The effect of audit quality offered by audit firms on client satisfaction luận văn thạc sĩ

ACKNOWLEDGEMENTS...6 LISTOFFIGURES...7 LISTOFTABLES...7 LISTOFABBREVIATION...8 ABSTRACT...9 CHAPTER1:INTRODUCTION...10 1.1.. Responsiveness and clientsatisfaction...23 2.4.1.6.. Clientse

ACKNOWLEDGEMENTS 6

LISTOFFIGURES 7

LISTOFTABLES 7

LISTOFABBREVIATION 8

ABSTRACT 9

CHAPTER1:INTRODUCTION 10

1.1 Backgroundtotheresearch 10

1.2 Researchmotivation 12

1.3 Researchobjective 13

1.4 Researchscopeandmethodology 14

1.5 Structureofthestudy 14

CHAPTER2:LITERATUREREVIEW 15

2.1 Introduction 15

2.2 Auditquality 15

2.2.1 Definitionofauditquality 15

2.2.2 Researchonmeasurementofauditquality 16

2.3 Clientsatisfaction 19

2.4 Researchframeworkandhypothesisdevelopment 20

2.4.1 Auditqualitydimensionsandclientsatisfaction 20

2.4.1.1 Reputationandclientsatisfaction 21

2.4.1.2 Capabilityandclientsatisfaction 21

2.4.1.3 Expertiseandclient satisfaction 22

2.4.1.4 Experienceandclientsatisfaction 23

2.4.1.5 Responsiveness and clientsatisfaction 23

2.4.1.6 Clientserviceandclient satisfaction 24

2.4.1.7 Empathyandclient satisfaction 24

2.4.2 Research framework 25

2.5 Conclusion 26

CHAPTER 3:METHODOLOGY 27

3.1 Introduction 27

3.2 Researchprocess 27

3.3 Questionnairedevelopment 28

3.4 Pilotstudy 32

3.5 Mainstudy 33

3.5.1 Samplingmethod 33

3.5.2 Samplesize 33

3.5.3 Questionnairedesign andadministration 34

3.6 Dataanalysismethod 35

3.7 Conclusion 36

CHAPTER 4:DATA ANALYSIS 37

4.1 Introduction 37

4.2 Sampledescription 37

4.3 ReliabilityAnalysis 38

4.4 Exploratoryfactoranalysis(EFA) 40

4.5 Hypothesestesting 42

4.5.1 PearsonCorrelationCoefficient 42

4.5.2 TestingassumptionsofMultipleRegression 44

4.5.3 Regressionanalysis 45

4.6 Discussionofresearchfindings 47

4.7 Conclusion 48

CHAPTER5:CONCLUSIONANDIMPLICATION 50

5.1 Conclusion 50

5.2 Managerialimplications 50

5.3 Limitationandsuggestionforfutureresearch 52

REFERENCES 53

APPENDIX 60

AppendixA:Thefindingsofpilotstudy 60

AppendixB:Questionnaire(Englishversion) 65

AppendixC:Questionnaire(Vietnameseversion) 70

AppendixD:DescriptiveAnalysis 75

AppendixE:TotalVarianceExplained 77

AppendixF:MultipleLinearRegressionAssumptiontestingresults 78

Iwouldlike toexpressmysinceregratitudetomysupervisor,Dr.NguyenT h i Nguyet Queforhervaluableguidance,insightfulcomments andcontinuoussupporttomythesis.Iamsurethatthisthesiswouldnothavebeenpossiblewithouthersupervisionandconstanthelp

HoChiMinhCity,February22,2014

Figure2.1:Researchmodel 25

Figure3.1:ResearchDesignProcess 27

LISTOFTABLES Table3.1:Draft questionnairetomeasureauditquality 29

Table3.2:Deleted itemsin pilotstudy 60

Table3.3:Final questionnairetomeasureauditquality 62

Table3.4:Cronbach’salphareliabilitycoefficient 35

Table4.1: Samplecharacteristics 75

Table4.2:Cronbach’salphareliabilityoffirstanalysis 38

Table4.3:Cronbach’salphareliabilityoffinalanalysis 40

Table4.4:EFAresults 40

Table4.5:PearsonCorrelation 42

Table4.6:Coefficients 44

Table4.7:Regressionresults 45

Table4.8:Hypothesestestingresults 46

Table4.9:Thesummaryofhypothesestestingresults 49

EFA:ExploratoryFactorAnalysis

Auditqualityiscrucialforfinancialmarkettofunctionsmoothlyduetoitseffectsonthec r e d i b i

l i t y offinancialstatements.Theusersoffinancialstatementsaremorelikelytofeelsecureabouttheinformationpresentedinthefinancialstatementsiftheauditofthefinancialstatementsi s perceivedashighquality.Thecurrentfinancialcrisisandcompetitivebusinessenvironmenthavebroughtonmorechallengesforauditfirms.Theyhaveconfrontedwiththeincreasingpressurefromfinancialstatement’suserstoimproveauditquality.Tobesuccessfulinthisenvironment,auditfirmsmustcontinuallystrivetoimproveauditqualityandhence,maximizeclientsatisfaction.ThisresearchaimsatinvestigatingtheeffectsofauditqualityprovidedbyauditfirmsonclientsatisfactioninVietnam

Inthisstudy,theauthorusesAUDITQUALmodel(Duff,2004,2009)focusingonsevendimensionsofauditqualitywhichwerelabelReputation,Capability,Expertise,Experience,Responsiveness,ClientServiceandEmpathyandtesttheeffectofeachdimensionofauditqualityo n clientsatisfaction.Ansurveyof380responseswasconductedintheconvenientmethodinHoC h i MinhCity,DongNaiandBinhDuongProvince.Astatisticalpackageforsocialsciences( S P S S ) version20.0wasusedtoanalyzethecollecteddata.ResultsshowthatsevendimensionsofauditqualityincludingReputation,Capability,Expertise,Experience,Responsiveness,ClientServiceandEmpathyassociatedpositivelywithclientsatisfactionandExperiencehasthemostinfluenceonclientsatisfaction

Keywords:Auditquality,AUDITQUAL,Clientsatisfaction.

