External auditors’ trust and perceived quality of interactions

Figures & data

Table 1. Composition of invited participants

Participants	Frequency	Percentage
Auditors identified from firms’ website	286	58.01%
Auditors identified from Linkedin	197	39.95%
Auditors identified from google search	10	2.02%
Participant types
Big Four auditors	375	76%
Non-big Four Auditors	118	24%
Audit partners/directors	320	65%
Audit managers/senior audit managers	173	35%
Big Four audit partners/directors	227	71%
Non-big Four audit partners/directors	93	29%
Big Four managers	140	81%
Non-big Four managers	33	19%

Table 2. Questionnaire

This questionnaire is to be completed by the external auditor. For statements 1–20, please indicate which of 1 to 5 best represents your general experience with audit committee members in external audits.
	Strongly Disagree	Disagree	Neither Agree nor Disagree	Agree	Strongly Agree
Audit committee members are generally an important source of information about the conduct of senior management for pre-engagement investigation.	1	2	3	4	5
(2) Audit committee members are generally willing to discuss their company’s governance structure with me for pre-engagement investigation.	1	2	3	4	5
(3) Audit committee members are generally willing to tell me their company’s policies about the supervision of quality control process of financial reporting.	1	2	3	4	5
(4) I generally have productive discussions with audit committee members when assessing clients’ business risk.	1	2	3	4	5
(5) Audit committee members generally meet with me without the attendance of management and executive directors.	1	2	3	4	5
(6) I am generally satisfied that audit committee members properly follow-up outstanding actions arising from my discussions with them.	1	2	3	4	5
(7) In general, I communicate effectively with audit committee members about the approach to monitor internal control systems.	1	2	3	4	5
(8) I often openly communicate unadjusted audit differences to audit committee members.	1	2	3	4	5
(9) In general audit committee members support my position when I have disagreements with clients’ management.	1	2	3	4	5
(10) I am generally satisfied that audit committee members had appropriate dialogues with me on the major issues from the external audit.	1	2	3	4	5
(11) I generally have productive discussions with audit committee members about hours to be spent on external audits.	1	2	3	4	5
(12) In my experience as an external auditor, I rarely question audit committee members’ capabilities.	1	2	3	4	5
(13) The ability of audit committee members is generally important to the smooth working of the audit process.	1	2	3	4	5
(14) In general, I could rely on audit committee members’ knowledge to facilitate my audit planning.	1	2	3	4	5
(15) Audit committee members generally address auditing and reporting issues honestly.	1	2	3	4	5
(16) I find that audit committee members’ actions often match their words when they are asked about how they evaluate internal control systems.	1	2	3	4	5
(17) I feel that I rarely need to be aware that information from audit committee members may be misleading.	1	2	3	4	5
(18) Audit committee members are generally reputable and I am inclined to trust them.	1	2	3	4	5
(19) I can generally rely on audit committee members to help me beyond the minimum requirements of the formal engagement contract.	1	2	3	4	5
(20) In dealing with audit committee members, I generally do not spend a lot of time haggling over issues, such as responsibility for problems.	1	2	3	4	5

Table 3. Constructs and sources

Construct(s)	items	Source(s)
Competence trust (independent)	3	Kramer et al. (1996); McKnight et al. (2002).
Integrity trust (independent)	3	McKnight et al. (2002); Kramer et al. (1996).
Goodwill trust (independent)	3	Sako (1992); Sako and Help (1998).
Perceived quality of interaction during pre-investigation engagement (mediator)	4	Butcher et al. (2013); Accounting and Corporate Regulatory Authority (2010); KPMG (2013).
Perceived quality of interaction during audit performance (dependent)	7	Deloitte (2015); Contessotto and Moroney (2014), Al-matarneh (2011); KPMG (2013).

Figure 1. Scree plot.

Table 4. Principal component analysis and initial eigenvalue

Factor	Eigenvalue	Difference	Proportion	Cumulative
Factor 1	4.13402	2.76091	0.3758	0.3758
Factor 2	1.37311	0.38288	0.1248	0.5006
Factor 3	0.99023	0.11541	0.0900	0.5907
Factor 4	0.87483	0.09868	0.0795	0.6702
Factor 5	0.77615	0.07907	0.0706	0.7408
Factor 6	0.69708	0.12711	0.0634	0.8041
Factor 7	0.56998	0.02450	0.0518	0.8559
Factor 8	0.54547	0.14719	0.0496	0.9055
Factor 9	0.39828	0.04152	0.0362	0.9417
Factor 10	0.35676	0.07268	0.0324	0.9742
Factor 11	0.28408		0.0258	1.0000

Table 5. Rotated component matrix

	Factor 1	Factor 2
Question 10	0.7534	0.1509
Question 9	0.7343	−0.0936
Question 7	0.6224	0.4330
Question 4	0.6223	0.3865
Question 6	0.6030	0.2833
Question 5	0.5035	0.2604
Question 8	0.4534	0.1246
Question 1	0.0496	0.8150
Question 2	0.1236	0.7618
Question 3	0.1925	0.7307
Question 11	0.3250	0.5765

Table 6. Retained factors

Factor	Variance	Difference	Proportion	Cumulative
Factor 1	2.86438	0.22163	0.2604	0.2604
Factor 2	2.64275		0.2403	0.5006

Table 7. Measurement model

Constructs Items Standardized Cronbach’s Alpha factor loading (ά)			Convergent Validity
			Composite reliability (CR)	Average Variance Extracted (AVE)
Competence trust (CT)	CT1	0.808
	CT2	0.724 .716	0.838	0.635
	CT3	0.852
Integrity trust (IT)	IT1	0.891
	IT2	0.867 .744	0.853	0.663
	IT3	0.666
Goodwill trust (GWT)	GWT1	0.781
	GWT2	0.754 .717	0.841	0.863
	GWT3	0.758
Perceived quality of	PQIB1	0.792
interactions during pre-	PQIB2	0.724 .748	0.841	0.569
engagement investigation	PQIB3	0.779
(PQIPI)	PQIB4	0.720
Perceived quality of	PQIAP1	0.793
interactions during audit	PQIAP2	0.590
performance	PQIAP3	0. 723 .768	0.844	0.522
(PQIAP)	PQIAP4	0.796
	PQIAP5	0.693

Table 8. KMO and Bartlett's test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy		0.826
Barlett’s Test of Sphericity	Approx. Chi-Square	355.687
	Df	36
	Sig.	0.000

Table 9. Descriptive statistics and discriminant validity

Latent variables	Mean	S.D	CT	IT	GWT	PQIPI	PQIAP
CT	3.624	0.682	0.797
IT	3.761	0.624	0.588	0.799
GWT	3.547	0.697	0.421	0.633	0.814
PQIPI	3.722	0.665	0.474	0.454	0.422	0.754
PQIAP	3.941	0.563	0.462	0.569	0.633	0.567	0.723

Where CT is competence trust; IT is integrity trust; GWT is goodwill trust, PQIPI is perceived quality of interactions during pre-engagement investigation; PQIAP is perceived quality of interactions during audit performance; S.D = Standard deviation

Table 10. Hypotheses testing

Hypotheses	Beta	p-values	t-values	Decision
H1: CT -> PQIPI	0.307	0.001***	3.437	Supported
H2: CT -> PQIAP	0.065	0.414	0.818	Not supported
H3: IT -> PQIPI	0.202	0.039**	2.060	Supported
H4: IT -> PQIAP	0.396	0.000***	4.382	Supported
H5: GWT -> PQIPI	0.142	0.175	1.357	Not supported
H6: GWT -> PQIAP	0.154	0.110	1.598	Not supported
H7: PQIPI -> PQIAP	0.292	0.000***	3.665	Supported
H8:CT -> PQIPI -> PQIAP	0.090	0.019**	2.340	Supported
H9: IT -> PQIPI -> PQIAP	0.059	0.066**	1.841	Supported
H10: GWT -> PQIPI -> PQIAP	0.113	0.211	1.251	Not supported

Where CT is competence trust; IT is integrity trust; GWT is goodwill trust, PQIPI is perceived quality of interactions during pre-engagement investigation; PQIAP is perceived quality of interactions during audit performance. *, ** and *** represents p-value less than 10 percent, 5 percent and 1 percent, respectively.

Figure 2. Research model.

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