doctoral thesis · the role of external auditing quality in financial failure forecasting page 2 of...

UNIVERSITY OF CRAIOVA FACULTY OF ECONOMICS AND BUSINESS ADMINISTRATION

DOCTORAL SCHOOL IN ECONOMICS DOMAIN ACCOUNTING

PhD student

AL-ARAJI FEDAA ABD ALMAJID SABBAR

DOCTORAL THESIS

ABSTRACT

THE ROLE OF EXTERNAL AUDITING QUALITY IN FINANCIAL FAILURE

FORECASTING

PhD supervisor, Prof.univ.dr. Constanţa IACOB

CRAIOVA 2019

THE ROLE OF EXTERNAL AUDITING QUALITY IN FINANCIAL FAILURE FORECASTING

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CONTENT ABSTRACT

Pag. KEY ARGUMENTS AND WORDS 3 THE CONTENT OF THE DOCTORAL THESIS 4 INTRODUCTION 6 STRUCTURE OF THE DOCTORATE THESIS 13 CONCLUSIONS, PROPOSALS AND DEVELOPMENTS FOLLOWING RESEARCH

23

REFERENCES 35


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KEY ARGUMENTS AND WORDS

In recent years, the increased risks to countries' economies and the failure of many companies have highlighted the need to increase the role of external audit in order to properly monitor the operations carried out and the use of appropriate means. But in developing countries, as is the case with Iraq, the audition due to the youth of the profession is perceived with fear, despite the particular vision and salutation it brings.

Although audit standards reflect a very standardized approach, there is an increasing need for judgment on complex phenomena whose accounting is difficult or ambiguous. The quality of the audit, which is mainly underpinned by the two dimensions of the auditor's independence and competence, must now integrate the auditor's judgment, ie a dimension that is based on competence and independence, but also includes other parameters related to the economic and normative environment and which refers to notions of responsibility and consensus. The issue of this paper is articulated around the external audit service in the Iraqi context and focuses in particular on the quality of audit demand to prevent corporate bankruptcy.

KEYWORDS

audit reporting quality failure governance factors information analysis models codes regulation communication empirical studies analysis future


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CONTENTS OF THE THESIS

Pag. ACKNOWLEDGMENT 3 ABSTRACT 4 INDEX ABBREVIATIONS 7 INDEX TABLES 9 GRAPHICAL REPRESENTATION INDEX 11 INTRODUCTION 13 Cap.1 THEORETICAL ASPECTS ON ROLE AND RELEVANCE OF

AUDIT 21

1.1. The concept of corporate governance and its evolution 23 1.2. The agent theory and information asymmetry 31 1.3. Auditing - Assessment, Inspection or Control? 33 1.4. Role and relevance of external audit 37 1.4.1. External audit – specializing the function for

information control within corporative governance framework

37

1.4.2. The external audit seen as a mechanism of corporative governance

43

1.4.2.1. The lack of other corporative governance mechanisms for mitigating the asymmetry of information

43

1.4.2.2. External audit – the heart of corporate governance 44 1.5. Corporate governance codes and their linkage to external

audit 47

1.6. Synthesis of the main ideas 51 Cap.2 AUDIT QUALITY ASSOCIATED WITH FINANCIAL

DIFFICULTIES. THE CASE OF IRAQ 53

2.1. Audit quality: definition and theoretical context 55 2.2. Factors that affect the quality of the audit. Empirical study 59 2.3. Financial failure of enterprises 69 2.3.1. Definition and description of the qualitative dimensions

of the phenomenon of financial failure of enterprises 69

2.3.2. Particularities of Islamic culture and its impact on the success or failure of the enterprise

78

2.4. Models to measure financial failure 81 2.4.1. Non-statistical or deterministic models for establishing

the financial diagnosis 82

2.4.2. Statistical methods based on techical of the multiple discriminat analysis (theory score) - from theory to practice. Empirical study

83


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2.5. The role of audit quality in preventing financial failure of enterprises in Iraq

96

2.6. Synthesis of the main ideas 102 Cap.3 MANAGEMENT OF ACCOUNTING RESULTS IN THE

FUNCTION OF QUALITY EXTERNAL AUDIT. CASE STUDIES IN IRAQ

106

3.1. Financial communication and its development in the governance process

108

3.2. The quality of the information and its security 113 3.3. Analysis of the management of accounting results in the

function of the external audit quality. Empirical study 122

3.4. The measure in which of accounting and audit professions ensure a correct management of results

127

3.4.1. Compatibility of the accounting environment with international accounting standards and their impact on the accounting profession. Empirical study

127

3.4.2. The difference between the results of the external audit and the expectations of the users of the financial statements. Empirical study

138

3.5. Synthesis of the main ideas 147 Cap.4 ASSESSING OF THE POSIBILITY OF THE ADOPTION AND

IMPLEMENTATION OF INTERNATIONAL AUDITING STANDARDS IN THE CONTEXT OF THE PROFESSIONAL AND LEGAL ENVIRONMENT OF IRAQ

152

4.1. The evolution of regulations on comprehensive reporting in auditing and the implications of corporate governance

153

4.2. Empirical study on the extent to which audit standards respond to the context of the professional and legal environment in Iraq

161

4.3. Impact of external audit ethics on information quality. Empirical study

171

4.4. Where does the future of the audit profession go? 179 4.5. Synthesis of the main ideas 183 CONCLUSIONS, PROPOSALS AND DEVELOPMENTS 185 ANNEXES 197 REFERENCES 219 LIST OF PUBLISHED SCIENTIFIC WORKS 235 Curriculum Vitae 242


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INTRODUCTION

A. THE NEWS AND THE IMPORTANCE OF THE RESEARCH THEME We are currently witnessing a gradual extension of the audit concept

to a whole range of domains. We are increasingly talking about external and internal auditing, financial, social and/or computer systems audit. Its promotion corresponds to a fundamental change in the governance models of advanced industrial societies.

The current generalization trend places auditing as a particular dimension of strong potential in social and organizational control so that we can assert that the whole of society can be described as an "audit firm" (Power, 1997). However, banning the scope of the audit is detrimental to its accuracy. The legal audit remains the background and is part of an extremely defined framework.

We think we should not fall into the title trap. Far from being a predictor of the future, the auditors need to assure that the financial statements are reliable and give a true picture of the financial position and performance of the firm and, as L.J.Lindley, L.J.Lopes and L.J.Kay have pointed out, they have the role of "Guard dogs" and not "cops". Therefore, the auditor can not be held responsible for any illegality that an enterprise's leadership can produce and/or are not suspected of producing.

In the stated context, the quality of the audit has become increasingly a tool for assessing the effectiveness of the work carried out. The hidden face of the lack of quality in audit, found in the literature as audit failure, may result in a catastrophic situation materialized in business failure.

The risk of entrepreneurial failure can be likened to an individual economic and social crisis that can set in a prelude to a collective economic and social crisis. As a corollary of the scientific approach, we try to prove that there is a direct link between the quality of the audit and the financial failure of the enterprise. This statement takes into account the fact that the quality of external audit contributes to the improvement of the company's value and the annual audit reports become a qualitative financial component of the reporting process, a guarantee that the financial statements reflect correctly the performance of the firm, even though the literature has separately studied the quality of the audit from of the firm's financial difficulties.

In our scientific approach, we are interested in the issue of trust in financial information represented by the existence of accounting manipulations through discretionary elements. In fact, managers, who mostly occupy trust positions, can falsify, hide or distort certain elements of accounting documents. In this case, the intervention of an auditor to verify the regularity, sincerity and fidelity of the disseminated accounting information stated by the directors should restore confidence between the company and its partners.

