Determinants of Financial Statement Audit Contract Allocation and Auditor Independence

Document Type : Research Paper

Authors

1 Ph.D. Candidate, Department of Accounting, Qom Branch, Islamic Azad University, Qom, Iran.

2 Assistant Prof., Department of Accounting, Emam Khomini Internatioal University, Ghazvin, Iran.

3 Assistant Prof., Department of Accounting, Khatam University, Tehran, Iran.

4 Assistant Prof., Department of Accounting, Qom Branch, Islamic Azad University, Qom, Iran.

10.22059/acctgrev.2025.391235.1009089

Abstract

Objective
Auditing has long been regarded as a crucial function due to its role in enhancing the reliability of financial statements. The distribution of financial statement audit contracts among auditors and the factors influencing this process represent one of the most critical issues in the auditing profession. Although these issues have significant implications for auditor independence and the reliability of financial reporting, they have received limited attention and continue to pose a major professional challenge.
Methods
Regarding data collection, this study employed a grounded theory methodology. The necessary data were collected through semi-structured interviews with 12 accounting and auditing experts as well as university professors. The collected data were subsequently analyzed by MAXQDA software, following the three stages of open, axial, and selective coding. Furthermore, in alignment with the research objectives, the interviews were conducted using the snowball sampling method; each interviewee introduced the researcher to other individuals within the community who possessed sufficient expertise and experience related to the subject of the study.
Results
Based on the three-stage coding process, the data were categorized into causal, contextual, and intervening conditions. These conditions, together with structural and strategic factors, influence the outcomes and consequences. The findings indicate that causal conditions—including social factors and contract evaluation criteria—affect the optimal allocation of audit contracts. This effect, in combination with contextual conditions (environmental, regulatory, and legislative factors) and intervening conditions (audit firm and auditor-related factors, structural factors, and auditor independence), interacts with structural strategies, laws and oversight, and audit firm policies. Consequently, these dynamics affect organizational and environmental conditions, independence, professional ethics, and the quality of reporting.
Conclusion
Auditor independence is an inseparable element of independent auditing. In the absence of effective regulatory bodies and given the weaknesses in both concurrent and post-audit monitoring, maintaining auditor independence becomes particularly challenging. The findings of this study suggest that distributing audit contracts based on the resources and qualifications of each audit firm can help address this issue. Key factors include the number and composition of professional staff, the number of certified public accountants, industry-specific or regional expertise, and financial autonomy. Allocating contracts in this manner not only strengthens auditor independence and enhances the quality of audit reports but also helps eliminate non-standard or biased relationships. Furthermore, according to the interviewees, the most critical determinant of auditor independence is the financial independence of audit firms from their clients. As long as audit firms rely entirely on audit fees as their primary source of revenue and remain financially dependent on their clients, the concept of independent auditing loses its significance.

