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ELK ASIA PACIFIC JOURNAL OF FINANCE AND RISK MANAGEMENT
ISSN 2394-0409; DOI: 10.16962/EAPJFRM/issn.2394-2325; Volume 6 Issue 2 (2015)
www.elkjournals.com ………………………………………………………………………………………………………………
44
QUALITY OF BANK AUDIT IN BANGLADESH AND RELATIONSHIP BETWEEN AUDIT
QUALITY AND SHARE PRICE
Nafees Reza
Student, School of Business,
Independent University, Bangladesh
Tel: +8801710371371
Email: [email protected]
Maqbool Kader Quraishi
Lecturer, School of Business,
Independent University, Bangladesh
Tel: +8801775618288
Email: [email protected]
ABSTRACT
Keywords: Listed banks in Dhaka Stock Exchange, Loan classification, Loan provision, Auditor independence,
Auditor ethics, Audit quality, Share price
1. Introduction
Banks play significant role in the economy.
They hold public savings and finance
businesses. In order to gain efficiency, banks
need to get larger, and becoming a public
company is one way to achieve that. Among
the fifty-six scheduled banks, thirty banks are
public company. To become a public
company, banks need to issue IPO and then
trading goes to the secondary market. Once
trading starts, share prices are largely depend
on supply and demand. Demand of a
particular share is generally depend on the
investors’ confidence. Investor’s confidence
mostly depends on the financial performance
of the banks. Moreover, financial statements
must have to be certified by an auditor.
According to Levitt, (1998) audit quality is
recognized to influence financial reporting
and have an impact on investors’ confidence.
Banking sector is largely dependent on the
loans, advances and investments. The loan
recovery rate is relatively poor in
Bangladesh.
Fifty-six scheduled banks are operating in Bangladesh and among them only thirty banks are listed in Dhaka Stock
Exchange (DSE). This study examines the audit quality of thirty listed banks and determines whether there is any
relationship between audit quality and share price. Here the term audit quality refers to the auditor’s ability to
discover breach in client’s financial statements and report that breach, and share price represents the value of
company’s future earnings. Since investors have vital interest in companies’ financial statements and audit
provides a reasonable assurance about the quality of the financial statements, audit quality can intensely influence
share price. The audited financial statements of thirty listed banks and their share prices have considered for this
study. Results have shown that three listed banks have poor audit quality in the year 2013. The share prices of
these banks are relatively low compared to the other banks. Results of this study are dependent on the loan,
advances and investment, and share price data. This study will give the idea about the audit quality of thirty listed
banks within Bangladesh. Additionally, it will also provide the knowledge about the relationship between audit
quality and share price.
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For this reason, Bangladesh Bank introduced
loan classification and loan provisioning.
Every bank is required to classify their loans
according to the loan performance and
maintain loan provisioning according to the
loan classification, but some banks do not do
proper loan provisioning. Therefore, these
wrongdoings cast doubt upon the credibility
of the financial statements of this sector. In
this case, proper audit can restore the
credibility in this sector and that may
elevated investors’ confidence. The objective
of this study is to evaluate the audit quality,
determine the relationship between the audit
quality and share price.
2. Statement of the problem
Audit quality is one of the most important
parameter that can strongly influence share
price by impelling investors. The value of
company’s share depends on the company’s
earnings, however sometimes company’s
managers manipulate the earnings report to
match a predetermined target. In an ideal
scenario, an appropriate audit can effectively
constrain the earnings misrepresentation and
financial statement manipulations.
In idyllic situation, auditors are independent
in appearance and they are independence of
mind. Moreover, they uphold ethics while
they are doing audit. Moreover, investors
take investment decision upon the audited
financial statements.
In Bangladesh, auditor’s independence and
ethics are not properly maintained. This is
because; the size of the market for audit
services in Bangladesh constrains the
bargaining power of the audit firms and thus
affects the quality of audits. The total number
of companies listed on the DSE is 307. These
listed companies are shared among around
180 audit firms suggesting that the
competition for clients is intense. Thus,
auditors in Bangladesh are to be expected to
face greater financial inducements to comply
with client reporting practices. Since the
market size for audit service is small, the cost
of breaching independence and not upholding
their ethics may be lower than the economic
benefits extracted from client fee revenue.
For this reason, sometimes auditors do
involve in transgressions and that may affect
the investor’s decisions.