Many researchers have attempted to identify the nature of the association between the quality of external audit and the management of the accounting results. Most studies have concluded in favor of reducing


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accounting manipulation in companies audited by prestigious firms such as big six. Subramanyam et al. (1998), for instance, concludes that big six clients manage their results less by using discretionary accumulation. The study of Francis et al. (1999) is an extension of Subramanayam et al (1998) and confirms the role of external audit quality in reducing discretionary accounting adjustments.

Recent economic and financial scandals, such as the Anderson-Enron business, have raised a number of audit issues and, in particular, the issue of "audit quality". This last notion has been the subject of many studies. Indeed, the literature on the quality of the audit is marked by three research paradigms, according to the scheme below:

Source: Inès Gaddour – Contribution à l'étude de la qualité de l'audit: une approche fondée sur le management des équipes et le comportement des auditeurs, Thèse de doctorat, 2016, https://hal.archives-ouvertes.fr/tel-01435636/document, accesat februarie 2019

Paradigms of audit quality research

The first box includes experimental studies that examine the causes of audit failures that arise either from the auditor's incompetence (working methodology, behavior and judgment) or from his independence. The second box refers to the type of research that includes an empirical work that informs the understanding of the quality of the audit. This involves defining intrinsic or perceived proxies for the quality of the audit (company size, seniority, term of office, fees, etc.). Finally, the last box refers to critical research that tends to explain the reasons for not being able to respect the quality of the audit.

The aspects that emerged from the literature were the basis for the formation of an own research concept in which the three types of research were harmoniously intertwined, our aim being to highlight the role of external audit quality in preventing financial failure.

The importance of the research theme is detracting from the fact that, by placing us in a purely positivist post under the second paradigm, we have tried to explore the factors that explain the quality of external audit and its

https://hal.archives-ouvertes.fr/tel-01435636/document


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impact on financial failure, especially the lack of independence and the inadequacy of the methods faced by the audit profession.

B. RESEARCH METHODOLOGY Each research axis will be investigated on the basis of a deductive

reasoning, from general to specific, through a top-down approach, as outlined below:

Source: S.D.Șandor, Metode și tehnici de cercetare în știinţele sociale, suport de curs, online http://www.apubb.ro/wp-content/uploads/2011/02/Suport-MTCS-Ro.pdf, pp.59

Approaching the methodological doctoral thesis

In this context, the methodological perspective that we propose will appeal to the collection of qualitative and quantitative data. In the scientific approach undertaken, in order to carry out a study as relevant as possible and to elaborate a work that meets the required qualitative requirements, the research methodology will be based on a suitable theoretical and methodological support found in the literature in the form of scientific edited papers, published articles and studies, published statistical data and available research papers or doctoral dissertations. The information support will be complemented with international specific procedures of applicable standars in the research field , to which we will add a series of web pages we can refer to. Along with the theoretical documentation we will make on the basis of the mentioned information support, we will consider the practical documentation at the level of the companies that have published their financial statements in order to identify the real problems they are facing, collecting and selecting the necessary data for the analysis, in order to


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ensure their fairness and veracity, in which context we aim to carry out more empirical studies based on the Iraqi practice.

To complete the research and bring a contribution to the state of knowledge, we will use a number of specific research tools, such as: participative and nonpartisan observation, processing and collecting data, analysing data , synthesis, induction, deductive reasoning, comparison, case study and exemplifying, and for processing statistical data we will use appropriate programs such as SPSS and EViews.

C. OBJECTIVES AND CONTENT OF SCIENTIFIC RESEARCH The importance and timeliness of scientific research derives from the fact that the whole construction of the thesis is based on three fundamental questions, namely:

does the external audit follow the pace of evolution or lose its relevance in the context of the more intense penetration of new information technologies?

do we audit what is needed? what needs to be done to increase relevance and value of external

audit? Starting from this issue, we initiated the general research goal and for

its development we will consider four research axes which will constitute the chapters of the paper and in which we will describe and analyze four specific objectives, so that the complexity of the studied subject, the theoretical-applicative approaches which adds the importance of the main objective, contributes to the configuration of this specific objective based thesis (see diagram).

In the schematic presentation of the conception of the PhD thesis,can easily be seen how all four research axes will contribute to the development of the general objective.

The first research axis, entitled "Theoretical Aspects on the Role and Relevance of Auditing", has the role of answering the question whether research is significant and timely (up to date).

Nowadays, the auditor's involvement in a company is mandatory and its lack of attestation can be interpreted as negligence or even fraud on the part of management. Generally, management is the one to blame for financial loss as a result of a business failure, poor overall performance, or misleading information.

Recently, several rules and standards have been developed concerning accounting and financial reporting systems. IFAC has issued the International Auditing Standards (ISAs) in order to provide guidance to financial auditors. On the other hand, IFAC and IAASB focused on three activities, namely: raising companies 'and auditors' awareness of the guidelines on financial reporting tools; encouraging convergence with international financial reporting standards (IFRS); promoting good practice on auditing financial statements.


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Source: belongs to the author

Scheme of the thesis configuration according to specific objectives

At the same time, many countries, as is the case with Iraq, have


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issued recommendations to all economic and financial entities to improve the accounting system by enhancing transparency, as well as corporate governance in which audit plays an important role.

From the above-mentioned recital, we will focus on a number of aspects related to the role and relevance of external audit in the context of corporate governance, given that most of the problems encountered in audit professions do not stem from professional standards themselves but from how they are applied.

The second research axis, which we will call "Audit quality associated with financial difficulties. The case of Iraq " will have the argument of the hypothesis regarding the link between the quality of the audit and the performance of the enterprise, which will allow us to justify the actual anchoring of the doctoral thesis.

The hidden face of the lack of quality in audit, found in the literature as audit failure, may result in a catastrophic situation materialized in business failure.

The risk of entrepreneurial failure can be likened to an individual economic and social crisis that can set in a prelude to a collective economic and social crisis.

From this perspective, we will focus on risk factors of financial failure as a publisher of the crisis factor, highlighting models of financial failure measurement and their theoretical description.

As a corollary of the scientific approach, we try to prove that there is a direct link between the quality of the audit and the financial failure of the enterprise. We make this statement because, although the literature has separately studied the quality of the audit of the company's financial difficulties, the quality of external audit can improve the value of the firm and the annual audit reports become a qualitative financial component of the reporting process, a guarantee that the financial performance correctly reflects the performance of the firm.

In order to support the idea above, we will take into account the fact that shareholders and third parties are interested in three aspects of the concept of performance, namely:

absolute preformance measured by income, expenses, profit; the relative performance of assets, measured by profitability rates; the company's survival strength, measured by financial liquidity,

each aspect being measured by a score and, depending on its significance, we can appreciate the quality of the audit.

In other words, quality auditing is a function of performance, and the higher the quality of the audit, the better the performance of the firm.

The third research axis "Management of accounting results in the function of quality external audit. Case studies in Iraq " starts from the stage of knowledge based on specialized literature on financial communication and its evolution in the governance process in an attempt to characterize information in the context of bringing to the forefront the accounting research and management of the manipulation of the results.

Managing accounting results is an important lever in minimizing debt costs and maximizing company wealth, which is why specialty literature has recently devoted an important space to studying control factors related to


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corporate governance. The correct management of results and increased confidence in the

developed financial information, especially in emerging countries, as is the case with Iraq, is dependent on the extent to which the accounting and auditing framework is aligned with the international practice.

