Factors affecting the quality of auditing accounting estimates evidence in big4 auditing companies

MINISTRY OF EDUCATION AND TRAINING HO CHI MINH CITY UNIVERSITY OF BANKING GRADUATION THESIS FACTORS AFFECTING THE QUALITY OF AUDITING ACCOUNTING ESTIMATES: EVIDENCE IN BIG4 AUDITING COMPANIES NGUYEN THI THUY VY HO CHI MINH CITY – 2023 GRADUATION THESIS FACTORS AFFECTING THE QUALITY OF AUDITING ACCOUNTING ESTIMATES: EVIDENCE IN BIG4 AUDITING COMPANIES Major: Accouting - Auditing Code: 7340301 Student name: Nguyen Thi Thuy Vy Student code: 050607190654 Class: HQ7-GE01 Supervisor: Ph.D Nguyen Thi Mai Huong HO CHI MINH CITY – 2023 DECLARATION Under the guidance of Ph.D Nguyen Thi Mai Huong, I am currently conducting a research project titled "FACTORS AFFECTING THE QUALITY OF AUDITING ACCOUNTING ESTIMATES: EVIDENCE IN BIG4 AUDITING COMPANIES." I confirm that the entire content of this dissertation has not been published or used for attribution elsewhere, except for the sources duly referenced Any content borrowed from other individuals that were not appropriately cited is not present in this thesis The information used for this study was obtained through transparent, reliable, accurate, and unbiased procedures I confirm that this dissertation is a result of my own work Signature Nguyen Thi Thuy Vy ACKNOWLEDGE First and foremost, I want to convey my deepest gratitude to the esteemed professors at the Ho Chi Minh City University of Banking , specifically those in the Accounting and Auditing Department, for providing me with the fundamental knowledge that has enabled me to successfully finish this thesis I am particularly appreciative of the guidance and time given by Mrs Nguyen Thi Mai Huong Her support and encouragement in the academic realm have been truly invaluable Moreover, I extend my thanks to my fellows, whose enthusiastic and openminded discussions have greatly contributed to the expansion of my knowledge I am also thankful to the individuals who assisted me in collecting research data, as their contribution was significant Lastly, I express my heartfelt appreciation to my family and close friends for their unwavering encouragement and support, which played a crucial role in my completion of the Accounting and Auditing program Although I made every effort to conduct comprehensive research, I recognize the limitations of my expertise and experience As a result, there may be some inaccuracies or deficiencies in my report I wholeheartedly welcome feedback and suggestions from professors and readers to further enhance the quality of this project i TABLE OF CONTENTS TABLE OF CONTENTS i LIST OF ACRONYMS iv LIST OF TABLES v LIST OF FIGURES v C H A P T E R INTRODUCTION 1 Research statement Research aims and objectives Research questions Subject and scope of the research .3 Research method .4 Expected contribution .5 Thesis structure C H A P T E R LITERATURE REVIEW AND THEORETICAL BASIS .6 2.1 Previous research 2.1.1 Auditing accounting estimates 2.1.2 The factors that affect the quality of auditing financial statement 2.1.3 The factors that affect the quality of auditing accounting estimate 14 2.2 Research gap 18 2.3 Research model 20 2.4 Theoretical basis 21 2.4.1 The concept and nature of accounting estimates 21 2.4.1.1 The concept of accounting estimates 21 2.4.1.2 The nature of accounting estimates 22 2.4.2 Auditing procedures for accounting estimates .23 2.4.3 The concept of audit quality of accounting estimates 27 2.4.3.1 The concept of quality .27 2.4.3.2 The concept of audit quality 28 2.4.3.3 The quality of auditing accounting estimates 31 2.4.4 The framework for audit quality according to the International Auditing and Assurance Standards Board (IAASB) 32 2.4.4.1 General information about IAASB 32 2.4.4.2 Main content of audit quality issued by IAASB 32 ii 2.4.5 Factors affecting the audit quality of accounting estimates 33 2.4.5.1 Factors related to auditors 33 2.4.5.2 Factors related to audited entities 35 2.4.5.3 Factors related to external 36 SUMMARY OF CHAPTER 37 C H A P T E R RESEARCH METHODOLOGY 39 3.1 Research process 39 3.2 Research hypothesis 40 3.3 Scale formulation 45 3.4 Survey questionaire .54 3.5 Sample and sampling method 55 3.6 Data analysis 55 SUMMARY OF CHAPTER 57 C H A P T E R DATA ANALYSIS AND DISCUSSION 58 4.1 Description of research samples 58 4.1.1 Descriptive statistics of the sample characteristics .58 4.1.2 Descriptive statistics of the measurement scale 60 4.2 Cronbach‟s Alpha 61 4.3 Result of exploratory factor analysis (EFA) 62 4.4 Pearson correlation Analysis .66 4.5 Linear regression analysis 67 4.5.1 Level of explanation and multicollinearity test 67 4.5.2 Analysis of Variance (ANOVA) 68 4.5.3 Analyze the results of the