Impact of External Auditors’ Ethical Behavior on Audit Quality: A Client Perspective

Abstract

Purpose: This study explores the impact of external auditors' ethical behavior on audit quality, with a particular focus on the perspectives of internal auditors in publicly listed Pakistani companies. It aims to address the gap in literature concerning the interplay between ethical behavior, corporate ethical values, and perceived audit quality. Design/Methodology/Approach: Using Structural Equation Modeling (SEM), the study examines the direct and indirect effects of external auditors' ethics on audit quality, with corporate ethical values as a moderating factor. Data were collected via a mail survey and Google Forms from auditors in listed Pakistani firms, yielding 232 usable responses (61% response rate). The analysis utilized SPSS and AMOS for reliability, validity, factor analysis, regression, and correlation. Findings: Results reveal a positive relationship between ethical behavior and perceived audit quality, amplified by strong corporate ethical values. Companies prioritizing ethics reported enhanced audit quality, providing valuable insights for regulators and auditors. Implications/Originality/Value: This research contributes to the understanding of ethical behavior in audit quality, offering actionable insights for improving ethical standards in audit practices. The findings are pertinent for regulatory bodies, auditors, and policymakers aiming to strengthen financial disclosure integrity in Pakistan.

Keywords

• External Auditor
• Ethical behavior
• Perceived Audit Quality
• Internal Auditors
• Pakistani Listed Companies