Quality Index (AQI), Sales Growth Index (SGI), Depreciation Index (DEPI), Sales and General Administration Expenses Index (SGAI), Leverage Index (LVGI), and Total Accrual (TATA). The object of research is a company that is included in the LQ-45 index for the 2019-2020 period listed on the Indonesia Stock Exchange (IDX), the sample taken for the study is 33 companies based on the Purposive Sampling method. The results of this study are (1) Financial stability (ACHANGE) has a significant effect on Fraudulent Financial Reporting. (2) Financial target (ROA), Ineffective Monitoring (BDOUT), Quality of external auditor (KAE), Change in auditor (AUDCHANGE), Opinion auditor (AO), Change in Board of Director (DCHANGE), Frequent number of CEO's picture (CEOPIC) and Politicians (OSHIP) have no significant effect on Fraudulent Financial Reporting.

MANAJEMEN MUTU SEKOLAH DAN MADRASAH

The quality of national education has declined, further away from the ideals officially proclaimed by the founding fathers. In addition, the complexity of the problems addressed in the quality of schools or madrasas, especially religious leaders and teachers as educators. Another phenomenon that can be observed is the National Education Law no. 2 of 1989 was unable to face global challenges and domestic challenges. The results showed that management is a tool to achieve a goal, good management facilitates achieving the goals of an institution. The quality targets of schools and madrasas include inputs, processes and outputs. The quality assurance system is in the form of school and Madras quality standards through internal and external quality audits. Steps in quality assurance according to Deming through the plan (plan), do (organize), check (monitoring) and action (implementation).

AUDIT COMMITTEE INDEPENDENCE, DIRECTOR OWNERSHIP, AUDIT QUALITY AND NON-PERFORMING LOANS

The rising trend of Non-Performing Loans (NPLs) in the banking sector of Bangladesh epitomises a common phenomena of loan default that mostly arises from unwillingness to repay tendency of the borrowers who usually fit into the defined higher class of the society. An appropriate governance and control framework can effectively control this growing trend of NPLs, supplemented by the loan default culture. In view of this setting, this paper looks for the impact of audit committee independence, director ownership, external audit quality, CEO power, and bank size to control NPLs. After identifying two endogenous variables in a system of linear equations, this paper employs the system generalized method of moment (GMM) approach of regression analysis. This paper finds the significance of audit committee independence, director ownership, and external audit quality in controlling NPLs. However, this paper finds no significant impact of CEO power on lowering NPLs. Bank Size, measured in relative sense, has non-linear impact on NPLs. This paper recommends that the existing governance guidelines and BASEL-II accords fail to boost up the asset quality that controls NPLs and ensures capital adequacy. Keywords: Bangladesh; banking sector; CEO power; NPLs

Factors that affect Fraudulent Financial Reporting

The objective of this research is to obtain empirical evidence of the influence of factors that can affect fraudulent financial reporting. Those factors are financial targets, financial stability, external pressure, institutional ownership, number of audit committee members, ineffective monitoring, nature of industry, external auditor quality, the change of auditor, auditor’s opinion, change of directors, proportion of independent commissioner, and numbers of CEO’s picture. The variables used on this research if from fraud pentagon theory perspective. This research’s population is manufacturing companies listed in Indonesia Stock Exchange (IDX) from 2017 to 2020. The sample of this research is selected by using purposive sampling based on several criteria. This research uses 302 data from 101 listed manufacturing companies as the sample. The method used for analyzing and testing the data on this research is by multiple regression to see the influence between independent variables and fraudulent financial reporting. The result of this research shows that financial targets, nature of industry, and auditor’s opinion have significant influence on fraudulent financial reporting. In contrast, financial stability, external pressure, institutional ownership, number of audit committee members, ineffective monitoring, external auditor quality, the change of auditor, change of directors, proportion of independent commissioner, and numbers of CEO’s picture have no significant value to fraudulent financial reporting.

Quality of financial reporting, external audit, earnings power and companies performance: The case of Gulf Corporate Council Countries

Financial statement analysts are concerned about the earnings power of companies, thus reliable information from a quality external audit and financial reporting is important as it will have an effect on the performances of GCC companies. On that note, underpinned by the agency theory, this study examines the effects of financial reporting quality, audit quality, and earnings power on companies’ performances of the six Arabian GCC countries (Saudi Arabia, Bahrain, Oman, Qatar, Kuwait, and the United Arab Emirates). Company performance is measured using the accounting measures, i.e., return on assets and market-to-book value (ROA, M/B) and the market measures (Tobin’s Q, EPS). The data sample of this study covers the period between 2013 and 2017, (pre-covid-19), across 191 companies, using 1337 company-years observations. The study uses EGLS Panel Data Regression analysis. The results of the study indicate that earnings power, audit quality, and financial reporting quality have positive effects on companies’ performance. The agency theory confirms that financial reporting quality and audit quality increases the reliability of financial statements and decreases information asymmetry.

The role of audit quality in the ESG-corporate financial performance nexus: Empirical evidence from Western European companies

The study explores the moderating role of audit quality in the relationship between environmental, social, and governance (ESG) factors and corporate financial performance (CFP) in Western European countries. The research sample includes 620 firms headquartered in Western Europe, including Austria, Belgium, France, Germany, Luxembourg, Monaco, the Netherlands, and Switzerland from 2010 to 2019. Panel data estimations are used to examine the direct and moderating effects. The results show that ESG has a significantly negative effect on a firm's financial performance as measured by the return on assets (ROA), supporting the trade-off hypothesis in which investing in ESG activities increases the cost of business. Additionally, we find that ESG's adverse influence on CFP is more evident at enterprises that are certified by Big Four accounting firms. However, ESG has a significantly positive effect on revenue, suggesting that customers are more attracted to firms that invest in ESG. The analysis of the subcomponents of ESG supports the main results. The results are robust to alternative model specifications and alternative measures of CFP and audit quality and are free of endogeneity issues. The findings contribute to the existing knowledge on ESG by elucidating the effect of external auditor quality on the ESG-CFP relationship. We also examine overall ESG scores as well as individual ESG characteristics (environmental, social, and governance).