The purpose of this study is “To evaluate
audit quality (auditor independence,
auditor ethics) and identify whether there
is any concerning relationship between
audit quality and share price.”
3. Literature Review
3.1 Auditor Independence
According to the IESBA (International Ethics
Standards Board for Accountants) code,
independence contains:
(a) Independence of mind
Mind considered as independent when
auditor express a conclusion without being
affected by any influences so that auditor can
exercise objectivity and professional
skepticism.
(b) Independence in appearance:
Independence in appearance refers that third
party consider auditors as independent.
According to Magill and Previts (1991),
auditor’s independence is an attribute that
increases the trustworthiness. Knapp (1985)
define auditor independence as the ability to
resist client pressure.
Generally Accepted Auditing Standards
(GAAS) states that independence in mental
attitude must be maintained in all matters
relating to the assignment by an auditor. SEC
considers that if reasonable investors, who
have knowledge of all appropriate
circumstances and facts, would conclude that
auditor is not exercising objective and
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impartial judgment then an auditor is not
independent (SEC 2000, p.3). Auditor
independence provides assurance that an
impartial and skilled professional examines
financial statements (SEC 2000, p. 2). Elliot
and Jacobson (1998) added that this
assurance enhances credibility to financial
statements, adding significant value to the
entire capital markets system. According to
Kinney (1999), legislation and regulation can
ensure auditor independence. Overall, the
independence of auditors increases the
creditability of audit report.
The ownership of direct or indirect material
investment in a client firm can affect the
auditor’s independence in appearance (Elder,
R.J., Arens, A.A. and Beasley, M.S. 2008).
Therefore, SEC imposed some regulation to
maintain auditor independence. In 2003, SEC
enforced Sarbanes Oxley Act (SOX) that
bans the auditors to have direct or indirect
relationship with the client. Moreover, it also
bans some services such as consulting
services (Elder et al., 2008). There are some
unconscious biases which hinders the auditor
independence such as excessive familiarity,
long-term attachment with the client (Barret,
2001; Umar and Anandarajan, 2004;
Ainsworth, 2006). Some discounting factor
like damage relationship between the
auditors and client’s management might
affect the auditor’s current judgment that
affects auditor’s independence of mind.
According to agency theory, the management
of organizations may not present full and fair
financial information to the external users.
For this reason, independence is required. An
audit report provided by the external
independent auditors increase the
creditability of audit report so that users can
rely on the information presented.
3.2 Relationship between Auditor
Independence and Audit Quality
Auditor independence is one of the pillars of
audit quality (Beattie V, Fearnley S, Brandt
R, 2001). Richards (2006) states that audit
quality will get lower when auditor
independence is lower. Baotham (2009)
suggested that audit quality is significantly
influenced by auditor’s independence.
Srinivasan K, Zhou J, Zhou N (2002) tested
the effects of auditor’s independence in audit
quality by testing a sample of several
Anderson’s clients. The result showed that
auditor independence not only affects the
audit quality but also affects the credibility of
the audited financial reports. Pike (2003) also
claimed that when the auditor is not
independent, the determination to produce
high quality audit becomes low since the
auditor does not make a serious attempt to
detect material misstatement in the financial
statements and when it is identified, the
auditor will not necessarily report it
Kim, J., Song, B.Y. and Tsui, J. (2007) states
that long-term attachments whether financial
or psychological, may affect the auditor
independence, and this may deteriorate the
audit quality because it might hinder the
auditor from carrying out his/her duty to
detect material misstatements in client
financial report and report them.
3.3 Auditor Ethics
According to Hosmer (1994, p. 20), ethical
principles vary with cultural, social, and
economic conditions. Rather than subjective
statements, they are objective statements that
excel countries, religions, and times. David
Satava, Cam Caldwell, Linda Richards
(2006) suggested that auditors duties are
based on ethical principles, which do not to
change irrespective of the company involved
or any financial benefits to forgo their duties.
Moreover, they are committed to honor
duties to the societies to the society that
involve the prosperity of all stakeholders.
According to Bartels, L., Harrick, E., Marel
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E., & Strickland, D. (1998), ethical issues
come under into consideration once two
criteria are met: volition and consequences.
First, an auditor must have a choice when
he/she dealing with the ethical issues.
Secondly, there must have consequences for
his/her choice.
