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Article
Publication date: 2 October 2023

Rania AbuRaya

Audit consortium of joint and dual audits is one of the most controversial mechanisms aimed at improving audit quality and resolving several related debatable issues. This study…

Abstract

Purpose

Audit consortium of joint and dual audits is one of the most controversial mechanisms aimed at improving audit quality and resolving several related debatable issues. This study aims to empirically investigate the impact of audit consortium on audit quality assessment in Egypt. It specifically examines whether audit opinion modification level is triggered by joint and dual audits existence and whether it is influenced by the relative importance of the auditor pair combination types.

Design/methodology/approach

A sample of companies listed on the Egyptian Stock Exchange constituting the EGX 30 index is examined over a period of five years, from 2016 to 2020. A quantitative research methodology is used, using content analysis of companies’ audit reports and carrying out longitudinal panel ordinary least squares multiple regression tests.

Findings

Results show that audit quality is significantly enhanced by conducting joint and dual audits of Egyptian companies’ financial statements. Findings indicate that both joint and dual audits significantly increase auditors’ propensity to modify audit opinions as compared to companies that engage in single audits. However, this increase in audit quality is not supported by the presence of Big 4 joint auditors or affiliated joint auditors, while the impact of Big 4 dual auditors cannot be confirmed. Nevertheless, such a potential increase in audit opinion modification is boosted by the presence of affiliated dual auditors, which appears to translate into higher quality.

Research limitations/implications

The study has important implications for researchers, corporates, those charged with governance, financial statement users, auditors, regulators and standard setters, who might be interested in whether an audit consortium and a particular auditor pair combination are associated with superior audit quality. It provides empirical evidence that might contribute to the continuous challenge of promoting the quality and effectiveness of the external audit.

Originality/value

This study adds to the relatively limited and challenging literature on the potential contribution of audit consortium, using audit opinion modification level as a direct assessment of audit quality. It extends the scope of prior research by examining the existence of joint and dual audits and the relative importance of joint and dual auditor pair combination types. The study provides key insights from a distinctive and complex emerging audit market.

Details

Journal of Financial Reporting and Accounting, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 25 February 2018

Reiner Quick and Florian Schmidt

As a consequence of the global financial and economic crisis, the European Commission recently reformed the audit market. One objective was to restore public trust in the auditing

Abstract

As a consequence of the global financial and economic crisis, the European Commission recently reformed the audit market. One objective was to restore public trust in the auditing profession and thus to enhance the audit function. This study investigates whether perceptions of auditor independence and audit quality are influenced by audit firm rotation, auditor retention and joint audits, because regulators argue that these instruments can improve auditor independence and audit quality. Therefore, we conduct an experiment with bank directors and institutional investors in Germany. The results indicate a negative main effect for joint audits on perceived auditor independence, and that a rotation cycle of 24 years marginally significantly impairs participant perceptions of audit quality, compared to a rotation cycle of only ten years. Besides the main effects, planned contrast tests suggest a negative interaction between rotation and joint audit on participant perceptions of auditor independence. Moreover, a negative interaction effect is revealed between rotation after 24 years and retention on perceptions of audit quality. It is particularly noteworthy that we failed to identify a positive impact of the regulatory measures taken or supported by the European Commission on perceptions of auditor independence and audit quality.

Details

Journal of Accounting Literature, vol. 41 no. 1
Type: Research Article
ISSN: 0737-4607

Keywords

Article
Publication date: 31 May 2022

Mitchell Van der Zahn and Imen Tebourbi

Statistical analysis is based on annual data collected from 132 Boursa Kuwait listed firms from 2016 to 2019 (i.e. yielding 528 firm-year observations). During the observation…

Abstract

Purpose

Statistical analysis is based on annual data collected from 132 Boursa Kuwait listed firms from 2016 to 2019 (i.e. yielding 528 firm-year observations). During the observation window (i.e. 2016 to 2019) 116 firms switched from joint-to solo-audits. Level and change models test if audit quality (proxied by abnormal accruals) is impacted by joint-/solo-audit switching. Therefore this paper explores the audit quality following abolition of mandated joint-audits in Kuwait.

Design/methodology/approach

This paper investigates the impact on audit quality following abolition of mandated joint-audit requirements in 2016 in Kuwait. The study is differentiated from prior analysis by focusing on an emerging economy setting, and by considering a more expansive set of joint-audit pairings, solo-audit types and switching options.

Findings

Abolition of mandated joint-audit requirements prompted a majority of Boursa Kuwait listed firms to switch to solo-audits. Analysis indicates that switch does not significantly decrease audit quality. Also, audit quality changes are not dependent on the specific joint-audit pairing/solo-audit type switch.

Research limitations/implications

Analysis is based on a single national setting comprising a small set of firms. Nonetheless, results imply the impact of joint-/solo-audit switching following abolition of mandated requirements is more universal with generalizability to different economic settings.