Taking into account that in Iraq accounting is built on two levels, we will try to draw attention on an empirical study on the compatibility of the accounting environment with international accounting standards and their impact on the accounting profession based on four assumptions:

• Ip.1 - compatibility of the accounting environment in Iraq with the application of IAS / IFRS;

• Ip.2 - Iraqi universities and institutions play a role in adopting International Accounting Standards;

• Ip.3 - there is a negative impact of the lack of IAS / IFRS on the real economy and the accounting profession;

• Ip.4 - there are a number of features and advantages of IAS / IFRS on financial statements By carefully analyzing the controversy between users of financial statements and external auditors, we will investigate the deepening of the difference of expectations between the two parties, considering that it is a consequence of the fact that users of financial information who do not have access to the entity's accounting data, depend on management information, which is why they are waiting for the external auditor to be warned of any failures that may arise. In this context, we will draw the conclusions and measures required, starting with reviewing the legislation on the implementation of corporate governance, developing regulations and instructions on adopting and implementing IAS / IFRS and auditing standards, and raising awareness of the importance of corporate governance and its mechanisms. The fourth research axis, that we will call "Assessing of the posibility of the Adoption and Implementation of International Auditing Standards in the Context of the Professional and Legal Environment of Iraq" , will address the most important issues faced by the external audit profession, that is our opinion about the future of the external audit profession and how it is improving its quality. Given the important role played by the external audit profession in providing its services to all relevant parties used for the performance of the profession, it is necessary to include sufficient, appropriate and credible information for users of this information based on the financial statements of companies for economic and financial decisions. The external audit profession in developing countries, as is the case with Iraq, has some weaknesses mostly in ensuring the system of practice of the external audit profession that does not keep pace with economic and financial developments in all countries of the world, and , and therefore also from Iraq. In this context, we will try to highlight some conclusions in order to make some recommendations taking into account the international standards of external audit, which are considered as guidelines for development.


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In the final part of the thesis, we will reserve a space for conclusions, proposals and further developments through which we will highlight the impact of audit quality in preventing the financial failure of businesses, in general, of those in Iraq in particular. In an attempt to provide a theoretical and applicative material useful to practitioners and auditors in Iraq, the seven empirical studies are based on information from articles published in renowned magazines from the UK, Germany, the United States, Australia and, in particular, from Romania.

STRUCTURE OF THE DOCTORATE THESIS

The doctoral thesis is characterized by a broad structure, consisting of introduction, four chapters, conclusions, proposals and further developments, annexes and bibliography, each of the four research axes established in the four chapters, contributed to the development of the general objective.

The first chapter of the PhD thesis entitled "Theoretical Aspects on the Role and Relevance of the Audit" is intended to create the theoretical and methodological framework of the audit because most of the problems encountered in audit professions do not derive from the professional standards themselves but from the way which are applied.

From the context of the first chapter, we retain some ideas through which external audit is placed within corporate governance.

Reactions to the increasing number of financial scandals in recent years, caused by errors and especially by financial-accounting frauds, raise awareness and increase the interest in what are effective forms of governance and effective governance processes.

Thus, we can see that gradually increasing the corporate governance concept, according to the level of development of each country. Our research has focused on corporate governance, a topic widely debated lately due to the failures of famous international companies.

In view of the achievement of the research objectives, our scientific approach was based on a deductive angle from general to particular. That is how I started from the Cadbury and Tricker definition of the parent of corporate governance as Cadbury called it internationally and at European level I approached the concept from the perspective of the OECD.

OECD defines corporate governance as the system by which companies are run and controlled. In Romania, the approach of the corporate governance concept was initiated by the ASAA project, together with partners such as the Confederation of Particular Entrepreneurs from Timis County and the Chamber of Commerce and Industry of Romania and Bucharest in 1999, through the elaboration of the project Voluntary corporate governance code. At the same time, changes have been made to the law of commercial companies, thus becoming also known at national level the notion of corporate governance or corporate governance.

Effective corporate governance can only be achieved if all OECD principles are respected. It is more and more apparent that investors are moving towards those entities where high standards of corporative governance are applied, aiming towards the profitability of their investments,


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and therefore the entities are somewhat pressed to align themselves with the practices recommended by the regulations. However, these principles and regulations should not be perceived as merely an obligation to be fulfilled, but, above all, a way of holding a competitive advantage and being profitable.

Good corporate governance is nowadays considered to be the element that assures the defense of the interests of all parties involved, in one way or another, in the processes at the level of a company, be it management, execution or financing. All the definitions of this concept lead to the idea of collaboration between management and shareholders, thus eliminating the eternal conflict that managers do not adequately defend the interests of shareholders.

In order to regulate corporate governance ,codes of good practice have been issued to provide companies with insights into how to design organizational structures, the relationships between them, the characteristics of those charged with governance, financial reporting, etc.

Most corporate governance codes are based on the Apply or Explain statement, flexibility being their main feature. Thus, if there are plausible reasons for non-compliance with the provisions of the applicable corporate governance code, the company will include / attach in the annual report a statement setting out the reasons for the non-compliance.

If, for justified reasons, there is no compliance with the content of the code of conduct, the company concerned shall include / attach in the annual report a statement setting out the reasons for the non-compliance.

Since the image and reputation of a company are the most important elements, it is necessary to certify the financial statements, thus ensuring that the information presented to the users is true and correct. This is where the work of the financial auditor takes place, and his role can not be neglected for good corporate governance.

Starting from a conceptual approach to audit reporting, we have captured the most important issues, set by standards and regulations in the field. I then conducted an examination of literature in the field by consulting the literature in the field of audit reporting.

In our vision, in the context of corporate governance, the achievement of a function is based on two levels (one internal and the other external) defined by seven elements. The defining elements of the internal landmark refer to internal control, board of directors, risk management and financial reporting, and the defining elements of the external landmark refer to the external auditor's opinion, investor confidence and transparency of information. Intercalating the elements stated with the efficiency of each element will contribute to the overall efficiency of the audit function in corporate governance.

The company continues to have very high expectations from the auditors, so the audit profession is undergoing continuous transformation.

The main feature of the financial auditor must be independence. If the auditor is aware of the existence of certain factors that may affect his objectivity and professional judgment, ethical principles are required to present the situation and to refuse the external audit engagement. In addition to auditing financial statements prepared by companies, there are numerous cases where financial auditors also provide consulting services. Disagreements are made in the literature about the provision of non-audit


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services within the audited company, since the independence of the auditor may be affected, especially since the fees charged for non-audit services may exceed the cost of the audit engagement.

Reporting in the audit is a complex activity and the opinion expressed by the auditor has an important contribution in the decisions of the investors. We believe that IAASB's recent proposals and changes will bring added value to users through the new section on key audit issues (ISA 701), but also by reviewing ISA 570.

Our assertion is overwhelmed by the IAASB's responses from information users, as a result of data analysis and processing, a series of changes in the field of auditing occurred on January 15, 2015.

The second chapter, titled "Audit quality associated with financial difficulties. The case of Iraq" has the role of justifying the actual anchoring of the thesis topic by establishing the theoretical framework regarding the quality of the audit and formulating the hypotheses regarding the link between it and the performance of the enterprise.