Windsor (1996) suggested three types of
auditor. Three types are self-governing,
pragmatic and accommodating. Windsor use
Kohlberg’s theory as the ground to make
these divisions. Kohlberg’s proposes three
broad levels of superiority in ethical
reasoning. The first one is pre-conventional
level. Here, self-interest influences the
decision. The second is called conventional
level. In this level, individuals rely upon rules
and regulations to determine the right from
wrong. Post-conventional is the third level.
On this level individual decides right from
wrong using universal ethical principles such
as justice and fairness. Willingham and
Carmichael (1968) described ethics as the
written code of relational norms, which
guides the range of appropriate behavior in
various situations. The codes guides the
proper ways of relating to clients, the public,
superiors or subordinates.
According to Miller and Bahnson (2004)
auditors are responsible to protect the
investors but many auditors fail to do their
job, and then the objectivity of the auditor
and the accuracy of the client’s financial
statements are immediately suspected.
Sometimes auditors involved in unethical
activities because of their economic
dependence, since they are hired and fired by
their own clients (Moore, D. A., Tetlock, P.
E., Tanlu, L. and Bazerman, M. H., 2006).
Ethics in auditing is very necessary for doing
audit in banking sector. People do consider
banks as a system of wealth creation. Auditor
should maintain ethical principles while they
are auditing. There are number of issues
which auditor should judge ethically such as
loan collection rate from the debtors, loan
provision etc.
3.4 Relationship between Auditor Ethics and
Audit Quality
According to Dedoulis (2006) audit ethics
includes a set of rules and principles intended
to exclude undesirable activities in the audit
work. It refers to the public interest, integrity
and audit quality. Auditor, who has greater
audit ethics, inclines to better protect public
interest and increase the audit quality. It is
difficult to reclaim a reputation of
creditability in the public eye. Thus audit
ethics reassures auditors to concern with
audit morality in the audit process and gain
audit quality. According to Schwartz (2002),
audit ethics includes trustworthiness, respect,
responsibility, fairness, caring, and
citizenship. Therefore, it is positively related
to and audit quality.
3.5 Audit Quality
Audit quality has been defined as outcome on
the existence of certain qualities of auditors.
DeAngelo (1981) defines audit quality as the
auditor’s ability to discover the breach in
client’s financial statements and report that
breach. This definition refers the two
components of audit quality: the probability
that an auditor discovers existing
misstatements and appropriately acts on the
discovery. The first component refers to the
auditor’s competence to detect the
misstatements in the financial statements and
the second component refers to the auditor’s
independence, skepticism and ethics. These
two components actually suggest that audit
quality can be influenced by different aspects
of the audit. The discovery of misstatements
requires proper resources and those resources
be effectively used in the audit process.
Additionally, auditor needs to take proper
action at the end of audit report.
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Government Accountability Office (GAO
2003, 13) defines audit quality as auditor
perform auditing compliant with Generally
Accepted Auditing Standards (GAAS) to
provide reasonable assurance that audited
financial statements are not materially
misstated and financial statements are
prepared in accordance with Generally
Accepted Accounting Principles (GAAP).
Carcello (2002) indicate that audit quality is
directly linked to the amount of audit work.
Casterella, J. R., K. L. Jensen, and W. R.
Knechel. (2009) stated poor audit quality as
they believe poor audit quality is observable
with reflection if there is any litigation or
claim for malpractice against the audit firm.
U.K.’s Financial Reporting Council (FRC)
(2008) identified five drivers for audit
quality. They are: (1) the culture within an
audit firm; (2) personal attributes and skills
of audit staff and audit partners; (3) the
usefulness and reliability of audit reporting;
(4)the effectiveness of the audit process; and
(5) factors affecting audit quality outside the
control of auditors
Francis (2011) proposed another framework
based on a structural view of the audit
environment. Francis (2011) argues that six
levels of analysis influence audit quality.
They are: (1) audit inputs, (2) audit processes,
(3) audit industry and audit markets, (4)
accounting firms, (5) institutions, and (6)
economic significances of audit outcomes.
The various frameworks for audit quality
highlight that both theoretical and practical
perspective the evaluation of audit quality is
a multidimensional challenge. According to
Palmrose (1988) actual audit quality can be
measured by litigation activities. Krishnan &
Schauer’s (2000) measured audit quality
based on how audited financial statements
comply with the Generally Accepted
Accounting Principles. According to
Krishnan and Schauer (2001), material
deviation from the standards reflects poor
audit quality. This study measures audit
quality by examining that whether thirty
listed banks have deviated from the standards
that are set by Bangladesh Bank.
