Analyzing audit service quality using SERVPERF model

480 International Conference on Finance, Accounting and Auditing (ICFAA 2018) November 23rd, 2018 Hanoi City, Vietnam Analyzing Audit Service Quality Using SERVPERF Model Nguyen Thi Mya aNational Economics University Submission day: 30/10/2018 Review day: 10/11/2018 Acceptance day: 15/11/2018 Abstract Vietnam's economy maintains strong growth. The stock market is playing important role in the development of attracting capital channels for economic organizations. The quality of financial information published by enterprises can be seen as one of key factors concerned by investors and other stakeholders. Independent audit firms can contribute to the quality improvement of financial information by providing financial statements audit service that enables interested users to access the reliable and reliable financial information. However, financial statements audit service quality in Vietnam is still a controversial matters. Therefore, This research arms to provide readers with an objective view on current financial statement audit service quality in Vietnam. The researcher collected data by using questionnaires and applied the SERVPERF model to assess financial statement audit service quality. Keywords: Audit service quality, Financial statement audit, SERPERF model 1. Introduction After more than 30 years of reform since the Sixth Party Congress in 1986, Vietnam has emerged from the economic crisis, achieving rapid growth, strengthened its infrastructure and created a premise for the new stage of development, industrialization and modernization. The country will soon become a modernly industrialized country by 2020. These are two of the five achievements Vietnam has achieved over 30 years of innovation. Together with the country's general development achievements, audit was officially launched in 1991 - marking a solid step for the development of the market economy in Vietnam. The establishment of audit in Vietnam is an inevitable requirement of the market economy. As part of the market economy, audit has been formed and developed over the 481 past 25 years, which is not only an indispensable and objective demand, but also an essential component of the system of macroeconomic management tools for finance – economy in general. Independent audit is the earliest established audit organization in Vietnam. According to the former Independent Audit Development Strategy, there had been expected to establish 100 audit firms; but in 2010 there were 151 audit firms (over 50%) including 141 limited companies, 5 100% foreign invested audit firms, 2 foreign invested audit firms and 4 partnerships. Currently, according to data reported by the Ministry of Finance - the managing body of independent audit activities in Vietnam, there are over 160 audit firms and nearly 2,000 certified auditors. By service quality, the status of independent audit firms is enhanced by the increasing diversity of customers and the society’s interest in independent audit. 2. Results and Discussion The researcher conducted a survey on audit service quality by submitting questionnaires via the internet (Google docs toolbar) and sending questionnaires directly to 200 audit customers. Survey results are analyzed as follows: Table 1: Questionnaire distribution results Content No. of questionnaires No. of respondents No. of valid answer sheets Response Rate Internet 150 77 77 51.3% Direct distribution 50 35 35 70% Total 200 112 112 56% (Source: Synthesis of the Author) With 112 respondents divided by type of enterprises using financial statement audit service, and main purpose when using the audited financial statements and type of audit firm from Table 2 to Table 4, specifically: Table 2: Types of enterprises using financial statement audit service Type of enterprises No. of answer sheets Ratio % Listed enterprises 30 26.79 Unlisted state-owned enterprises 25 22.32 Unlisted private company 40 35.71 Foreign invested company 17 15.18 Total 112 100.00 (Source: Synthesis of the Author) 482 Table 3: Sample structure by main purpose when using the audited financial statements Main purpose of use No. of answer sheets Ratio % Mandatory requirements of the state 65 58.04 Completion for tax inspection purposes 20 17.86 Completion for administration purposes 5 4.46 Completion of tender documents 17 15.18 Others 5 4.46 Total 112 100.00 (Source: Synthesis of the Author) Table 4: Sample structure by type of audit firm providing audit service Type of audit firm No. of answer sheets Ratio % Big4 Audit Firms 15 13.39 Non-Big4 Audit Firms 97 86.61 Total 112 100.00 (Source: Synthesis of the Author) Thus, the author believes that the above sample is appropriate. In assessing financial statement audit service, the researcher used SERVPERF model revised by Cronin and Taylor (1992) (adapted from SERVQUAL model created by Parasuraman, 1988) consisting of five variables: reliability, responsiveness, assurance, empathy, tangibles through 22 observations. Customers will evaluate on a 5- point Likert scale for each variable ranging from 1 referring to totally disagree to 5 referring to totally agree. The following is an assessment of financial statement audit service