The general objective is to establish influential factors for audit quality from auditor’s point of view as a foundation for proposal policies in improving audit quality.
MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS OF HO CHI MINH CITY LE THI THANH XUAN THE DETERMINANTS OF THE QUALITY OF AUDIT ACTIVITIES – FROM THE PERCEPTION OF AUDITORS Major: Accounting Code: 9340301 SUMMARY OF ECONOMIC PHD THESIS HO CHI MINH CITY, 2018 The work was completed and summited to: University of Economics of Ho Chi Minh City Instructors: Dr Vu Huu Duc Dr Le Dinh Truc Reviewer 1: Reviewer 2: Reviewer 3: The thesis will be presented and defensed at the science council held at the University of Economics of Ho Chi Minh City at … o’clock, day … month… year… The thesis is available at: - National Library of Vietnam - Library of University of Economics of Ho Chi Minh City PREFACE RESEARCH RATIONALE Audit quality (AQ) plays a vital role in establishing of capital market AQ is a subject that draws attention from different information user with varied objectives among them Investors, credits concern with the ability to enhance useful information for investing and credit granting decisions Managements likely try for the balance between audit’s cost and benefit Audit firms mainly focus on the business competitiveness and risk reduction aspects In other words, AQ is multi-aspects subject matter For that reason, many researches have been conducted in order to determine influential factors toward AQ as a mean to have better comprehension and acceptance for AQ and to have better solutions to enhance AQ Together with studies of academic researchers, professional bodies are trying to establish a conceptual framework for AQ In the last two decades, professional bodies such as FRC, IAASB, PCAOB formed a conceptual framework for AQ The framework regulates elements and important properties of AQ In Vietnam, the subject matter has brought into the spot light in recent years A number of researches of influential factors for AQ have been performed on vary point of view, however, its impact is still at moderate level Most of these researches use auditor’s properties, audit firms or external factors at mean to exam for the auditor’s awareness to AQ, without referencing to a common framework for AQ From the above reasons, author decide to conduct a research for “The determinants of the quality of audit activities – From the perception of auditors” The research’s approach is based on multi-dimensions framework of AQ to gain a broad picture for the subject Also, the author wants to list out suggestive solutions to improve audit activity quality in Vietnam RESEARCH OBJECTIVES The general objective is to establish influential factors for audit quality from auditor’s point of view as a foundation for proposal policies in improving AQ Specific objectives are: (1) To form a framework for influential features for audit activity quality from auditor’s point of view (2) To analyse the differences of auditor’s awareness toward AQ due to experience and working environment aspects (3) To analyse the differences between auditor’s and related party’s awareness from the angle of service providing RESEARCH APPROACH To achieve mentioned objectives, the research is divided into sub-researches: • Research 1: Auditor’s awareness of the quality of audit activities Surveys, generated from AQ framework of IAASB with the Likert measurement, are conducted on auditor’s perspective towards factors that could control for AQ Approaches are ultilised for this research include: o Exploratory Factor Analysis (EFA) to identify influential factors for AQ from the auditor’s perspective before confirming by the Confirmatory Factor Analysis (CFA) o T-test: to confirm the differences among group of auditors • Research 2: The differences between auditor’s and related parties’ awareness, including financial statement’s provider and users The research utilises the framework of Audit Service Quality to launch the measurement for the differences of auditor’s and related parties’ awareness The One - Way ANOVA is performed for such measurement RESEARCH SUBJECT AND SCOPE § Research subject For the first research – the subject is auditors in Vietnam Surveys are made to auditors working in audit firms at different position For the second research – the subject are auditors and related parties in Vietnam Survey participants include: auditors; accountants (represent for financial statement provider); individual investors (represent for external users of financial statement information) § Research scope: The research is limited on independent financial statement auditing activities in Vietnam RESEARCH CONTRIBUTIONS The research’s result is considered as a contribution from both academic and practical point of view for audit activities in Vietnam, including: Ø Scientific contributions: ü Based on framework of AQ and confirmed by CFA, the research establishes a scientific significant framework for the determinants of the quality of audit activities Thus, this framework is useful for the research directions in measuring AQ in Vietnam ü The result identifies eight factors that contribute to audit activity quality (including: audit group competence, Audit Quality