Impact of Audit Fees and Audit Firm’s Reputation on Audit Quality: Evidence from Listed Companies from Pakistan

29 Pages Posted: 3 Sep 2020

See all articles by Ammar Qadir Sheikh

Ammar Qadir Sheikh

Karachi University Business School

Danish Ahmed Siddiqui

University of Karachi - Karachi University Business School

Date Written: August 26, 2020

Abstract

Audit quality is viewed as a basic element influencing the dependability of financial statements. The objective of this study is to investigate the impacts of audit firm characteristics, including audit firms’ reputation and audit fees on the quality of auditing. We utilized discretionary/irregular accruals serving as a proxy for income manipulation, and audit firms’ reputation (Big 4 auditors vs Non-Big 4 auditors), and audit fees are utilized to examine the quality of auditing. A sample comprised of 49 listed firms from the KSE-100 index of Pakistan Stock Exchange (PSX) is selected for the duration of 5 years. The data is evaluated through multiple regression and correlations. The outcomes suggested that audit Fee seems to have a significant and negative effect on the quality of auditing, Audit quality also seems to affect ROA negatively, whereas, audit fee affected ROA positively. Lastly, the Big 4 representation has a negative effect on cash flows, whereas audit quality seems to have an inverse effect. The outcomes indicate that non-Big 4 audit firms in Pakistan perform higher quality of auditing than Big 4 audit firms. In addition to that, the outcome discloses that in exchange of higher audit fees, auditors perform lower quality of audits. The basic job of audit quality has gathered remarkably academic consideration. Though, earlier researches have basically centered on organizations operating in developed nations. Very limited is investigated about the quality of auditing in developing economies, for example, Pakistan. This investigation would increase the predetermined number of researches conducted on the quality of auditing of listed firms in developing nations.

Keywords: Audit quality, Audit firms’ reputation, Audit fees, Proxies of audit quality, Pakistan

Suggested Citation

Sheikh, Ammar Qadir and Siddiqui, Danish Ahmed, Impact of Audit Fees and Audit Firm’s Reputation on Audit Quality: Evidence from Listed Companies from Pakistan (August 26, 2020). Available at SSRN: https://ssrn.com/abstract=3681321 or http://dx.doi.org/10.2139/ssrn.3681321

Ammar Qadir Sheikh

Karachi University Business School ( email )

Karachi
Pakistan

Danish Ahmed Siddiqui (Contact Author)

University of Karachi - Karachi University Business School ( email )

University Road
Karachi, Sindh 75270
Pakistan
3333485884 (Phone)

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