Independence Dilemma and the Reliability of the Audit Report: ‎Qualitative Evidence from Jordan

Mohammad Khaled Shbeilat, Mohammad Shbeilat, Waleed Abdel-Qader


Poor corporate governance practices and ineffective audit committee functions lead to corporate scandals, such as the demise of Enron and their external auditor (Arthur Andersen). This study investigates the constituents of external auditor’s independence and their impacts on the reliability of the audit report from institutional investors’ perception. This study complements existing Jordanian quantitative studies by adding more qualitative findings and interpretations to them. Semi-structured interviews are used in this study because there have been few qualitative studies dealing with Jordanian corporate governance. This study employed a qualitative approach; in-depth interviews were conducted with ten financial analysts who work with investment institutions. The study outcomes were based on the literature review, the analysis of the qualitative data, and discussions of generated themes. The study found that external auditor’s independence coupled with adequate support of fully-independent audit committee enhance the reliability of the audit report as perceived by financial analysts. To ensure effective independence of the auditor, the study recommends targeting of enforcement actions by regulators for empowering audit committees in terms of independence, financial experience, and equips them with the sole power of nominating, retaining, setting auditor’s remuneration, approving non-audit services, and communicating with external auditors. The insights gained could be used as follows: (a) Better targeting of enforcement actions by regulators of companies and auditors so as to have a positive impact on the stock market, (b) the evidence would provide an important message for communicating to directors the impact that their governance decisions will have on institutional investors’ willingness to invest in their shares, (c) targeting of enforcement actions by associations of accountancy profession for better-coordinating communications processes between audit committee and external auditors, (d) the study also suggests a direct election of the audit committee members be conducted during the general assembly, and that only independent, experienced, and qualified persons are allowed to be candidates.  

Aus. Aca. Acc & Fin. Rev Vol 4(1), Jan 2018, P 22-36


External Auditor’s Independence; Reliability of the Audit Report; Audit Committees; Corporate Governance; Financial Analysts; Non-audit Services; Audit Partner Rotation

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