Int h e a u d i t i n g c o n t e x t , i t i s t h e sameasotherserviceindustriest h a t a u d i t q u a l i t y andclientsatisfactionare veryimportant.Higherauditquality providedbyauditfirmswillleadto higherclients’satisfactionandhigherrepurchaseintentions.Aftermanywell-

knownauditfailures,suchas:ArthurAndersen'sauditfailureatEnron,DeloitteandTouche’sauditfailureat

audit servicesofferedbyauditfirmsareingreatdemand.However,inrecentyears,therearemanyscandalsinVietnamfinancialmarketthatledt o thebankruptofsomelistedcompaniesandcausedbiglossesfor

stakeholders,suchas:cheatingo n financialreportsofBachTuyetCottonCorporation,givingunfaithfulinformationandcrucial

mistakesintheauditedfinancialstatementofVienDongPharmaJSC,ToanCauinsurancejointstockcompany,KinhDoCorporation…

(BichLoanandGiaDuong,2013)Actually,auditfirmsi n Vietnamd o n o t meetclients’expectationo f

AssociationofCertifiedPublicAccountants’(VACPA)annualinspectioninlate2010revealedthatalmostallauditingf i r m s underi n s p e c t i o n moreo r lessv i o l a t e d auditings t a n d a r d s Accordingt o auditq u a l i t y assurancereviewresult2012,VACPAperformedauditquality assurancereviewsto15auditingfirmsinVietnam.Attheendofthereviews,6among15firmswereratedasqualified,8asunqualifiedandonefirmwasnotratedassubjecttoreviewunderthespecificrequestoftheM i n i s t

r y ofFinance.Inareportsenttothe MinistryofFinance,VACPA saidseveralauditingfirmspassedfinancialstatementswhichcontainedmistakesreflectingthedeficienciesofauditorsandboardo f directors

o n understandingc u r r e n t accountingstandards.Accordingt o a S t a t e S e c u r i t y Commission(SSC)representative,manyauditingfirmsdidnotcarefullyassesstherisko f largeamountsonclients’financialstatements.Theauditorsmerelyexcludedthosevaluesfromtheirjudgments,whichcouldgeneratebigdifferencesbetweent h e actualandt h e on-

paperbusinessresults.Int h e financialyearo f 2 0 1 2 , therew a s a serieso f s c a n d a l s relatingt o t h efinancialreportsoflistingcompanies,whichinvolvedbignameslikeQuocCuongGiaLaiCorp.andVietinBank….Thosere-

checkedreportsrevealedgreatdifferencesbetweentheactualbusinessresultsandannouncedones.BuiVanMai,V A C P A generals e c r e t a r y saidthatm a n y auditingfirmsl o o k forsalesandd o n o t i n v e s t a

d e q u a t e l y i n t h e i r o p e r a t i o n s NguyenThanhTung,deputydirectorforAASC–

amongtheleadingVietnameseauditingfirms,indicatedthats o m e auditorsmighttruncateauditing

p r o c e d u r e andt h e t r u n c a t i n g willleadt o a l o w q u a l i t y auditing.Therefore,i t i s essentialt o measurea u d i t q u a l i t y offeredbya u d i t firmsandtestt h e

effectsofauditqualityprovidedbyauditfirmsonclientsatisfactioninVietnam,wheretheauditfirmsarestillyoungandinexperienced

1.2 Researchmotivation

Itisunabletodenytheimportantroleofauditserviceinoureconomythatistoensurethea c c u r a c

y andexplici t financialinformationinthe financialmarket;thus,it helpstoprotectthehealthandstabledevelopmentoftheeconomy.However,inrecentyears,duetoimpactsoftheworldfinancialandeconomiccrisis,manyenterpriseshavefacedtodifficultiesintheirbusiness.Itcausesalotofpressureandchallengesforauditfirmstoevaluateandgivetheiropinionaboutt h e financialstatements.Inparticular,auditorswillbefacedwiththechallengeofevaluatingtheeffecto f t h e creditc r i s i s ande c o n o m i c d o

w n t u r n o n a client’sa b i l i t y tocontinueasa g o i n g concern,thechallengeofevaluatingfairvalueofassetsandwhethertheseeffectsontheclientfirmwillbedescribedorreflectedinthefinancialstatements(Gheorghe,2009).Moreover,themarketandclientfirmrequirehigher

andhigherservicequalityfromauditfirm.Thus,auditfirmsm u s t focuso n auditqualitytom a x i m i z eclientsatisfactionandsurvivei n t h e currentdifficultenvironment

Manystudieshavebeendevotedtoinvestigatetheeffectsofauditqualityofauditfirmsonclientsatisfaction,especiallyi n thedevelopingcountriesandseveralmodelswereusedtomeasure

auditqualityprovidedbyaudit

firmssuchas:SERVQUAL(Parasuraman,Zeithaml,andBerry,1991),AUDITQUAL(Duff,2004,2009),andmodelsusingauditqualityattributes(Schroederetal.,1 9 8 6 ; Carcelloetal.,1 9 9 2 ) …

Int e r m s o f auditq u a l i t y attributesmodels,Schroederetal

(1986)examinedperceptionsof15attributes(including6auditteamfactorsand9 auditfirmfactors)associatedwithauditquality.Carcelloetal

(1992)identified12auditqualityfactorsfromtwoaspects:auditfirmandauditteam.Boththesestudiesconfirmedthatauditteamfactorsaremoreimportanttoauditqualitythanauditfirmfactors.RelatedtoSERVQUALmodel,Ismail( 2 0 0 6 ) , MortonandS c o t t (2007),TurkandAvcilar(2009)examinest h e r e l a t i

o n s h i p betweenauditservicequality,clientsatisfaction,behaviouralintentionsandl o y a l t y us in g f i

v e dimensionso f serviceq u a l i t y and2 2 itemsscaleso f S E R V Q U A L t o measureauditquality.Lately,Duff(2004)developedtheAUDITQUALinninedimensionstoassessauditquality.This

specific-industrymodelnamedAUDITQUALwasempiricallytestedbysomeresearchers,suchas:Butcher,Harrison,andRoss(2013)

