Factors influencing first-time external auditor selection in Maltese companies : an analysis

Abstract

Purpose: The process of appointing an auditor is a complex one. By considering those factors - behavioural, economic and otherwise - that influence a client's selection of an external auditor, this study seeks to shed some light on this aspect of client-auditor relationships, while also analysing the demand for audit services. A comparison is also made between the client's perception and the views expressed by auditors themselves. Design: The study commences with an overview of relevant literature, following which the findings emanating from the responses to the two questionnaires, received from 68 companies and 33 auditors respectively, are presented and discussed. Findings: According to the results of this study, relationships exist between certain company characteristics - such as the number of employees, whether the company forms part of a group, and whether it is listed on the stock exchange - and the size of the audit practice appointed. It was also determined that, in addition to the demand for audit services arising from a company's statutory obligation to appoint an auditor, agency, information and behavioural audit demands also exist. The study found 'quality of service', 'availability of the auditor', 'meeting clients' expectations as to the work proposed', 'establishing a long-term relationship' and 'the ability to develop a good working relationship' to be the five most important factors influencing a client's selection of an auditor. Furthermore, responses showed that Maltese clients value factors of a behavioural nature more than they do those of an economic one. It was also evident that varying levels of importance were attributed to selected influential factors, depending on respondent characteristics such as the location of a client and his level of accounting knowledge. In general, the data collected from auditors was found to echo the perceptions elicited from audit clients. It was concluded that importance is given to many factors other than the audit fee; nevertheless, in the event that an auditor does not measure up with respect to these other factors, responses suggested that clients would cite the audit fee as not being satisfactory. Value: The conclusions and recommendations emanating from this study are addressed to clients and, more importantly, auditors. The latter should strive to understand their clients' businesses and industries, enabling them to provide timely and relevant advice and services. This should help auditors to deliver the levels of quality that their clients have come to demand.