3.6 Relationship between Audit Quality and
Share Price
Lev (1989) stated that the value of company’s
share represent the value of its future
earnings. Therefore, it explains that why
investors have vital interest in companies
earnings report. Subsequently, to match
predetermined target company managers use
certain kinds of strategies to manipulate their
earnings that help to attain smooth income,
triumph high earnings level and power the
company’s stock price (Schipper, 1989;
Healy & Wahlen, 1999). Audit provides
shareholders and potential shareholders
reasonable assurance that management’s
financial statements are free from material
misstatements (Watts & Zimmerman, 1986).
Audit quality can influence the quality of
reported earnings by effectively constraining
earnings misrepresentation and financial
statement manipulation (Badawi, 2008;
Enofe, 2010). Since, investing decision on
stocks heavily relied on audited financial
statements; investors depend on auditors to
confirm the accuracy and completeness of
financial information (kane, 2004).
According to Levitt, (1998) audit quality is
recognized to influence financial reporting
and strongly impact on investors’ confidence.
Eventually that affects the share price. Some
prior studies (Teoh & Wong, 1993; Heninger,
2001, Balsam, Krishnan & Yang, 2003) have
attempted to establish a distinct relationship
between audit quality and share prices of a
company.
3.7 Share Price
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Share price is the price of a single saleable
share of a company. Generally, when a
company wants to raise capital, going public
is one way to raise capital. Here, company
needs to issue IPO (initial public offering).
After issuing IPO, trading goes to the
secondary market. Once trading starts, share
prices are largely depend on the supply and
demand. Some issues like long-term earning
potential, good audit quality, favorable news
may attract more buyers, and sooner or later
it will increase the share price. On the
contrary, a company with poor financial
performance, poor audit quality may lessen
the shareholder’s confidence, which will
induce more shareholders to sell shares. As a
result, supply of the share will rise and
demand will fall. Ultimately, share price will
fall.
Figure 1: Conceptual framework
4. Research Questions
Q1: Is there any relationship between auditor
independence and audit quality?
Q2: Is there any relationship between auditor
ethics and audit quality?
Q3: Is there any relationship between audit
quality and share price?
5. Research Hypotheses
H01: There is no relationship between auditor
independence and audit quality
Ha1: There is a relationship between auditor
independence and audit quality
H02: There is no relationship between auditor
ethics and audit quality
Ha2: There is a relationship between auditor
ethics and audit quality
H03: There is no relationship between audit
quality and share price
Ha3: There is a relationship between audit
quality and share price
6. Methodology
The main purpose of my data collection is to
assess the impact of auditor ethics and auditor
independence on share price. I used
secondary source to collect my data. I
collected data from annual reports, journals
and websites. I collected audit report, loan
outstanding and loan provision data from
annual reports of the year 2013, and share
price of listed banks from DSE website. I
used audit report, loan outstanding and loan
provision data to measure the audit quality.
Afterwards, I used share price data to
determine whether there is a relationship
between audit quality and share price.
7. Research Design
Research can be designed in seven
categories. These are given below:
Auditor
Independence
Auditor Ethics
Audit quality Share price
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i. The Method of Data Collection: I used
monitoring method to collect data. This
is because I inspected bank’s annual
report and DSE website without
attempting to elicit response from
anyone.
ii. Researcher Control of variables: In this
research, I have no control over the
variables. I actually report what is
happening. So this research is
considered as ex post facto design.
iii. Degree of Research Question
Crystallization: Between Exploratory
Studies and Formal Study, my research
design could be categorized as Formal
Study. This is because the purpose of
my research is not to develop any
hypothesis or question for the further
future research. The goal of my
research is to test the hypothesis.
iv. The Purpose of Study: The purpose of
the study is categorized as Descriptive.
In this research, I am trying to measure
the effect of audit quality on share
price.
v. The Time Dimension: Time dimension
is categorized as Cross-Sectional
Study. Cross-Sectional Study is carried
out once and represented a snapshot of
one point in time, which is very much
similar to my research. I have used
2013 year’s data to do this research.
vi. The Topical Scope: The topical scope
for my research is statistical study
because I use statistical data to test my
hypotheses.
vii. The Research Environment: Among
Field Setting, Laboratory Research and
Stimulation; my research environment
is specified as Field Settings. This is
because; I conduct the survey within an
original environment.