….However,veryl i t t l e

researchwasconductedinVietnam,wheretheauditandnon-auditserviceisquiteinexperienced.Thus,thisstudyattemptst o investigatetheeffectsofauditqualityofferedbyauditfirmsonclientsatisfactioninVietnam,throughtheperceptionoftheclientfirms.Itwasconductedforthepurposeofgivingbenefitsforb o t h auditfirmsandclientfirms.Regardingtobenefitsofauditfirms,theycanunderstand theclientrequirementsclearly,knowwhatthemostimportantfactorinfluenceclientsatisfaction.Ast h e results,auditfirmcanservetheir

clientbetter,remainclientloyaltyaswellasgivetheirclientmoreadditionalvalue.Concerningbenefitsofclientfirms,throughtheiropinionabouttheauditq u a l i t y aswellastheirlevelofsatisfaction,theycanhelpauditfirmrecognizeandimprovetheirweaknessesandshortcomings.Therefore,inlong-

term,clientfirmcangetthebetterauditservice

1.3 Researchobjective

Theoverallobjectiveoft h i s thesisist o determinetheeffectso fauditq ua li ty onclientsatisfactioni n Vietnam,throught h e perceptiono f clientfirms,u s i n g A U D I T Q U A L model.Specifically,thestudyaimsto:

1.4 Researchscopeandmethodology

Forauthor’sconvenience, thesurveytocollectdataisconductedinHoChiMinhCity,Binh

D u o n g andD o n g Naiprovince.T h e s u b j e c t o f t h i s s t u d y i s CFOo r chiefaccountanto r generalaccountantwhohadworkingexperiencewithauditors.Collectingdataprocessisdesignedintotwostages.First,inthepilotstudy,authorinterviewsninechiefaccountantsandgeneralaccountantsusingthedraftquestionnaire.Theirfeedbacksareusedtorevisetomakeupt h e finalquestionnaire.Inthesecondstage,mainstudyisconductedwithsampleof380respondents.Aftercollectingdataprocess,authorusessoftwareSPSSversion20.0toanalyzetheobtaineddata.Cronbach’salphamethodi s usedt o testr e l i a b i l i t y

o f t h e measurements c a l e E x p l o r a t o r y factora n a l y s i s (EFA)i s usedt o testv a l i d i t y o

f t h e measurementscale.M u l t i p l e linearregressionisusedtotesttheproposalhypothesesinthisresearch

1.5 Structureofthestudy

Thisstudyconsistsoffivechapters.Chapter1isanoverviewofauditserviceandclientsatisfaction,t h e factso f auditq u a l i t y i n Vietnam,researcho b j e c t i v e a n d significanceso f t h e study.Chapter2representssomerelativeconceptssuchas:auditquality,clientsatisfactionandrelationshipbetweenthem.Theresearchmodelandproposalresearchhypotheseswillbeintroducedi n t h i s chapter.N e x

t , chapter3 p r e s e n t s t h e m e t h o d o l o g y i n c l u d i n g questionnairedevelopment,p i l o t study,andmains t u d y witht h e samplemethod,dataanalysismethod.Inchapter4,thecollecteddatawillbeanalyzed.Specifically,Cronbach’salphawillbeusedtotestr e l i a b i l i t y of

scales,EFAfortestingvalidityofmeasurements,andhypothesestestingbymultipleregression.Chapter5summarizes theresultsofthisstudy,andmentionsthelimitationsaswellassuggestionsforfutureresearch

2.1 Introduction

Thischapterreviewss o m e relevantstudieso f a u d i t quality,clientsatisfactionandt h e relationshipbetweenthem.Manyperspectiveswereexploredtomeasureauditquality,butthiss t u d y focusesontheAUDITQUAL.Theresearchmodelandresearchhypotheseswillbepresentedinthischapter

(1997)defineauditingas"theprocessbywhichacompetent,independentpersonaccumulatesevidenceaboutquantifiableinformationrelatedtoaspecificeconomicentityforthepurposeofdeterminingandreportingonthedegreeofcorrespondencebetweenthequantifiableinformationandestablishedcriteria"

Therehavebeenanumberofattemptstodefineauditqualityinthepast,anduntiltoday,thereis n oconsensusa m o n g researcheso n a specificde fi ni ti on o f a ud it quality.A c c o r d i n g toS u t t o n (1993),thereasonfortheabsenceofconsensusofasingledefinitionofauditqualityisduet o theapparentconflictingrolesofparticipantsintheauditmarket.Themajorparticipantsintheauditmarketcanbedividedintothreegroupsthatareexternalusers,theclientandtheauditors.Auditqualitymeansdifferentthingstodifferentpeopleanddependsonthe“eyesofthebeholder”.Theauthorreviewedsomedefinitionsofauditqualityasbelow:

Thew i d e l y usedd e f i n i t i o n byDeAngelo( 1 9 8 1 ) definedauditq u a l i t y assessedj o i n t probabilitythata givenauditorwillb o t h detectmaterialmisstatementsi n t h e client’sfinancials t a t e m e n t s andreportt h e materialmisstatements”.T h i s definitionconsidersauditq u a l i

as“themarket-t y as“themarket-t o bed e p e n d e n as“themarket-t

o f twoc o m p o n e n t s T h e firstcomponentrelatest o auditors’technicalcompetencet o discover

e x i s t i n g misstatementsandt h e s e c o n d componentl i n k s t o auditors’objectivitytoreporttheerrorintheauditreport.Palmrose(1988)adoptedDeAngelo’sdefinitionanddefinedauditqualityintermsoflevelofassurance.Therefore,themainfunctionofauditistoprovideassuranceonfinancialstatementsthatauditedfinancialstatementscontainnomaterialmisstatementsandhighauditqualityisacompulsoryrequirementforusersoffinancialinformation

