Auditor choice and its impact on financial reporting quality: A case of banking industry of Pakistan

Umar Farooq Khalil

19 citations0/0 files storedAsia Pacific Management Review

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Auditing, Earnings Management, Governance Corporate Governance and Financial Management Financial Reporting and XBRL

Abstract

The aim of the paper is to investigate the effect of Auditor Choice i.e. Big-Four Affiliates and NonBig-Four Affiliates on the Quality of Financial Reporting of Banking Industry in Pakistan from year 2011–2018. Two issues have been noticed in Pakistani audit market, firstly, banks pay higher audit fee to Big-4 Affiliates and secondly NonBig-4 Affiliates have lower share in local audit market. This paper has tried answer these issues. Financial Reporting Quality, proxied by discretionary accrual and is estimated through Cross-sectional Modified Jones Model (1995). Furthermore, Multivariate Regression is used to find the difference between Financial Reporting Quality. The result indicates that there is no significant difference between Financial Reporting Quality of banks audited by Big-4 Affiliates and NonBig-4 Affiliates. Therefore, it is concluded that Banking Industry in Pakistan can acquire quality audit services at lower audit fee and secondly, NonBig-4 Affiliates must be given fair opportunity in the local audit market in Pakistan.

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References

2010Understanding earnings quality: A review of the proxies, their determinants and their consequences 2004Litigation Risk and the Financial Reporting Credibility of Big 4 versus Non-Big 4 Audits: Evidence from Anglo-American Countries 2010Auditor reputation and earnings management: International evidence from the banking industry 2013Do Big 4 audit firms improve the value relevance of earnings and equity?2013The Emergence of Second‐Tier Auditors in the US: Evidence from Investor Perceptions of Financial Reporting Credibility 2018Do Big Four Auditors Always Provide Higher Audit Quality? Evidence from Pakistan 2017Bank earnings smoothing, audit quality and procyclicality in Africa 2011Big 4 auditor affiliation and accruals quality in Bangladesh

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