Factors affecting quality of financial statement audit of FDI enterprises in Vietnam

The paper aims to develop a framework for empirical research on factors affecting quality of

financial statement audit of FDI enterprises in Vietnam. The results show that there are nine over

eleven factors having positive influence on audit quality, say: Professional attitude, Experience and

Industry Expertise, Auditor’s independence, Audit process and quality control, Auditor

qualification, Audit time, Law system, Auditee’s characteristics, and Audit market. The findings of

this study provide recommendations for auditors and audit firms to improve the quality of financial

audit in Vietnam.

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d Quality control procedures. Component 3 consists of variables: TDNN1, TDNN2, TDNN3, TDNN4, and QTKT3. These variables initially belonged to two factors: Professional attitude and Audit process. Based on the name of the variables, this factor is renamed Professional attitude Component 4 includes variables: DLKT1, DLKT2, DLKT3, and DLKT4. These variables originally belonged to the factor: Auditor’s independence. Therefore, this factor is called Auditor’s independence. Component 5 includes variables: HTPL1, HTPL2, HTPL3, and HTPL4. These variables originally belonged to the factor: Law system. Therefore, this factor is called Law system. Component 6 includes variables: TDCM1, TDCM2, and TDCM3. These variables originally belonged to the factor: Auditor qualifications and proficiency. Therefore, this factor is called Auditor qualifications and proficiency. Component 7 includes variables: TGKT1, TGKT2, and TGKT3. These variables originally belonged to the factor: Audit time. Therefore, this factor is called Audit time. Component 8 includes variables: DDDN1, DDDN2, and DDDN3. These variables originally belonged to the factor: Characteristics of FDI enterprises. Therefore, this factor is called Characteristics of FDI enterprises. 439 Component 9 includes variables: TTKT1, TTKT2, and TTKT3. These variables originally belonged to the factor: Audit market. Therefore, this factor is called Audit market. Component 10 includes variables: BCKT2, BCKT3. These variables originally belonged to the factor: Audit reports. Therefore, this factor is called Audit reports. Component 11 includes variables: BCTC1, BCTC2. These variables originally belonged to the factor: Audited financial statements. Therefore, this factor is called Audited financial statements. As a result, through the EFA, there are 11 components representing the factors affecting the audit quality with 42 variables. 3.2. Adjusted Research Hypotheses Based on the results of the exploratory factor analysis, the research model is adjusted and the hypotheses are re-expressed as follows: H1’: There is a positive relationship between Experience and Industry Expertise and Audit quality H2’: There is a positive relationship between Audit process and Quality control procedures and Audit quality H3’: There is a positive relationship between the Professional attitude and Audit quality H4’: There is a positive relationship between Auditor’s independence and Audit quality H5’: There is a positive relationship between Law system and Audit quality H6’: There is a positive relationship between Auditor qualifications and proficiency and Audit quality H7’: There is a positive relationship between Audit time and Audit quality H8’: There is a positive relationship between Characteristics of FDI enterprises and Audit quality H9’: There is a positive relationship between Audit market and Audit quality H10’: There is a positive relationship between Audit reports and Audit quality H11’: There is a positive relationship between Audited financial statements and Audit quality 3.3. Linear Regression Analysis Based on the adjusted model after EFA, linear regression results are presented as follows: CLKT = β0 + β1 CSKN + β2 QTKS + β3 TDNN + β4 DLKT + β5 HTPL + β6 TDCM + β7 TGKT + β8 DDDN + β9 TTKT + β10 BCKT + β11 BCTC+ ε ✓ Dependent Variable: Audit quality (CLKT). ✓ Predictors: Experience and Industry Expertise (CSKN), Audit process and Quality control procedures (QTKS), Professional attitude (TDNN), Auditor’s independence (DLKT), Law system (HTPL), Auditor qualifications and proficiency (TDCM), Audit time (TGKT), Characteristics of FDI enterprises (DDDN), Audit market (TTKT), Audit reports (BCKT) and Audited financial statements (BCTC). 440 Table 7. Model Summaryb Model R R Square Adjusted R Square Std. Error of the Estimate Durbin-Watson 1 .709a .503 .482 .33827 1.395 a. Predictors: (Constant), BCTC, DDDN, TDNN, CSKN, HTPL, TDCM, QTKS, TGKT, DLKT, TTKT, BCKT b. Dependent Variable: CLKT Table 8. ANOVAa Model Sum of Squares df Mean Square F Sig. 1 Regression 30.756 11 2.796 24.434 .000b Residual 30.438 266 .114 Total 61.194 277 a. Dependent Variable: CLKT b. Predictors: (Constant), BCTC, DDDN, TDNN, CSKN, HTPL, TDCM, QTKS, TGKT, DLKT, TTKT, BCKT Table 9. Coefficientsa Model Unstandardized Coefficients Standardized Coefficients t Sig. Collinearity Statistics B Std. Error Beta Tolerance VIF (Constant) .708 .266 2.659 .008 CSKN .158 .026 .263 5.976 .000 .965 1.037 QTKS .096 .020 .217 4.863 .000 .940 1.064 TDNN .217 .026 .376 8.396 .000 .932 1.073 DLKT .104 .021 .227 4.982 .000 .900 1.111 HTPL .124 .027 .203 4.578 .000 .952 1.050 TDCM .084 .019 .208 4.368 .000 .824 1.213 TGKT .048 .021 .104 2.277 .024 .903 1.108 DDDN .064 .028 .102 2.300 .022 .953 1.049 TTKT .038 .019 .093 2.006 .046 .861 1.162 BCKT -.019 .023 -.041 -.840 .402 .774 1.291 BCTC -.022 .026 -.039 -.851 .396 .894 1.119 Source: SPSS 20.0 From the above results, it can be seen that: Multi-collinearity testing: The VIF of all independent variables is less than 10, so the multi-collinearity in the model is considered not to be serious. 