Someresearchersconsidered“ p o o r auditquality”byi d e n t i f y i n g t h e adverseoutcomesfromanaudit,andthendefinedauditqualityintermsofauditfailure.Forexample:Casterellaetal

(2009)stated“…

webelievepoorauditqualityisobservablewithhindsightifanengagementresultsi n litigationo r a claimo

f malpracticeagainstt h e auditfirm”.Inotherwords,anauditfailureoccursiftheauditorfailstocomplywithlegalandprofessionalrequirements

Insummary,thereisstillnoconsensusonageneralaccepteddefinitionofauditquality.T h e differentperceptionofstakeholdersinauditqualitymayhaveinfluencethetypeofindicatorsusedtoaccessauditquality

2.2.2 Researchonmeasurementofauditquality

Int h e auditingliterature,auditq u a l i t y hasb e e n investigatedwithina v a r i e t y ofperspectives,andsomemodelswereusedtomeasureauditquality.Behaviouralstudiesofauditq u a l i t y examinedperceptionso f attributeso r factorsassociatedwithauditquality,t y p i c a l l y examinedcombinationsoffactorsconsideredimportantinperceptionsofauditquality(Kilgore,2007).T h e reviewo f behaviouralstudiesi n t h i s sectionfocusedo n threet y p i c a l modelst o measureauditquality.Firstly,thiswasthemodelusingauditqualityattributes(MockandSamet,1 9 8 2 , Schroederetal.,1986,Carcelloetal.,1992).Next,SERVQUAL(Parasuraman,Zeithaml,andBerry,1991)wasusedtomeasureauditqualityinresearchesofIsmailetal.,(2006),Morton

andS c o t t (2007),T u r k andAvcilar(2009)

….Lastly,t h e recentmodelnamedA U D I T Q U A L (Duff,2004)wasusedtoassessauditqualityinninedimensions

MockandSamet(1982)identifieda l i s t o f potentialattributesfromtheliteratureandsurveyedauditorsinUStodevelop32-

itemquestionnairetoevaluateauditquality.Thefindingso f thestudyidentifiedfivedimensionsofauditqualityi n c l u d i n g planning,administration,procedures,evaluationandconduct

Schroeder,SolomonandVickery(1986)extendedMock

andSamet’s(1982)investigationbyu n d e r t a k i n g a s t u d y t o e x a m i n e t h e perceptionso f auditcommitteechairpersonsandauditpartnersonfactorsthatareperceivedtoaffectauditquality.Theparticipantswere

requiredtoratet h e importanceofeachof15factors(including6auditteamfactorsand9auditfirmfactors)tooverallauditquality.The teamfactorsincludedlevelofpartner/

managerattentiongiventotheaudit,planningandconductofauditteamwork,communicationbetweenauditteamandmanagement,independenceexhibitedbyauditteammembers,mixofskillsanddepthofexperienceofteam,andcommunicationbetweenauditteamandauditcommittee.Thefirmwidefactors

technically,qualitycontrolproceduresusedbyt h e firm,regulatoryagencyexpertise,overallreputation,sizesandlocationsofoffices,provisionfort e a m rotation,l i t i g a t i o n experience,r e c e n c y and

o u t c o m e o f p e e r reviewandt h e r e l a t i v e significanceoftotalprofessionalfees.The

authorsreportedthattheauditcommitteechairpersonsrankedauditteamf a c t o r s asmoreimportantto auditqu al it y thanfirmwidefactors.T he auditpartners’perceptionswereconsistentwiththoseoftheauditcommitteechairpersons

withtheclient,industryexpertise(especiallywithintheaudit

team),responsivenesstoclientneeds,andauditfirmcompliancewiththegenerallyacceptedauditingstandards(GAAS)

andexternalusersconsidercharacteristics

relatedtomembersofauditteammoreimportanttoauditqualitythancharacteristicsrelatedtotheauditfirm.Beside,t h e authorsfoundsignificantdifferencesb e t w e e n groupsregardingindividualaspectso f auditquality

However,Duff(2009)notedthatalthoughpriormodelsusingauditqualityattributes(suchas:Schroederetal.,1986;Carcelloetal.,1992)containsimilarattributes,thesemodelshavebeendevelopedandusedinisolation fromeachother.The SERVQUALandAUDITQUAL modelshaveremovedthisshortcomingbyintegratingtheattributesfromthepriorauditqualityliteraturei n t o multidimensional,struct

uredm o d e l s T h e initialS E R V Q U A L modelproposedbyParasuramanetal.(1985)wassuggestedintendimensionsofservicequality,including:reliability,r e s p o n s i v e n e s s , competence,a c c e s s , courtesy,communication,credibility,security,understandingandtangibles.Inthela

terstudy,Parasuramanetal.(1988,1991),thesetendimensionswerereducedtofivedimensions,consistingofreliability,assurance,tangibles,e m p a t h y andresponsivenessand22itemsscaleweredevelopedtomeasurethesefivedimen

sions.Inauditcontext,Ismailetal

(2006)adoptedSERVQUAL(Parasuramanetal.,1991)toassesst h e auditserviceq u a l i t y andt o e x a

itemmeasureofauditqualitybasedonthebehavioralauditliteratureandtheSERVQUALscaleofParasuraman,Zeithaml,andBerry(1985)tomeasurefourconstructsofauditquality.Inthesamemanner,TurkandAvcilar(2009)intheirresearch,indicatedthatt h e S E R V Q U A L consistso f t h e five-factorconstructi s suitablef o r measuringtheperceivedservicequalityofauditfirms

Them o s t recentmodelt o measureauditq u a l i t y i s A U D I T Q U A L suggestedbyD u f f (2004,2009).LiketheS E R VQ U A L model,Du ff (2004,2 0 0 9 ) investigatedth e A UD I T Q U A