The discussion of the purpose of this chapter is based on the economic theory and practice that guiding enterprise action and anticipating the future can not be possible beyond a sound, qualitative financial statement audit that can reduce the asymmetries of financial-accounting information and maintain an efficient market environment. One main issue brought into light aims to clarify, theoretically, the quality concept of the audit. In our opinion, the broadly cited definition in the literature, fails to identify the quality elements that can be highlighted before the audit report is drawn up.

It is noted that a simple definition of audit quality can not be sufficient in view of the complexity of the concept, efforts are needed to measure the quality of the audit, and from this point of view, two directions can be distinguished in direct measures and indirect measures.

Direct measures refer to the compliance of financial reporting with accounting standards (IFRS and/or GAAP), quality control, bankruptcy review procedures, and ESA performance.

Indirect measures take into account the size of the audit firm, the auditor's mandate, the expertise industry, audit fees and costs, economic dependence, reputation and cost of capital.

From the multitude of directions for implementing audit quality assurance measures, the most eloquent is the size of the audit firm considered by Chadegani and DeAngelo as an indicator of audit quality. Regardless of the research element, we can conclude that, from a mathematical point of view, audit quality (QA) is a function of direct measures (MD) and indirect measures (MI).

Synthesizing the ideas from the studied literature, we can emphasize the fact that the analysis of the literature highlights the existence of different perceptions of the quality of the audit, including the perception of auditors, shareholders, analysts, clients, etc.

Looking at how the audit quality concept is perceived, we can say that quality auditing is a widely-researched concept in a variety of perspectives in literature. However, we find that there is are a number of loopholes in the literature suggesting the need for customer loyalty studies, customer satisfaction


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with the audit services performed, and the incorporation of corporate governance features can bring more insight into the issues at stake .

The interest of the authors turned to look for the answer to the question What factors determine the quality of the audit ?. If we look closely at DeAngelo's definition (1981) we will notice that this gives us a significant part of the answer. However, other criteria can also be identified that can provide an explanation of the quality of the audit.

Citing R.Sangué-Fotso (2015), the audit is under the influence of factors related to the enterprise itself, the auditor and the environment.

Referring to the case of Iraq, a country where external auditors are operating under the supervision and control of the Board of Directors by appointing them by government ministries, we note that we can speak of a set of recommendations to get, on the one hand, a high quality of audit services and on the other hand, the satisfaction of the stakeholders with regard to these services.

The fundamental issue of the PhD thesis is the role of external audit in anticipation of financial failure, context in which we asked ourselves the question: what is the reason why some firms fail and others do not?

The interest shown by researchers in increasing the phenomenon of financial failure of enterprises leads them to focus their attention on the possibility of preventing this phenomenon and gives the opinion that the risk of failure is perpetuated in the financial statements long before the phenomenon .

In an attempt to see what it is and what are the qualitative dimensions of the phenomenon of financial failure, we find that we are facing a terminological heterogeneity that makes it unclear to define the concept in question.

The empirical survey conducted amongst three sample respondents in Iraq (audit offices, corporate finance managers, private bank credit managers) confirming the hypotheses formulated us led to two conclusions:

• a common definition of the quality of external audit can not be formulated because each interested party appreciates quality according to its vision and interests and corresponds to the studies underlying its preparation;

• there are no significant differences between the factors that influence the quality of the audit and the stakeholders, among the methods of improving the quality of the external audit profession by the stakeholders.

We believe that professional organizations interested in external audit work in Iraq, independent of the government system, need to develop a stable concept of audit quality and be recognized by all stakeholders. In other respects, it is necessary to establish links between the professional external audit organizations and the Control and Supervision Board of the audit and accounting profession in Iraq.

Understanding the aspects regarding the companies financial failure represents a sine qua non condition in order to meet the intended purpose of this thesis, and which aims for the quality function of the external auditing in forecasting financial failure, bringing into light an Iraqi company sample that exist on the securities market.

Regardless of the theoretical context in which we describe the factors


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that can cause the failure of an enterprise, its source of triggering (the national or international environment) we must take into account the negative consequences that they produce.

The main consequence of the factors leading to the vulnerability of enterprises is the suspension, dissolution and / or deletion of firms. Negative effects can also be measured by lower consumption, rising unemployment, diminishing purchasing power, increasing public debt, etc.

Summing up the issues from the literature on business failure, we think that the following ideas can be highlighted:

the causes that lead to business failure vary from one geographical area to another, from one country to another, from one business to another, from one enterprise to another;

young businesses are more vulnerable than long-term businesses, and their failure stems from the lack of financial resources, incompetence in management - generally in the management of financial resources - in particular. In a word, we speak of organizational culture as the main factor of

success or failure according to their financing or governance mode, and why the natural question: what are the reasons for the failure of enterprises?

The most common bankruptcy risk analysis models are based on a set of indicators based on the annual financial statements. Analysis models based on the analysis of the balance sheet have the disadvantage that they are considering past performance assessments while the information provided on the subsequent development is reduced.

By eliminating the non-statistical methods, statistical methods based on the multiple discrimination analysis technique (score theory) serve to predict bankruptcy risk and are based on a series of statistical tools that analyze the financial situation of the firm based on a set of rates.

The issue of the importance of using the methods of estimating the financial failure of enterprises has been at the center of our attention and from a practical point of view, in which I have drawn attention to a number of 12 companies listed on the Stock Exchange, at which we applied the model of Altman based on available data from 2017.

The conclusions that emerged from the study have taken into account the following aspects:

estimating financial failure is important for avoiding financial risks, which, if not controlled, are the main cause of bankruptcy;

• the management has the responsibility to assess the continuing activity of the company he manages;

• The external auditor has the responsibility to verify and inform about the company's ability to continue its business;

• The Altman model is one of the most accurate ways to predict the financial failure of the company;

• It is necessary to develop local legislation that obliges companies to analyze their capacity to continue their activity;

• academic curricula should provide the opportunity to train future financial analysis and forecasting specialists;

• professional accountancy organizations should be concerned about risk analysis on the possibility of financial failure.


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Like the way we treat the literature, I have paid attention to the quality of the audit and the financial failure of the company. The ultimate goal of our research is to see the role of audit quality in preventing financial failure of enterprises.

To address this issue, we express the view that external audit, if performed by accounting firms in accordance with accounting standards and at the same time ensuring that financial statements are reliable, transparent and useful, can be a useful tool in preventing failure financial. At the same time, a quality audit can lead to strengthening corporate governance, risk management and internal control in order to increase financial performance.

Positioning on Iraq level we find the following paradox: on the one hand, conservatism and accounting mimicry in Iraq is far

from understanding that better market functioning depends on better financial reporting accounting mimetism is far from understanding that better markets operate depends on better financial reporting and therefore IFRSs are not applied;

on the other hand, we note the existence of 6 IAAA (Iraqi Union of Accountants and Auditors), a professional association of accountants and auditors in Iraq, an IFAC member (International Federation of Accountants), which requires the same policies and audit procedures provided by the ISA. Our conclusion is that there is a direct link between the quality of the

audit and the financial failure of the enterprise. We make this statement because, although the literature has separately studied the quality of the audit of the company's financial difficulties, the quality of external audit can improve the value of the firm and the annual audit reports become a financial component of the quality of the reporting process, a guarantee that the financial performance correctly reflects the performance of the firm.

In other words, the connecting bridge is the performance audit that represents a control or an assessment of how the enterprise's business functions efficiently and effectively while respecting the economy. The third chapter, entitled "Management of Accounting in the function of External Audit Quality. Case studies in Iraq", aims to associate the quality of external audit with results management to reduce discretionary accounting adjustments.

