The Role of External Auditing in Reducing Creative Accounting Practices

Abstract

Concerning the auditor's independence, the ongoing debate in the literature is about how to balance the obligations and requirements faced by the auditor in the course of his audit duties with the related provision in place that authorizes additional non-audit services to be provided to the audited clients. Facing the audit profession today, ethical violations that have reduced the audit results in the aftermath of recent financial scandals, where it has already been proven that the world's leading auditing firms were involved in the financial corruption scandals, are the primary challenges auditors will face. The current study aimed to examine external auditingas a determining factor in influencing creative cost accounting. For this reason, the researchers used three different dimensions of external auditing to enable the study to measure creative cost accounting, first type of external auditing was general standard, second type of external auditing was fieldwork standard, third type of external auditing was reporting standard. The study consists of three independent variables (general standard, fieldwork standard, and reporting standard) and creative cost accounting as dependent variable. The present research applied quantitative research method via adapting questionnaire from academic sources. A random sampling technique was used, where all participants had equal chances of being selected for the sample. The researchers distributed 130 questionnaires, only 125 questionnaires were received and from 125 questionnaires only 117 questionnaires were completed properly. The findings showed that general standard has significant positive influence on creative cost accounting at 5% level. The results show that fieldwork standard has significant positive influence on creative cost accounting at 5% level. The results show that reporting standard has significant positive influence on creative cost accounting at 5% level. Moreover, all beta value is higher than .001. All models have very high adjusted R2 (.711, .671, .736, .644, and .723 respectively) indicating the ability of the models explaining the variation of creative cost accounting due to variation of independent variables is very high. The F-value shows that the explanatory variables are jointly statistically significant in the model and the Durbin-Watson (DW) statistics reveals that there is autocorrelation in the models.