Investigating the relationship between the failure of financial statement audits and the contagion effect of audit quality reduction
Subject Areas :
1 - Assistant Professor, Department of Accounting, Qods City Branch, Islamic Azad University, Tehran, Iran
Keywords: Audit failure, audit quality, reputation, specialist auditor.,
Abstract :
Purpose: The main purpose of this research is to provide evidence about the contagion effect of audit quality reduction. The failure of the audit affects the quality of financial analysis and has a great impact on the accuracy of decision-making due to the bias in important information.
Methodology: Using the considered limitations. 141 companies were selected as the research sample in the period of 2016-2022. To test research hypotheses, multivariate linear regression based on panel data has been used.
Findings: The results of this research show that the failure of the audit in detecting the distortion in the financial statements lowers the quality of the audit of other companies that have been audited by the same auditor. There is also the finding that the contagion effect of audit quality reduction is stronger for auditors of non-ranked A audit companies and non-industry experts. In fact, audit failures can happen. It is possible that a failure to audit a particular customer unit will affect the failure of other customers receiving the service. If such contagion is proven, the accounting profession and accounting firms will face great challenges to maintain professional credibility, which should be given special attention.
Originality: The findings of this research can encourage audit companies to design quality control for audit services. This action takes into account the issue of maintaining the quality of audit and credit services.
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