Research on positivist accounting theory has highlighted the possibility of managing the manipulation of results, but there is no consensus from this point of view.

The accounting result is a small part of the global information that a listed company has to provide on the capital market. However, as Lakhal (2006) points out, it is the most important element that allows different stakeholders to judge the financial performance of the company.

In countries like France, the accounting result is considered primarily to be a wealth to be shared between the different actors of the company in the form of dividends (shareholders), taxes (state) and bonuses (employees and administrators), but in countries like the United States , Canada ... the purpose of accounting is to serve the needs of investors who are primarily interested in the ability of the result to accurately reflect the company's real economic performance.


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In the context of discretionary accounting, the objectivity of the outcome is uncertain and the confidence in the financial information presented is low.

In this context, the main objective of this chapter has been outlined, the quality of the external audit having the role of checking the regularity, sincerity and fidelity of the accounting information regarding the results management.

The starting point for presenting the main objective was the stage of knowledge based on the specialized literature on financial communication and its evolution in the governance process.

If internal communication is the condition for the existence of an enterprise and regulates the relationship between the different hierarchical levels, external communication is found in the set of actions implemented for the external public of the enterprise (potential clients, suppliers, banking and financial services, future shareholders, public authorities, investors, media, etc.) with the aim of building a strong identity that differentiates it from competition.

Based on our research, we have come to the conclusion that the corporate image, based on economic and financial data, is part of the company's overall strategy, which is why institutional communication actions need to be consistent with the positioning of the company, its products and various elements of the marketing mix.

Applying requirements to financial reporting leads us to support the idea that transparency is not limited to providing information, it obliges to describe in the annual report of the mechanisms used for decision-making and what these have been.

In an attempt to characterize the information, it can be said that this is a concept with concrete content, reflecting the real system, and the quantity of information depends on its behavior and the management requirements in relation to which it is defined. It is important not to obtain information but to be selectively selected to streamline the managerial process, an essential aspect for their endurance.

One of the risks of the information is represented by its uneven distribution, known as informational asymmetry. Economic reality has forced financial theory to accept the idea of information asymmetry, one of its most important applications being signal theory, which seeks to convince investors that it is necessary to transmit "informational signals" to help them in taking to make the right decisions.

The collection, use and dissemination of information, both internal and external, is a key element of the enterprise's competitiveness. However, the enterprise must minimize the risk of disclosure of confidential information, whether this broadcast is voluntary or accidental.

Information on financial results, as we have outlined above, is the most important element that is at the center of stakeholder attention.

Managing accounting results is an important lever in minimizing debt costs and maximizing company wealth, which is why specialty literature has recently devoted an important space to studying control factors related to corporate governance.

Starting from the criticism of Johnson et al., Quoted by F.Zehri (2006), regarding the quality of external audit in the management of accounting


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results, we conducted an empirical study on 17 companies listed on the Baghdad Stock Exchange to which I draw the following conclusions:

• the rate of return, ownership rate and trading rate are significant in determining the extent of accounting manipulation, especially when auditing financial statements is done by small audit firms (eg Al-Kathem Telecoms);

• large national audit firms are more vigilant in reducing discretionary accumulation of accounting manipulations;

• managerial property (property ratio), in contradiction with the theory of agent, favors the management of the accounting result. The correct management of results and increased confidence in the

developed financial information, especially in emerging countries, as is the case with Iraq, is dependent on the extent to which the accounting and auditing framework is aligned with international practice.

Practicing an outdated and differentiated system of accounting and, not providing necessary information in particular investors, we decided to bring to your attention an empirical study on the compatibility of environmental accounting with international accounting standards and their impact on the accounting profession based on four assumptions: Hyp.1 - compatibility of the accounting environment in Iraq with the

application of IAS / IFRS; Hyp.2 - Iraqi universities and institutions play a role in adopting

International Accounting Standards; Hyp.3 - there is a negative impact of the lack of IAS / IFRS on the real

economy and the accounting profession; Hyp.4 - there are a number of features and advantages of IAS / IFRS

on financial statements Following the survey based on the questionnaire, we deduced the

following conclusions: the professional environment in Iraq is a relatively favorable

environment for adopting and implementing IAS/IFRS, but legislative and professional efforts are needed in this direction;

non-implementation of IAS/IFRS in the context of globalization of economic and financial markets will lead to diminishing user confidence in companies' financial statements;

there are differences between the current accounting system practiced by Iraqi institutions and companies and the requirements of applying IAS / IFRS;

keeping pace with global economic developments in the context of globalization, makes it necessary to adopt and apply international standards;

there are currently a small number of accountants and auditors specializing in international accounting and specific standards;

the diminished role of universities and professional institutions in strengthening international accounting due to non-adaptation of university curricula and international accounting courses;

recognizing the benefits of IAS / IFRS and the need to adopt and apply them. The discrepancy between the user's expectations and the external


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auditor's vision of his responsibility has led to the emergence of the concept of Expectation Gap and which, in Sikk et al. (1998) signifies a decrease in the confidence of users of financial statements in the quality of external audit, which has repercussions on the credibility of the information provided.

The reasons for the Expectation Gap are generated by a series of factors that, on the one hand, relate to the accountancy and audit profession, on the other hand, to the peculiarities of the users and impinge on the management of the results.

Analyzing the controversy between users of financial statements and external auditors, we find that the widening of the difference of expectations between the two parties is a consequence of the fact that users of financial information who do not have access to the entity's accounting data are dependent on information management, thus they expect from the external auditor to be warned of possible failures that may arise.

The conclusions that we have drawn from this study are as follows: external auditors and users of financial statements share the same

view on the direct impact of external audit on the relationship between the reduction of the expectation gap and corporate governance;

the impact of the relationship between the reduction of the expectation gap and corporate governance is different from one principle to another;

there is a common opinion of external auditors, investors and users of financial information that corporate governance principles contribute to increasing confidence in audited financial reports;

publication and transparency of information is the most important principle of corporate governance that influences the difference in expectations within the audit profession;

equal treatment of shareholders and application of the stakeholder principle plays the smallest role in reducing the expectation gap in the audit profession;

the implementation of control systems monitored by the board of directors and public opinion will increase user confidence in financial statements and audit report;

the impartiality and objectivity of the supervisors in conducting internal control will contribute to enhancing user confidence in the audited financial statements;

setting clear responsibilities for shareholders and external auditors as well as discussing financial statements and audit reports in the General Shareholders' Meeting will help build trust between parties and reduce the expectation gap. In this context, a number of measures are required, starting with the

review of the legislation on the implementation of corporate governance, the drafting of regulations and instructions on the adoption and implementation of IAS / IFRS and audit standards, and raising awareness of the importance of governance corporate and its mechanisms. Chapter Four, entitled "Assessing of the posibility the Adoption and Implementation of International Auditing Standards in the Context of the Professional and Legal Environment of Iraq" to identify significant issues of the audit profession in Iraq and to make proposals to improve and develop


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the profession of audit in accordance with ISA, which has the effect of increasing the level of professional performance. Following the contents of the chapter, the following ideas can be taken into account:

1. Regarding the evolution of regulations on comprehensive reporting in auditing and the implications of corporate governance, our view is that reporting in the audit is a complex activity and the opinion expressed by the auditor has an important contribution to investors' decisions.

We believe that IAASB's recent proposals and changes will bring added value for users through the new section on key audit issues (ISA 701) and through the revision of ISA 570. Our statement is borne out by the IAASB's replies from users the information resulting from data analysis and processing appeared on January 15, 2015, a series of changes in the field of audit.

