UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ TAN QUE ANH PERCEIVED AUDIT QUALITY, PERCEIVED AUDIT FEE, AND AUDITOR RETENTION: EVIDENCE FROM VIETNAM ID: 22110001 MASTER OF BUSINESS (Honours) SUPERVISOR: PHAM QUOC HUNG, Ph.D Ho Chi Minh City – Year 2014 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ACKNOWLEGEMENTS First of all, I would like to express my appreciation to my supervisor, Dr. Pham Quoc Hung for his enthusiastic instructions and supports. I would like to acknowledge the comments from the ISB research committee on this thesis throughout the research process. I am grateful for significant advice and comments from my colleagues and friends to revise the questionnaire.
I would like to thank all the respondents helping me complete the survey data collection. Finally, I would like to give special thanks to my parents for supporting me all the time. LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABSTRACT The purpose of this research is to assess the impact of perception of audit customers in the aspects of quality and price on their decision to retain incumbent auditor. A conceptual model was set up based on reviewing previous literature.
A survey was then conducted to collect data with respondents working at SMEs. The final data with sample size of 145 was employed to implement data analysis. The research found out a quite strong positive relationship between perceived audit quality and auditor retention, perceived audit fee and auditor retention. Nevertheless, no association was found between perceived audit fee and perceived audit quality.
The significant finding is that all dimensions of audit quality were found to have positive impact on auditor retention, giving a good signal to the auditing market in particular, and the economy in general. Key words: Perceived audit quality, perceived audit fee, auditor retention, SMEs, Viet Nam LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABBREVIATIONS ASC: Accounting Service Company (Now known as AASC – Auditing and Accounting financial consultancy Service Company limited) CPA: Certified Public Accountant EFA: Exploratory factor analysis SMEs: Small and Medium-sized Enterprises VACO: Vietnam Auditing Company (Now known as Deloitte Vietnam Company limited) VACPA: Vietnam Association of Certified Public Accountants LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com TABLE OF CONTENTS CHAPTER 1: INTRODUCTION. RESEARCH PROBLEM & RESEARCH QUESTIONS. SIGNIFICANCE OF THE RESEARCH.
SCOPE OF THE RESEARCH. 4 CHAPTER 2: LITERATURE REVIEW AND HYPOTHESIS. Perceived audit quality. Perceived audit fee.
15 CHAPTER 3: RESEARCH METHOD. DATA NEEDS AND SOURCES. DATA COLLECTION METHOD. Preparation for data collection.
DATA ANALYSIS METHOD. 21 CHAPTER 4: DATA ANALYSIS AND RESULTS. RELIABILITY AND FACTOR ANALYSIS. 22 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.
The relationship between perceived audit quality and auditor retention. The relationship between perceived audit fee and auditor retention. The relationship between perceived audit fee and perceived audit quality. Checking conceptual model.
36 CHAPTER 5: DISCUSSIONs AND CONCLUSIONs. DISCUSSIONS AND IMPLICATIONS. xi LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF TABLES Table 3.1: Audit quality measurement (apply SERQUAL model) .2: Perceived audit fee and auditor retention measurement .2: KMO and Bartlett's Test for measures of independent variables .3: KMO and Bartlett's Test for measures of dependent variable .4: Rotated Component Matrixa .5: Total Variance Explained .7: Total Variance Explained .8: Correlations among the variables (Sig.9: Correlation of auditor retention and perceived audit quality .10: Correlation of auditor retention and perceived audit fee .11: Correlation of perceived auit quality and perceived audit fee .12: Correlations among the variables (Sig. 37 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF FIGURES Figure 2.
35 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER 1: INTRODUCTION This chapter will discuss the general background of the auditing market, research problems and research questions. This is followed by the significance and scope of the research. The research structure was also then presented. The chapter starts with the general background of the auditing market that leads to objectives of this research.
GENERAL BACKGROUND Along with the integration process and managerial requirements in practice by the Government, auditing industry in Vietnam is growing stronger and stronger, demonstrating its importance in the open economy. From the two first auditing companies, VACO and ASC, established by the Ministry of Finance in May 1991, the report of VACPA (2013, p.1-2) shows that up to the late February 2013, there are 155 auditing firms in Vietnam having registered for practicing with 1,370 CPAs having registered for practicing in year 2013. Also according to this report, the total number of client firms in 2012 was 32,702, increased by 4.3), still requires a greater supply of CPAs. In other words, auditing market is still fertile.
Nevertheless, this attractive market is still the ‘catwalk’ of the big aged auditing firms, especially the ‘Big Four’. These four big auditing companies lead the market in terms of both quantity of clients and revenue (Doanhnhansaigon, 2013). For the big aged auditing enterprises with relatively stable amount of customers, open customer supply, the probability they fall into the situation bargaining for audit fee and competing with other competitors is less than the rest due to their advantages. For instance, foreign-owned companies tend to employ foreign-owned auditing companies or member firms of foreign auditing companies.
