Investigating the factors of selecting audit clients: Evidence from an emerging market

Abstract

This study investigates the insights and criteria audit partners use to select prospective clients in an emerging market. We use questionnaires to solicit responses from a sample of auditors at the partner/manager level in Big and non-Big 4 audit firms with international affiliations in an emerging economy. Descriptive statistical tools including the chi-square test and multiple logistic regression analysis are used for the analysis. This study finds that auditor reputation enhancement and corporate governance effectiveness are significantly associated with the acceptance of listed companies and that the higher financial reporting quality of listed companies and the need to promote audit and assurance services are significant factors affecting such decisions. Audit firms tend to select parents or subsidiaries because of the expected effective audits and reduced misstatement and litigation risks and audit firm industry expertise is needed to mitigate expected client risks to significantly affect the selection of clients with prior-year audit qualifications. Fraud is significantly associated with the selection of clients with prior violations reported by government monitoring bodies. This study is among the few empirical studies in emerging economies that provide insights from practicing auditors on a set of comprehensive attributes that affect the selection of audit clients. The findings have implications for audit partners and firms, auditees, and the audit profession in selecting clients that fit the firm’s and profession’s vision of audit branding and reputation