Audit quality differences amongst audit firms in a developing economy: The case of Uganda
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Date
2016
Journal Title
Journal ISSN
Volume Title
Publisher
Journal of Accounting in Emerging Economies
Abstract
Purpose – The purpose of this paper is to report findings of audit quality differences amongst
audit firms in a developing country. Specifically, the authors examine the assumption of
marked audit quality differences amongst large audit firms (Big 4s) and the small and medium
practices (SMPs).
Design/methodology/approach – First, the authors develop scales for assessing perceived
audit quality in the financial services sector based on qualitative data obtained from
106 audit practitioners, 31 credit analysts and 13 board members. The authors use NVivo©
to analyse the 13 transcribed interviews and follow “cross-case analysis” to visualize dimensions
and scales of audit quality. Then the authors use measurement scales developed and
obtain quantitative data from 183 board members and top executives in the financial
services sector and test for perceived audit quality differences amongst audit firms using a
Mann-Whitney U test.
Findings – The findings suggest that audit quality is a multi-dimensional construct comprising of
levels of discretionary accruals; compliance of audited accounts to accounting standards, law and
regulations; and audit fees. Based on these measures, the authors find that Big 4 audit firms ensure
more compliance with accounting standards, law and other regulatory requirements than SMPs.
However, taking all the three audit quality dimensions together reveals no significant differences in
audit quality levels between Big 4 and SMPs.
Research limitations/implications – In terms of auditor selection and retention, it is
important that audit firms are assessed based on their ability to constrain discretionary accruals,
to produce audited accounts that comply with requirements of accounting standards, the law and
regulations; and to examine the fees they charge in relation to quality of service, than on
their size. Also, as the results of this study suggest that Big 4 audit firms might be needed for
compliance with accounting standards, law and other regulatory requirements, their audit ties in
with the most basic level of auditing requiring probity and legality which, in practice, requires a low
level of judgement to be exercised by those performing the audit. It might be useful for
Big 4 and other audit firms to embark also on higher level of auditing requiring higher level of
judgement. Future research may wish to examine auditing firms’ proclivity to higher level
judgment audit.
Originality/value – Previous research reveals no consistent way of measuring audit quality and has
been inconclusive on the subject of audit quality differential amongst audit firms. The authors create audit quality scales which can be used in assessing perceived audit quality in a developing country
context and provide initial evidence of no significant differences between large audit firms and the
SMPs regarding audit quality in Uganda.
Description
Keywords
Uganda, Principal component analysis, Nvivo, Audit firm size, Audit quality differences, Mann-Whitney U test
Citation
Kaawaase, TK, Assad, MJ, Kitindi, EG, & Nkundabanyanga, SK (2016). Audit quality differences amongst audit firms in a developing economy: The case of Uganda. Journal of Accounting in Emerging Economies. DOI 10.1108/JAEE-08-2013-0041