The report of VACPA on reviewing work states out the situation of low audit fee for some audit contracts (2007, p. Audit fee is old-aged problem in auditing market since there is no clear standard to set up audit 1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail. More importantly, according to Bui Van Mai, general secretary of VACPA, there is still no effective regulation to make the auditing market fairly competitive environment (Cafef). Thus, in tough economy like recently, when thousands of enterprises go bankruptcy, other enterprises that survive trying to cut cost becoming sensitive to audit fee, the price competition happening to retain or seek for customers gradually pushes general audit fee frame of the auditing to low level.
Accordingly, audit quality and prestigious of auditing profession in Vietnam are affected, while many local auditing firms still struggle for survive and develop in the local auditing market. RESEARCH PROBLEM & RESEARCH QUESTIONS From the state of auditing market in Viet Nam, local auditing firms, especially the small or fresh ones, struggles with the puzzle of audit fee and customers while having to keep the quality of the auditor’s report. In such price competitive environment, even senior auditing enterprises have to be cautious while setting up audit fee for new clients, or asking greater audit fees in order not to lose major clients. Nevertheless, audit fee is not the unique criterion for client firms to make decision to change or retain auditing firm.
Consequently, it is crucial for auditing firms to apprehend behavioral intentions of client firms using audit service. There have been many researches in both developed and developing countries on behavioral intentions of customer in auditing market. However, there has been very few specific research on the factors affecting decision of audit client firm to retain or change audit firm in Viet Nam, especially in the client firm’s point of view. Hence, this research is to find out the impact of perception of customer firm on decision using audit service of incumbent audit firm in terms of both audit fee and audit quality in Viet Nam.
Accordingly, this paper helps answering following research questions: 1. Does the perceived audit quality have impact on auditor retention? 2. If question 1 is yes, which dimension of audit quality has impact on auditor retention? 2 LUAN VAN CHAT LUONG download : add luanvanchat@agmail. How is the impact of perceived audit fee on auditor retention? 4.
Does the audit fee have impact on audit quality in audit client firm’s perspective? 1. SIGNIFICANCE OF THE RESEARCH This research helps auditing firms have an obvious understanding of perception of client firms in terms of price and quality, and how it affects their decisions. Audit fee is such an important criterion, but not the unique one affecting their decision. Although in tough economy, audit quality is still a significant feature to consider retaining audit firm.
The research states the dimension which has most impact auditor retention. From that, auditing firms can follow to enhance the audit quality in the client’s standpoint to retain customer, not only point at audit fee. Besides, the result of the research indicates that enterprises actually acknowledge the importance of audit work. This is a good signal for the economy and for the local auditing market in particular.
SCOPE OF THE RESEARCH This research is conducted using survey data with respondents coming from SMEs, not from any enterprise. This scope limits the research significance to customer group which are big enterprises. There are two main reasons for choosing SMEs. Firstly, except for the Big Four and some other big auditing firms such as AASC, A&C, AISC, BDO, etc., major clients of the rest are SMEs.
To some auditing firms, though audit contracts with SMEs do not create the most revenue, but these help increase income for the companies, especially in hard economy like recently. In addition, statutory audited firms are mainly SMEs. According to law on auditing, the local firms (not including state-owned firms; special businesses such as credit; insurance, etc.; and public listed companies) are not required to have financial statements audited. While the survey conducted by 3 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com VCCI (Anninhthudo) shows that 63% FDI enterprises are SMEs.
Secondly, with the respondents mainly are accountants, chief accountants, data collected for SMEs group have more significance. Since the reality shows that in SMEs, the suggestion and behavior of these respondents having significant importance on the final decision of their companies. RESEARCH STRUCTURE The research goes through five chapters starting from this chapter exposing the general background, the problem and objectives of it, its significance, scope and structure. The next chapter reviews the extant researches and theories relating to the concepts of auditor retention, audit quality, audit fee; their associations one another; and then develops hypothesis, and the conceptual model.
It is followed by chapter three outlining the methodology of the research consisting data collection and sampling design; measurement scale; data analysis method. Chapter four presents the data analysis and the results and discussions. Lastly, chapter five gives out the conclusions and implications. The first chapter have introduced the key points of the background of the auditing market, and so the research problems need to be solved.
Chapter 2 continued to show the review of related literature and the setting up hypothesis and the conceptual model. 4 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER 2: LITERATURE REVIEW AND HYPOTHESIS The three concepts relating the research problems are auditor retention, perceived audit quality, and perceived audit fee, those which are reviewed in this chapter. While the relationship between the constructs are reviewed, the hypothesis are posited. The conceptual model is then presented at the end of this chapter.
Auditor retention In the research developing a model of repurchase intention, Hellier et al.1764) defined retention, repurchase intention, as the decision of the customer on using again service from the same company considering their state and probable situations. Repurchase intention is one of the behavioral outcomes of customers, and is also the latter approach to customer loyalty. A customer may either decide to retain incumbent provider, or turn to use service of the rival provider. Along with the direct decision, the customer may intent to purchase the relationship with the provider, may say good or bad thing of the providers, and even suggest for others.
Eggert and Ulaga (2002) suggested the key thing was to create value for customers to have positive behavioral intentions. It is actually a good advice to make impression on customers on the value created for them, some customers may come back to reuse service of the old provider. Trasorras et al.