A theoretical approach to auditor independence and audit quality

Download This Article

This work is licensed under a Creative Commons Attribution 4.0 International License.

Abstract

Auditor independence and the quality of audit report is of growing concern to regulators, institutional investors and stakeholders as a series of accounting scandals have undermined the professionalism of auditors. The findings from this study produced an insight of how auditor’s independence improve audit quality and that abnormal audit fees is as a result of additional effort for auditor to carry out rigorous audit engagement as a result of wider audit scope; that mandatory audit firm rotation will enhance auditor independence, and that audit committee with nonexecutive independence will promote audit quality. The study also finds that in terms of auditor size, smaller audit firms that belong to professional bodies will provide higher audit quality. The main conclusion of this research is that where an auditor is fully independent in carrying out audit engagement with strong resistance to fees pressure will enhance audit quality. This research provides insight into the impact of IFRS adoption on audit fees.

Keywords: Audit Fees, Auditor Tenure, Board Composition, Auditor Size, Non-Audit Services, Audit Quality, IFRS

Authors’ individual contribution: Conceptualisation – R.Y.; Writing – Original Draft – R.Y. and T.W.; Writing & Editing – R.Y.; Supervision – T.W.

JEL Classification: M41, M42, L84, K2

Received: 04.07.2019
Accepted: 22.01.2020
Published online: 04.02.2020

How to cite this paper: Yakubu, R., & Williams, T. (2020). A theoretical approach to auditor independence and audit quality. Corporate Ownership & Control, 17(2), 124-141. https://doi.org/10.22495/cocv17i2art11