What are the Determinants of Appointing an External Auditor with Forensic Accounting Services? A Cross-Country Study

Abstract

Background: This paper presents a cross-country study, including Saudi and Jordan firms, analysing the effect of firm and board characteristics on the decision-making process of appointing an external auditor with forensic accounting services. By understanding the determinants, organisations can make informed decisions about when and how to bring in forensic auditors, thus strengthening their financial integrity, reducing risks, and improving stakeholder confidence.

Objective: The main objective was to understand the factors influencing the appointment of an external auditor with forensic accounting services.

Methodology: The research uses a cross-sectional design and data from annual financial reports of companies listed on the Tadawul and ASE in 2021. The population includes 260 audit offices and companies from the industrial and service sectors. Logistic regression analysis examined the association between explanatory factors and the likelihood of binary dependent variables. This research paper uses statistical software for data analysis (STATA) as the approach to data analysis.

Results: The study's results showed that firm size, age, and corporate governance strategy determine the appointment of an external auditor. Using sub-samples suggests that leverage is an essential determinant of appointing external auditors with forensic accounting services in Jordan but not in Saudi Arabia. Also, firm size, firm age, and board size are essential determinants of appointing external auditors with forensic accounting services in Saudi Arabia but not Jordan.

Unique Contribution: Information in this study could be useful in guiding scholars in their study of organisational behaviour.

Recommendation: Further studies could explore the role of corporate governance mechanisms in enhancing the appointment of external auditors with forensic accounting services.