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The Impact of Changing External Auditors, Auditor Tenure, and Audit Firm Type on the Quality of Financial Reports on the Saudi Stock Exchange

Author

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  • Abdulkarim Hamdan J. Alhazmi

    (Institute for Sustainable Industries & Liveable Cities (ISILC), Victoria University, Melbourne, VIC 3000, Australia
    Department of Administrative Sciences, College of Applied Sciences, Northern Border University, Turaif 91411, Saudi Arabia)

  • Sardar Islam

    (Institute for Sustainable Industries & Liveable Cities (ISILC), Victoria University, Melbourne, VIC 3000, Australia)

  • Maria Prokofieva

    (College of Business, Victoria University, Melbourne, VIC 3000, Australia)

Abstract

The purpose of this study is to examine the influences of external auditor firm type, auditor tenure, and external auditor changes on the quality of Saudi Arabian financial reports. In particular, this study examines the quality of financial reports of companies listed on the Saudi Stock Exchange using a widely accepted evaluation model modified by JonesThis study aims to determine whether Big Four and non-Big Four audit firms, auditor tenures of three or more years, and external auditor changes have any impact on the quality of financial reports of Saudi-listed companies. This study uses 175 firm-year observations of 35 companies listed on the Tadawul Saudi Stock Exchange between 2017 and 2021. Using discretionary accruals (DACC) as modified by Jones to measure the quality of financial reports, the findings illustrate that there is a significant negative relationship between Big Four audit firms and DACC. However, the study also shows a significant positive correlation between auditor tenure and DACC. The research revealed that there is no significant relationship between auditor change and DACC. These results have practical implications for policy development. According to the outcomes of this research, there are numerous ramifications for both companies and the government in Saudi Arabia in terms of enhancing the relationship between companies and audit firms and determining the most suitable auditor tenure to improve the quality of financial reports.

Suggested Citation

  • Abdulkarim Hamdan J. Alhazmi & Sardar Islam & Maria Prokofieva, 2024. "The Impact of Changing External Auditors, Auditor Tenure, and Audit Firm Type on the Quality of Financial Reports on the Saudi Stock Exchange," JRFM, MDPI, vol. 17(9), pages 1-26, September.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:9:p:407-:d:1475232
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    References listed on IDEAS

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    Cited by:

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    2. Bita Mashayekhi & Yousif Mohammed, 2024. "Perceived Internal Audit Quality and External Auditors’ Attributes in Iranian and Iraqi Banks," JRFM, MDPI, vol. 18(1), pages 1-17, December.

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