The Effect of Firms’ Operating Characteristics on the Relationship between Financial Statements Comparability and Audit Effort: Evidence from Listed Firms on the Egyptian Stock Exchange

The purpose of this paper is to study and examine the effect of financial statements comparability on audit effort. In addition, the study investigated the effect of some of the firms’ operating characteristics as moderating variables on the previous relationship. Simple regression and multiple regressions were used to test the research hypotheses. The sample used in the current study consists of 105 non-financial firms listed on the Egyptian stock exchange for the period from 2016 through 2019.
The researcher concludes that under the fundamental analysis, financial statements comparability has a significant negative effect on audit effort. In addition, the negative effect of financial statements comparability on audit effort varies according to some, but not all, of firms’ operating characteristics under test. The study finds that (a) the interactive effect between firm size and financial statements comparability was significant and positive on audit effort, (b) the interactive effect between leverage ratio and financial statements comparability was insignificant on audit effort, (c) the interactive effect between current ratio and financial statements comparability was significant and negative on audit effort, (d) the interactive effect between quick ratio and financial statements comparability was significant and negative on audit effort, (e) the interactive effect between return on assets and financial statements comparability was significant and negative on audit effort.
The results also showed that under the additional analysis, (a) firm size has a significant positive effect on audit effort, (b) leverage ratio has a significant positive effect on audit effort, (c) current ratio has a significant negative effect on audit effort, (d) quick ratio has a significant negative effect on audit effort, (e) return on assets has a significant negative effect on audit effort. Finally, the study concluded that under the sensitivity analysis, the results of the sensitivity analysis largely agree with the results of the fundamental analysis. This indicates that the results of the sensitivity analysis largely support the results of the fundamental analysis.