441 The Durbin Watson Test is a measure of autocorrelation (also called serial correlation) in residuals from regression analysis. The Durbin-Watson value is 1.395 (between 1 and 3). Model does not have autocorrelation. Result of ANOVA test with Sig. = 0.000 shows that the linear regression model was constructed in accordance with the dataset and was usable. The R2 (R Square) = 0.503 means that 50.3% of the variation in the audit quality of financial statements of FDI enterprises in Vietnam will be explained by factors with independent variables in the research model. Results of regression analysis indicate that independent variables including CSKN, QTKS, TDNN, DLKT, HTPL, TDCM, TGKT, DDDN, TTKT are statistically significant (Sig. <5%) to CLKT. Thus, the research hypotheses H1’, H2’, H3’, H4’, H5’, H6’, H7’, H8’, H9’, H10’ are accepted. However, with the data collected, we do not find significant effect of BCKT and BCTC on CLKT (Sig.> 5%). Therefore, the research hypotheses H11’, H12’ are rejected. Standardized regression equations are as follows: CLKT = 0.263 CSKN + 0.217 QTKS + 0.376 TDNN + 0.227 DLKT + 0.203 HTPL + 0.208 TDCM + 0.104 TGKT + 0.102 DDDN + 0.093 TTKT And the importance of each factor on audit quality is presented on the following table: Table 10. The influence of the factors Factor Beta Proportion CSKN .263 14.67% QTKS .217 12.10% TDNN .376 20.97% DLKT .227 12.66% HTPL .203 11.32% TDCM .208 11.60% TGKT .104 5.80% DDDN .102 5.69% TTKT .093 5.19% Total 1.793 100% Source: calculates from the regression results It can be seen from the Table 10 that among 9 factors affecting audit quality of financial statement audit of FDI enterprises in Vietnam, the most impacted factor is TDNN (20.97%), followed by CSKN on the second place (14.67%). On the third place are the factors DLKT, QTKS, TDCM and HTPL with influence proportion from 11.32% to 12.66%. The forth group is the lowest impacted factors including TGKT, DDDN and TTKT with impact proportion between 5.19% and 5.80%. 442 4. Conclusions This study focused on the factors that affect the quality of financial statement audit of FDI enterprises in Vietnam. The empirical research found out nine key factors affecting the audit quality, namely: Experience and Industry Expertise, Audit process and Quality control procedures, Professional attitude, Auditor’s independence, Law system, Auditor qualifications and proficiency, Audit time, Characteristics of FDI enterprises, and Audit market. The findings of the research provide recommendations for auditors and auditing firms to improve quality of assurance services provided, such as: emphasizing on Professional attitude (TDNN with β = 0.376 and impacted proportion 20.97%), Experience and Industry Expertise (CSKN with β = 0.263 and impacted proportion 14.67%), Auditor’s independence (DLKT with β = 0.227 and impacted proportion 12.66%), Audit process and Quality control procedures (QTKS with β = 0.217 and impacted proportion 12.10%), and Auditor qualifications and proficiency (TDCM with β = 0.208 and impacted proportion 11.60%). The research findings are limited to the quality of audited financial statements of FDI enterprises in Vietnam. However, they can be referred as a reference for other empirical studies on quality of financial statement audit in Vietnam. 5. References DeAngelo, L.E (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3(3), 183-199. Beckmerhagen, I.A., Berg, H.P., Karapetrovic, S.V. & Willborn, W.O. (2004). On the effectiveness of quality management system audit. The TQM Magazine, 16(1), 14-25. Financial Reporting Council (FRC) (2008). Promoting audit quality. Discussion paper. London, LDN: FRC. Francis, J.R. (2011), A framework for understanding and researching audit quality. Auditing: A Journal of Practice & Theory, 30 (2), 125 – 152. GAO (2003). Public Accounting Firms: Mandated Study on Consolidation and Competition. Hoang Trong & Chu Nguyen Mong Ngoc (2008). Phân tích dữ liệu nghiên cứu với SPSS, NXB Hong Duc. IAASB (2013). A Framework for Audit Quality. New York, NY: IAASB. IAASB (2011). Audit quality: An IAASB Perspective. New York, NY: IAASB. Knechel W. R., Krishnam, V., Pevzner, M. (2013). Audit quality: Insights from the Academic Literature. Auditing: A Journal of Practice & Theory, 32 (1), 385-421. Palmrose, Z.V. (1988). An analysis of auditor litigation and audit service quality. The Accounting Review, 68(1), 55-73. Wallace, W. (1987). The economic role of the audit in free and regulated markets: a review. Research in Accounting Regulation, 1, 7-34.

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