UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ Hoang Thi Kim Thuan THE EFFECTS OF AUDIT QUALITY OFFERED BY AUDIT FIRMS ON CLIENT SATISFACTION MASTER OF BUSINESS (Honours) Ho Chi Minh City – 2014 1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ Hoang Thi Kim Thuan THE EFFECTS OF AUDIT QUALITY OFFERED BY AUDIT FIRMS ON CLIENT SATISFACTION MASTER OF BUSINESS (Honours) SUPERVISOR: Dr. Nguyen Thi Nguyet Que Ho Chi Minh City – 2014 2 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com INDEX ACKNOWLEDGEMENTS. 6 LIST OF FIGURES. 7 LIST OF TABLES.
7 LIST OF ABBREVIATION. Background to the research. Research scope and methodology. Structure of the study.
14 CHAPTER 2: LITERATURE REVIEW. Definition of audit quality. Research on measurement of audit quality. Research framework and hypothesis development.
Audit quality dimensions and client satisfaction. Reputation and client satisfaction. 21 3 LUAN VAN CHAT LUONG download : add luanvanchat@agmail. Capability and client satisfaction.
Expertise and client satisfaction. Experience and client satisfaction. Responsiveness and client satisfaction. Client service and client satisfaction.
Empathy and client satisfaction. Questionnaire design and administration. Data analysis method. 36 CHAPTER 4: DATA ANALYSIS.
37 4 LUAN VAN CHAT LUONG download : add luanvanchat@agmail. Exploratory factor analysis (EFA). Pearson Correlation Coefficient. Testing assumptions of Multiple Regression.
Discussion of research findings. 48 CHAPTER 5: CONCLUSION AND IMPLICATION. Limitation and suggestion for future research. 60 Appendix A: The findings of pilot study.
70 Appendix D: Descriptive Analysis. 75 Appendix E: Total Variance Explained. 77 Appendix F: Multiple Linear Regression Assumption testing results .78 5 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ACKNOWLEDGEMENTS I would like to express my sincere gratitude to my supervisor, Dr. Nguyen Thi Nguyet Que for her valuable guidance, insightful comments and continuous support to my thesis.
I am sure that this thesis would not have been possible without her supervision and constant help. I would like to acknowledge with much appreciation to leaders, teachers, and staffs in ISB who help me usefully all the subjects of my master course. I would like to thank my dear colleagues and friends for their invaluable advice, help, encouragement and support during the time I was doing this thesis. Last but not least, a special thank goes to my husband who always stay with me in good and bad times.
His continuous support in pursuing my study is invaluable to me. Ho Chi Minh City, February 22, 2014 6 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF FIGURES Figure 2.1: Research Design Process .27 LIST OF TABLES Table 3.1: Draft questionnaire to measure audit quality .2: Deleted items in pilot study .3: Final questionnaire to measure audit quality .4: Cronbach’s alpha reliability coefficient.2: Cronbach’s alpha reliability of first analysis .3: Cronbach’s alpha reliability of final analysis .8: Hypotheses testing results.9: The summary of hypotheses testing results .49 7 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF ABBREVIATION AAA: American Accounting Association WTO: World Trade Organization VACPA: Vietnam Association of Certified Public Accountants CPA: Certificated Public Accountant CFO: Chief Financial Officer SSC: State Security Commission AASC: Auditing and Accounting Financial Consultancy Services Limited Company SPSS: Statistical Package Software for Social Science EFA: Exploratory Factor Analysis 8 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABSTRACT Audit quality is crucial for financial market to function smoothly due to its effects on the credibility of financial statements. The users of financial statements are more likely to feel secure about the information presented in the financial statements if the audit of the financial statements is perceived as high quality. The current financial crisis and competitive business environment have brought on more challenges for audit firms.
They have confronted with the increasing pressure from financial statement’s users to improve audit quality. To be successful in this environment, audit firms must continually strive to improve audit quality and hence, maximize client satisfaction. This research aims at investigating the effects of audit quality provided by audit firms on client satisfaction in Vietnam. In this study, the author uses AUDITQUAL model (Duff, 2004, 2009) focusing on seven dimensions of audit quality which were label Reputation, Capability, Expertise, Experience, Responsiveness, Client Service and Empathy and test the effect of each dimension of audit quality on client satisfaction.
An survey of 380 responses was conducted in the convenient method in Ho Chi Minh City, Dong Nai and Binh Duong Province. A statistical package for social sciences (SPSS) version 20.0 was used to analyze the collected data. Results show that seven dimensions of audit quality including Reputation, Capability, Expertise, Experience, Responsiveness, Client Service and Empathy associated positively with client satisfaction and Experience has the most influence on client satisfaction. Keywords: Audit quality, AUDITQUAL, Client satisfaction.
9 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER 1: INTRODUCTION 1. Background to the research Service quality and client satisfaction are very important concepts that companies must understand if they want to remain competitive and grow (Angelova and Zekiri, 2011). In today’s global competitive environment, it is recognized that high quality service is essential for firms that want to be successful in their business (Parasuraman et al. Therefore, service quality and client satisfaction become interesting research subjects in the marketing literature as well as in the reality.