regression model 68 4.6 Test the research hypothesis 70 4.7 Research results and discussion 72 SUMMARY OF CHAPTER 76 C H A P T E R CONCLUSION AND IMPLICATIONS 77 5.1 Conclusions 77 5.2 Implications 78 5.2.1 Audit professional competence .78 5.2.2 Effectiveness of internal control related to accounting estimates 81 5.2.3 Professional skepticism .82 iii 5.3 Limitations and future research 84 5.3.1 Limitations 84 5.3.2 Future research directions .84 SUMMARY OF CHAPTER 84 REFERENCES 85 APPENDIX .91 iv LIST OF ACRONYMS Acronyms Meaning SPSS Statistical Package for the Social Sciences EFA Exploratory Factor Analysis ANOVA Analysis of Variance FS Financial Statement IAASB International Auditing and Assurance Standards Board PCAOB Public Company Accounting Oversight Board ODA Official Development Assistance BOD Board of Directors HCMC Ho Chi Minh City v LIST OF TABLES Table 3.1 Research hypotheses 44 Table 3.2 The scale of the dependent factor – Audit quality of accounting estimates 45 Table 3.3 The scale of the independent factor - Audit professional competence 48 Table 3.4 The scale of the independent factor - Professional skepticism 49 Table 3.5 The scale of the independent factor - Uncertainty of data, assumptions, models, and accounting estimate methods 50 Table 3.6 The scale of the independent factor - Internal control related to accounting estimates 52 Table 3.7 The scale of the independent factor - Support from experts 53 Table 3.8 The scale of the independent factor - Legal environment related to accounting estimates 53 Table 3.9 Structure of the official survey questionnaire 54 Table 4.1 Descriptive statistics of the observed sample 59 Table 4.2 Cronbach's Alpha reliability testing result .62 Table 4.3 KMO and Bartlett's test for the independent factors 62 Table 4.4 Eigenvalues and covariance deviations for independent variables 63 Table 4.5 Result of independent factor analysis with principal varimax rotation method .64 Table 4.6 KMO and Bartlett's test for the dependent factor 65 Table 4.7 Eigenvalues and covariance deviations for dependent variable 65 Table 4.8 Pearson correlation analysis .66 Table 4.9 Model summary .67 Table 4.10 ANOVA analysis 68 Table 4.11 Result of dependent variables‟ linear regression 69 Table 4.12 Hypothesis testing result 72 Table 4.13 The impact level of factors affecting audit quality of accouting estimates 72 LIST OF FIGURES Figure 1.1 The proposed research model 20 Figure 2.1 Audit process of accounting estimate .27 Figure 3.1 Research process .40 Figure 4.1 Model of factors affecting audit quality of accounting estimates 74 CHAPTER INTRODUCTION Research statement Amidst Vietnam's increasing integration into other economies worldwide, our country has been presented with many opportunities, but also accompanied by many challenges for business managers To enhance competitiveness in both domestic and international markets, attract more investment, secure easy access to loans, and win large contracts, under the pressure of maximizing profits, corporate managers often resort to tactics aimed at "beautifying" their financial statement (FS) One of the tools commonly used for financial report fraud by these managers is "accounting estimates" Accounting estimates and fair values, commonly referred to as accounting estimates, are important indicators in FS Along with the increasing development of the economy, this indicator is widely used and plays an indispensable role in the FS of each enterprise According to International Standard on Auditing 540 (ISA 540), a monetary amount for which the measurement, in accordance with the requirements of the applicable financial framework, is subject to estimation uncertainly Besides the positivities such as improving the faithfulness and relevance of FS, this indicator also carries many risks due to its inherent uncertainty and subjective judgment in assessment, which are influenced by many factors such as measurement methods and assumptions applied, data resources, and the subjectivity of the estimator, … Therefore, this is one of the indicators that often have material misstatements and is exploited to beautify FS, serving the personal interests of the FS preparer, and reducing the trust of investors in the transparency of FS, especially in the current economic crisis period According to Nguyen Thi Le Thanh (2017), audit opinions that are not unqualified are usually expressed in two circumstances: qualified opinions due to the limited scope of the audit, which relates to accounting estimates for 31%, while qualified opinions due to material misstatements (discovered by the auditor but not adjusted by the audited entity) related to accounting estimates of 24% The accounting estimates are an important