L modelwhichintegratestheattributesfromthepriorauditqualityliteratureintoa

multidimensional,structuredmodel.T h e A U D I T Q U A L m o d e l c o n s i s t s o f n i n e distinctdimensionswhichwerelabeledReputation,Capability,Responsiveness,Independence,Non-

auditservices,Empathy,Clientservice,Expertise,and

Experience.Thesedimensionscouldbereducedt o createtwodistinctfactorsrelatingtotechnicalqualityandservicequality.Specially,technicalquality,usuallyconceptualizedasthecompetenceandtheobjectivityoftheauditor,isdescribedbyfivefactors:Reputation,Capability,Independence,ExpertiseandExperience.Servicequalityi s describedbyfourfactors:Responsiveness,P r o v i s i o n o f Non-auditservices,E m p a t h y a n d C l i e n t service.Usinga56scalequestionnaire,hesurveyedthethreesampledgroupsofauditors,auditees

quality.HefoundthattheAUDITQUALmodelfittedthedatawellforeachofthethreesamples

Manyresearchersusedfive-dimensionalSERVQUALtomeasureauditquality(e.g.Ismailetal,2006;MortonandScott,2007,TurkandAvcilar,2009…)becausetheSERVQUALmodelwaseasytouseinservicefirms(Isa,2005).However,therearesomecriticsforSERVQUAL,suchas:asimplerevisionoftheSERVQUALitemsisnotenoughformeasuringservicequalityacrossdifferentservicesectors(Ladhari,2008).Inaddition,auditingisaprofessionalservicewhichi s fundamentallydifferentfromotherservices,suchas:hotelo r travel…Itneedstobemeasuredbyaparticularmodelinauditarea.Ladhari(2008)alsoconfirmedthati n d u s t r y -

s p e c i f i c measureso f s e r v i c e q u a l i t y mightb e m o r e appropriatethana singlegenericscale.Hence,

t h e A U D I T Q U A L i s v e r y suitablet o capturet h e auditq u a l i t y becausei t wassets p e c i f i

c a l l y forauditingservice.Th is modelhasb e e n empiricallytested bys o m e researchers(e.g.Duff,2004,2009;Butcher,Harrison,andRoss,2013).Duetotheseabovereasons,t h i s s t u d y m e a s u r e d auditq u a l i t y byu s i n g AUDITQUALm o d e l i n t h e Vietnamesec o n t e x t

2.3 Clientsatisfaction

attentionbecauseofitsimportance.Oliver(1980)arguedthatsatisfactionistheemotional evaluationofperceiveddiscrepancybetweenexpectationsandperformanceofproductorservice.Intheotherword,clientsatisfactionconsideredasafter-

purchaseevaluationarisesiftheperformanceoftheproductsorservicesreceivedhigherthanexpectations.Hence,ifperformanceandexpectations

tocustomer,andviceversus,iftheydonotmatchthecustomerwillfeelsdisappointed.ZeithamlandBitner(2000)definedthatclientsatisfactionistheevaluationo f a producto r servicei n termso f whetherthatservicehasmettheirneedsandexpectations.Thesatisfiedcustomerwouldremainloyal,requiredservicemoreoften,fewerpricesensitiveandshalltalkfavorablethingsaboutthecompany

Ina u d i t i n g c o n t e x t , i t ist h e sameasotherindustriesthatclientsatisfactioni s v e r y importanttoachieve,becauseifthecustomerisnotsatisfied,theycouldchangetheirauditororitcouldcreateanegativereputationfortheauditor.Behnetal(1997)statedthatauditqualitycanaffecttheclientsatisfaction,thesamethingisexpressedbyCarcelloetal(1992)thatthereisasignificant,p o s i t i v e r e l a t i o n

s h i p betweenm a n y o f t h e auditq u a l i t y attributesandclientsatisfaction

2.4 Researchframeworkandhypothesisdevelopment

Asnotedinsection2.2.2,theoriginalAUDITQUALmodelconsistsofninedimensionswhichwerelabeledReputation, Capability,Responsiveness, Independence,Non-

auditservices,Empathy,Clientservice,Expertise,andExperience.However,thisstudy justfocusesonsevendimensionsthatareReputation,Capability,Responsiveness,Empathy,Clientservice,Expertise,andExperience.TwodimensionscalledNon-

auditserviceandIndependencearenotincludedint h e modelbecausethesefactorswereratedasleastimportantdimensionsbyallthreegroupsofrespondentsaccordingtoDuff’sresearch(2004)

2.4.1 AuditqualitydimensionsandClientsatisfaction

Manystudiesderivedfromthemarketingliteratureinvestigatetherelationshipsbetweenserviceq u a l i t y andc l i e n t satisfaction(e.g.Oliver,1 9 8 0 ; Bitner,1 9 9 0 ; Parasuraman,Zeithaml,andBerry,1 9 8 8 , 1 9 9 1 , 1 9 9 6 ; TaylorandBaker,1 9 9 4 ; Ismailetal,2006).M o s t researchersagreedthatservicequalityisvitaltomaintainclientsatisfactionandhigherservicequalitymayleadt o higherlevelofsatisfaction.Iti s q u i t e e a s y t o findmanyresearchest o supportfort h e relationshipbetweena u d i t q u a l

i t y andclientsatisfactioni n t h e auditingliterature.Ismaileta l (2006)examinedt h e relationshipbetweenauditq u a l i t y andclientsatisfactionandindicateda p o s i t i v e relationshipbetweenauditqualityandclientsatisfaction.Similarly,otherscholars(e.g

Behnetal,1997;Carcelloetal,1992;Samelson,LowensohnandJohnson,2006…)alsoindicatedthatattributesofauditqualityaffectclientsatisfaction,andauditqualityleadtoclientsatisfaction.T h e targetofthisresearchistodefinehowauditqualitydimensionsaffecttoclientsatisfaction

2.4.1.1 Reputationandclientsatisfaction

Abd-El-Salam,S h a w k y

andEl-Nahas( 2 0 1 3 ) pointedo u t thatcorporationimagea n d reputationareconsideredtobecriticalfactorsinoverallevaluationofanyorganization(citedinBitner,1990,1991;Gronroos,1984;GummessonandGronroos,1998;AndreassenandLanseng,