2. The empirical study on the extent to which audit standards respond to the context of the professional and legal environment in Iraq described in the second paragraph demonstrates that national / local audit standards do not respond to the context of the professional and legal environment in Iraq, more to the international economic context.

Alongside the poor performance of national / local audit standards, we find weak professional training of auditors due to the shortcomings of university curricula and professional institutions in auditor training, poor regulatory independence of auditors, and accounting professionals in applying international accounting standards.

In the stated context, certain professional training measures are required for future auditors able to apply international auditing standards, flexibility of the Professional Council, and granting auditors the freedom of mobility to acquire experience in applying international auditing standards and expressing their opinion according to professional judgment which they prove.

3. Research on the impact of audit ethics on information quality was based on a statistical model built on the four stated assumptions that focused on the auditor's independence, competence, integrity, and confidentiality, to which two control variants .

In the selected sample of 17 listed companies, we chose to estimate the quality of financial information in accordance with the ethical principles of the auditor. The results have allowed us to test the hypotheses of this research by means of multivariate analysis using multiple linear regression.

First, the principles of audit ethics, including all variables of independence, competence, integrity, and confidentiality, are evaluated using SPSS software using Principal Component Analysis (PCA). The Bartlett indicator, the KMO index. Secondly, the empirical results allow us to conclude that the model is, in general, statistically significant and explicative of the studied phenomenon. Finally, by interpreting the variable variable variable contribution, it was concluded that independence and confidentiality contribute to improving the quality of financial information (Hyp.1, Hyp.4 are confirmed), and hypotheses about the auditor's competence and integrity are reversed.

Research could help the Standards Council to identify ways to improve the quality of financial and accounting information and to resolve issues


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related to conflicts between stakeholders in the company. We can see that these ethical principles must be respected by auditors to carry out their missions on a regular basis. In this respect, Friedman et al (2013) explained the importance of teaching ethical principles to students.

However, this research suffers from some limitations. First, the sample size of our study is reduced to 17 firms, which can be explained by the limited number of companies listed in Iraq (47). Finally, another limitation of the external validity of the results is justified by the use of the survey as a data collection tool. The use of this tool is explained by the absence of a public database.

In addition, although the results of this study contribute to an understanding of the relationship between auditor ethics and information quality, future research on larger samples may also highlight the importance of the ethical behavior of the auditor in fulfilling his role in certifying financial statements.

5. Looking ahead, it is very important to prepare for changes that will create opportunities for the auditing profession. Whether we are talking about artificial intelligence or big data analysis, the auditor's profession will not disappear because it will always be necessary to certify financial statements that can include professional judgment in data analysis.

If the impact of using IT systems is already visible and large data analysis is increasingly being raised, adding value to audit work is a sensitive issue involving the use of appropriate management tools. In this context, we have tried to balance data analysis with the Lean concept in the audit.

The conclusion we reached was that if the data analysis shows the presence of an abnormality or an aberrant case, an analysis of the Lean Process often reveals the problem in the basic process, for example where the commands do not work correctly. When it is effectively integrated, data analysis and Lean combines a qualitative analysis with a quantitative understanding of why things are done in a certain way. So, it is not just about information or understanding, but about these two elements.

CONCLUSIONS, PROPOSALS AND DEVELOPMENTS

A. CONCLUSIONS Recently, several rules and standards have been developed concerning

accounting and financial reporting systems. IFAC has issued the International Auditing Standards (ISAs) in order to provide guidance to financial auditors.

On the other hand, IFAC and IAASB focused on three activities, namely: raising companies 'and auditors' awareness of the guidelines on financial reporting tools; encouraging convergence with international financial reporting standards (IFRS); promoting good practice on auditing financial statements.

At the same time, many countries, as is the case with Iraq, have issued recommendations to all economic and financial entities to improve


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the accounting system by enhancing transparency, as well as corporate governance in which audit plays an important role.

In addressing the content of the PhD thesis, the whole construction was based on three fundamental questions, namely:

does the external audit follow the pace of evolution or lose its relevance in the context of the more intense penetration of new information technologies?

do we audit what is needed? what needs to be done to increase relevance and value of external

audit? Starting from the above-mentioned questions, we tried to put the

answer in four quadrants determined by the four research axes we proposed from the beginning.

A first issue that I raised in the discussion and which was a specific objective of the first research axis was the role and relevance of the audit in the context of corporate governance.

Effective corporate governance can only be achieved if all OECD principles are respected. It is more and more apparent that investors are moving towards those entities where high standards of corporative governance are applied, with a view to the profitability of their investments, and therefore the entities are somewhat pressed to align themselves with the practices recommended by the regulations. However, these principles and regulations should not be perceived as merely an obligation to be fulfilled, but, above all, a way of holding a competitive advantage and being profitable.

Good corporate governance is nowadays considered to be the element that assures the defense of the interests of all parties involved, in one way or another, in the processes at the level of a company, be it management, execution or financing. Definitions of this concept all lead to the idea of collaboration between management and shareholders, thus eliminating the eternal conflict that managers do not adequately defend the interests of shareholders.

In our opinion, corporate governance can be broadly defined as the organization and distribution of power between different bodies of a company. More precisely, we can talk about all the procedures and structures created for business management and business management so as to ensure transparency and balance between management, business owners and their representatives elected in the general meeting, the managers of the enterprise.

The conclusion we draw from is that achieving transparent and timely communication is the tool for preventing accounting fraud and the link between information and fraud prevention is independent of the way governance is adopted, the organizational structure and the control mechanism, which demonstrates the fact that there is no universal model of corporate governance, legal systems, institutional frameworks and customs differs from country to country.

In order to regulate corporate governance codes of good practice have been issued to provide companies with insights on how to design organizational structures, the relationships between them, the


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characteristics of those charged with governance, financial reporting, and so on.

Most corporate governance codes are based on the Apply or Explain statement, flexibility being their main feature. Thus, if there are plausible reasons for non-compliance with the provisions of the applicable corporate governance code, the company will include / attach in the annual report a statement setting out the reasons for the non-compliance.

Our research has led us to find that corporate governance codes include provisions that relate to organizational structures and relationships that are established between them. In our opinion, information on internal control, audit, risk management, etc. should also be available.

Since the image and reputation of a company are the most important elements, it is necessary to certify the financial statements, thus ensuring that the information presented to the users is true and correct. This is where the work of the financial auditor takes place, and his role can not be neglected for good corporate governance.

Researching the importance of adopting corporate governance principles for audit quality, we support the idea that the importance of corporate governance is found to optimize resource use, maximize company value and enhance market competitiveness, positively reflected by attracting local and international funding sources, which leads to integrity management and fulfillment of its obligations to achieve the objectives

Starting from a conceptual approach to audit reporting, we have surprised the most important issues, set by standards and regulations in the field. I then conducted an examination of literature in the field by consulting the literature in the field of audit reporting.

Our conclusion is that the placement of the audit function in corporate governance is based on two levels (one internal and one external) and seven defining elements arranged between the two levels, as follows:

- the internal board is specific to four elements, namely: internal control, board of directors, risk management and financial reporting;

- the external landscape is specific to three elements related to the external auditor's opinion, investor confidence and transparency of information.

By the interaction of the seven elements and the efficiency of each element contributes to the efficiency of the audit function in the context of corporate governance.