Keywords

Main Subjects

References

 
References
Abbaszadeh, M. R. & Mohammadi, J. (2013). Factors affecting auditor independence in Iran’s Supreme Audit Court. Scientific-Research Journal of Financial Accounting, 6(21), 1–28. (in Persian)
Abdoli, M., Bashiri-Manesh, N. & Aref-Manesh, Z. (2023). Auditor independence: Challenges and solutions. Accounting Knowledge, 23(91), 231–257. (in Persian)
Akbarkhani, M. A. & Naqshbandi, N. (2019). The impact of group affiliation on auditor selection. Journal of Management Accounting Outlook, 2(18), 1–27. (in Persian)
Bani-Mahd, B. & Jafari-Ma'afi, R. (2013). Quality of accruals and auditor selection. Quarterly Journal of Empirical Accounting Studies, 10(37), 81–98. (in Persian)
Bozorg-Asl, M. (2001). Statement of independence concepts – Theoretical framework of audit independence (Independence Standards Board – November 2000). Auditor Journal, (13), 72–78. (in Persian)
Bozorg-Asl, M. (2019). Strategies for sustainability of the accounting and auditing profession in the country. Auditor Journal, (101), 1-1. (in Persian)
Charmaz, K. (1990). ‘Discovering’chronic illness: using grounded theory. Social science & medicine, 30(11), 1161-1172.
Committee on Basic Auditing Concepts, A Statement of Basic Concepts (Sarasota, Fla,: American Accounting association, 1973).
Creswell, J. W. (2005). Educational Research: Planning, Conducting, and Evaluating Quantitative and Qualitative Research (2nd edition).
Delbari-Ragheb, E., Maghri, K., Keiqbadi, T. & Tavanagar Hamzeh Kalayi, H. (2022). Independent audit quality components with focus on stakeholder needs. Accounting and Auditing Review, 29(2), 264–286. (in Persian)
Glaser, B. G. (1992). Basics of grounded theory analysis: Emergence vs. forcing. Mill Valey, CA: Sociology Press.
Haghdadi, G. & Matoofi, A. (2024). Auditor partner tenure and audit quality: Examining the moderating role of audit firm changes. Accounting and Auditing Review, 31(4), 668–696. (in Persian)
Hariri, N. (2006). Principles and methods of qualitative research. Tehran: Islamic Azad University Press. (in Persian)
Hasas Yeganeh, Y. (2017). Philosophy of Auditing, Tehran, Scientific and Cultural Publications. (in Persian)
Hatamian, V. (2019). The effect of auditor tenure and independence on the number of auditor report paragraphs. Journal of Management Accounting Outlook, 2(8), 41-55. (in Persian)  
Instruction of Approved Auditors of the Securities and Exchange Organization. (2013).
(in Persian)
Jafari-Nasab, M., Melanzari, R. & Rahmani, M. (2019). Challenges and opportunities of changing auditor reports in Iran. Accounting and Auditing Review, 26(3), 348–370.
(in Persian)
Khajavi, S., Pourgoudarzi, A. & Sarmadi-Nia, A. (2019). Corporate social responsibility and auditor selection. Applied Financial Reporting Research, 8(14), 43–66. (in Persian)
Kim, J. B. & Cheong, H. Y. (2009). Does auditor designation by the regulatory authority improve audit quality? Evidence from Korea. Journal of Accounting and Public policy, 28(3), 207-230.
Modarres, A., Ebrahimi, H. & Azizkhani, M. (2016). Effective safeguards for auditor independence against client replacement threats. Empirical Accounting Research, 6(19), 155–180. (in Persian)
Moradi, M. & Yahyaei, M. (2020). Developing a model for independent auditor selection in Iran. Accounting and Auditing Review, 27(2), 258–288. (in Persian)
Namazi, M. & Saeedi, M. (2014). Board characteristics and auditor selection. Financial Accounting and Auditing Research, 6(22), 1–22. (in Persian)
Naqshbandi, N. & Ghalichi-Moghadam, H. (2020). Moderating role of auditorreputation in the relationship between corporate social responsibility and auditor in listed companies. Contemporary Research in Management and Accounting, 2(6), 1–23. (in Persian)
Nikbakht, Z., Khalifeh-Soltani, S. A., Hosseini, S. A., Madahi, A. & Dahir, A. (2018). Developing an auditor independence model. Financial Accounting Quarterly, 10(38), 90–108. (in Persian)
Nikoomaram, H. & Ahmadzadeh, H. (2013). Accounting information quality and auditor type selection in Tehran Stock Exchange listed companies. Quantitative Studies in Management, 4(15), 138–157. (in Persian)
Norziaton, I.K. & Nurul, N. (2021). The Determinants of External Auditors’ Independence for Politically Connected Firms in Malaysia. Academia Journal of UiTM Cawangan Terengganu, 1(10) 16-28,
Pham, H.H. (2022). Overview of factors affecting the independence of auditors. NeuroQuantology, 20(10), 5688. DOI: 10.14704/NQ.2022.20.10.NQ55568
Rakhshan, M., Zabihi, A. & Pour-Aghajan, A. (2024). Barriers to audit quality improvement with emphasis on defective procedures. Accounting and Management Accounting Knowledge, 13(52), 387–403. (in Persian)
Rouhani-Nia, M. (2016). Independence: The main concern. Auditor Journal, (84), 28–33.
(in Persian)
Sajadi, H. & Ebrahimi-Meymand, M. (2005). Factors enhancing auditor independence. Accounting and Auditing Review, 12(2), 90–112. (in Persian)
Soleimani, S., Shorvarzi, M. R. & Noori Tupkanloo, Z. (2018). The Effects of the Threats on the Auditor’s Independence. Financial Accounting Knowledge, 5(3), 69-80. doi: 10.30479/jfak.2018.1512 (in Persian)
Strauss, A. & Corbin, J. M. (1998). Basics of qualitative research: Techniques and procedures for developing grounded theory. SAGE Publications.
Supreme Council of Certified Public Accountants of Iran. (2024). Annual performance summary 2023: Audit market status globally and audit revenue distribution in Iran. Publications Of The Society Of Certified Public Accountants of Iran. Tehran. (in Persian)
Tabibi, J., Maleki, M. R. & Delgoshaei, B. (2016). Thesis, dissertation, research project, and scientific article writing (8th ed.). Ferdows, Tehran.
Technical Committee of Audit Organization. (2002). Accounting standards. Audit Organization: Tehran. (in Persian)
Vahidi-Elizaei, E., Tamimi, M. & Shalal-Nejad, H. (2014). Iranian investors’ perception of auditor independence. Accounting and Auditing Studies, 3(10), 30–54. (in Persian)
Wakil, G. K., Alifiah, M. N. & Tijjani, A. A. (2019). Auditor Independence Threats and Factors Affecting Independence. International Journal of Recent Technology and Engineering (IJRTE), 8, 917-923.
Wallace, W. (2002). The economic role of auditing in free and regulated markets. (Hami Amir Aslani, Trans.). 159, Tehran. (in Persian)
Accounting and Auditing Review
Volume 32, Issue 4
2025
Pages 845-869

Files

Share

How to cite

Statistics