Academy of Strategic Management Journal (Print ISSN: 1544-1458; Online ISSN: 1939-6104)


The Impact of Auditor Independence on Total Quality Management

Author(s): Ali Naeem Jasim Al Ghani

Total Quality Management (TQM) can increase the quality of processes in an organization and enhance customer satisfaction. Despite its value, only a few institutions that have tried with the approach have been successful. Improving auditor independence can help in the application of TQM principles. The study sought to establish the possible effects that the autonomy of the auditor can have on TQM. The objectives were: (i) to objectively assess the current state of auditor independence, and (ii) to analyze the relationship between total between auditor independence and TQM. Even though the relationship between the two elements has been suggested, the research toward this direction is limited. The study followed a comparative design in which the mean TQM indices were compared across two sets of firms. The first set comprised five companies from Forbes’ list of the most trustworthy firms. The second set included corporations that had reported financial scams in recent years. The TQM indices were computed based on employee reviews collected from Glassdoor and Indeed as well as information on the companies’ websites. In calculating the index, three aspects of quality, ethics, integrity, and trust were used. The stakeholder theory, which emphasizes the need for organizations to consider the interest of every stakeholder, was used as a guiding framework for the research. Regarding the first objective, despite the growing emphasis auditor independence, realizing its goals remain a challenge. The obstacles to achieving complete autonomy include the familiarity that may exist between auditors and their clients, the increase in the number of advisory services among accounting firms, management abdication, inconsistent report structures, and the self-inclination to soften disturbing reports. Concerning the second objective, the average TQM index for the first category of companies was 3.00 while the average for the second set was 3.004 indicating that companies that had better audit practices also had had higher TQM scores. The paired t-test showed that the difference in the means was significant (t=4.003; p=0.016). Based on the findings, the study recommends that: (i) organizations create a culture that encourages better disclosure to help identifying audit errors as well as questionable policies and practices and (ii) policymakers emphasize the need for all companies to practice auditor rotation to limit the compromises that result from the familiarity between auditors and their clients. 

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