policies in audit firm; audit methodology, information provide to board of directors and board of managements; the publicity of audit firm; external controlling; parties’ interaction; and the context), as well as the differences in AQ awareness from auditor with different experience level and working environment ü The thesis is with the aim to clarify the concept of AQ both from the angle of audit activity quality and audit service quality This matter has not been clarified by previous studies in Vietnam ü Also, from achieving results and limitations of difference analysing for auditor’s and related parties’ awareness of AQ, the thesis proposes a new research approach for AQ from service providing aspect for future studies Ø Practical contributions: ü The determination of influential factors of audit activity quality regarding to the auditor’s awareness, together with the differences between auditor’s and profession bodies’ perspective toward AQ, provide suggestions to government, profession bodies, audit firms and educational institutes for the enhancing AQ purpose ü The evidence of difference between auditor’s and related parties’ awareness offers a multi-dimensions perspective for AQ This, in turn, implies for improving activities striking for the balance between social benefit and cost ü Finally, the audit activity quality framework’s measurement, based on auditor’s perspective, is a useful reference for quality assessment activities of audit firms, quality assessment and profession bodies RESEARCH OVERVIEW Besides Preface and Summary, the research is organized into chapters Chapter – Introduction for research problem, Chapter – Literature Review, Chapter – The awareness of auditor with audit activity quality, Chapter – The differences between auditor’s and related parties’ awareness with audit quality, Chapter – Conclusion and proposed implementation CHAPTER – INTRODUCTION FOR RESEARCH PROBLEM This chapter’s purpose is to systemise the previous studies of AQ, both in Vietnam and around the world, as a mean to identify research objectives This chapter is divided into parts Part would list the studies of AQ in the world Part mainly discuss for studies of AQ in Vietnam Part would be used to identify research objectives 1.1 STUDIES OF AQ IN THE WORLD There is substaintial number of researches of AQ all around the world It is believed to start with study of DeAngelo (1981) for more than 36 years of research for the subject matter Beside studies from academic participants, publications are also made by profession bodies in more than past 10 years Especially, the announcement of FRC in 2006 with the title of “Promoting Audit Quality” Most recently, IAASB published the Framework for Audit Quality in 2014 In general, studies on AQ mainly focus on two directions, including: • Analyse of correlation: This direction concentrates on the relation between AQ and influential factors of AQ Thus, AQ is a dependent variable that is measured with vary approaches There could be a single or multi independent variables involving with the studies The direction is subcategorised into areas: − AQ with audit output product quality − AQ with audit firm characteristics This direction is mainly conducted by academic participants • Factor analysis: To analyse elements contributing to the concept of AQ in order to form a framework for AQ For that reason, AQ is not considered as a dependent variable in this direction of research There specific areas of studies in this direction: − Audit firm and auditor characteristics − Elements contributing to audit process quality − Elements of audit service quality − Quality elements of audit activity in overall 1.1.1 Focus of the analyse of correlation There are two areas in the analyse of correlation of AQ The first is the correlation between AQ and audit output product quality The second is the correlation between AQ and audit firm characteristics 1.1.1.1 The relationship between AQ and audit output product quality The audit output product quality is measured through: The ability to detect for material misstatement; Auditor’s opinion (direct measurement); or the quality of financial statement; and the information users’ awareness (indirect measurement) 37 Standardised loading factor (table 3.12) for measurement is > 50, and the unstandardised loading factor is statistic significant These the convergent validity is achieved o Discriminant validity Discriminant test for factors within the model is represented by the correlation value The test result at table 3.13 shows all P-value < 05, the correlation between each pair of factors is different from (with confident level at 95%) Thus, discriminant validity is sufficient o Reliability of the model As the result for the reliability of factors represented above, the research model is highly reliable 3.2.1.6 Research findings evaluation The test confirms that the model is suitable for the research date, there are hypothesises (form H1 to H8) are accepted Model for audit activity quality based on auditor’s perspective comprises factors: (1) Audit group competence (2) Audit firm’s quality control policy; (3) Audit methodology; (4) Information flow provided to management committee; (5) Publicity of audit firms; (6) External