The Determinants Of External Audit Quality Evidence From Manufacturing Share Companies Of Addis Ababa Ethiopia

Audit quality is a very debatable topic in the area of auditing following the fall of giantrncompanies in the West. One of the issues that gained momentum has been to analyze the externalrnaudit quality and the various audit firm-client relationships.rnThe purpose of this study is to investigate the determinants of external audit quality proxied byrndiscretionary (abnormal) accrual based on audit firm specific attributes that are considered vitalrnby regulatory and professional bodies to properly monitor the external audit profession and tornmaintain trust among the various stakeholders in Ethiopian manufacturing share companies.rnIn light of this objective the study adopted quantitative method of research approaches to test arnseries research hypothesis. Specifically, the study used documentary analysis of companies’rnaudited financial statements and personal inquiry with audit directors/officials of audit firms.rnThen companies were selected based on simple random sampling method to avoid biases andrnrepresent firms within manufacturing companies. Consequently, the study selected a sample ofrntwelve (12) companies for the period of five years (2009-2013) with the total of 60 observations.rnThe results of panel least square regression analysis show that audit firm industry specializationrnand certified audit professionals ratio have statistically significant and positive relationship withrnmanufacturing share companies’ external audit quality. On the other hand, the joint provision ofrnaudit and non-audit service has a negative and statistically significant relationship withrnmanufacturing share companies’ external audit quality. However, the relationship for audit firmrnsize and audit firm tenure is found to be statistically insignificant. Therefore, this is a clearrnsignal to all manufacturing share companies in Ethiopia that they cannot ignore audit firmrncharacteristics while hiring of an audit firm for their audit service.rnKeywords: external audit quality, audit-firm specific attributes, earning managementrndiscretionary (abnormal) accrual.

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