quality. • Firstly, Reliability of financial statement audit service quality Reliability of financial statement audit service provided by independent auditors is reflected in five observable variables: - Audit service quality is as agreed in the signed contract - Audit service quality is improved over time. - Audit fee is calculated accurately and reasonably. - The audit firm always ensures information confidentiality. - Time for service provision is right as committed. The results are shown in the following table (Figure 1) 483 Figure 1: Evaluating Reliability of financial statement audit service quality (Source: Synthesis of the Author) Throughout the survey, customers were satisfied with Reliability of service quality with mean of 3.8 to 4.4. In particular, customers appreciated that audit firms always ensure the confidentiality of information (highest mean at 4.4). However, customers did not very agree with financial statement audit service as per contractual commitment (lowest mean at 3.8). This partly reflects the current reality of financial statement audit service. As the development of financial statement audit service in the country now only complying with commitments stated in contracts. There are just some big companies such as BIG FOUR paying attention to improve service quality towards the direction of global integration. This will be a great barrier to Vietnam's deep integration in the future. • Secondly, Responsiveness of financial statement audit service quality The level of Responsiveness of financial statement audit service provided by independent auditors is reflected in four observable variables: - The audit firm quickly responds to customers’ questions and complaints - The audit firm quickly assists customers when necessary - Auditors are ready to help at anytime and anywhere - Auditors provide other assurance services as required by customers The results are shown in the following table (Figure 2) 3.8 4 3.9 4.4 4.1 3.5 3.6 3.7 3.8 3.9 4 4.1 4.2 4.3 4.4 4.5 Audit service quality is as agreed in the signed contract Audit service quality is improved over time. Charges are calculated accurately and reasonably. The audit firm always ensures information confidentiality. Time for service provision is right as committed. 484 Figure 2: Evaluating Responsiveness of financial statement audit service quality (Source: Synthesis of the Author) Throughout the survey, customers were satisfied with Responsiveness of financial statement audit service with means of 3.9 to 4.2. In particular, customers believed that variable: ‘The audit firm quickly responds to customers’ questions and complaints’ achieves the highest mean (4.2). This totally meets with professional behaviors of audit service as well as the attitudes and responsibilities of audit firms and auditors. However, customers did not very agree that that auditors provide other assurance services (mean of 3.9). This will also greatly affect the growth and development of financial statement audit service. Audit firms should consider increasing other assurance services such as corporate governance, information technology, human resources, etc. through a team of professional, diverse and dynamic employees. • Thirdly, Assurance of financial statement audit service quality The level of Assurance of financial statement audit service provided by independent auditors is reflected in four observable variables: - Auditors have high qualification - Auditors have good job solving skills - Audit reports are highly qualified - Audit firms always guarantee the interests of customers The results are shown in the following table (Figure 3) 4.1 4.2 4 3.9 3.75 3.8 3.85 3.9 3.95 4 4.05 4.1 4.15 4.2 4.25 The audit firm quickly responds to customers’ questions and complaints The audit firm quickly assists customers when necessary Auditors are ready to help at anytime and anywhere Auditors provide other assurance services as required by customers 485 Figure 3: Evaluating Assurance of financial statement audit service quality (Source: Synthesis of the Author) Throughout the survey, customers were satisfied with the Assurance of financial statement audit service with means of 3.9 to 4.3. In terms of the factors affecting the Assurance of financial statement audit service, customers had the lowest appreciation towards the qualification of auditors and the quality of audit reports (mean of 3.9). Financial statement audit service is greatly affected by the qualification of auditors. This can be seen by evaluating audit service quality through previous factors such as low appreciation towards audit service quality as committed in contracts. In addition, customers also lowly appreciate the ability auditors in providing other assurance services, etc. • Fourthly, Empathy of financial statement audit service quality The Empathy of financial statement audit service provided by independent auditors is reflected in four observable variables: - Auditors are enthusiastic when consulting and guiding customers - The audit firm understands customer demand for audit service - Working time of the audit firm is convenient for customers - The audit firm deals with problems flexibly and suitably The results are shown in the following table (Figure 