8. Sampling
Sampling is the act, process, or technique of
selecting a representative part of a population
for determining parameters or characteristics
of the whole population. For doing this
research, I have selected thirty listed banks
among the 307 listed companies of DSE.
I used non-probability sampling procedure
because I did not randomly select my sample.
In non-probability sampling, I followed
purposive sampling procedure. This is
because; I selected thirty listed banks for their
unique characteristics.
9. Data Analysis and Findings
In banking sector there is lack of
transparency in loan sanction and repayment
process. Bangladesh is trying to maintain
their banking regulation and accounting
standards to the international standard. In
1989, Bangladesh Bank introduced loan
classification and loan provision with a view
to attain international standard. From 1
January 1999, revised policy for loan
classification and provision was introduced.
Bangladesh Bank classified loan as
unclassified, substandard, doubtful and bad.
Table 1: Rates of provision
If a continuous credit or demand loan remains
non-performing for six months, it is
considered as substandard loan. It is
acknowledged as doubtful, if it remains non-
performing for nine months. It is recognized
as bad/loss when loan remains non-
performing for twelve months or more. In
case of term loan that is repayable within a
Classification Rate of provision
%
Unclassified 1
Sub-standard 20
Doubtful 50
Bad/Loss 100
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maximum period of five years, if any
installment is not paid within the time
equivalent of six months then it falls under
the substandard classification. If the time of
unpaid installment is equivalent to twelve
months and eighteen months, then it is taken
into account as the doubtful and bad/loss
respectively. Rates of provision for classified
loans are given in table 1.
Total amount of loans and advancement of
thirty listed banks is BDT 3.3trillion. Among
them BDT 166billion is classified loan that is
5.05% of total amount (table – 2). These
thirty-listed banks require keeping provision
for their classified loan. However, among the
thirty listed banks, three banks did not keep
adequate provision in the year 2013.
Table 2: Classified loans, loan provision and share price
Bank Total loan
(BDT mn)
total
classified
(BDT mn)
Provision
required
(BDT mn)
Actual
provisio
n (BDT
mn)
Provision
shortfall/
surplus
(BDTmn)
*Share
price
AB Bank 140,121.30 4,636.87 3,620.97 3,980.33 359.36 25.20
Dutch Bangla Bank 105,936.99 4,175.63 3,356.549 3,356.55 0.001 87.00
Bank Asia 104,911.26 5,878.79 4,112.63 4,112.63 - 17.90
Brac Bank 119,514.55 7,600.70 5,728.62 6,988.44 1,259.82 25.80
The City Bank 89,878.63 7,251.01 2,944.00 3,645.23 701.24 16.10
Dhaka Bank 99,595.88 4,136.69 2,287.42 3,141.99 854.58 19.50
Southeast Bank 135,690.09 5,350.24 3,860.90 3,877.00 16.09 19.70
Eastern Bank 102,910.22 3,998.58 1,929.24 1,946.81 17.57 28.10
United Commercial
Bank Ltd
148,664.86 4,427.65 1,662.68 2,122.87 460.19 27.40
First Security Islami
Bank
114,601.80 2,483.82 976.48 1,005.1 28.62 11.10
ICB Islamic Bank
Limited
9,788.56 7,175.92 4,148.31 4,148.31 - 5.10
IFIC Bank 84,110.39 3,168.08 2,069.99 2,432.36 362.37 24.80
Table 2 Continued
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Bank Total loan
(BDT mn)
total
classified
(BDT mn)
Provision
required
(BDT
mn)
Actual
provision
(BDT
mn)
Provision
shortfall/
surplus
(BDTmn)
*Share
price
Rupali Bank 106,907.82 17,998.51 6,899.22 6,899.22 - 60.7
Social Islami
Bank Limited
84,776.29 4,593.33 2,773.38 2,773.38 - 11.2
Mercantile Bank
Ltd.