monitoring; (7) Parties’ interaction; (8) the Context) To test whether a better structure for this factors exists, the EFA method is applied on the mentioned factors The result of EFA shows that the current model is optimal for the 38 influential factors for audit activity quality base on auditor’s perspective • Finding in comparison with IAASB’s framework for AQ The finding presents a difference for the auditor’s awareness towards influential factors of AQ comparing to the IASSB’s framework Even though the number of factors within the framework is larger than this study model, however, they share the same structure 3.2.2 The difference of quality awareness among vary groups of auditors 3.2.2.1 Test for the difference between Partner and Staff In overall, both Partner and Staff stress out the importance of all factors (all results are larger than 3) To be more specific, two factors “audit group competence” and “audit methodology” are at the heart of the evaluation The mean of the evaluation between Partner and Staff groups, in all factors, is at minor difference … There is no statistic evidence to show a difference between Partner and Staff evaluation in factors: Audit group competence; Audit Quality policies in audit firm; Audit methodology; Timely information providing to board of directors and board of managements; External controlling; and Parties interaction 39 However, there is significant result for the different between Partner and Staff for two factors: The publicity of audit firm; and Contextual elements … 3.2.2.2 Test for the difference between Big4 and Non-Big4 groups …Both Big4 and Non-Big4 groups confirm the important of all factors … There is a minor difference between Big4 and Non-Big4 in all factors There is no statistical evidence for the difference in evaluation between Big4 and Non-Big4 groups in factors: Audit group competence; Audit Quality policies in audit firm; Audit methodology; Timely information providing to board of directors and board of managements; External controlling; Parties interaction; and Contextual elements The significant difference between Big4 and Non-Big4 groups’ evaluation is in “The publicity of audit firm” 40 CHAPTER – THE DIFFERENCE OF AUDITOR’S AND RELATED PARTIES’ AWARENESS TO AUDIT QUALITY This chapter consists of two parts In part 1, the author discusses for the research methodology with the intention to achieve for proposed objectives In part 2, the research findings are presented and analysed 4.1 RESEARCH METHODOLOGY 4.1.1 RESEARCH DESIGN In order to achieve research objectives, the study is divided into two parts: (1) Developing a scale of measurement for auditor’s and related parties’ awareness toward the AQ; (2) To identify any difference in evaluation of influential factors between auditor and related parties toward the AQ 4.1.2 SCALE OF MEASUREMENT DEVELOPING As a professional service, consumers (related parties) cannot access the audit process, therefore, they can not have a comprehension about audit activities As a result, the research applies Duff ‘s (2004) framework for audit service quality (AUDITQUALY model) to develop the scale of measurement for auditor’s and related parties’ awareness to the AQ § Initial scale of measurement The initial scale of measurement consists of 63 questions for factors followed the framework of audit service quality There are 56 questions introduced from AUDITQUALY model; 41 and the other questions are from IAASB’s framework for AQ (2014) § Final scale of measurement The final survey comprises 53 questions (46 of these questions are from the AUDITQUALY model, and questions are from the IAASB framework for AQ) The questions are designed with 5-level Likert from “not important” to “very important” to assess for the auditor’s and related parties’ awareness toward influential factors for AQ 4.1.3 DATA COLLECTING § Sample design o Research objects Research objects include: auditor; private accountant (representing for information providing personnel); investor (representing for information users) o Sample size The survey is sent to 800 individuals There are 300 (37,5%) reponds in return The final sample consists of 285 participants including 111 auditors, 90 accountants and 84 investors o Sample selection Non-statistical sampling method is ultilised for the research This technique ensures all participants have equal chance to be selected for the sample 42 § Data collecting approach o Questionnaire survey The survey is designed with three parts: - Part A: “Survey information”, includes 53 questions for factors of AQ - Part B: “Additional suggestion” - Part C: “Personal information” o Survey method Mail survey is used in line with direct survey at annual conference held by VACPA and VAA § Data coding Collected data is processed and coded following the structure of framework for AQ … 4.1.4 DATA ANALYSISING APPROACH …The study uses One – Way ANOVA to test for the hypothesis of any difference in evaluating of AQ influential factors among auditor, accountant, and investor Steps in One – Way ANOVA includes: (1) Test of reliable of the measurement; (2) Test of homoscedasticity; (3a) Tests of ANOVA (in case of homoscedasticity with a normal distributed sample); (3b) Kruskal-Wallis test (in