Corporate governance practices and auditor's client acceptance decision: empirical evidence from Egypt

Abstract

Purpose

The purpose of this paper is to examine the impact of corporate governance practices on auditors' decisions (judgments), especially, the client acceptance decision in Egypt, where corporate governance is neither mandatory nor legally binding.

Design/methodology/approach

The study was carried out through a 2×2 experimental design with a strong level of corporate governance (the board of directors and audit committee) versus a weak level of corporate governance (the board of directors and audit committee).

Findings

The findings of the study revealed that strong corporate governance is associated with more favorable acceptance judgments than weak corporate governance. These results suggest that the voluntary adoption of corporate governance practices by Egyptian companies enhances the quality of financial reporting process and, therefore, affects auditors' decisions (judgments).

Research limitations/implications

The results of the study should be considered by regulators in Egypt in order to begin the necessary actions for legally pending the Egypt Code of Corporate Governance, issued on October 2005. However, owing to the relatively small sample size, these findings should be interpreted with caution.

Originality/value

The paper contributes to the limited body of research on the impact of corporate governance on auditor's client acceptance decision by examining this impact in Egypt, where corporate governance is still not mandatory.

Citation

El‐Sayed Ebaid, I. (2011), "Corporate governance practices and auditor's client acceptance decision: empirical evidence from Egypt", Corporate Governance, Vol. 11 No. 2, pp. 171-183. https://doi.org/10.1108/14720701111121047