Multiple Audit Mechanism and Audit Quality : An Empirical Investigation

Egypt has a unique and complex audit market in which companies could use multiple audit mechanism through which a company can engage more than one audit firm to verify same financial statements. This mechanism could be conducted through joint audits or dual audits. Joint audits could be performed voluntary. On contrary, dual audits involve a mixture of voluntary and mandatory audits. On one hand, State-owned companies are obligated to appoint accountability state authority as a single auditor to perform audit. On the other hand, some state-owned companies may voluntary hire a private audit firm to avoid consequences of designating accountability state authority. Therefore, this study aims to investigate the association between multiple audit mechanism and audit quality in Egypt. To accomplish this objective, a sample of listed companies' financial statements and accompanied audit reports are used. Abnormal accruals are employed as proxies of audit quality through abnormal working capital accruals and modified-Jones models. Results showed that joint audits are not associated with both proxies of audit quality. In contrast, dual audit is positively associated with abnormal accruals leading to conclude that dual audits are not providing a high level of audit quality. Single audits outperform multiple audit mechanism in companies aiming to manage earnings to reduce income. Results also indicate that selecting two non-big firms to perform audit process is providing a higher level of audit quality. In addition, it is evident that big 4 audit firms in Egypt are not associated with audit quality. Finally, no association is found between accountability state authority and audit quality