Conceptualising a framework of trust-based auditing by focusing on service quality, scepticism and ethics.

A number of financial scandals exposed over the past years have been perpetrated with the active involvement of auditors, negatively affecting the perception of trust and usefulness of the audit. The scope of this research is to understand auditors’ and clients’ perceptions of trust in the audit and identify factors to restore trust. Such a research has not yet been conducted in Malta, characterised mainly by small family businesses where all registered commercial companies, regardless of size, need to have audited financial statements. This study conceptualises a framework of trust-based auditing, based primarily on factors such as ability, benevolence and integrity. Perceptions and opinions from auditors and their respective clients were collected using a questionnaire. The information collected determines whether a framework based on service quality, ethical behaviour and professional scepticism leading to audit usefulness could be established and to determine a set of client attributes perceived to increase trust. Results revealed that whereas auditors perceive that service quality, ethical behaviour and professional scepticism increase trust, their clients, on the other hand, opined that service quality is inversely linked to reputation and the latter is inversely related to trust. Auditors perceive all observable factors as equally and positively influencing service quality, ultimately increasing trust. Clients perceive reputation as a substitute to trust and service quality as a substitute for reputation. They also expressed the view that increasing the independence of auditors will increase unethical behaviour. Findings revealed that auditors and clients agree that assessing the company’s creditworthiness and performing a review for possible bias, fraud or error, increases audit usefulness, and to a lesser extent trust. A set of management attributes perceived by both auditors and clients to increase service quality and ultimately trust in the audit were also identified. These attributes mainly include the importance of adequate support by management and accurate record keeping by the client.