case of homoscedasticity without a normal distributed sample); (4) Post hoc test 43 4.2 RESEARCH FINDINGS 4.2.1 OVERALL EVALUATION OF PARTIES FOR AQ ELEMENTS RELATED § Sample descriptive analysis Within 285 responds, there are 111 auditors (38.9%), 90 accountants (32%), and 84 investors (29.5%) Majority of these participants are within the age range 25 - 45 (76%) § Evaluation of related parties for AQ elements All elements are considered as important for AQ with the mean score among three group from 3.55 to 4.14 Within the result, “Reputation” element has the highest mean of 4.14 and the lowest mean score belongs to “Independence” with a mean of 3.55 4.2.2 TESTS FOR DIFFERENCE AMONG GROUPS § Result for the test of the reliability of the measurement The result shows that selected measurement for all factors is reliable with Cronbach’α from 0.765 to 0.925 factors: Reputation; Independence; Knowledge; Interaction; Non-audit service; Enthusiasm; Information providing are analysed using ANOVA approach for any difference in evaluation among groups (auditors, accountants, investors) for contributing elements of AQ § Test of homoscedasticity (Levene test) 44 Levene test presents a Sig < 05 (α = 5%) for all factors (α = 5%) implying that there is a different for the variance (without a normal distributed sample) among groups In this case the Kruskal –Wallis test is used in replacement for ANOVA § Kruskal – Wallis test From the factors within the framework for audit service quality, of following factors: Interaction; Non-audit service; Enthusiasm; and Information providing have Sig Value > 0.05 This result suggests that the assumption for homoscedasticity is accepted There is no difference in evaluating among groups of auditors, accountants and investors for the mentioned factors Reputation; Independence; Knowledge These is difference in evaluating among groups of auditors, accountants and investors for Reputation; Independence; Knowledge factors However, Kruskal –Wallis test could not confirm for the difference between specific pair of groups Therefore, the post hoc tests are applied § Step 4: Post hoc tests With a confidence level of 5%, Post hoc tests show there is a difference in valuation for two pairs: Auditors and Accountants; Auditors and Investors, over all factors (reputation, independence, knowledge), with the Sig value < 05 There is not difference between accountants and investors for the same matter (Sig >0.5) 45 CHAPTER – CONCLUSION This chapter consists parts In part 1, research conclusions and findings are presented Part is used to present for contributions and implemented possibility of the findings In part 3, the limitation of the study and future research suggestions are discussed 5.1 FINDINGS EVALUATION § From the research for auditor’s awareness to audit activity quality The study confirms that there are influential factors to audit activity quality base on auditor perspective, including: (1) Audit group competence; (2) Audit Quality policies in audit firm; (3) Audit methodology; (4) Information providing to board of directors and board of managements; (5) The publicity of audit firm; (6) External controlling; (7) Parties interaction; and (8) Context These factors are categorised following the structure of the conceptual framework, for that: Audit group competence; Audit Quality policies in audit firm belong to the Audit input element; Audit methodology belongs to the audit process element; Information providing to board of directors and board of managements, The publicity of audit firm and External controlling belong to the Audit outcomes element; Parties interaction belongs to the Interaction element; Contextual elements belongs to the Context element 46 The finding shows that there is a difference between auditor’s awareness for AQ influential factors and the conceptual framework … Even though the number of factors within the framework is larger than this study model, however, they share the same structure There is significant result for the different between Partner and Staff for two factors: The publicity of audit firm; and Contextual elements In which, the Partner group seem put more stress on the Contextual elements, while Staff consider The publicity of audit firm as more important factor Even though there is significant difference between Big4 and Non-Big4 groups’ evaluation for “The publicity of audit firm” factor, the result implies the effect of working environment to have an impact on the auditor’s perspective for the AQ § From the research of the difference between auditor’s and related parties’ awareness for the AQ (under audit quality service point-of-view) While it is the primary objective of the study, the result for the test of the difference between auditor’s and related parties’ awareness toward the AQ presents a number of valid evidences The test shows that there is statistical evidence for the difference in evaluation between auditor and related parties for all three factors (reputation, independence, knowledge) which 47 are in the “Technical quality” element of the AQ The auditor highly evaluates for the importance of technical quality aspect more than accountant and investor 5.2 RESEARCH CONTRIBUTION AND APPLICATION The research generates