In the auditing context, it is the same as other service industries that audit quality and client satisfaction are very important. Higher audit quality provided by audit firms will lead to higher clients’ satisfaction and higher repurchase intentions. After many well-known audit failures, such as: Arthur Andersen's audit failure at Enron, Deloitte and Touche’s audit failure at U. Adelphia Communications, PricewaterhouseCoopers’s audit failures at Tyco, Ernst & Young’s audit failure at Heath South Corporation, KPMG’s audit failure at Xerox Corporation…, audit firms are more and more focusing on the audit quality in order to increase client satisfaction and repurchase intentions.
In Vietnam, joining in the WTO has created a lot of opportunities to develop Vietnamese economy. In this process, investors require the financial information more accurate and explicit than ever before. Accordingly, audit and non-audit services offered by audit firms are in great demand. However, in recent years, there are many scandals in Vietnam financial market that led to the bankrupt of some listed companies and caused big losses for stakeholders, such as: cheating on financial reports of Bach Tuyet Cotton Corporation, giving unfaithful information and crucial 10 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com mistakes in the audited financial statement of Vien Dong Pharma JSC, Toan Cau insurance joint stock company, Kinh Do Corporation…(Bich Loan and Gia Duong, 2013) Actually, audit firms in Vietnam do not meet clients’ expectation of audit quality, the low audit quality decreases clients’ satisfaction and many clients changed audit firms frequently.
The Vietnam Association of Certified Public Accountants’ (VACPA) annual inspection in late 2010 revealed that almost all auditing firms under inspection more or less violated auditing standards. According to audit quality assurance review result 2012, VACPA performed audit quality assurance reviews to 15 auditing firms in Vietnam. At the end of the reviews, 6 among 15 firms were rated as qualified, 8 as unqualified and one firm was not rated as subject to review under the specific request of the Ministry of Finance. In a report sent to the Ministry of Finance, VACPA said several auditing firms passed financial statements which contained mistakes reflecting the deficiencies of auditors and board of directors on understanding current accounting standards.
According to a State Security Commission (SSC) representative, many auditing firms did not carefully assess the risk of large amounts on clients’ financial statements. The auditors merely excluded those values from their judgments, which could generate big differences between the actual and the on-paper business results. In the financial year of 2012, there was a series of scandals relating to the financial reports of listing companies, which involved big names like Quoc Cuong Gia Lai Corp. Those re-checked reports revealed great differences between the actual business results and announced ones.
Bui Van Mai, VACPA general secretary said that many auditing firms look for sales and do not invest adequately in their operations. Nguyen Thanh Tung, deputy director for AASC – among the leading Vietnamese auditing firms, indicated that some auditors might truncate auditing procedure and the truncating will lead to a low quality auditing. Therefore, it is essential to measure audit quality offered by audit firms and test the 11 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com effects of audit quality provided by audit firms on client satisfaction in Vietnam, where the audit firms are still young and inexperienced. Research motivation It is unable to deny the important role of audit service in our economy that is to ensure the accuracy and explicit financial information in the financial market; thus, it helps to protect the health and stable development of the economy.
However, in recent years, due to impacts of the world financial and economic crisis, many enterprises have faced to difficulties in their business. It causes a lot of pressure and challenges for audit firms to evaluate and give their opinion about the financial statements. In particular, auditors will be faced with the challenge of evaluating the effect of the credit crisis and economic downturn on a client’s ability to continue as a going concern, the challenge of evaluating fair value of assets and whether these effects on the client firm will be described or reflected in the financial statements (Gheorghe, 2009). Moreover, the market and client firm require higher and higher service quality from audit firm.
Thus, audit firms must focus on audit quality to maximize client satisfaction and survive in the current difficult environment. Many studies have been devoted to investigate the effects of audit quality of audit firms on client satisfaction, especially in the developing countries and several models were used to measure audit quality provided by audit firms such as: SERVQUAL (Parasuraman, Zeithaml, and Berry, 1991), AUDITQUAL (Duff, 2004, 2009), and models using audit quality attributes (Schroeder et al., 1986; Carcello et al., 1992)… In terms of audit quality attributes models, Schroeder et al. (1986) examined perceptions of 15 attributes (including 6 audit team factors and 9 audit firm factors) associated with audit quality. Carcello et al.
(1992) identified 12 audit quality factors from two aspects: audit firm and audit team. Both these studies confirmed that audit team factors are more important to audit quality than audit firm factors. Related to SERVQUAL model, Ismail (2006), Morton and Scott (2007), Turk and Avcilar (2009) examines the relationship between audit service quality, client satisfaction, behavioural intentions and loyalty using five dimensions of service quality and 22 items scales of SERVQUAL to measure audit quality. Lately, Duff (2004) developed the AUDITQUAL in nine dimensions to assess audit quality.
This 12 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com specific-industry model named AUDITQUAL was empirically tested by some researchers, such as: Butcher, Harrison, and Ross (2013)…. However, very little research was conducted in Vietnam, where the audit and non-audit service is quite inexperienced. Thus, this study attempts to investigate the effects of audit quality offered by audit firms on client satisfaction in Vietnam, through the perception of the client firms. It was conducted for the purpose of giving benefits for both audit firms and client firms.
Regarding to benefits of audit firms, they can understand the client requirements clearly, know what the most important factor influence client satisfaction. As the results, audit firm can serve their client better, remain client loyalty as well as give their client more additional value. Concerning benefits of client firms, through their opinion about the audit quality as well as their level of satisfaction, they can help audit firm recognize and improve their weaknesses and shortcomings.