The mediating role of human capital on the relationship between audit firm size and independent auditor’s opinion: evidence from Iranian audit firms

  • Authors

    • Seyedhossein Naslmosavi Faculty Member
    • Agha Jahanzeb
    2016-06-27
    https://doi.org/10.14419/ijaes.v4i2.6287
  • Human Capital, Work Experience, Independent Auditors’ Opinion, Firm Size.

  • This empirical research is aimed to explore the effect of Human Capital (HC) as a mediator in the association of the size of an audit firm and independent auditor’s opinion (IAO). The respondents of this research were senior practicing auditors of audit firms with verse experience. The research has applied ANCOVA and path analysis method in SEM by utilizing LISREL to examine research questions. The results of this study revealed that HC was significantly associated to independent auditor’s opinion and it can significantly create a relationship between audit firm size and IAO and their qualities. Indeed, the link of audit firm size on IAO without HC was found to be insignificant. Furthermore, it contributed to understand that the HC of large audit firm is greater than other audit firms and the audit reports of these kinds of firms possess good quality because of positive association amid firm size and quality of auditors.

  • References

    1. [1] Agresti, A. and Finlay, B. (1997). Statistical methods for the social sciences. New Jersey: Prentice Hall.

      [2] AICPA. (1978). Commission in Auditors' Responsibilities, New York, NY.

      [3] AICPA. (2006). Revised on "Report on Audited Financial Statments", 508 (Vol. 58,59,64,79,85,93,98): AICPA.

      [4] Allee, V. (2000). The Value Evolution, Addressing Larger Implications of an Intellectual Capital and Intangible Perspective. Journal of Intellectual Capital, 1(1), 17-32. http://dx.doi.org/10.1108/14691930010371627.

      [5] Al-Ajmi, J. (2009). Audit firm, corporate governance, and audit quality: Evidence from Bahrain. Advances in accounting, 25(1), 64-74. http://dx.doi.org/10.1016/j.adiac.2009.02.005.

      [6] Baron, R. M. and Kenny, D. A. (1986). The moderator-meditor variable distinction in social psychological research: conceptual, stretegic, and statistical considerations. Journal of personality and Social Psychology, 51(6), 1173-1182. http://dx.doi.org/10.1037/0022-3514.51.6.1173.

      [7] Babalola, J. B. (2003). Budget Preparation and Expenditure Control in Education. In

      [8] Babalola, J.B. (ed) Basic Text in Educational Planning. Ibadan Awemark Industrial Printers.

      [9] Bonner, S. E. (1990). Experience Effects in Auditing: The role of Task-Specific Knowledge. The Accounting Review., 65(1), 72-92.

      [10] Bontis, N. (2001). Managing Organizational Knowledge by Diagnosing Intellectual Capital: Framing & Advancing the State of the Field The Strategic Management of Intellectual Capital & Organisational Knowledg. New York: Oxford University Press, Inc. 621-642

      [11] Bröcheler, V., Maijoor, S. and Witteloostuijn, A. V. (2004). Auditor human capital and audit firm survival the Dutch audit industry in 1930-1992. Accounting Organization and Society, 29, 627-646. http://dx.doi.org/10.1016/j.aos.2003.10.008.

      [12] Caramanis, C. and Spathis, C. (2006). Auditee and audit firm characteristics as determinants of audit qualifications,evidance from Athens stock exchange. Managerial Auditing Journal, 21(9), 905-920. http://dx.doi.org/10.1108/02686900610705000.

      [13] Cheng, Y.-S., Liu, Y.-P. and Chien, C.-Y. (2009). The association between auditor quality and human capital. Managerial Auditing Journal, 24(6), 523-541. http://dx.doi.org/10.1108/02686900910966512.

      [14] Dang, L. (2004). Assessing Actual Audit Quality. phD, Drexel University, Philadelphia, USA.

      [15] DeAngelo, L. E. (1981). Auditor sized and audit Quality. Journal of Acconting and Economics, 3, 183-199. http://dx.doi.org/10.1016/0165-4101(81)90002-1.

      [16] DeFond, M. L. (1992). The association between changes in client firm agency costs and auditor switching. Auditing: A Journal of Practice and Theory, 11(Spring), 16-31.

      [17] Fagerlind, A. and Saha, L. J. (1997). Education and National Developments. New Delhi: Reed Educational and Professional Publishing Ltd.

      [18] Flint, D. (1988). Philosophy and principles of auditing an introduction basingstoke: Macmillan Education Ltd.

      [19] Francis, J. R. and Wilson, E. R. (1988). Auditor changes:A joint test of theories relating to agency costs and auditor differentiation. The Accounting Review, 63(4), 663-682

      [20] Francis, J. R. and Yu, M. D. (2009). The Effect of Big Four Office Size on Audit Quality. The Accounting Review, 84(5), 1521-1552. http://dx.doi.org/10.2308/accr.2009.84.5.1521.

      [21] Frishkoff, P. (1970). An empirical Investigation of the Concept of Materiality in Accounting," Empirical Research in Accounting. Selected Studies. Journal of Accounting Research, 8, 116-129. http://dx.doi.org/10.2307/2674697.

      [22] Gray, L. and Manson, S. (2005). The audit process,principles, practice and cases. London: nternational Thomson Business Press.

      [23] Hajizadeh, M. (2009). Unrealistic Rate and Unethical Audit Firms' Competition. Journal of Certified Accountant 7, 36-38.

      [24] Hayes, A. F. (2009). Beyond Baron and Kenny: Statistical Mediation Analysis in the New Millenium. Communication Monographs, 76, 408-420. http://dx.doi.org/10.1080/03637750903310360.

