The Role of External Auditors in Enhancing Investor Confidence: The Case of Selected Audit Firms and Their Clients
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Date
2025-09
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Addis Ababa University
Abstract
This study examines the role of external auditors in enhance investor confidence focusing on selected partnership audit firms and their client’s in Addis Ababa. Utilizing a quantitative survey methodology. The research examines four critical determinants: audit independence, audit transparency, audit firm reputation and financial reporting quality and analyzed using multiple regression analysis. Finding indicates that audit independency, audit transparency and financial reporting quality significantly enhance investor confidence and consistent with established audit quality standard. However, the audit firm reputation appears to exert minimal influence potentially due to the majority of smaller audit firms within Ethiopia audit practice. Descriptive statistics reveal a moderate level of trust in auditor’s independence and transparency but highlight concerns regarding the financial reporting quality and inconsistent ethical practices. Challenges in implementing International Financial Reporting Standards (IFRS) and International Standards on Auditing (ISA) are primarily associated with inadequate expertise and insufficient regulatory oversight. The study proposes that the Accounting & auditing Board of Ethiopia (AABE) enforces stricter guidelines to safeguard auditor’s independence obligatory Key Audit Matters disclosures to enhance transparency and promote compriehensive IFRS training to improve reporting standards. Future research should incorporate sole proprietorship audit firms and additional elements such as technological adoption in auditing practice and regulatory compliance to improve the understanding of Ethiopian’s audit sector for increasing investor trust.
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Keywords
Accounting & Auditing Board of Ethiopia (AABE), Audit Firm Reputation, Audit Independence, Audit Transparency, Ethical Practices, External Auditors, Financial Reporting Quality, Investor Confidence, Key Audit Matters, Regulatory Compliance, Partnership Audit Firm.