Auditor Selection Process: An Interplay of Demand Mechanisms – A Multilevel Network Approach

Abstract

Studies on demand side mechanisms related to experience goods argue that demand is driven by recommendation and reputation. In an auditing context, research showed that both of these mechanisms play an important role in determining partner selection, however, only when the mechanisms are observed in isolation. On this basis, this study raises a concern about whether the mechanisms are mutually exclusive, and if not, how does recommendation and reputation in auditor selection context create an interplay in the process of auditor selection. We test our hypotheses on network data of Danish public companies. Findings from the social network study indicate that auditor selection is a sensitive and complex task for boards of directors, as it is not only driven by either of the mechanisms. Rather, partner selection is driven by the combination of both recommendation and reputation, which creates the interplay and, thus, indicates that the demand mechanisms are not mutually exclusive and should not be observed in isolation of one another.

Determinants of Audit Firm Selection Decision: A Qualitative Study of Firms Listed on Pakistani Stock Exchange (PSX)

“…Transparent financial reporting remain obligatory and listed firm are being required to publish their audited financial statement, so that stakeholder can make sound investment decision. Therefore, auditor selection decision remains challenging for firms to comply the regulatory requirements and shareholder interest (Kacanski, Lusher & Wang, 2020). The board of director and particularly the audit committee remain actively involved in the process of auditor section.…”

Collection and documentation of audit evidence

“…Takođe, plan, odnosno strategija sprovođenja revizije ne sme biti rigidna, već mora težiti fleksibilnosti. Revizijom finansijskih izveštaja se koncipira nezavisno i nepristrasno ekspertsko mišljenje o proveravanim finansijskim izveštajima (Kaćanski et al, 2020). Zato je etički momenat jako bitan kako bi ovlašćeni revizori bili potpuno samostalni i imuni na soljne pritiske koji mogu imati konsekvence na revizorski izveštaj.…”