97,688.50 4,659.75 3,360.97 3,420.05 59.08 15.3
Mutual Trust
Bank
58,010.82 2,155.77 1,666.01 1,933.97 267.96 18.1
Uttara Bank 64,829.77 5,209.55 1,357.66 1,419.49 61.83 24.4
Standard Bank 74,049.89 2,599.27 2,339.89 2,339.89 - 11.4
One Bank Ltd 76,573.35 3,740.75 2,617.10 2,617.10 - 12.9
Premier Bank 52,800.46 3,021.34 1,155.87 1,155.88 0.01 10.4
Prime Bank 153,588.76 7,814.50 5,423.02 5,433.24 10.22 24
Trust Bank 79,279.58 2,470.36 907.65 907.66 0.01 14.9
Pubali Bank 136,940.46 8,136.10 6,281.46 6,282.91 1.45 26.6
Shahjalal Bank 85,706.61 5,542.69 3,103.23 2,246.32 (856.91) 11.3
NCC Bank 88,146.51 4,862.41 2,663.39 2,663.39 - 11
Exim Bank 143,847.38 5,279.94 2,755.39 2,755.39 - 10.3
Al-Arafah Islami
Bank
121,298.99 3,598.83 1,128.03 1,128.03 - 14.2
National Bank
Limited
151,098.99 4,898.83 1,612.58 1,461.48 (151.1) 11.5
Islami Bank 406,804.56 14,941.90 9,037.05 9,037.80 0.75 24.9
Jamuna Bank 67,699.38 5,133.75 3,202.00 2,902.00 (300) 12.3
Total 3,305,772.65 166,941.56
*as of 2nd July, 2014
This under provisioning for classified loan
ultimately leads to overstated profit. This is
because provisioning is considered as an
expense. According to the Banking
Companies Act, Auditors are required to state
unambiguously whether financial statements
of the bank have been prepared complying
with the regulation issued by Bangladesh
Bank. The firms those were auditing these
three banks were certifying that these three
banks’ financial statements presented true
and fair view of these banks’ financial
position. In this case, audit firms who audited
these three banks have compromised their
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integrity, objectivity and professional
skepticism. Therefore, these audit firms are
not independent in appearance. These data
also imply that these audit firms were not
upholding their ethical principles while they
were doing audit to these three banks.
Therefore, these audit firms were not
independent and ethical. For this reason, they
did not report the misstatement that upset the
audit quality of these three listed banks. Rest
of the twenty-seven listed banks did properly
maintain the provision requirement. Audit
firms, who audited these banks, reported that
financial statements of these banks
represented true and fair view of these banks’
financial position. Considering the loan
provision data, these audit firms were
independent and maintained ethical values.
Moreover, there were no discrepancies
between the audit report and financial
statements of those twenty-three banks in
view of the loan provision data. Therefore,
the audit quality of these twenty-seven listed
banks was decent in respect of loan provision
data.
Therefore, true hypotheses are:
Ha2: There is a relationship between auditor
ethics and audit quality
Ha1: There is a relationship between auditor
independence and audit quality
Among the thirty listed banks, three banks’
audit quality was poor. These banks’ average
share price was BDT 11.7 on July 2 2014. On
the contrary, rest of the twenty-seven listed
banks’, whose audit quality was considered
satisfactorily fair in terms of the loan
provision data, average share price was BDT
22.15 on July 2 2014 that is more than double
of the poorly audited banks (Figure-2).
Figure 2: Average share price
Therefore, true hypothesis is:
Ha3: There is a relationship between audit
quality and share price
10. Limitations
The results of this study are solely dependent
on the numerical values. So, human
perception is very low in this study.
Moreover, this research portrays the
relationship between audit quality and share
price only for the banking sector among the
twenty-two sectors of Bangladesh.
11. Suggestions for Further Research
This study only gives insight about the audit
quality and relationship between audit quality
and share price of banking sector. Therefore,
further research can be done by evaluating
the audit quality of other sectors like Food
and allied sector, cement sector etcetera. This
research is based on the cross sectional data.
So, this research can be extended by using
longitudinal data.
12. Conclusion
Auditors are required to disclose any matter
regarding the violation of rules and
regulations. In this case, three banks
overstated their profit by violating loan
provision requirements that are set by the
supreme banking authority of Bangladesh.
Auditors of these three banks compromise
11.7
22.15
0
5
10
15
20
25
Banks with
poor audit
quality
Banks with
satistfactory
audit quality
Shar
e P
rice
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their independence and ethics by reporting
that those banks’ financial statements present
true and fair view of their financial position
rather than reporting the violation, and this
violation lowers investors’ confidence
resulting low share price. In order to sustain
investor’s confidence, auditors must respect
the standards that are imposed by the
authorities.
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