1997;AndreassenandLindestad,1998;KandampullyandHu,2007;Sarstedtetal.,2012)becauseofthestrengththatliesinthecustomers’perceptionandmindwhenhearing

thenameoft h e organization(citedinFombrun,1996;Hatchetal.,2003;Nguyen,2006;Bravoetal.,2009).A s t u d y o f N e d a l S a w a n andIhabAlsaqqa( 2 0 1 3 ) examinedauditq u a l i t y i n t h e Libya

no i l i n d u s t r y andfoundthatoilcompaniesusuallyengagedauditfirmswithagoodreputation.Itwa

se a s y tounderstandbecausegoodreputationauditfirms(suchas:BigFour)hadgreaterresources,technicalknowledge,capabilitiesandglobalr e a c h , whichallowedt h e m t o conductt h e a u d i t processmoreeffectively,t o p u b l i s h moreaccurateinformationo r t o w o r k withclientsmoreefficiently.T h e s ethingsledclientst o mores a t i s f a c t o r y A c c o r d i n g t o C h u n (2005),a goodreputationforhighqualitymeansmorecustomers,fewerdissatisfiedcustomersandprofitabilityincreases.Andreassen(1994)foundthatreputationispositivelycorrelatedwithsatisfactionandloyalty.H e l m etal

( 2 0 1 0 ) alsoanalyzedt h e relationshipbetweencorporater e p u t a t i o n a n d consumersatisfactionanddeclaredc o r p o r a t e reputationasanantecedento f c o n s u m e r satisfaction.Basedontheseaboveliterature,thehypothesiscanbestatedasfollows:

H1:Therei s

a p o s i t i v e relationshipbetweenreputationoft h e auditfirmandclientsatisfaction

2.4.1.2 Capabilityandclientsatisfaction

DeAngelo(1981)statedthatauditqualityistheprobabilitythatthegivenauditorwillbothdiscovermaterialmisstatementsintheclient’sfinancialstatementsandreportthematerialmisstatements.Auditorisa

ctivelyanddirectlyinvolvedinthewholeauditprocesssothep r o b a b i l i t y offindingviolationsdependsontheauditor'stechnicalcapability.AccordingtoDuff

(2009),capabilityistheabilityofauditortoconductthework.Ismail(2010)indicatedthatlevelo f auditclientsatisfactionwiththeworkofauditteamincreaseswhentheteamactivelyinvolvesi n theengagement,conductstheauditfieldworkinthepropermanner,andadoptshighethicalstandardsandpossessesgoodknowledgeofaccountingandauditing.Thecapabilityofauditoriso n e ofkeyfactorstodrivehighauditqualityandwellauditperformanceandthisincreasesthelevelofclientsatisfaction.Thus,thisstudysuggeststhehypothesisasbelow:

H2:T h e r e is a p o s i t i v e relationship betweenca pa bi l it y oft h e au di to r andcl ie nt satisfaction

2.4.1.3 Expertiseandclientsatisfaction

AccordingtoKilgore(2007),auditfirmswithmultipleclientsinthesameindustrymaybearguedtohaveagreaterappreciationoftheauditrisksuniquetothatindustry.Conversely,auditfirmswithfewclient

orabilitytokeepup-to-datewithchangesandnewdevelopmentsintheindustry.DiesandGiroux(1992)concluded thatfirmswitha higherconcentrationofclientsina particulari n d u s t r y willprovidegreaterauditquality.Similarly,M e y e r (2009)mentionedthatindustryspecialistauditorsh a v e developedi n d u s t r y specifick

n o w l e d g e thatm a y e n a b l e themt o providehigherauditq u a l i t y

thannon-specialistauditors.Theabovefindingsshownthatindustryexpertiseenhancestheperformanceofauditorandauditfirmthatd r i v e s t o higherauditq u a l i t y a n d higherl e v e l o f c l i e n t satisfaction.Manypreviousstudiesconfirmedt h e relationshipbetweeni n d u s t r y expertiseandclientsatisfaction.Lowensohn,JohnsonandElder(2007)examinedtherelationshipbetweenauditorspecializationandauditeesatisfactioninthelocalgovernmentauditmarket.Theirstudyconcludedthatexpertiseo f auditorsassociatewithhigherl e v e l s o f clientsatisfaction.T h e samet h i n g w a s expressedbyBehnetal

(1997),YuniartiandZumara(2013)thatthereisasignificantpositiverelationshipbetweenindustryexpertiseandclientsatisfaction.Hence,wehavethishypothesis:

H3:Thereisapositiverelationshipbetweenexpertiseoftheauditfirmandclientsatisfaction

2.4.1.4 Experienceandclientsatisfaction

Guletal

(1994)statedthattheauditshouldbeperformedandthereportpreparedwithd u e professionalcarebyp

knowledgeandexperienceb o t h haveimportantt o worksuccessi n auditprofession.Intermso f auditing,

t h e experiencew a s o b t a i n e d fromaccumulateaudittasksaswellasfromtrainingandl e a r n i n g throughouttheircareers.Auditorswhohavemoreexperiencewillhavebetterperformance.Ismail(2010)shownthattheclientmanagementishappywithauditorswhohavebeenwiththesameclientforalongtime

auditexperiencewiththeirclient,canunderstandt h e clients’accountingsystemandbusinessenvironmentclearly.T h u s , t h e y serveclientbetter.Ismail(2010)indicatedthesignificantpositiverelationshipbetweentheclientsatisfactionandthepriorauditexperienceoftheauditteam.Otherresearchersalsoconfi

Therefore,wehavet h e followinghypothesis:

H5:Thereisapositive relationshipbetweenresponsivenessoftheauditfirmandclientsatisfaction.

