The Interaction Effects of Audit Report Timing and Audit Fees on Audit Quality: An Applied Study in the Iraqi Banking Sector

Abstract

This study aims to analyze the impact of integrating the relationship between audit report lag and audit fees on audit quality (measured by accruals quality using the Dechow and Dichev model, 2002) employing a modern methodology known as Interaction Effects. Given that previous accounting studies have focused on examining the impact of external audit quality indicators and determinants by analyzing the effect of each indicator separately, the current study is significant in its use of a methodology that allows for clearer and more accurate results, especially when an indicator has a weak (or no) effect in different economic environments or specific company circumstances. Thus, this integration enables the indicator's impact to be revealed more clearly and accurately. A sample of 19 private banks that were listed on the Iraq Stock Exchange between 2016 and 2023 were included in the study. The results confirmed the integration methodology that while the audit fee variable by itself had a negligible effect on audit quality in the study sample’s banks, when it interacted with the audit report lag variable, it had a significant impact on the efficacy and quality of the audit process. Accordingly, and based on these results, the study recommends the significance of reevaluating the procedures for determining auditor's fees in accordance with Iraqi legislation. It also suggests encouraging Iraqi banks to reduce the number of days required to issue the auditor's report, while strengthening the role of regulatory bodies such as the Securities Commission and the Central Bank of Iraq in monitoring the quality and timeliness of financial reports.