4) 3.9 4 3.9 4.1 3.8 3.85 3.9 3.95 4 4.05 4.1 4.15 Auditors have high qualification Auditors have good job solving skills Audit reports are highly qualified Audit firms always guarantee the interests of customers 486 Figure 4: Evaluating Empathy of financial statement audit service quality (Source: Synthesis of the Author) Throughout the survey, customers were satisfied with the Empathy of financial statement audit service with means of 4.0 to 4.3. This is also the group of factors with no mean below 4.0 (4.0 or higher). In terms of the five factors affecting financial statement audit service provided by independent auditors, Empathy is evaluated with the highest mean. This shows the great empathy of auditors and audit firms with customers. Empathy is clearly expressed through highly appreciation towards the ability of audit firms in dealing with problems in a flexible and suitable manner. Audit activities in general and independent audit in particular will require great support from customers. In practice, in audit planning, auditors and audit firms always have a very detailed, clear and specific discussion to ensure audit in compliance with time schedule. In addition, the discussion on audit time also receives a clear consensus of audit customers, which helps make the audit work very effective. When quickly interviewing chief accountants of state-owned customers that used audit service, they all believed that the time of independent audit was more appropriate, flexible and shortened than that of state audit. • Fifthly, Tangibles of financial statement audit service quality The Tangibles of financial statement audit service provided by independent auditors is reflected by five observable variables: - The audit firm’s office is clean and civilized - The audit firm well applies modern technology - Auditors wear neat and polite uniforms - Auditors are always friendly, polite to customers - The audit firm has many channels for collecting information The results are shown in the following table (Figure 5) 4.1 4.2 4.3 4 3.85 3.9 3.95 4 4.05 4.1 4.15 4.2 4.25 4.3 4.35 Auditors are enthusiastic when consulting and guiding customers The audit firm understands customer demand for audit service Working time of the audit firm is convenient for customers The audit firm deals with problems flexibly and suitably 487 Figure 5: Evaluating Tangibles of financial statement audit service quality (Source: Synthesis of the Author) Throughout the survey, customers were satisfied with the Tangibles of financial statement audit service with mean of 4.0 to 4.3. In particular, customers had the highest appreciation towards the friendly and polite attitude of auditors (mean of 4.3). However, customers did not very agree that the audit firm well applies modern technology and the audit firm has many channels for collecting information. Currently, audit firms mainly receive opinions of audit information users via two basic channels: audit customers and state agencies (Department of Accounting & Auditing Regime - Ministry of Finance, Vietnam Association of Certified Public Accountants (VACPA) and State Security Commission of Vietnam). In addition, investors, individuals and organizations rarely make direct contact to audit firms and auditors. This is also one of the weaknesses to overcome to increase financial statement audit service quality. 4. Conclusions Based on the survey conducted by the researcher, financial statement audit service quality provided by independent audit firms has reached an average level with analysis on financial statement audit service quality for all factors affecting service quality (Table 5). In particular, the factor that is best appreciated by customers is Empathy. This is considered as the strength of financial statement audit service in particular and the audit industry in general. When customers trust services provided by independent auditors and at the same time find a great deal of empathy from auditors and audit firms (highest mean of 4.15 among variables of Empathy), thus enabling the audit of financial statements in particular and independent audit in general to develop the market and provide better service quality. Table 5: Summary of analysis on financial statement audit service quality 4.1 4 4.2 4.3 4 3.85 3.9 3.95 4 4.05 4.1 4.15 4.2 4.25 4.3 4.35 The audit firm’s office is clean and civilized The audit firm well applies modern technology Auditors wear neat and polite uniforms Auditors are always friendly, polite to customers The audit firm has many channels for collecting information 488 No. Independent variables Mean 1 Reliability 4.04 2 Responsiveness 4.05 3 Assurance 3.98 4 Empathy 4.15 5 Tangibles 4.12 (Source: Synthesis of the Author) Financial statement audit in Vietnam today is very well developed. Audit firms are constantly growing and continuously enhancing their audit programs as well as improving the quality of auditors to meet the requirements of customers and the market 5. References Alvin A.Arens, Randal J. Elder, Mark S. Beasley, Chris E. Hogan (2015), Audit and Assurance Services-An integrated Approach –Sixteenth edition, Pearson Education, Inc. Angela M. Woodland and J. 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