Factors affecting audit quality in an emerging market-Turkey: a focus on auditor characteristics in Istanbul Stock Exchange

Abstract

The objective of this dissertation is to investigate the factors influencing audit quality in Turkey with a focus on auditor characteristics in Istanbul Stock Exchange (ISE). Three studies on listed manufacturing and service firms from 2005 through 2010 are conducted to provide empirical evidence. Using discretionary accruals and abnormal working capital accruals respectively, first two analyses use a firm-context approach and proxy audit quality with earnings management (EM) that is computed from financial statements and disclosures. In contrast, the third analysis adopts an auditor-context approach and measures audit quality in terms of auditor independence that is computed as share of each audit engagement in total audit revenue of each audit firm. The results posit that Big 4 auditors and industry specialist auditors conduct more qualified audits, and disclaimer of opinions could signify high audit quality. EM models provide evidence that longer partner tenures are associated with lower audit quality whilst generally saturated evidence exist for audit firm / partner tenures in all three models. Moreover, EM models show that explanatory power of auditor characteristics are lower when compared with results of auditor independence model, implying that practical significances of firm-related and auditor-related factors might be sensitive to context audit quality is measured in.|Keywords : Audit quality, earnings management, discretionary accruals, abnormal working capital accruals, auditor independence, auditor size, auditor tenure, partner tenure, litigation, cross-sectional Jones model, Turkey.