The Effect of the Audit Committee Members’ Gender Diversity on the Relationship between the Auditor's Narcissism and the Audit Report Readability: Evidence from Firms Listed on the Egyptian Stock Exchange

The auditor's report is a crucial communication tool that helps users to be more confident in the published financial statements. Given the modifications made to the audit report, it becomes a necessity to address its readability. Therefore, this research aims to study and investigate the impact of the auditors’ narcissism on the readability of their historical annual financial statements audit report, in addition to the effect of female representation in audit committee members as, an interactive variable, on this relationship. The Ordinal Logistic Regression method was used, as this type of regression is used in the case of dividing the dependent variable into ordinal groups and the independent variable takes the value (zero or one), where the study utilized a sample of 105 non-financial companies listed on the Egyptian Stock Exchange. A total of 630 observations were collected for firm-year data spanning from 2017 to 2022.
Based on the basic analysis, the research concludes that an auditor's narcissism has a significant and negative impact on the readability of the audit report, and that the extent of this impact varies based on the percentage of female representation among the members of the audit committee. Furthermore, the research’s additional analysis found an agreement between the results of both the control and interactive approaches, indicating that the significant negative effect of an auditor's narcissism on the readability of the audit report varies based on the percentage of female representation among the audit committee members of firms under study. Furthermore, the outcomes of a sensitivity analysis closely correspond to those obtained from the basic analysis.
Overall, improving the readability of the auditor's report, by considering the auditor’s personality, which may be reflected in the way he performs the audit process and writes the final audit report, as well as the diversity in audit committee members, can contribute to better decision-making by stakeholders and ultimately benefit the audit profession and those interested in developing the financial reporting environment in emerging countries.