a framework for audit activity quality base on auditor’s perspective The framework includes factors: (1) Audit group competence (2) Audit firm’s quality control policy; (3) Audit methodology; (4) Information flow provided to management committee; (5) Publicity of audit firms; (6) External monitoring; (7) Parties’ interaction; (8) the Context The result is at the position to propose for policies in order to enhance for the AQ such as: ü Improving for auditor’s competence is a key to increase the AQ ü Developing of suitable quality policies could lead to an improvement for the AQ ü Building of suitable audit process and professional standards together with encouraging for professional scepticism and professional judgement require the effective controlling and assessment ü More attention should be placed on the information providing to board of directors and board of managements ü Increase the information publicity of audit firms 48 ü The role of AQ controlling from government and profession bodies ü The importance of related parties’ interaction ü The importance of contextual elements in the audit activities Also, there is evidence for the effect of working experience and working environment to auditor’s awareness of the subject matter The evidence suggests that the auditor with less working experience considering contextual elements as less-important factors Auditors working in Non-Big4 believe that the publicity of audit firms is less important factor in comparison to the Big4 auditors Also, the result suggests that auditors seem highly evaluate the importance of technical quality aspect in comparison with information provider (with the accountant as the representative) and information user (with the individual investor as the representative) These differences are useful suggestion for audit quality developing at audit firms as well as for profession bodies to improve the AQ Besides, the scale of measurement for the framework of audit activity quality base on auditor’s perspective could be used a useful reference for the developing of assessment and controlling indicators for audit firms, audit quality controlling agencies and profession bodies Also, the study’s contribution is from the scientific angle Base on the systemising and analysing of academic and 49 profession-related material, the study helps to clarify the concept of AQ from both quality of an activity and quality of a service point-of-view This problem is not yet addressed in previous studies in Vietnam … Finally, the framework for audit activity quality base on auditor’s perspective could be helpful for any future research for the same subject matter in Vietnam 5.3 RESEARCH LIMITATIONS RESEARCH PROPOSALS AND FUTURE Even though the research’s survey appropriately comprised different group of auditors both work for Big4 and Non-Big4 However, the majorities of survey samples come from NonBig4 auditors This could lead to a weak-representative of the research subjects Future research could include more auditors working in Big4 to improve for this limitation Even though the generating of the framework for audit activity quality is a major contribution of this study, however, the proposed framework does not clearly identify for the influencing level for each element The future research could measure for such influence for these elements In addition, the study confirms the difference between auditor’s and related parties’ awareness toward the AQ This finding is in line with the previous studies There is still a gap for future research to study on the perspective of information 50 provider and information users toward audit service quality in Vietnam./ 51 LIST OF PUBLISHED RESEARCHES OF THE AUTHOR Le Thi Thanh Xuan, 2017 Audit quality under different perspectives, Yearbook record of the National Conferrence “The fact of Transfer Price of enterprises in Vietnam”, National Economics University, Hong Duc Publisher, 09/2017, pp 229 – 240 Le Thi Thanh Xuan, 2017 Review of Audit Quality researches that adopt quantitative approach Industry and Trade Magazine “Scientific researches’ results and technology application”, Issue No 10, 09/2017, pp 391 – 397 Le Thi Thanh Xuan, 2017 Factors influence on the Audit quality – under the perspective of audit users, Yearbook record of the National Conferrence “Researching and Training accounting and auditing in universities in Vietnam applying international standards”, Book 1, National Economics University Publisher, 07/2017, pp 411-420 Nguyen Xuan Hung – Le Thị Thanh Xuan, 2010 Improving the usefulness of accounting information for stock exchange investors”, Development Magazine, 2010 Economics and ... point -of- view, is the matter of service quality provided by audit firms 2.2 QUALITY OF AUDIT ATIVITIES 2.2.1 Definitions of audit and quality of audit activities • Definitions of audit There... common framework for AQ From the above reasons, author decide to conduct a research for The determinants of the quality of audit activities – From the perception of auditors The research’s approach... direction of research is to determine factors based on the auditor’s assessment of the audit process quality These factors are audit procedures performed by auditors and the compliance of auditor