THE INFLUENCE OF THE ECONOMIC DEPENDENCE AND CLIENT IMPORTANCE ON AUDIT QUALITY: EVIDENCE FROM JORDAN

Abstract

This paper investigates the effect of different levels of economic dependency (Audit fees, non-audit fees, and audit tenure), compotation effect of audit fees and non-audit fees, audit fees and audit tenure, and non-audit fees and audit tenure, and client importance (the ultimate effect of audit fees, non-audit fees, and audit tenure) on audit quality among Jordanian companies during Arab spring. Audit quality is represented by earnings management, which is calculated through discretionary accrual. A fixed effect panel data analysis was employed to examine the hypothesis using 98 Jordanian-listed companies with the total observations of 686, during the Arab spring period from 2013 to 2019. . This paper utilizes Power dependency theory  to support the study hypotheses. The findings show that fees, economic dependence, and client importance weaken the auditor’s independence. The effect becomes strongly aligned with the increase in economic dependency. The findings support the power dependence theory that the economic dependence relationship may harm audit quality. This study is novel in examining the economic dependence and client importance by differentiating the degree of dependency, which is either individual fees and tenure, a collective effect of audit and non-audit fees and/or tenure, and a joint ultimate impact of the audit fee, non-audit fee, and tenure in  Jordan post the Arab Spring. Our findings have substantial implications for policymakers, and regulators, to set up a new rule of regulation to protect and strengthen auditor independence while practicing in Jordan.