Practical implications

Results indicate that following elimination of mandated joint-audit requirements, firms have a propensity to favor solo-audits. Irrespective of the joint-audit pairing and solo-audit type, findings show a joint-/solo-audit switch does not compromise audit quality.

Originality/value

Analysis is the first to investigate the impact of joint/solo-audit switches on audit quality in an emerging economy with tests considering more joint-audit pairings than assessed previously.

Details

Journal of Applied Accounting Research, vol. 24 no. 1
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 22 January 2020

Hana Ajili and Hichem Khlif

The purpose of this paper is to examine the association between political connections and tax avoidance in Islamic banking industry and to test whether joint audit affects this…

1397

Abstract

Purpose

The purpose of this paper is to examine the association between political connections and tax avoidance in Islamic banking industry and to test whether joint audit affects this relationship.

Design/methodology/approach

Tax avoidance is measured using effective tax rate while political connections represent an indicator variable that equals 1 if a bank has at least one politically connected director on the board of directors and zero otherwise.

Findings

This study documents that political connections are negatively associated with effective tax rate, while joint audit is positively related to the same variable. We also find that the negative association between political connections and effective tax rate becomes insignificant for joint-audited banks, while it remains negative and significant for banks audited by one auditors.

Originality/value

The findings of this study have policy implications for banking industry because joint audit reduces the adverse effect of political connections on tax avoidance.

Details

Journal of Financial Crime, vol. 27 no. 1
Type: Research Article
ISSN: 1359-0790

Keywords

Article
Publication date: 3 February 2014

Claus Holm and Frank Thinggaard

The authors aim to exploit a natural experiment in which voluntary replace mandatory joint audits for Danish listed companies and analyse audit fee implications of using one or…

2085

Abstract

Purpose

The authors aim to exploit a natural experiment in which voluntary replace mandatory joint audits for Danish listed companies and analyse audit fee implications of using one or two audit firms.

Design/methodology/approach

Regression analysis is used. The authors apply both a core audit fee determinants model and an audit fee change model and include interaction terms.

Findings

The authors find short-term fee reductions in companies switching to single audits, but only where the former joint audit contained a dominant auditor. The authors argue that in this situation bargaining power is more with the auditors than in an equally shared joint audit, and that the auditors' incentives to offer an initial fee discount are bigger.

Research limitations/implications

The number of observations is constrained by the small Danish capital market. Future research could take a more qualitative research approach, to examine whether the use of a single audit firm rather than two has an effect on audit quality. The area calls for further theory development covering audit fee and audit quality in joint audit settings.

Practical implications

Companies should consider their relationship with their auditors before deciding to switch to single auditors. Fee discounts do not seem to reflect long-lasting efficiency gains on the part of the audit firm.

Originality/value

Denmark is the first country to leave a mandatory joint audit system, so this is the first time that it is possible to study fee effects related to this.

Details

Managerial Auditing Journal, vol. 29 no. 2
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 9 January 2007

Charles Piot

The French law uses jointauditing as an audit quality device. This regulation also indirectly preserves market competition by reducing the domination of the large audit firms…

3234

Abstract

Purpose

The French law uses jointauditing as an audit quality device. This regulation also indirectly preserves market competition by reducing the domination of the large audit firms. However, concerns emerge about the effects of recent auditor mergers on the effectiveness of jointauditing: the reduced number of audit suppliers may favour the development of too frequent jointauditing collaborations, causing routine cross‐reviews and interdependencies between co‐auditors. This study aims to address this issue.

Design/methodology/approach

The market shares, individual performance, and jointaudit interconnections (attraction‐repulsion indices) of the main audit networks in France are investigated for the year 1997 and again for the year 2003.

Findings

Despite the concentration of the audit market for listed companies globally, descriptive market analyses suggest that competition in the audit market has not decreased: the PricewaterhouseCoopers merger in 1998 did not produce any gain in market share to the newly‐formed network; the French member of Arthur Andersen suffered an effective erosion of its audit portfolio resulting from the infamous Enron case; and some national audit networks have maintained significant market positions. Contrary to expectations, the increased concentration did not result in abnormally frequent collaborations between the main audit firms.

Research limitations/implications

The jointauditing interconnections are based on the number of common audit clients, and this approach does not take into account the different sizes of the auditees.

Originality/value

This paper is an original approach of auditor concentration in a jointauditing environment. To regulators, the results of this study suggest that jointauditing can be utilised as a mechanism to preserve market competition and thus potentially maintaining audit quality.

Details

Managerial Auditing Journal, vol. 22 no. 2
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 25 February 2022

Lassaad Abdelmoula

Using a sample of 250 Tunisian companies, this paper aims to assess the joint audit mission quality in Tunisia.

Abstract

Purpose

Using a sample of 250 Tunisian companies, this paper aims to assess the joint audit mission quality in Tunisia.

Design/methodology/approach

The present work aimed at investigating the determining factors of the joint audit quality.

Findings

A total of nine essential determining factors were predictably identified: length of service, experience, size asymmetry between the joint auditors, complexity, governance, expertise, information and communications technology use, profitability and staff qualification. However, results show that specialization, satisfaction, the supply of services other than audit, work distribution, leverage as well as size have a positive but non-significant correlation with the joint audit quality, which may be due to the Tunisian context.