      [25] Hoyle, N. (1995). Structural Equations Modeling: Concepts, Issues and applications. USA: SAGE Publication, Inc.

      [26] Liu, C. (1997). Legal Liability,Human Capital Investment, and Audit Quality. Ph.D. Dissertaion, University of National Taiwan University, Taipei.

      [27] Organization for Economic Co-operation and Development (2001). The Well- Being of Nations: The Role of Human and Social Capital. OECD. Paris.

      [28] Olaniyan, D. A. and Okemakinde, T. (2008). Human Capital Theory: Implications for Education Development. European Journal of Scientific Research, 24(2), 157-162.

      [29] Iranian Association of Certified Public Accountants. (2015). The Number of IACPA's Members, from www.iacpa.ir.

      [30] Iranian Association of Certified Public Accountants. (2013). Independent Auditor's opinion on financial statments, from www.iacpa.ir.

      [31] MacKinnon, D. P., Krull, J. L. and Lockwood, C. M. (2000). Equivalence of the Mediation, Confounding, and Suppression Effect. Prevention Science, 1, 173-181. http://dx.doi.org/10.1023/A:1026595011371.

      [32] Marimuthu, M., Arokiasamy, L. and Ismail, M. (2009). Human Capital Development and Its Impact on Firm Performance: Evidence from Developmental Economics. The Journal of International Social Research, 2(8), 265-272.

      [33] Molina, J. A. and Ortega, R. (2003). Effects of Employee Training on the Performance of North-American Firms. Applied Economics Letter, 10(9), 549-552. http://dx.doi.org/10.1080/1350485032000100297.

      [34] Montgomery D, Peck, E. A. and Vining, G. (2012). Introduction to Linear Regression Analysis, 5th Edition. U.K: WILEY.

      [35] Morrise, T. and Empson, L. (1998). Organisation and experties: An exploration of knowledg bases and managment of accounting and consulting firms. Accounting,Organizations and Society, 23(5/6), 609-624. http://dx.doi.org/10.1016/S0361-3682(98)00032-4.

      [36] Naslmosavi, S., Sofian, S. and Saat, M. (2013). The Effect of Audit Firm Size on Independent Auditor’s Opinion: Conceptual Framework. Asian Social Science, 9(9), 243-248. http://dx.doi.org/10.5539/ass.v9n9p243.

      [37] Pennings, J. M., Lee, K. and Witteloostuijn, A. (1998). Human capital, social capital, and firm dissolution. Academy of Management Journal, 41(4), 425-440. http://dx.doi.org/10.2307/257082.

      [38] Petty, R. and Guthrie, J. (2000). Intellectual capital literature review measurment, reporting and managment. Jounal of Intellectual Capital 1(2), 155-176. http://dx.doi.org/10.1108/14691930010348731.

      [39] Preacher, K. and k, K. (2011). Effect Size Measures for Mediation Models: Quantitative Strategies for Communicating Indirect Effects. American Psychological Association, 16(2), 93-115. http://dx.doi.org/10.1037/a0022658.

      [40] Rucker, D. D., Kristopher J. Preacher, L.Tormala, Z. and Petty, R. E. (2011). Mediation Analysis in Social Psychology: Current Practices and New Recommendations. Social and Personal Psychology Campass, 5/6, 359-371. http://dx.doi.org/10.1111/j.1751-9004.2011.00355.x.

      [41] Schumacker, R. E. and Lomax, R. G. (2004). A beginner's guide to structural equation modeling. Mahwah: NJ: Lawrence Erlbaum Associates.

      [42] Stewart, T. (1997). Intellectual Capital: The new Wealth of Organization , Currency Doubleday. New York.

      [43] Sullivan, P. H. (1999). Profiting from Intellectual Capital. Journal of Knowledge Management, 3(2), 132-143. http://dx.doi.org/10.1108/13673279910275585.

      [44] Sullivan, A. and Steven, M. S. ( 2003). Economics: Principles in Action. New Jersey: Wiley .

      [45] Sundgren, S. and Svanström, T. (2011). Audit Office Size, Audit Quality and Audit Pricing: Evidence from Small and Medium Sized Entities. Retrieved from http://ssrn.com/abstract=1869945, (2012).

      [46] Sweeney, J. T. and Roberts, R. W. (1997). Gognitive Moral Development And Auditor Independence. Accounting Organization and Society, 22, 337-352. http://dx.doi.org/10.1016/S0361-3682(96)00025-6.

      [47] Watts, R. L. and Zimmerman, J. L. (1981). The markets for independence and independent auditors, Unpublished manuscript. University of Rochester,. NY.

      [48] Watts, R. L. and Zimmerman, J. L. (1986). Positiue accounting theory. New York: Prentice Hall, Inc.

      [49] Yuniarti, R. (2011). Audit firm size, audit fee and auditor quality. Proceedings of the 2011 International Conference on Business and Economic Reserch (ICBER),

      [50] Zhao, X., Lynch, J. G. and Chen, Q. (2010). Reconsidering Baron and Kenny: Myths and Truths about Mediation Analysis. Journal of Consumer Research, 37, 197–206. http://dx.doi.org/10.1086/651257.

  • Downloads

  • How to Cite

    Naslmosavi, S., & Jahanzeb, A. (2016). The mediating role of human capital on the relationship between audit firm size and independent auditor’s opinion: evidence from Iranian audit firms. International Journal of Accounting and Economics Studies, 4(2), 102-108. https://doi.org/10.14419/ijaes.v4i2.6287