The Effects of Audit Market Liberalisation and Auditor Type on Audit Opinions

The Iranian Experience

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

Audit services were provided exclusively by a state entity in Iran until late 2001, when the audit market was liberalised. The liberalisation of the audit market resulted in increased competition, as more private auditors became licensed to operate and provide audit services. The present study examines the effects of audit market liberalisation and auditor type (i.e., state and private auditors) on audit opinions. It is predicted that increased competition in the audit market may reduce the relative bargaining power of auditors, which can compromise auditors' independence when issuing audit opinions. The present study also investigates whether the process of issuing audit opinions is influenced by the government, thus resulting in a lower rate of modified audit opinions issued by state auditors compared to those issued by private auditors. Importantly, this study develops an explanation based upon a bargaining power view of auditor independence in issuing audit opinions and upon the limitations of the explanation for the circumstances in which auditor and owner interests are aligned in the case of government entities. The present study analyses the data of firms listed on the Tehran Stock Exchange between 1999 and 2010. The findings, after controlling for auditor choice, reveal that modified audit opinions have decreased following the liberalisation of the audit market in Iran, and compared to private auditors, state auditors have issued fewer modified audit opinions. The findings suggest that increased competition in the audit market is more likely to decrease the relative bargaining power of auditors and that there is a significant concern regarding audit opinions when both auditee and auditor are state-controlled entities.

Original languageEnglish
Pages (from-to)87-100
Number of pages14
JournalInternational Journal of Auditing
Volume20
Issue number1
DOIs
Publication statusPublished - 1 Mar 2016

Fingerprint

Audit market
Auditors
Audit opinion
Market liberalization
Bargaining power
Audit
Auditor independence
Iran
Government
Liberalization
Compromise
Stock exchange
Owners
Auditor choice

Keywords

  • Audit market liberalisation
  • Audit opinions
  • Iran
  • State and private auditors

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Accounting

Cite this

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abstract = "Audit services were provided exclusively by a state entity in Iran until late 2001, when the audit market was liberalised. The liberalisation of the audit market resulted in increased competition, as more private auditors became licensed to operate and provide audit services. The present study examines the effects of audit market liberalisation and auditor type (i.e., state and private auditors) on audit opinions. It is predicted that increased competition in the audit market may reduce the relative bargaining power of auditors, which can compromise auditors' independence when issuing audit opinions. The present study also investigates whether the process of issuing audit opinions is influenced by the government, thus resulting in a lower rate of modified audit opinions issued by state auditors compared to those issued by private auditors. Importantly, this study develops an explanation based upon a bargaining power view of auditor independence in issuing audit opinions and upon the limitations of the explanation for the circumstances in which auditor and owner interests are aligned in the case of government entities. The present study analyses the data of firms listed on the Tehran Stock Exchange between 1999 and 2010. The findings, after controlling for auditor choice, reveal that modified audit opinions have decreased following the liberalisation of the audit market in Iran, and compared to private auditors, state auditors have issued fewer modified audit opinions. The findings suggest that increased competition in the audit market is more likely to decrease the relative bargaining power of auditors and that there is a significant concern regarding audit opinions when both auditee and auditor are state-controlled entities.",
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