The Effect of the Directive “SBB/86/2023-Appointement of External Auditor of Bank” on Auditors Attributes Towards Audit Quality
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Date
2024-06-03
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A.A.U
Abstract
The purpose of this study is to show and examine the effect of the new directive SBB/86/2023
issued by the National Bank of Ethiopia on the external audit quality of banks. The study used
primary data collected from bank staffs, external senior auditors, audit managers, and audit
partners through closed-ended Likert scale questionnaire. A quantitative explanatory research
design was employed, collecting data through questionnaires from auditors, bank staff, and
other stakeholders. The research evaluated the directive's impact on three dimensions of audit
quality: auditor independence and objectivity, auditor competence and qualifications, and audit
process and procedures. The Statistical analyses included descriptive statistics, reliability tests,
validity test, normality test, correlation, and regression modeling. The results indicated the new
directive positively and significantly influenced all three audit quality aspects. Specifically, it
enhanced auditor independence/objectivity (β=0.462, p<0.001), improved auditor
competence/qualifications (β=0.280, p<0.001), and strengthened audit processes/procedures
(β=0.216, p<0.001). The regression model explained 69.3% of the variance in the directive's
effect on overall audit quality. The findings suggest the new regulatory requirements from the
National Bank of Ethiopia have been effective in promoting higher audit quality standards within
the Ethiopian banking sector. Implementation of the expanded auditing guidelines has reinforced
auditor independence, boosted auditor expertise, and driven more rigorous audit execution,
thereby increasing transparency and credibility of bank financial reporting. The study suggests
that the National Bank of Ethiopia (NBE) and AABE need to place greater emphasis on auditors’
independence and objectivity, competence and qualifications, and audit processes and
procedures quality when revising or introducing directives related to conducting external audit of
banks. The study also suggests the NBE need to take considerations and greater emphasis on
directives requirement to outsource System/IT audit activities effect since outsourcing IT audit
work to other vendors adds cost and brings potential risks around maintaining audit quality,
independence, data security and confidentiality when third parties are involved. Furthermore,
the study suggests NBE need to consider the effect of lacking in conformity of the directives with
international accounting and auditing standards like IFRS standards, ISA standards, Capital
market proclamations, and other accounting & auditing regulations and standards.
Key words: National Bank of Ethiopia, Auditing & Accounting Board of Ethiopia, Audit
Quality, Independence, Objectivity, Competence, Qualifications, Process, Procedure.