2.4.1.6 Clientserviceandclientsatisfaction

InA U D I T Q U A L m o d e l , Duff(2009)describedclientserviceas“thoseprocessest h e auditorhasi n p l a c e t o assurea highq u a l i t y a u d i t ” W e notedthatc l i e n t servicewaslabeled“assurance”asDuff(2009).Theroleofauditoristoprovideanassurancethatfinancialstatementsfreefrommaterialmisstatements.Itmeantthatclientservice(orlevelofassurance)iso n e o f keyfactorsthatdriveh i g h auditquality.Thus,clients e r v i c e w i l l contributet o c l i e n t satisfaction.Yuniarti,Zumara(2013)n o t e

d t h e significantp o s i t i v e associationbetweencommitmentofauditqualityandclientsatisfaction.Ismail(2010)alsoindicatedthesimilarthingthatcommitmentofauditfirmtoqualityissignificantlyrelatedtoclientsatisfaction.Accordingly,wealsohypothesizethatthereisapositiverelationshipbetweenclientserviceoftheauditfirmandclientsatisfaction

H6:Therei s a p o s i t i v e relationshipbetweenc l i e n t serviceo f t h e auditfirmandclientsatisfaction

2.4.1.7 Empathyandclientsatisfaction

Empathywasrelatedtocare,attentionandunderstandingofthespecificneedsbythefirmt o i t s customers(Parasuramanetal,1 9 8 8 , 1991).Similarly,i n auditingc o n t e x t , Duff(2009)definedempathyasthedegreeofunderstandingtheauditorhaswiththechallengestheauditteefaces.Clientalwaysexpectstheauditfirmaswellasauditortomakeefforttounderstandtheirneedsanddemands.Auditorcanplayapro-

activeroleandmakeagoodcontributiontomanager’sdecision.Forexample:auditorcanassisttheclientbyhelpinggatherinformationandprovidingguidanceo r makingrecommendationsthatmanagerswillu s

e form a k i n g businessdecision.Hence,e m p a t h y i s animportantfeatureo f serviceq u a l i t y a n

d i t canenhancet h e relationshipbetweena u d i t firmandclientsbyi n c r e a s i n g t h e l e v e l o f c l i e n

t satisfaction.A g a , Safakli(2007)statedasignificantrelationshipbetweenempathyaspectandclientsatisfactioninprofessionalaccountingfirms.Thus,inthisstudy,wehavethefollowinghypothesis:

AUDITQUALITY AUDIT QUALITY

Reputation

H1 Capability

H2 Expertise

H3

Experience

H5 Responsiveness

H6 H7 Client Service

Empathy

H7:Thereisapositiverelationshipbetweenempathyoftheauditfirmandclientsatisfaction

2.4.2.Researchframework

Basedontheseaboveliteratures,therelationshipbetweendimensionsofauditqualityandclientsatisfactionisbrieflydescribedintheFigure2.1:

Figure2.1:Researchmodel

Thehypothesesaretestedinthisstudyasfollows:

Hypothesis1:Thereisapositiverelationshipbetweenreputationoftheauditfirmandclientsatisfaction

Hypothesis2:Thereisapositiverelationshipbetweencapabilityoftheauditfirmandclientsatisfaction

Hypothesis4:Thereisapositive relationshipbetweenexperienceoftheauditfirmandclientsatisfaction

Hypothesis5 : T h e r e is a positive relationshipbetweenresponsivenessoft he auditfirmandclientsatisfaction

Hypothesis6:Thereisapositiverelationshipbetweenclientserviceoftheauditfirmandclientsatisfaction

Hypothesis7:Thereisapositiverelationshipbetweenempathyoftheauditfirmandclientsatisfaction

2.5.Conclusion

Inthischapter,wereviewedsomekeyconceptsrelatedtoauditqualityandclientsatisfaction.Mostofpriorresearchagreedthathigherauditqualitymayleadtohigherclientsatisfaction.Manyauditattributeswereusedtomeasureauditqualityinpreviousstudy.However,A U D I T Q U A L withsevendimensions(Reputation,Capability,Responsiveness,Empathy,Clientservice,Expertise,Experience)wasusedinthisstudytotesttherelationshipbetweeneachdimensionofauditqualityandclientsatisfaction.Theresearchmethodologyusedforthisstudywillbeintroducedinchapter3

3.2 Researchprocess

Figure3.1:Researchdesignprocess

Indataanalysisstep,thecollecteddatawascleanedandusedtotestreliabilityandvalidityo f t h e measurementscalesbyC r o n b a c h s ’ a l p h a coefficientandE x p l o r a t o r y FactorA n a l y s i s (EFA)method.N e x t , theauthorusedmultipleregressionmethodtotestthehypothesesinthisstudy

step

Thefinalstep, wereportedand discussedthefindingsbasedontheresults ofdata analysis

3.3 QuestionnaireDevelopment

Asmentionedabove,thisstudyemploysDuff’s(2004)modelofAUDITQUALtomeasureauditqualityprovidedbyauditfirmsthroughcustomerjudgment.Intheoriginalmodel,Duffuseda56scalequestionnairestosurveythethreesampledgroupsofauditors,auditeesandexternaluserstocaptureperceptionofauditquality.Thisstudyalsoemploys44itemsto

measuresevenoftheninedimensionsinAUDITQUAL,includingReputation,Capability,Clientservice,Responsiveness,E x p e r t i s e andExperience.T h e authorusedt h e five-

pointLikerts c a l e formatrangingfromstronglydisagree=1tostronglyagree=5.Table3.1showsthemeasurementscaleso f allindependentanddependentvariablesinthemodel,asfollowed:

Reputation 1.Theauditfirmishighlycompetent Beattie&Fearnley(1995)

2.Theauditfirmoperatestothehigheststandardso f integrity

Beattie&Fearnley(1995)

3.Theauditfirmhasrarelybeenfoundnegligenti n litigationagainstit–

DeAngelo(1981)

Capability 9.Theengagementpartnerishighlycompetent Parasuramanetal.(1991)

11.Theengagementpartnerisactivelyinvolvedi n theengagementbeginningwiththeinitialplanningandthroughouttheauditprocess

Parasuramanetal.(1991)

12.Theengagementpartnerhasfinancialstatementusers’bestinterestsatheart

Parasuramanetal.(1991)

13.Theengagementpartneriskeentounderstandwhatishappeningwithintheclient’sorganization

Duff(2004)

15.Theauditteamstaffoperatetohighethicalstandards

Beattie&Fearnley(1995)