Originality/value

Many previous works have been conducted on joint audit in France (Haak et al., 2018), Denmark (Lesage et al., 2017), Germany (Velte and Azibi, 2015), Sweden (Zerni et al., 2012) and Italy (Bianchi et al., 2019). However, to the authors’ knowledge, the Tunisian context is still under-studied and, thus, the objective was to fill this gap in the literature b.y examining the determinants of the quality of joint audit in Tunisia.

Details

EuroMed Journal of Business, vol. 18 no. 1
Type: Research Article
ISSN: 1450-2194

Keywords

Article
Publication date: 18 March 2022

Yusun Jung and Moon-Kyung Cho

This paper aims to examine the extent to which two commonly recommended information sharing and communication interventions, direct reporting lines between the internal audit

Abstract

Purpose

This paper aims to examine the extent to which two commonly recommended information sharing and communication interventions, direct reporting lines between the internal audit function (IAF) and the audit committee (AC) and their joint reviews of internal audit standards and procedures, improve the internal audit in the continuous audit control and monitoring efforts.

Design/methodology/approach

This study uses data from the Audit Intelligence Suite-Benchmarking (AIS) Report for the years 2007 to 2016 published by the Institute of Internal Auditors. The authors test the research hypotheses using the ordinary least squares regression method.

Findings

Functional reporting lines from the IAF to the AC positively impact the internal audit, but administrative lines have a negative impact. Reviews conducted jointly between the IAF and the AC positively influence the internal audit. The impacts of reporting lines and joint reviews are also associated with accounting complexity within a given industry, organizational control structure, organizational scope and the level of IAF’s responsibilities over internal control environment to comply with Sarbanes–Oxley (SOX) Act of 2002.

Research limitations/implications

Because the study uses AIS data, operationalization of variables is constrained to items in the given data set. Future studies, including field studies, may identify other variables and measures using diverse data sources. This study expands the knowledge of effective means of information sharing and communication to enhance interactions between the IAF and the AC.

Practical implications

The results suggest that the use of reporting lines should correspond to accounting complexity, organizational control structure, organizational scope, and reliance on the IAF in handling SOX responsibilities. They also highlight the importance of joint reviews between the IAF and AC in ensuring a high-quality internal audit.

Originality/value

The authors envisioned reporting lines and joint reviews as an excellent tool to balance the relationship between the IAF and the AC for continuous internal auditing beyond generating internal audit reports according to the US Committee of Sponsoring Organizations of the Treadway Commission framework Principle 14.

Details

Managerial Auditing Journal, vol. 37 no. 4
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 1 June 1997

Tang Chi Cheung and Chen Qiang

Describes the internal audit function in a joint venture company. Auditing joint ventures is a fascinating topic, particularly when it involves the nuclear power industry and…

1501

Abstract

Describes the internal audit function in a joint venture company. Auditing joint ventures is a fascinating topic, particularly when it involves the nuclear power industry and partnership between China and a foreign collaborator. The internal audit function was established right at the outset and has a high profile in the corporate governance structure. Its position is safeguarded in an audit charter, and a whole range of techniques and approaches guarantees a comprehensive service based on risk assessment. A combination of specific audits, special studies, internal control verifications, pre‐award audits and irregularities reports demonstrate that the internal audit arrangements are at the cutting edge of best practice.

Details

Managerial Auditing Journal, vol. 12 no. 4/5
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 7 July 2023

Mohamed M. Eldyasty and Ahmed A. Elamer

This paper aims to examine the link between audit(or) type and restatements in Egypt, a complex and multifaceted auditing market. The usual big 4 versus non-big 4 comparison is…

Abstract

Purpose

This paper aims to examine the link between audit(or) type and restatements in Egypt, a complex and multifaceted auditing market. The usual big 4 versus non-big 4 comparison is insufficient as Egypt has a unique mix of private audit firms, one governmental agency (Accountability State Authority) and mandatory/nonmandatory audit services, including single, joint and dual audits.

Design/methodology/approach

The study uses a sample of listed companies in Egypt and analyzes the impact of auditor type and audit type on explicit, implicit and total restatements. The study uses logistic regression model to examine the underlying relationship.

Findings

Results show no relationship between auditor type and audit quality, positive association between non-big foreign CPA firms and total/implicit restatements and mixed results for the impact of dual audits on audit quality. The study found no link between auditor type and audit quality in Egypt. Egyptian audit firms linked to non-big 4 foreign Certified Public Accounting firms were positively linked to total and implicit restatements. Joint audits did not improve audit quality and were directly related to total and explicit restatements. Dual audits showed mixed results, positively associated with implicit restatements but inversely associated with explicit restatements.

Originality/value

The study provides valuable insights into the complexities of the auditing market in emerging markets and offers valuable insights for stakeholders in the financial statement users, audit firms and governmental agencies.

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