The main feature of the financial auditor must be independence. If the auditor is aware of the existence of certain factors that may affect his objectivity and professional judgment, ethical principles are required to present the situation and to refuse the external audit engagement. In addition to auditing financial statements prepared by companies, there are numerous cases where financial auditors also provide consulting services. Disagreements are made in the literature about the provision of non-audit services within the audited company, since the independence of the auditor may be affected, especially since the fees charged for non-audit services may exceed the cost of the audit engagement.

The second problem is considered to be a natural continuation of the first problem and is the specific objective of the second research axis aimed at justifying the actual anchoring of the doctoral dissertation topic by


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establishing the theoretical framework regarding the quality of the audit and the formulation of the hypotheses regarding the link of this and the performance of the enterprise.

Concerning the theoretical clarification of the concept of audit quality, in our opinion, the broadly cited definition in the literature fails to identify the quality elements that can be highlighted before the audit report is drawn up.

It is noted that a simple definition of audit quality can not be sufficient in view of the complexity of the concept, efforts are needed to measure the quality of the audit, and from this point of view, two directions can be distinguished in direct measures and indirect measures.

Reviewing direct measures (compliance of financial reporting with accounting standards, quality control, bankruptcy review procedures, SEC performance) and indirect measures (size of audit firm, auditor's mandate, expertise, fees and audit costs, reputation and cost capital), we find that the most eloquent is the size of the audit firm considered by Chadegani and DeAngelo as an indicator of the quality of the audit.

Regardless of the research element, we can conclude that, from a mathematical point of view, audit quality (QA) is a function of direct measures (MD) and indirect measures (MI).

Looking at how the audit quality concept is perceived, we can say that quality auditing is a widely-researched concept in a variety of perspectives in literature. However, we find that there are a number of loopholes in the literature suggesting the need for customer loyalty studies, customer satisfaction with the audit services performed, and the incorporation of corporate governance features can bring more insight into the issues at stake .

The quality of the audit is a complex polysemantic concept that has been the subject of abundant literature, the authors pointing to the question What are the factors on which the quality of the audit depends? If we look closely at DeAngelo's definition (1981) we will notice that this gives us a significant part of the answer. However, other criteria can also be identified that can provide an explanation of the quality of the audit.

Referring to the case of Iraq, a country where external auditors are operating under the supervision and control of the Board of Directors by appointing them by government ministries, we note that we can speak of a set of recommendations to get, on the one hand, a high quality of audit services, on the other hand, the satisfaction of the stakeholders with regard to these services.

If all the stakeholders are concerned about the quality of external audit, the question arises naturally: What is the reason why some firms fail and others do not?

The interest shown by researchers in increasing the phenomenon of financial failure of enterprises leads them to focus their attention on the possibility of preventing this phenomenon and gives the opinion that the risk of failure is perpetuated in the financial statements long before the phenomenon .

Understanding the issues of business failure is a sine qua non condition to respond to the goal pursued in the PhD thesis and which focuses on the role of external audit quality in forecasting financial failure,


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by focusing on a sample of Iraqi listed companies on the securities market. Regardless of the theoretical context in which we describe the factors

that can cause the failure of an enterprise, its source of triggering (the national or international environment), we must take into account the negative consequences that they produce.

The main consequence of the factors leading to the vulnerability of enterprises is the suspension, dissolution and/ or deletion of firms. Negative effects can also be measured by lower consumption, rising unemployment, diminishing purchasing power, increasing public debt, etc.

Summing up the issues from the literature that led to the failure of business, we think that the following ideas can be highlighted:

the causes that lead to business failure vary from one geographical area to another, from one country to another, from one business to another, from one enterprise to another;

young businesses are more vulnerable than long-term businesses, and their failure stems from the lack of financial resources, incompetence in management - generally in the management of financial resources - in particular. In a word, we speak of organizational culture as the main factor of

success or failure according to their financing or governance mode, and why the natural question: what are the reasons for the failure of enterprises?

The most common bankruptcy risk analysis models are based on a set of indicators based on annual financial statements, using in particular statistical methods based on multiple discriminative analysis techniques (scoring theory).

Following this study in the thesis we have drawn the following conclusions:

estimating financial failure is important for avoiding financial risks, which, if not controlled, are the main cause of bankruptcy;

the management has the responsibility to assess the continuing activity of the company he manages;

the external auditor has the responsibility to verify and inform about the company's ability to continue its business;

the Altman model is one of the most accurate ways to predict the financial failure of the company;

it is necessary to develop local legislation that obliges companies to analyze their capacity to continue their activity;

academic curricula should provide the opportunity to train future financial analysis and forecasting specialists;

professional accountancy organizations should be concerned about risk analysis on the possibility of financial failure. Our conclusion is that there is a direct link between the quality of the audit and the financial failure of the enterprise. We make this statement because, although the literature has

separately studied the quality of the audit of the company's financial difficulties, the quality of external audit can improve the value of the firm and the annual audit reports become a financial component of the quality of the reporting process, a guarantee that the financial performance correctly reflects the performance of the firm.


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In other words, the connecting bridge is the performance audit that represents a control or an assessment of how the enterprise's business functions efficiently and effectively while respecting the economy.

The third issue under discussion is the management of the accounting results according to the quality of the external audit, the consequence of the manipulation of the accounting information, the external audit having the role of checking the regularity, the sincerity and the fidelity of the accounting information regarding the results management.

Based on our research, we have come to the conclusion that the corporate image, based on economic and financial data, is part of the company's overall strategy, which is why institutional communication actions need to be consistent with the positioning of the company, its products and various elements of the marketing mix.

Applying requirements to financial reporting leads us to support the idea that transparency is not limited to providing information, it obliges to describe in the annual report of the mechanisms used for decision-making and what these have been.

In an attempt to characterize the information, it can be said that this is a concept with concrete content, reflecting the real system, and the quantity of information depends on its behavior and the management requirements in relation to which it is defined. It is important not to obtain information but to be selectively selected to streamline the managerial process, an essential aspect for their endurance.

One of the risks to the information is represented by its uneven distribution, known as informational asymmetry. Economic reality has forced financial theory to accept the idea of information asymmetry, one of its most important applications being signal theory, which seeks to convince investors that it is necessary to transmit "informational signals" to help them in taking to make the right decisions.

The collection, use and dissemination of information, both internal and external, is a key element of the enterprise's competitiveness. However, the enterprise must minimize the risk of disclosure of confidential information, whether this broadcast is voluntary or accidental.

The discrepancy between the user's expectations and the external auditor's vision of his responsibility has led to the emergence of the concept of Expectation Gap and which, in Sikk et al. (1998) signifies a decrease in the confidence of users of financial statements in the quality of external audit, which has repercussions on the credibility of the information provided.

The reasons for the Expectation Gap are generated by a series of factors that, on the one hand, relate to the accountancy and audit profession, on the other hand, to the peculiarities of the users and impinge on the management of the results.

Analyzing the controversy between users of financial statements and external auditors, we find that the widening of the difference of expectations between the two parties is a consequence of the fact that users of financial information who do not have access to the entity's accounting data are dependent on information management, for which they expect from the external auditor to be warned of possible failures that may arise.

