Assessment of Factors Affecting Audit Quality: “A Study of Selected Companies Listed on the Ghana Stock Exchange”

Abstract

This study sought to establish the factors affecting audit quality in listed companies in Ghana. A cross-sectional method was used in the analysis in which a linear regression model was also used to establish the impact of the independent variables namely; auditor size, the existence of audit committee and the logarithm of the auditor fees on the independent variable audit quality. The logarithm of audit fees was taken to normalize the data. The dependent variable “leverage ratio” (total debts divided by total assets of the company) used to measure debt pressure by the companies and also used as a proxy for the audit quality because high debts in relation to company assets can lead to bankruptcy. Twenty- five (25) companies listed on the Ghana Stock exchange were used as the sample of the study. The results of the analysis indicated that logarithm of audit fees, existence of audit committee, and auditor size were all significant in influencing the leverage of the companies and thus audit quality. The size of audit firm had a negative impact on audit quality, while the companies that do not have audit committees are more likely to have poor audit quality. The logarithm of audit fees was positively related with the audit quality. It is recommended that audit fees should be regulated by The Institute of Chartered Accountants Ghana (ICAG) as well as taking action against audit companies which do not adhere to auditing standards and the officials of companies who are involved in misstating the financial statements and other financial records with the intention of concealing the true and actual facts of the financial position of the company.