The effect of the economic importance level of the audit client on the level of abnormal conservatism of the auditor attributable to the first and second types of audit error: An applied study on Egyptian listed companies

The auditor may encounter a set of factors that limit his ability to express an unbiased technical opinion regarding the honesty and fairness of the financial statements of the audit client, including, for example, increasing the level of economic importance of some audit clients, and to determine the extent to which the level of economic importance of the audit client affects the level of the auditor conservatism attributable to the first and second types of audit error, the current research aimed to use the measurement methods proposed by some previous studies to measure the two types of audit error, as they are the two sources of the auditor’s abnormal level of conservatism. The research also aimed at the theoretical analytical approach and the empirical test of the impact of the level of economic importance of the audit client on the two types of audit error.
To achieve the goal of the current research, the researcher relied on a sample of (744) views from companies listed on the Egyptian Stock Exchange. The probability of occurrence of two types of audit error was measured using the outputs of the prediction model for the level of conservatism of the auditor proposed in a study (Gul et al., 2013). The level of economic importance of the audit client was measured using the natural logarithm of audit fees, based on Read (2015) and Callaghan et al. (2009). This variable was also measured by dividing the sample observations according to the size of the accounting and auditing firm and according to whether the sample observations are traded in the main stock market, or in the Nile Stock Exchange, according to the measurement method proposed by (Chi et al., 2012).
The results of the current research, in light of the use of two methods of measuring the level of economic importance of the audit client, indicated the insignificant effect of the level of economic importance of audit clients on the occurance possibility of two types of audit error. The results of testing the two research hypotheses in their alternative, non-directional form show that the prior expectations about the significance level of the relationship of the economic importance level to audit clients with the possibility of two types of audit error were not supported by the experimental results when using the first and second measurement methods to measure the level of economic importance of audit clients.