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Recent corporate financial scandals have highlighted the role of corporate governance
mechanisms and specifically that of external auditors who are considered a guarantor for the
reliability of financial reporting. In fact, the external auditor, who is characterized by his
independence and competence, plays a crucial role for investors and financial statement users
in their decision making. The choice of a higher quality auditor seems to be very important and
it is in most cases the responsibility of the shareholders. In fact, some companies require a
certain level of quality for the certification of annual accounts and tend to choose a higher
quality auditor, while other firms are not interested in such quality.
The assessment of audit quality has attracted considerable attention of the researchers
because of the lack of consensus on this issue (Carcello et al., 1992; Dumontier et al., 2006; and
Manita, 2008). Many features are used such as firm size, reputation, experience in audit,
industry specialization and the extent to which Information and Communication Technologies
(ICT). This differentiation of quality audit has established a strong desire to understand the
phenomenon of selection of quality external auditor in the Tunisian context. Indeed, it is quite
recognizable that the choice of a higher quality auditor is advantageous for companies;
however it can be used in an opportunistic manner.
Studies related to the choice of external auditor have been conducted mainly in the US
context (Chow, 1982; Copley and Douthett 2002; and Hudaib and Cooke, 2005). However, there
are few empirical studies that examine the decisions of the external auditor choice in developing
countries despite the critical impact of such decision on the credibility of firms’ financial
reporting.
The efforts of the Tunisian accounting and legal authorities to strengthen the role of the
external auditor are expressed through the promulgation of Law No. 2005-96 of October 18,
2005 on strengthening financial relations securities.1 In addition, the scarcity of research
concerning the impact of corporate governance mechanisms on the demand for higher audit
quality in the Tunisian context led us to deal with this subject, although most of the Tunisian
firms are considered as Small and Medium Firms (SMF), which in turn can affect the probability
of choosing a reputed auditor. In our study, we deal with the following two questions: What
are the attributes of audit quality? How do corporate governance mechanisms impact the
demand for a reputed auditor?
First, our study contributes to the previous literature by addressing the problem of demand
for higher quality auditor in the normal operating conditions. Second, our research adopts an
original procedure PCA to assess audit quality by exploring the impact of some variables (size,
reputation, and experience in audit, industry specialization and the degree to which ICT are
used) on the assessment of audit quality rather than using the simple dichotomy (Big Four/Non-
Big Four). Finally, it checks whether the customer governance mechanisms are likely to motivate
the choice of a reputed auditor in the Tunisian context.
The paper is organized as follows: it discusses the theoretical background of the relationship
between corporate governance mechanisms and the choice of higher quality auditor, followed
by the presentation of the research methodology and empirical models. Subsequently, it
discusses the results, and finally, the conclusion is offered with some limitations.
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