Responsiveness 16.Theauditfirmisskillfulindevisingaccountingtrea

tmentsthatgenerateresultsmanagementwishestoobtain

Carcelloetal.(1992)

17.Theauditfirmiswillingtoprovidedetailedcostinformation

Beattie&Fearnley(1995)

18.Theauditfirmiswillingtobeflexiblewhenschedulingthetimingofauditvisits

Duff(2004)

19.Theauditfirm’sofficearegeographicallyclosetotheclient

Duff(2004)

21.Thereisa‘goodfit’betweenthepersonalityo f theengagementpartnerandthefinancedirector

Duff(2004)

22.Therelationshipbetweentheengagementpartnerandfinancedirectorisrelativelyinformal

Duff(2004)

23.Auditteamstaffcreatetheminimumofdisruptionsofaraspracticallypossible

Duff(2004)

24.Theauditteamdevelopsstringenttimebudgetsforeachauditareaandexpectspeopletomeetthem

Parasuramanetal.(1991)

27.Theengagementpartnerhastheclient’sbestinterestsatheart

Parasuramanetal.(1991)

ClientService 29.Theauditfirmregularlyconductsclientservicerevi

ewmeetings

Duff(2004)

30.Theengagementpartnerarrangesregularmeetingswiththeclient’skeystafftoidentifyissuesofconcern

Duff(2004)

31.Theengagementpartnerregularlyidentifiesexamplesofaddedvaluetotheclient

Duff(2004)

32.Theengagementpartnerandseniormanagermakefrequentvisitstotheauditsitefortechnicalreviewpurposes

Carcelloetal.(1992)

33.Theauditteamarewillingtoprovideguidanceonaccountingprinciples

Beattie&Fearnley(1995)

34.Thereisfrequentcommunicationbetweentheauditteamandtheauditcommittee

Carcelloetal.(1992)

35.Thereisfrequentcommunicationbetweentheauditteamandexecutivemanagement

Carcelloetal.(1992)

Expertise 36.Theauditfirmhasotherclientsinthesameindustry Carcelloetal.(1992)

37.Theauditfirmundertakesresearchintotheclient’sindustry

Duff(2004)

38.Theengagementpartnerissubjecttointernalreviewduringtheauditbyotherpartnersoftheauditfirm

Beattie,Fearnley&Brandt(2001)

39.Theengagementpartnerisveryknowledgeableabouttheclient’sindustry

Carcelloetal.(1992)

40.Theclienthasaknowledgeableandactiveauditcommittee

Carcelloetal.(1992)

41.Theseniormanagerandmanagerassignedtot h e auditareveryknowledgeableabouttheclient’sindustry.

Carcelloetal.(1992)

44.Theseniormanageroftheauditfirmhasbeenperformingtheauditforatleasttwoyears

3.4 Pilotstudy

AccordingtoMalhotra(2004),themainpurposeofpilotstudy

istotestthequestionnaireo n asmallsampleofrespondentsbytryingtoidentifyandexcludingpotentialproblems.Itcanhelptoincreasethereliabilityandtoassuretheappropriatenessofthedatacollectioninstrument( W o n g &Ko,2009)

Inpreparationfort h i s study,t h e draftquestionnairewasusedt o interviewn i n e chiefaccountantsandgeneralaccountantso f clientfirms.Respondents,whoworkd i r e c t l y witht h e auditfirmandauditteamforthefinancialyear2012,representtheexistingclientsof

thesampledauditfirms.Inwhich,selectedclientfirmsconsistofbothmanufacturingandservicecompaniesi n twosectors:localcompaniesandforeigncompanies.T h e auditfirmsfortheseclientsareDeloitte,Ernst& Y o u n g representativeforB i g 4 auditfirm,Auditing& C o n s u l t i n g C o , Ltd.representativef

o r t h e t o p localauditfirmandT h u y C h u n g Auditc o m p a n y representativef o r smallauditfirm.Respondentswerea s k e d t o indicatewhethert h e questionnairesuitablef o r measuringeachdimensiono

f AUDITQUALmodeli n Vietnamandreasoni f theysaid“inappropriate”

Basedontheirfeedback,12itemsofthedraftquestionnaireweredeleted,resultingtoafinalquestionnaireof33items.Thereasonfordeleteditemswasthattherespondentshavenoinformationt o answerthequestiono r t h e q u e s t i o n i s inappropriatet o measureauditquality.Actually,Duff(2004)developedt he measurement scalest o su rv ey three groupsofrespondent(auditors,auditeesandinvestors)

iseasytounderstandthattherearesomeitemssuitableforthisgroupbutunsuitableforothergroup.Anotherreasonisthatt h e questionnairewascreatedovertenyearsagoinadevelopedcountry;therefore,somemaybearen o t appropriatei n t h e Vietnammarketn o w T h e resulto f p i l o t s t u d y willb e showni

n appendixA

3.5 Mainstudy

3.5.1 Samplingmethod

Thepopulationofthisresearchcomprisedofcompanieswhoreceivedtheauditservice fromaudit

firmsinVietnam.Tobeconvenient,thecompanywillbechoseninHoChiMinhCity,BinhDuongProvince,andDongNaiProvince

Asurveyof380responseswasconducted.Specifically,questionnairesweresentviaemailt o 250respondents,whoactaschiefaccountant,generalaccountantorCFOandworkwithauditfirmsfortheauditservicesinyear2012.Thelistof respondentswasextractedfromco mp an y databaseonwebsiteofStateSecuritiesCommissionofVietnam(SSG).Besides,someauditorsfromauditingcompaniesinHoChiMinhCitysupportedauthorbydelivering130questionnairesd i r e c t l y totheirclients

3.5.2 Samplesize

AccordingtoDeCoster(2004),minimumsamplesizeusedinstatisticanalysisshouldbeequaltoorgreaterthanfivetimesofthenumberofvariables,butnotlessthan100togeneratereliableresults:n>=100andn>=5k(wherekisthenumberofvariables)

Wehave33variablesinthisresearch,thus,theminimumsamplesizerequiredtorunEFAis: