Student name

The Impact of The Corporate Governance on The Audit Quality

1. Abstract
Audit quality and responsibility became under severe criticism on an international community,
after many scandals.
Many public debates has been discussed the significant changes in how auditors are interact with
stakeholders and regulators.
There are many wrong expectations of what an audit is and does, but statutory audit is very
important process to make firms' financial statements prepared in accordance with established
criteria.
Audit provides assurance to stockholders and management and to other stakeholders.(K.Chan,
2012)1.
There are two major factors to obtain a reliable and market credible audit.
(1) Objectivity: that means the auditors must be independent of the audit client.(2)take in
account audit quality.
There are many factors that constitute a definition of the quality of the audit. Factors related to
legal framework or audit regulations, such as accounting and auditing standards.

K.Chan, 2012. Audit quality , Hong Kong institute of CPA.

Factors related to ethical standards. Other factors related to the auditing processes and auditors
experience and methodology ( J. Ottaway, 2014)2.
According to audit quality forum 2005defined the audit quality according to ways to
measurements. Quantitative measurements such as the numbers of audit failures, and qualitative
measurements such as the quality of judgements, training, internal reviews, feedback from
shareholders and audit committees and other factors affecting the quality of auditors. Corporate
governance play essential role to improve audit quality and responsibility. (audit quality forum,
2005)3 Corporate governance is the set of measures and mechanisms to ensure the proper
operation and control of a company. ( Crowther, & Jatana 2005)4.
Corporate governance defined as the set of organizational mechanisms that have the effect of
limiting the powers and influence management decisions, that govern their conduct and define
their discretionary space " (Charreaux, 1996)5 .
The problems of corporate governance can result from the separation of ownership and control of
capital, the power of certain shareholders control over minority shareholders, employees holding
important rights apart from those due to them in their capacity as potential holders of capital
(OCDE, 2004)6
So while shareholders have the "formal control" on many decisions, managers often have the
"real control". In essence, auditing is used to provide the needed assurance for investors when
relying on audited financial statements. Regarding this issue, the study explore the impact of
corporate governance with audit quality. (Tirole, 2002)7
There are two main characteristics of the audit quality, which are competence and independence,
were, in fact, difficult to assess. First, the evaluation of the auditor's competence may be tainted
2

J. Ottaway, 2014. Improving Auditor Independence in Australia.

Audit quality Forum, 2005. Audit Quality Fundamentals Principles-based auditing
standards.
4
Crowther, D., & Jatana R. (2005). Agency theory: a cause of failure in corporate
governance. In: D. Crowther and R. Jatana (eds.) International dimensions of corporate social
responsibility.
3

Charreaux, ( 1996)Towards a theory of corporate governance

Organization for Economic Cooperation and Development, OECD. (2004), "Principles
corporate governance in the OECD.
7
Tirole,J.(2001).corporate governance. Econometrics, Vol. 69, No. 1
6

by the risk of adverse selection. If there is a divergence in interest scales of principal and the
agent, (agent) appears capable of misleading the company (principal) on certain information in
order to maximize its usefulness . the auditor may mislead its client on the composition and
competence of the intervener team from the terms agreed at the contract signing.
So we are trying through this study to identify the impact of corporate governance mechanism
on the quality of information on the financial reporting in order to make recommendations
contribute to the escalation of these principles and develop a culture of governance in an
environment of industrial firms in Egypt.
2. Research Problems
Corporate governance can be seen as protection tool to existing and potential stockholders. the
collapse of many companies leads to the loss of the stockholders rights and lack of confidence of
financial markets from prospective investors.
So many of the studies in the recent period tried to strengthen the significance correlation
between independent variable corporate governance and the information contained in the
financial reports.
Most of the studies and reports on corporate governance have emphasized the need for audit
quality in companies which seek to apply corporate governance.
We can formulate our research problems as following questions
What are definitions of the corporate governance, mechanism and its pillars?
What is audit quality?
What is importance of the corporate governance and its mechanism to raise the audit quality?
3. Research objectives
The objectives of our study is to trying to discover the relationship between corporate
governance oand the audit quality
We can attain this objectives by:
Examining significance relationship between corporate governance and audit quality.
4

4. Research hypothesis
H1: There's significance relationship between corporate governance and audit quality.

5. Literature Review
5.1.

Corporate governance

Corporate governance designates defined as the set of policies , procedures and regulations
emerged for specific purposed such as directing and managing the firm activities.
The theme of Corporate Governance has risen over the last decade at the forefront of the
international agenda. Indeed, the organization of power in the business is now seen as a
determinant of competitiveness and stability of economies adopt a Corporate Governance
System quality is a important step to foster market confidence and promote the establishment of
long-term international investment flows more stable. (Tirole, 2002)8.
The ISO 26000 defined the corporate strategy as "The organizational governance is the system
by which an organization makes decisions and applies them to achieve its goals. The
organizational governance can comprise both formal governance mechanisms based on defined
processes and structures and informal mechanisms, emerging with the values and culture of the
organization, often under the influence the people who run the organization. (OECD,2005)9
These systems are run by one person or a group of persons (owners, members, social or other
proxies) holding power and having the responsibility for achieving the objectives of the
organization. "

Tirole,J.2001.corporate governance. Econometrics, Vol. 69, No. 1

OECD,2005. OECD Guidelines on Corporate Governance of State-owned Enterprises. OECD
publishing.
9

The Sarbanes-Oxley Act (SOX) was adopted in 2002 in the wake of the Enron scandal. It
requires all listed companies in the United States, to present to the US Securities and Exchange
Commission (SEC) personally audited accounts by their leader. This law also applies to 1300
European groups with interests in the United States. It therefore makes executives criminally
liable for published accounts. It also ensures and especially the independence of auditors face
pressures they can be (and are) the subject of the part of business leaders.
The OECD Corporate Governance Principles were developed originally to meet a demand of the
OECD Council which. Guide lines in the area of corporate governance. Since they adopted in
1999, they formed the basis of the initiatives that have been taken in this area in the member
countries as well as non-members OECD. They have also been adopted as one of the twelve
standards fundamental to sound financial systems that have been set by the Financial Stability
Forum. (OECD,2005)10
1. Allow the entire population and public bodies to obtain, in a timely and accessible manner,
detailed and reliable information on sustainable development; in particular information regarding
available resources, how they are obtained and used, and the results to which they contribute;
2. Curb corruption and illicit financial flows, which divert huge sums of money indispensable;
3. Improve the efficiency of public institutions in the fight against poverty and promoting
sustainable development and maximize their accountability for the use of public resources;
4. ensure the support of public opinion in efforts to curb poverty and inequalities, allowing
everyone to participate in their design, implementation and monitoring, without exclusion or
discrimination, and guaranteeing the rights of freedom of expression and assembly, and access to
information;
5. improve accountability and positive impacts of the business, ensuring that corporations and
governments reveal all their relations, as well as requiring companies to report on a constant
standard of their impact on the environment, society and human rights.

10

OECD,2005. OECD Guidelines on Corporate Governance of State-owned Enterprises. OECD

publishing.

The mechanisms related to the discipline

The market-based mechanisms are necessary, but are considered insufficient for proper corporate
governance , unless the rules are established and applied. ( Rezaee ,2009)11
Sanctions frames: the idea is that executive compensation modes are not sufficient to monitor
and control their actions.
To remedy this shortcoming must be used to penalties mechanisms aligned both on behavioral
attributes and results.
A typical executive compensation includes base salary, benefits in kind, annual bonus, options
(stock option) of pension rights and other long-term incentives. To this list should be added
sufficiently significant penalties affect their incentives, behaviors and outcomes.
Within the meaning of Yadong Luo, (2005) the obligation to report refers to the notion of
transparency itself remains a goal of the corporate governance .
This accountability should be treated equally whether national or multinational company.
Because regardless of the type of business one of the purposes of the corporate governance
remains transparent.
transparency requirement takes greater significance in supporting the need to analyze
multinational companies as a network, a system. Thus falls consistency with the choice of our
theoretical framework. Four explanations supporting this finding: (Yadong Luo,2005) 12.
(1) A company may be obliged to report if its subunits or subsidiaries are. Indeed, improving the
responsibility of a company requires that each subunit has transparent processes in their decision
making, financial reporting, audit and internal control.
(2) The responsibility of subunits promotes the sharing of information and communication within
a company. Governance can only be effective if the company can establish a sharing of
information and effective communication systems.
11

ZABIHOLLAH REZAEE, Corporate Governance and Ethics, First Edition (Hoboken, NJ: J.
Wiley & Sons, 2009)
12
Yadong Luo (2005). Corporate governance and accountability in multinational
enterprises: Concepts and agenda Journal of International Business Studies, Vol.11, p.1-18

(3) The responsibility of the subunits is a prerequisite for any company in the formalization of
the elements of its strategy(corporate culture, the overall vision, codes of conduct, overall
reputation, etc.)
(4) The remuneration of the Managing Director (CEO) is partly decided by the parent company,
the accountability of the subunit allows it to assess and reward results more effectively.

5.2.

Benefits of Corporate Governance

Corporate governance provides offer many benefits to stockholders such as

1. Investor's right protection
Each investor have rights in a firm obtained from finance it and these rights obtained from law
and regulations, laws and regulations allows investors to exercises these rights such as rights to
viewing financial information, accounting rules, accounting disclosure participant in
stockholders meeting, and vote for directors.
Without these roles and regulations external finance mechanism would tend to break down
,external investors and creditors need to have these rights to invest in firms. Without enforced
rights the management or agent would not distribute dividends and repay the creditors.
2. Investor and creditor confidence
Good and effective governance and controlling is a tool to attracting new external finance,
investors and creditors feel confidence when they feel their funds in the safe .13
3. Low cost of finance
Low risk means that company can attract low cost of investment as result of investor confidence
and the enforced rights by laws and regulations. Also increase the firm profitability and higher
credit rating.
4. Lower cost of litigations

13

Deegan, C 2004, Financial Accounting Theory, McGraw-Hill

Corporate governance allows firms to comply with the law and regulation.
5. Decreased fraud and conflicts of interest
Corporate governance prevents an limits bas behavior of firms' managers and employees to
decrease cases of fraud
6. Economic growth and firms success
Corporate governance decrease cost of finance and improves the efficient resource allocation,
Countries that have firms use efficient corporate governance attract funds from global markets
that allows to promotes economic efficiency and growth.
5.3.
Corporate Governance models
5.3.1. Agency Theory
Agency theory describes the relationship between two parties, employer or stockholder
(principal) and employees or manager (agent ) especially when employer delegate his authority
and power to managers. (Keong 2002)14
The main problem of the agency relationship when agent not act or behave in the best interest of
the employer, because gent searches for his self interest (opportunism ).and agent have
information more than employer (information symmetry).
Maximizing value shareholder, if indeed it can be implemented, clearly belongs to an ideological
vision of governance. The origin of this current must be placed in context history, the 70s, a time
when most American companies were facing serious difficulties of competitiveness against their
Japanese counterparts.
American economists behind the rise of theories were constractualistes convinced of the
superiority of the market (the business), as effective mechanism resource allocation. these
economists ideologically opposed to the power that can be exercised by managers, "these latter
being likely to influence improperly the resources and the profitability of the firm. Theorists of
the agency then asked a framework giving shareholders a central position, while devoting as
14

Keong, 2002, Corporate Governance: An Asia-Pacific Critique, Sweet & Maxwell Asia, Hong
Kong.

regulatory mechanism, the external discipline exerted by the market, via public bids. (Keong
2002)15
an index of governance based on the voting rights and fair treatment of shareholders. The authors
show that a good protection of rights Shareholder results in effective governance. incorporate
three other corporate governance criteria relating to retirement age administrators, education
directors and the executive compensation policy and directors. "Education of Directors" variable
refers to their study, the existence of at least one director who participated in the education
program
To reduce agency costs and exert pressure on the opportunist leaders, theorists agency offer
several structural mechanisms, both internal and external. Among internal mechanisms are:
1) boards, and Committees attached to it, and are considered "tools" to control and monitoring
that shareholders use to protect and promote their interests;
2) a pay system based on shares or options, and is supposed to align interests of executives with
those of shareholders;
3) monitoring by peers who are motivated by their assessment of the labor market, which is in
turn linked to performance of the business;
4) formal information systems such as budgets or management by goals
The costs of agency problem are costs from bad and unethical acts from managers as result of
misuses of their position and the costs to prevent and limits their ability to abuse.
5.3.2.

Stewardship Theory

The stewardship theory was introduced to study the relationships between stakeholders, based on
behavioral assumptions different from the dominant paradigm, which is based on the agency
theory. The question of the sharing of value between the various stakeholders is therefore not
paramount in the theory of stewardship. (Keong 2002)16
15

Keong, 2002, Corporate Governance: An Asia-Pacific Critique, Sweet & Maxwell Asia, Hong
Kong.
16
Keong, 2002, Corporate Governance: An Asia-Pacific Critique, Sweet & Maxwell Asia, Hong
Kong.

10

an efficient organization cannot exist without the recognition and best satisfaction of all
stakeholders. Without resorting to the notions provided altruism or social responsibility, they
consider that understood individualism, or yet enlightened, through good management
stakeholders to additional satisfy the long term, the obligations vis--vis shareholders.
The term 'corporate governance' is a neologism that refers to the concept better Anglo-Saxon
'Corporate Governance' as the original expression of the government ' Business' which returns,
according to with choices operational rather than political effects resulting trade-offs and
compromises between different parties, holders or sources of power in the organization. Thus,
the expressions 'corporate governance' or 'corporate governance' will be used in a
interchangeably.
Corporate governance concept comes originally, problems related to separation between
ownership and control that characterized stock companies , the increasing complexity of
corporate America, following their geographic expansion and multiplication of their products and
their markets, created the need for professional management.
This separation of control between functions and management (control) creates possibility
divergence of interests between owners and managers, creating costs agency or 'mandate'. To The
firm is considered a 'nexus of contracts' and stakeholders are related to a legal fiction.
a contract which specifies the mutual rights and obligations of each of them. Contracts are
incomplete by nature (uncertainty, bounded rationality, possibility of moral hazard and adverse
selection), agents (non-owner managers) try to use to their advantage, inside information they
hold, thus incurring additional costs for the principal (shareholders). These agency costs,
incurred by the principal, are defined as the sum of:
(1) control and monitoring expenses the agent;
(2) the exposure expenditures
(3) the remaining losses resulting from the difference of interest between the two parties.
(Pastoriza, 1997 )17
17

David Pastoriza, 1997

WHEN AGENTS BECOME STEWARDS: INTRODUCING LEARNING IN THE STEWARDSHIP

THEORY

11

These principles based on the best practices identified in different sectors, at different types of
organizations and on a scale World, are summarized as follows:
(1) Leadership and Stewardship: ensuring the orientation and strategic planning, succession
planning, monitoring, risk management and implementation instead of internal control
(2) Strengthening and responsibility delegation, allocation of responsibilities, establishment of
effective accountability mechanisms
(3) Communication and transparency: determining the flow of information, submission of reports
shareholders and other stakeholders
(4) Service and Equity: lead by example social responsibility, providing ethical leadership,
promote sustainability the environment
(5) Achievements and performance measurement: Guide and monitor management; select
business performance measures; assess the Board of Directors, the CEO and directors
(6) Learning and continuous growth: promote the culture of innovation and change, develop and
train Directors, executives and employees.
5.3.3. Stakeholder Theory
Stakeholder theory seems to take over much of the program, including in Blair (1995) the clearly
displayed to undertake a radical reform of property rights in favor of employees, on behalf
investment in specific knowledge they realize in their business.
One found there a resurgence of socialist-inspired ideas, or, borrowed civic republicans.
However, Marxist and partnership projects can not be fully treated at least for two fundamental
reasons.
the partnership theory recommend any collectivization program. And furthermore, as Corlett
notes Marxist theory remains absolutely silent on the issues environmental.

12

Parties inside the company (managers and employees )should organize and control the firm to
attaining benefits for all stakeholders, without take in account the impact on the financial
performance (Deegan, 2004)18.
5.3.4. Resource Dependency Theory
Governance can be divided in large and complex enterprises over three levels, as proposed by
(Deegan, 2004)19:
(1) Corporate Level: Choice of comprehensive strategies; Final approval of decisions; design
structural forms that reinforce the strategy overall;
(2) integrator level: review and vary strategic plans submitted by business units; adjustments of
corporate plans, taking into account the limits characterized subunits; selection of the most
investment opportunities from promising subunit for submission at the corporate level; design
in structures and procedures that facilitate planning and operations, coordination needs subunits
and seat;
(3) initiator level: formulation and implementation of strategic plans; proposed investment
projects at managerial level; formulation associated structures to the needs of the subunits.
This model allows us to consider the role of governance, not only in the investment process
which also represents an important task for advice administration, but in the decision-making
process as a whole. However, this model allows to consider only the internal dynamics of
decision-making and not take into account the environment of the firm and its influence on
governance.
to achieve a perspective in which the role of governance business far beyond the traditional roles
of trust and oversight.
there are three areas of governance:

18

Deegan, C 2004, Financial Accounting Theory, McGraw-Hill

19

Deegan, C 2004, Financial Accounting Theory, McGraw-Hill

13

(1) Administrative Zone (Directorate): This is the area where the activity is exercised Trust and
surveillance, usually required by law
(2) of the executive management zone: this is the area or exercised strategic direction of the
organization's activities
(3) Management Zone operational: this is the area where manifested the implementation and
execution of the strategy. three levels of responsibility within the organization:
(1) Technique: This is where materialize technological processes, production operations and
supervision;
(2) Managerial: mediation between the technical sub-organizations, allocation resources, control
and administration of the technical sub-organizations;
(3) Institutional: legitimacy the social environment, institutional structure and actions towards
the community. It can be inferred , incorporating the proposals mentioned hereinabove, different
levels, including governance and the responsibilities and powers of each zone. However, it is
noted that all the authors recognize links of interdependence between the various levels and the
difficulty of establishing a border sealed there between. Indeed, the size of the company, its
capital structure, the degree of maturity, sector it operates, its socio-cultural context or political
influence largely overlap between levels.
5.3.5. Social Contract Theory
This theory take in account the social responsibility concept and sees the society and a some or
series of contracts between society itself and parties and members. Deegan, 2004)20:
In this theory manager commit to take in account society interests and should make an ethical
decisions . (Deegan, 2004)21.

20

Deegan, C 2004, Financial Accounting Theory, McGraw-Hill

21

Deegan, C 2004, Financial Accounting Theory, McGraw-Hill

14

5.3.6. Legitimacy Theory

According to Deegan he defined legitimacy theory as some of principles and assumptions that
the actions of the firms wanted and desirable with the some social constructed system of values
and beliefs.
There is familiarity between social contract theory and legitimacy theory because they are take in
account the social contract between firm and society
according to the legitimacy theory, profit is viewed as an all inclusive measure of organizational
legitimacy.
The emphasis of legitimacy theory is that an organization must consider the rights of the public
at large, not merely the rights of the investors.

5.4.

Overview of Audit Quality

Quality of the audit is an essential tool for the functioning of financial and capital markets,
contributing to a reliable and credible environment. But what is a quality audit and how to
measure it?
According Manita (2009), the fact that the audit process is complex (uneven) and not observable
by others and the report (opinion) be standardized, with few opportunities for differentiation,
make it difficult to identify what would be a quality audit .
audit quality is not information disclosed at the time it is performed and is not made public for
cases of clients who do not face financial difficulty - given that there is no reason or evidence to
questions the work of the auditors. Reinforcing this understanding, Pae and Yoo (2001) point out
that the auditor is questioned only when:
1.

the statement prepared by the administration is distorted;

2. the auditor has a favorable opinion to these distorted information;

3.

the investor, relying on that information, makes the decision to invest in the company;
15

4. the expected return is not confirmed. Only when these four conditions are fulfilled is that
the auditor is questioned.
5.4.1. Factors affecting audit quality
1. Specialization of the auditor.
Using the assumption that knowledge about the customer and their business increases the
auditor's ability to identify any material misstatement, It is expected that the greater the
importance of the economic sector to the auditor, the greater its ability to provide quality
services, with a view to their greater expertise in that kind of business.
specialization of the auditor in an industry causes him to have a broader understanding of
accounting practices and segment trends, increasing their ability to evaluate evidence and
identify problems in the statements.
the specialization of the auditor is an element that enhances the quality of financial reporting and
mitigates the likelihood of fraudulent statements.
2. Customer importance to the Auditor.
conflict of interest in the relationship between the auditor and the audited company - who hires
and pays - can influence, in some cases, report content (opinion).
Nelson, Elliot, and Tarpley (2002) address this issue by pointing out that the requirement to
maintain and expand business and customer relationships can compromise the objectivity and
professional independence
3. The presence of the Audit Committee.
Given the essential condition of independence for the quality of work of auditors, an instrument
which is being increasingly used, mainly from the Sarbanes-Oxley Act (SOX), to contribute to
this independence is effective, is the institution the so-called audit committees. the great purpose
of the committee's creation is to mitigate the risk of collusion between management and the
independent audit.

16

4. Litigation risk.
the audit market in the US was going through strong transformations, one of the main raising
lawsuits against auditors. With regard to this risk of litigation, can create economic incentives
for auditors to reflect on the consequences of their actions, reducing the possibility of indulging
in acts with negative consequences. can increase the adoption audit defensive trend - which are
interpreted prescribed rules, primarily the exercise of subjective judgment

5.4.2. Auditor's quality versus Audit Quality.

Firm needs to information to decrease the uncertainty and make suitable decisions efficiently,
there are three main criteria to measure information
1. Valuable and use to decrease uncertainty and predicting the future .
2. Extra information is very important and valuable if this information affect the decision.
3. Information is valuable if it use as a part in modification results of a decision
Financial information support financial audit through the financial accounting coming from
financial statement audited.
Public information not sufficient to financial auditor to give his audit opinion according to
GAAP. Auditor should identify the relevant auditing risks and systems to decrease useless works
and make good auditing planning.
Auditing decrease the information risk because it allows to investor to make validity bout
information of the financial reports.
If there strong auditing quality that may decrease the information risk faced by investors,
investor decrease its internal rate of return and also cost of capital.
5.4.3. Audit quality Elements
The five elements of audit quality .(K.Chan, 2012)22.

22

K.Chan, 2012. Audit quality , Hong Kong institute of CPA.

17

1. Privilege cultural in the organization

Organization cultural include some of concepts such as how the employees perceive quality and
type of leadership and other factors in the environment help organization to recognize quality .

2. Competencies and skills of auditors a

Not only technical skills but also conceptual and ethical aspects of the audit profession
3. The range of auditing effectiveness
Refers to effective and efficient auditors staff and teamwork structure and not constrained by any
pressure such as financial pressure.

4. The usefulness and validity of the financial information

Audit report convey the auditor's opinion and stakeholders can evaluate and depend on his
opinion to verify the financial information in financial statement.
5. External factors uncontrolled by auditors
Internal control system and client's corporate governance system and other regulatory and laws
bodies.
6. Research methodology
4.1. Research Design
A questionnaire is designed in conjunction with a sampling plan.
4.2.

The Data Collection Methods

The data was obtained through the use of structured questionnaires and convenience sampling.
The questionnaires were developed in Egypt on individuals from various backgrounds.
Information collected can be grouped into two main areas:
Audit quality

18

Corporate governance
4.3.

Sampling

Type of sample is Random and the Size of sample 25Accountants

Companies such as P&G, bank Misr, chipsy and master food Egypt.
Figure (2) Conceptual model

Corporat
e
governa
nce

Audit
quality

independent variable : corporate governance

dependent variable : Audit quality

4.4.

Research tabulation and analysis

I used SPSS in preparing to enter data of my questionnaire and to prepare tables and regression
model. I used appropriate statistical technique to according my sample, data, hypotheses and
objectives.
To test my hypotheses I used the following statistics tools such as correlation, mean and standard
deviation.

4.5.

Tabulation and Analysis

I used questionnaire to explore and testing my hypotheses about the impact of the online
perceived risk and consumer buying behavior. Through show the impact of the Corporate
governance and audit quality.

19

Table (1)
Objectives
To

Hypothesis

measure

Variable

the There's

relationship

a IV:

significant

and

between corporate relation between

governance

and online corporate

audit quality

governance and

1.audit committee

Corporate

2.Governace

governance

model

mechanism
DV:

audit quality.

Items

3. audit quality

audit element

quality

4.

factors

affecting

audit

quality

To test relationship There's

between

a IV:

audit significant

and

quality and quality relation between

of

financial audit quality and

2.

benefits

quality

audit quality

of

report

financial
information
the

Audit

of DV: auditor

information of the quality

financial reports

1.auditor quality

of

financial

reports

4.6.

Research Limitation

I face demographic factors such as income and gender also I discussed only corporate governace
and audit quality; also I was limited by my project time.
20

Our sample is only accountants and our survey conducted in industrial firms.

5. The research results and hypotheses testing

Table (2) Gender

Cumulative
Frequency
Valid

Male
Female
Total

Percent

Valid Percent

Percent

18

72.0

72.0

72.0

28.0

28.0

100.0

25

100.0

100.0

Most respondents are 72% and female 28%.

Table (3)

Nationality
Cumulative

Frequency
Valid

Egyptian

25

Percent

Valid Percent

100.0

Percent

100.0

100.0

All respondents are Egyptians

Table (4) Age category

Cumulative
Frequency
Valid

18 25
25-35

Percent

Valid Percent

Percent

32.0

32.0

32.0

11

44.0

44.0

76.0

21

35-45

24.0

24.0

Total

25

100.0

100.0

100.0

44% of respondent are between 25-35 year, 32%between 18-25 and 24% between 35-45 year.

Table (5) Education

Cumulative
Frequency
Valid

Percent

Valid Percent

Percent

Diploma

36.0

36.0

36.0

Bachelor

10

40.0

40.0

76.0

24.0

24.0

100.0

25

100.0

100.0

High studies
Total

40% are have bachelor, 36% have diploma, and 24% have high studies

Table (6) Occupation

Cumulative
Frequency
Valid

Government sector
Private Sector

Percent

Valid Percent

Percent

12.0

12.0

12.0

10

40.0

40.0

52.0

22

Self-employment

12

48.0

48.0

Total

25

100.0

100.0

100.0

Most people are working at self employment 48%, 40% working at private sector, remaining
12% working at government sector

Table (7) Monthly Income in L.E

Cumulative
Frequency
Valid

1000-3000
3000 and above
Total

Percent

Valid Percent

Percent

23

92.0

92.0

92.0

8.0

8.0

100.0

25

100.0

100.0

Most people have income between 1000-3000, while 8% more 3000

Table (8) Job

23

Cumulative
Frequency
Valid

Financial Manager
accountant
clerical
Total

Percent

Valid Percent

Percent

24.0

24.0

24.0

11

44.0

44.0

68.0

32.0

32.0

100.0

25

100.0

100.0

Most people are accountants 44%, 32% clerical, and 24% financial managers.

H1: There's significance relationship between corporate governance and audit quality.
Table (9) hypothesis one
NO.

Yes

Questions

No

Unsure

Questions about corporate governance benefits

Do you think corporate governance is important to solving
conflict of interest between management and owners ?

22

Do you think corporate governance attract low cost investment

capital through improved investor and creditor confidence

12

Do you think that companies are willing to improve the internal

control system has a role in reducing the cost of the external
audit?

17

A.Take a strategic lead

14

B.Make a real difference

16

Do you think governance is best tool to manage and control

mangers

18

Questions about corporate governance mechanism

Does the Governance Framework enable the Board to:

24

Are board members and management staff responsibilities

clearly set out in writing?

Is there an external auditor of the company?

21

16

Does the Company have a clearly defined and publically

accessible disclosure policy which defines principles, rules and
procedures of reporting to shareholders, relevant authorities,
public, and other interested parties?

17

10

Are you think the Egypts company follow the corporate

governance procedures

19

11

Questions about corporate governance and audit quality

Do you think that good disclosure of the financial statements ,
follow the international standards in the preparation of
financial statements ,the quality of financial information and
22
financial transparency have an impact on the audit quality

12

Do you think that is good corporate governance practices and

following principles improves the firm's audit quality

21

13

Do you Quality of information depend only on internal audit

17

Table (10) shows the importance of corporate governance to solve conflict interest between
management and stockholders(yes =22), and promote the confidence of creditors and investors
and decrease cost of financing (yes=12). BOD encourage to disclose information and data
Strong Internal control helps auditors to make suitable opinion and decrase cost of external audit
cost (yes =17). Corporate governance helps BOD to put lead strategy(yes=14), and make
differences (yes=16) Governance is best tool to manage and control managers (yes=17).
Corporate governance improves audit quality (yes=21) and 17 respondents think that audit
quality depend on internal audit.

Table (10)

Job * Do you think corporate governance is important to

solving conflict of interest between management and owners ?

Crosstabulation
Count

25

Do you think corporate governance

is important to solving conflict of
interest between management and
owners ?
yes
Job

Financial Manager
accountant
clerical

Total

No

Total

11

11

22

25

Most respondent think that is corporate governance is important tp solve conflict between
management and owners (yes = 22).

Table(11)
Job * Do you think corporate governance attract low cost investment capital through
improved investor and creditor confidence Crosstabulation
Count
Do you think corporate governance attract low cost
investment capital through improved investor and
creditor confidence
yes
Job

No

unsure

Total

Financial Manager

accountant

11

clerical

12

25

Total

12 respondent thinks that is improve the confidence of creditors and investors and decrease cost
of capital.
Result : there's positive relationship between corporate governance and audit quality
H2: There's significance relationship between audit quality and quality of financial
information of the financial reports
Table(12) hypothesis two
NO.

Yes

Questions
26

No

Unsure

Questions about corporate governance benefits

1

Do you think corporate governance is important to enforcing

and encouraging transparency?

11

Are the financial statements prepared in keeping with

internationally recognized accounting standards (e.g., IFRS or
U.S. GAAP)?

17

Does the company disclose major transactions, related party

transactions, off-balance sheet activities, and other material
events?

20

From table 12 corporate governance is important to enforce transparency (11) and quality of
financial information (yes=11), 17 respondents are believed that financial statement complied
with GAAP of IFRS. And 20 people believed that company disclose major transactions (20)

Figure (3)a. hypothesis one

27

Figure (3)b. hypothesis one

Figure (4) hypothesis two

28

Result : There's relationship between audit quality and quality of financial information of
the financial reports

Conclusion

Corporate governance plays an important role for organizing and controlling the firm activities
and to link between the firm and auditors (internal and external).corporate governance reduce the
firms information asymmetry between executives and employers or shareholders.
Audit quality refers to the quality of the auditor's opinion and expected degree of risk in the
auditor's point of views, this depends on several factors, including auditor specialization,
experience,

ability to predict, Independence in giving his opinion and the extent of the

relationship between the auditor and the client.

There are other factors that are expected to have an impact on the data and information obtained
by the auditor, including internal control efficiency and procedures of governance, the
relationship between owners and managers and the Audit Committee . finally we can conclude
that there is a strong relationship between governance used and the efficiency measures and the
efficiency of the references and independence and the quality of audit.
29

References

1. K.Chan, 2012. Audit quality , Hong Kong institute of CPA.

2. J. Ottaway, 2014. Improving Auditor Independence in Australia.
3.
Audit quality Forum, 2005. Audit Quality Fundamentals Principles-based auditing
4.

standards.
M.Sirez, 2013. Corporate governance of capital market of Bangladesh. Journal of

business and management,Vol12,1ssue 5.

5. Musgrave, R. & Musgrave, P. (1984), Public Finance in Theory & Practice, 4th Ed.
6. OECD,2005. OECD Guidelines on Corporate Governance of State-owned Enterprises.
OECD publishing.
7. Yadong Luo (2005). Corporate governance and accountability in multinational
enterprises: Concepts and agenda Journal of International Business Studies, Vol.11, p.1-18
8. Deegan, C 2004, Financial Accounting Theory, McGraw-Hill
9. Crowther, D., & Jatana R. (2005). Agency theory: a cause of failure in corporate
governance.

30

10. Collier, P. A. (1993). Audit committee in major UK companies. Managerial Auditing

Journal,
11. Beasley, M. S. (1996). An empirical analysis of the relation between the board of director
composition and financial statement fraud. Accounting Review
12. Peasnell, K. V., Pope, P. F., & Young, S. (2000). Board monitoring and earnings
management: do outside directors influence abnormal accruals?.
13. Cohen, J. R., & Hanno, D. M. (2000). Auditors' consideration of corporate governance
mid management control philosophy in preplanning and planning judgments. Auditing: A
Journal of Practice & Theory,
14. Fama, E. K., & Jensen, M. C. (1983). Separation of ownership and control. Journal of
Law & Economics
15. Wan, Z.W.A., Shahnaz, I., & Nurasyikin, J. (2008). The impact of board composition,
ownership and CEO duality on audit quality. Malaysian Accounting Review
16. Mitra, S., Hossain, M., & Deis, D.R. (2007). The empirical relationship between
ownership characteristics and audit fees
17. Heil, D. (2012). The influence of the auditor on the earnings quality of their clients.
18. Crowther, D., & Jatana R. (2005). Agency theory: a cause of failure in corporate
governance. In: D. Crowther and R. Jatana (eds.) International dimensions of corporate social
responsibility.
16. ZABIHOLLAH REZAEE, Corporate Governance and Ethics, First Edition (Hoboken, NJ:
J. Wiley & Sons, 2009)
17. M.Bradley & G. Dallas, 2007. The Relation between Corporate Governance and Credit
Risk,Bond Yields and Firm Valuation
18.David Pastoriza, 1997 WHEN AGENTS BECOME STEWARDS: INTRODUCING
LEARNING IN THE STEWARDSHIP THEORY

31

Appendixes
Questionnaire template
Interviewee name :
Interviewee for position of :
Date of interview:
Interview start and end times:

At the first I would like to welcome MR/ ,

In this interview MR/.. , I want to ask you some questions related to my graduation
project , the topic of my graduation project is impact of the corporate governance
on the audit quality specially about benefit of corporate governance , corporate
governance mechanism , accuracy of information and audit quality.
Our interview include 15 questions about my graduation project and will take 10
minute which is each question need 10 minutes to answer. trust and ease of use.

Questionnaire

32

o
In this questionnaire attempt to know the relationship between consumer
motivation toward e-banking.

Time for filling questionnaire: 5 minutes.

Confidentiality: All information will be confidential.

Personal information
Job
A.

Financial Manager

B. accountant

C. clerical

D. treasurer

Gender
A.

male

B. Female

Nationality
A.

Egyptian

B. others

Age category
A.

18 25

B. 25 35

C. 35 45

D. 45 yrs and above

Education
A.

Secondary and below

B. Diploma
C. Bachelor
D. High studies
33

Occupation
A.

Government sector

B. Private Sector
C. Self-employment
D. Others
Monthly Income in L.E
A.

Less than 1000

B. 1000-3000
C. 3000 and above
Questions about corporate governance benefits

1. Do you think corporate governance is important to solving conflict of interest

between management and owners ?
2. Do you think corporate governance is important to enforcing and
encouraging transparency?
3. Do you think corporate governance attract low cost investment capital
through improved investor and creditor confidence
4. Do you think that companies are willing to improve the internal control
system has a role in reducing the cost of the external audit?

Questions about corporate governance mechanism

5. Are the financial statements prepared in keeping with internationally
recognized accounting standards (e.g., IFRS or U.S. GAAP)?
(i) Yes
(ii) No
(iii) unsure

6.

Does the Governance Framework enable the Board to:-

34

Take a strategic lead

(iv) Yes
(v) No
(vi) unsure
Make a real difference
(i) Yes
(ii) No
(iii) unsure

7. Does the company disclose major transactions, related party transactions,

off-balance sheet activities, and other material events?
8.

To what extent do members of the board understand their responsibilities?

(i) Yes
(ii) No
(iii) unsure
9. Are board members and management staff responsibilities clearly set out in
writing?
(i) Yes
(ii) No
(iii) unsure
10. Is there an external auditor of the company?
(i) Yes
(ii) No
(iv) Unsure
11. Does the Company have a clearly defined and publically accessible disclosure
policy which defines principles, rules and procedures of reporting to shareholders,
relevant authorities, public, and other interested parties?
(i) Yes
35

(ii) No
(iii) Unsure

12. Are you think the Egypts company follow the corporate governance
procedures
(i) Yes
(ii) No
(iii) unsure

Questions about corporate governance and audit quality

13. Do you think that good disclosure of the financial statements , follow the
international standards in the preparation of financial statements ,the quality of
financial information and financial transparency have an impact on the audit
quality.
Yes
NO
Unsure

14. Do you think that is good corporate governance practices and following
principles improves the firm's audit quality
Yes
NO
Unsure

15. Do you Quality of information depend only on internal audit

Yes
NO

36

Unsure

37