Determinants of Perceptions of External Auditors‟ Independence in Ethiopian Private Audit Firms
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Date
2016-01
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Addis Ababa University
Abstract
Auditor independence is fundamental to public confidence in audit reporting and the auditing
profession. The users of audit reports must have confidence in the integrity and objectivity of
auditors. Without definite auditors’ independence audit profession has little value. This study
examines factors affecting auditors’ independence in Ethiopian private audit firms. Survey
research design was employed in carrying out the study. Data were collected using Likert- rated
questionnaire; which was administered to 78 auditors in 26 Audit firms in Ethiopia. All audit
firms of grade A and B in Ethiopian were covered for the study. Analysis was carried out using
descriptive statistics and, regression analysis while hypotheses formulated were tested by fitting
the regression equation for significance. The results revealed that level of competition in the
audit services market, tenure of an audit firm serving the needs of a given client and size of audit
fees received by audit firm in relation to total percentage of audit revenue do have negative and
significant effect on auditors independence and the provision of non-audit service has positive
significant effect on auditors’ independence. Size of audit firms and existence of audit committee
do not have significant effect on auditor independence for this study. Client related factors and
industry situation do have significant effect on auditor’s independence. The main
recommendation is that auditors should remain strictly independent in mind and in appearance.
Key words: Auditors, independence, Ethiopia, audit firm, tenure, AudiAuditor independence is fundamental to public confidence in audit reporting and the auditing
profession. The users of audit reports must have confidence in the integrity and objectivity of
auditors. Without definite auditors’ independence audit profession has little value. This study
examines factors affecting auditors’ independence in Ethiopian private audit firms. Survey
research design was employed in carrying out the study. Data were collected using Likert- rated
questionnaire; which was administered to 78 auditors in 26 Audit firms in Ethiopia. All audit
firms of grade A and B in Ethiopian were covered for the study. Analysis was carried out using
descriptive statistics and, regression analysis while hypotheses formulated were tested by fitting
the regression equation for significance. The results revealed that level of competition in the
audit services market, tenure of an audit firm serving the needs of a given client and size of audit
fees received by audit firm in relation to total percentage of audit revenue do have negative and
significant effect on auditors independence and the provision of non-audit service has positive
significant effect on auditors’ independence. Size of audit firms and existence of audit committee
do not have significant effect on auditor independence for this study. Client related factors and
industry situation do have significant effect on auditor’s independence. The main
recommendation is that auditors should remain strictly independent in mind and in appearance.
Key words: Auditors, independence, Ethiopia, audit firm, tenure, Audit market, audit fees, Non
audit services and Audit committeet market, audit fees, Non
audit services and Audit committee
Description
Keywords
Auditors, Independence, Ethiopia, Audit firm, Tenure, Audit market, Audit fees, Non audit services and audit committee