Factors affecting external audit quality: the case of listed companies in Saudi Arabia

Abstract

This study explores the factors affecting external audit quality in non-financial listed companies in Saudi Arabia (SA). In particular, it provides new insights by using an integrated research design framework. The study seeks to: (i) investigate the relationship between external audit quality and certain corporate governance characteristics in SA, namely, boards of directors, audit committees, and internal auditors, and (ii) find strategies that can be undertaken to enhance external audit quality in SA. Agency theory predicts that external auditors and corporate governance play a vital role in enhancing external audit quality. Ordinal Logistic regression was used to investigate the association between the variables. Semi-structured interviews and a questionnaire survey were implemented to attain a deeper understanding of the phenomena.

To achieve the research goals, the researcher investigated the perceptions of boards of directors, audit committees, and internal auditors regarding external audit quality, using questionnaires, while the perceptions of external auditors were investigated by using interviews. Moreover, the ordinal logistic regression models were examined to test the hypotheses using a set of questionnaires. The decision to employ a mixed-methods research design was motivated by the recent calls for, and relative lack of, mixed-methods approaches in external audit quality research in general. Efforts were made to achieve integration between the two different research designs by applying the Convergent Parallel Design suggested by Creswell and Clark (2011). The researcher collected and analysed both quantitative (survey) and qualitative (interview) data separately, at the same time, and then combined the findings of the two approaches, which was achieved by merging the data and then comparing and contrasting the two sets of data and the results.

The findings of the study showed that audit practice in SA was experiencing difficulties, because of the auditors’ lack of competence, their lack of training, lack of expertise and specialisation, lack of independence, and the length of tenure of the audit, all of which affected external audit quality. Regarding audit committees, there was a lack of knowledge and a lack of awareness of members’ responsibilities, a little time was taken to attend meetings and a lack of financial expertise. The findings relating to boards of directors showed that there were infrequent meetings, a lack of requesting speedy financial statements, and a low existence of personal relationships. With regard to internal auditors, the findings showed that there was a lack of education, and of independence. Additionally, corporate governance mechanisms in SA suffered from the absence of detailed regulations, non-implementation of the regulations, and a lack of control by regulators. Finally, the findings obtained from this study led to some suggestions to enhance the level of external audit quality and corporate governance practices in SA.

More information

Identifiers

ORCID for Oliver Marnet: orcid.org/0000-0001-9450-2332

Catalogue record

Export record