Audit Competence and Audit Quality: Case in Emerging Economy

Abstract

From the bankruptcy filing of Enron on December 2, 2001 for the next 12 months, an unprecedented string of large bankruptcies and corporate scandals emerged. Six of the ten largest corporate bankruptcies occurred in this 12-month period. Of these six, all received unmodified opinions and four of the six (WorldCom, Enron, Global Crossing, and UAL Corp) were clients of Arthur Andersen. As it is very clear external auditors play vital role in our society, on the other words, financial statement users must believe that external auditors are free from others control, or users will doubt the verity of auditors' representations. Auditor independence provides investors confidence in audited financial statements. Further, auditor independence is the cornerstone of the public accounting profession (Mednick, 1990). Any threat to audit independence may undermine this confidence. The impairment or lack of auditor independence is a main cause of many corporate collapses and corporate scandals across the world. Without independence the audit quality and audit detection duty is questionable. The results of this study shows that specialization of IACPA strongly affects on fraud detection, in addition the competency of IACPA member affects on detecting important fraud.

Audit Quality and Several of Its Determinants

“…The professional judgment and the factors influencing it have been object of the practitioners and researchers" concerns. For example, Mansouri et al (2009) believe that the public can rely on the representations of an auditor when the public trusts that the auditor has acted as an impartial judge, who has drawn the conclusions based on objective evidence. This happens because up against the financial reporting, which is influenced by factors such as the accounting standards, the economic factors, responsibilities and professional ethics, the audit also involves a critical professional judgment.…”

Factors Influencing Professional Judgment of Auditors in Malaysia

“…Besides financial reporting, which are influenced by factors such as accounting standards, economic factors and professional ethics and responsibilities, auditing also involved a critical professional judgement. The public can rely on an auditor's representations when confidence exists that the auditor has acted as an impartial judge, basing conclusions on objective evidence (Mansouri, Pirayesh, & Salehi, 2009).…”

The Influence of Independence, Competence, Behavioral Ethics and Experiences of Auditor for Audit Quality

“…An auditor should have the ability to recognize indications of irregularities, and to keep abreast of developments in the preparation and detection of irregularities (Mansouri, A., Pirayesh, R., & Salehi, M. (2009). Therefore, competence is needed by an auditor as the basic standard in doing an audit and to increase the quality of audit from audited fi nancial statements.…”

“…Competence is measured by accounting principles and auditing standards; type of industry; formal education; training, courses and special expertise. An auditor should have the ability to recognize indications of irregularities, and to keep abreast of developments in the preparation and detection of irregularities (Mansouri, A., Pirayesh, R., & Salehi, M. (2009). Suraida (2005), defi nes ethics as the values of behavior or rules of behavior which are accepted and used by a particular group or individual.…”