The conclusions that we have drawn from this study are as follows:


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external auditors, investors and users of the financial statements have a common view that external audit has a direct impact on the relationship between corporate governance and diminishing the expectation gap;

the impact of the relationship between corporate governance and the diminishing of expectations differs from one principle to another;

there is a common opinion of external auditors, investors and users of financial information that corporate governance principles contribute to increasing confidence in audited financial reports;

publication and transparency of information is the most important principle of corporate governance that influences the difference in expectations within the audit profession;

equal treatment of shareholders and application of the stakeholder principle plays the smallest role in reducing the expectation gap in the audit profession;

the implementation of control systems monitored by the board of directors and public opinion will increase user confidence in financial statements and audit report;

the impartiality and objectivity of the supervisors in conducting internal control will contribute to enhancing user confidence in the audited financial statements;

setting clear responsibilities for shareholders and external auditors as well as discussing financial statements and audit reports in the General Shareholders' Meeting will help build trust between parties and reduce the expectation gap. In this context, a number of measures are required, starting with the

review of the legislation on the implementation of corporate governance, the drafting of regulations and instructions on the adoption and implementation of IAS / IFRS and audit standards, and raising awareness of the importance of governance corporate and its mechanisms.

The fourth issue, which develops the specific objective of the fourth research axis, debated a number of theoretical and practical aspects of assessing the possibilities for adopting and applying international standards of external audit in the context of the professional and legal environment in Iraq .

By synthesizing the above-mentioned aspects, the conclusions drawn from the research carried out can be formulated succinctly in the following manner:

Regarding the evolution of regulations on comprehensive reporting in auditing and the implications of corporate governance, our opinion is that the comprehensive study of the audit function (internal audit - audit committees - external audit) can be achieved only by considering the internal and external environment , the complex context in which it operates, the multitude of factors that influence the quality of each component element and their whole, the synergy between them;

The study on the extent to which audit standards respond to the context of the professional and legal environment in Iraq demonstrates that national/local audit standards do not respond to the context of the


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professional and legal environment in Iraq, all the more so to the international economic context.

Alongside the poor performance of national / local audit standards, we find weak professional training of auditors due to the shortcomings of university curricula and professional institutions in auditor training, poor regulatory independence of auditors, and accounting professionals in applying international accounting standards.

In the stated context, certain professional training measures are required for future auditors able to apply international auditing standards, flexibility of the Professional Council, and granting auditors the freedom of mobility to acquire experience in applying international auditing standards and expressing their opinion according to professional judgment which they prove.

Looking ahead, it is very important to prepare for changes that will create opportunities for the auditor profession. Whether we are talking about artificial intelligence or big data analysis, the auditor's profession will not disappear because it will always be necessary to certify financial statements that can include professional judgment in data analysis.

The conclusion we reached was that if the data analysis shows the presence of an abnormality or an aberrant case, an analysis of the Lean Process often reveals the problem in the basic process, for example where the commands do not work correctly. When it is effectively integrated, data analysis and Lean combines a qualitative analysis with a quantitative understanding of why things are done in a certain way. So, it is not just about information or understanding, but about these two elements.

B. OWN CONTRIBUTIONS All our research has been based on a series of questions and

hypotheses that we have put on the whole of the thesis, and the desire to find answers and to demonstrate that there are solutions to measures and actions that can be taken by companies have materialized in a number of own points of view that can make a contribution to improving the literature.

In the first research topic "Theoretical Aspects on the Role and Relevance of Auditing", which is purely theoretical and which aimed at creating the conceptual and motivational framework of research, our own contribution lies in the manner in which we approached the way transparency implies opening , communication and accountability, and in which audit plays an important role.

The whole scale of this research axis has been built on the question whether research is significant and timely. The answer to this question has highlighted that the perfect information for all agents is the exception and not the rule: most of the time, agents have to deal with situations where information is asymmetric. In general, economic actors have a set of information that another category ignores. In the given context, corporate governance practices have the role of maintaining confidence in published financial and non-financial information.

Within the second research axis, "Audit quality associated with financial difficulties. The case of Iraq" own contributions are linked, on the one hand, to the factors that affect the quality of the audit, on the other


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hand, to the statistical methods based on the multiple discrimination analysis technique for measuring the financial failure.

By examining the factors that affect the quality of the audit, we have suggested that, in addition to the negative influence of factors related to the enterprise itself, the auditor and the environment, other factors of influence may also be taken into account, some converging in the same way as the quality of the audit, which are contrary to the quality of the audit and can lead to financial failure.

Referring to the case of Iraq, a country where external auditors are operating under the supervision and control of the Board of Directors by appointing them by government ministries, we have noticed that we can speak of a set of recommendations that are necessary to obtain, on the one hand, a high quality of audit services, on the other hand, the satisfaction of the stakeholders with regard to these services. In this context, we grouped the two sets of factors, namely:

factors affecting the quality of external audit related to the economic, social and political environment and affecting the regulatory environment of the auditor function;

factors impeded by the regulatory environment of the external audit profession that affect the audit firms' impartiality, unfair competition and access to audit activity;

factors related to the regulatory environment of the external auditor, such as office size, professional ethics, auditor independence, accumulated experience, size of the company, external audit structure. a) The main contribution we made to the research area of the factors

consisted of a statistical survey based on a questionnaire at the level of 145 external audit offices, 161 financial managers from economic societies and 42 managers, and had three hypotheses: Hyp.1 - in the audit process, there are significant differences between

the stakeholders' views and the quality of the audit; Hyp.2 - between the stakeholders in the audit process and the relative

importance of each of the listed factors that affect the quality of the external audit, there is no difference;

Hyp.3 - There are no significant differences between the audit stakeholders and the methods for improving the quality of the external audit. After processing the data and applying the Kruskal-Wallis test, we

came to the following conclusions: • a common definition of the quality of external audit can not be

formulated because each interested party appreciates quality according to its vision and interests and corresponds to the studies underlying its preparation;

• there are no significant differences between the factors that influence the quality of the audit and the stakeholders, among the methods of improving the quality of the external audit profession by the stakeholders. Based on these conclusions, we recommended that professional

organizations interested in Iraq's external audit work, independent from the government system, develop a stable concept of audit quality and be


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recognized by all stakeholders as well as establishing links between professional organizations External Audit and the Control and Supervision Board of the Auditing and Accounting Profession of Iraq.

b) As regards the second contribution that we have brought in this research axis, it was related to the measurement of a company's financial failure. From the multitude of non-statistical and statistical models described in the text, we chose Altman's model as the oldest predictive bankruptcy model.

At the base of Altman's model, a sample of 12 companies listed on the Iraq Stock Exchange was used, using financial-accounting data from the published financial statements.

The obtained results have allowed us to outline the hypothesis that underpinned the research on the relationship between audit quality and the prevention of financial failure in the following manner: The quality of the audit is associated with financial difficulties.

The final conclusion (in addition to the other 7 points made in the study) that we formulated for this research axis was that the importance of the quality of external audit on the financial condition of the firm is an effective mechanism of governance for the removal of agency conflicts and risk reduction.

Within the third research axis, "Managing the results of the audit based on the quality of external audit", our own contributions are in three directions and are based on empirical studies based on actual data collected and processed by the author.

a) A first headline was the analysis of the management of the accounting results according to the quality of the external audit and was based on the testing of four hypotheses in a sample of 17 companies listed on the Iraq Stock Exchange for which data from the financial statements were extracted and processed the timeframe 2011-2017. For the purpose of researching the accounting results according to the quality of the external audit, we considered the following four assumptions: Hyp.1 - between the quality of the audit service and the size and

reputation of the audit office there is a direct relationship; Hyp.2 - there is a direct relationship between the age of the auditors

and the quality of the audit service provided; Hyp.3 - accounting results management is negatively associated with

the size and rep

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