Does auditing multiple clients affiliated with the same business group reduce audit quality? : evidence from an emerging market

The aim of the study is to examine the association between audit quality and individual auditors providing independent audit service to the firms affiliated with the same business group. We used Turkish Listed firms traded in Borsa İstanbul between 2010 and 2016. These auditors have been associated with lower audit quality in terms of discretionary accruals, modified audit opinion and audit report aggressiveness. Our main results are robust to different specifications and the results remain unchanged regardless of the specification. Moreover, we created some interaction variables to test that such a relationship would be reversed when the audit firm where the individual auditor works, was one of the Big4. We found that individual auditors providing independent audit service to the firms affiliated with the same business group in the Big4 audit firms do not influence audit quality negatively. In addition, we found that individual auditors providing independent audit service to the firms affiliated with the same business group audit the financial statements of them in timelier manner. Overall, this paper highlights and emphasizes the importance of auditing the firms affiliated with the same business group by different individual auditors to audit quality.