Audit(or) type and audit quality in emerging markets: evidence from explicit vs. implicit restatements

This paper aims to examine the link between audit(or) type and restatements in Egypt, a complex and multifaceted auditing market. The usual big 4 versus non-big 4 comparison is insufficient as Egypt has a unique mix of private audit firms, one governmental agency (Accountability State Authority) and mandatory/nonmandatory audit services, including single, joint and dual audits.

The study uses a sample of listed companies in Egypt and analyzes the impact of auditor type and audit type on explicit, implicit and total restatements. The study uses logistic regression model to examine the underlying relationship.

Results show no relationship between auditor type and audit quality, positive association between non-big foreign CPA firms and total/implicit restatements and mixed results for the impact of dual audits on audit quality. The study found no link between auditor type and audit quality in Egypt. Egyptian audit firms linked to non-big 4 foreign Certified Public Accounting firms were positively linked to total and implicit restatements. Joint audits did not improve audit quality and were directly related to total and explicit restatements. Dual audits showed mixed results, positively associated with implicit restatements but inversely associated with explicit restatements.

The study provides valuable insights into the complexities of the auditing market in emerging markets and offers valuable insights for stakeholders in the financial statement users, audit firms and governmental agencies.