Recent trends in factors influencing first-time external auditor selection in Malta

Abstract

Purpose: The study aims to identify the factors that Maltese audit clients deem critical when appointing their first external auditor and compares the auditors’ and clients’ perceptions regarding such factors. Moreover, it also compares the responses emanating from this study with the findings of Cardona (2008). Design: A predominantly quantitative research approach was employed to achieve the objectives of the study. For the purpose of this study, two questionnaires were designed: one mailed to client companies and the other to audit practitioners. In total, responses from 83 companies and 30 auditors were collected. Two audit partners also backed up their responses with an interview. Findings: The study shows that relationships exist between various client characteristics. Such relationships include those between the number of employees, whether the client company forms part of a corporate group, and the type of auditor appointed. It was also determined that although carrying out a statutory audit is a governmental requirement, agency, information and behavioural audit demands also exist in Malta.

The study established that when appointing their first external auditor, the factors which client companies deem most important are the ‘auditor’s understanding of client's business and their issues/needs’, ‘auditor’s competence, confidentiality and communication skills’, ‘quality of service’, ‘auditor’s independence’ and ‘accessibility to the auditor whenever required’. It was also deduced that Maltese clients emphasised the importance of behavioural aspects, with economic factors playing a secondary role. The study went a step further and determined that clients placed more weight on those factors relating to ‘auditor characteristics’ and ‘quality processes’ rather than the audit fee.

The study also established that the degree of importance attached to selected factors is influenced by the ‘size of a client’s business’, the ‘location’ of a client and the ‘level of accounting education or knowledge’ of a client. Conclusion: Auditors in Malta are conscious of what their prospective clients are looking for in an auditor and over the past decade, factors influencing first-time external auditor selection in Malta have remained fairly consistent. Value: The study provides external auditors with important insights into those factors influencing their selection. One aspect which could be taken from the study is that if auditors are to provide a timely service and meet clients’ demands and expectations, they need to strive to understand their clients’ operations, businesses and industries.