The leadership of any firm is responsible for promoting an internal culture of quality (International Auditing and Assurance Standards Board [IAASB] 2009a). The International Ethics Standards Board for Accountants (IESBA) reiterates that the leadership of a firm should promote compliance with the fundamental principles as outlined in the International Code of Ethics for Professional Accountants. It also sets out the expectation that engagement team members will act in the public interest and emphasises the importance of ethical behaviour (IESBA 2021).

A quality-oriented internal culture emphasises the need to have policies and procedures in place to meet the requirement to perform work complying with the relevant professional standards and to issue appropriate reports (IAASB 2009). The first quality element is:

Auditor independence is a key indicator of audit quality (PCAOB 2013). This sentiment is echoed by the IAASB which identifies independence as a core requirement for ensuring high ethical standards and effective firm leadership (IAASB 2009). Codes on corporate governance, such as King-IV in South Africa, endorse this view with one of the core objectives of good governance being the promotion of a culture of ethics and independence in order for organisations to deliver desired outcomes (Institute of Directors in Southern Africa [IoD] 2016). Researchers further argue that auditors who have an economic interest in their clients will lack independence and will be less likely to report any irregularities, thereby reducing audit quality (Daniels & Booker 2011).

Independence comes in two forms, namely ‘in mind’ and ‘in appearance’ (IESBA 2021). The former is:

Independence in appearance is concerned with:

Auditors’ independence contributes to achieving trust in the audit profession (Power 2003). Regulators have introduced measures, inter alia mandatory rotation of audit firms, in an attempt to strengthen the independence of auditors (Harber 2018).

Based on the above, the following statement has been included in the correspondence table:

Audit firms are required to adopt client and engagement acceptance procedures to ensure compliance with the fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour (IESBA 2021). Client acceptance procedures have also been used in prior research as an output measure of audit quality (Francis 2011). Based on the importance of client acceptance and continuance procedures, the following statement has been included in the correspondence table:

Under ISQC 1, audit firms are required to establish policies and procedures designed to provide the audit firm with reasonable assurance that it has sufficient personnel with the required competence, capabilities and commitment to ethical principles (IAASB 2009). This notion of competence is further supported by codes on corporate governance stating that effective leadership is exemplified by competence (IoD 2016). Competence and due care, evidenced by attaining and maintaining knowledge and skill at the level required to ensure professional service, are ‘fundamental principles’ characterising auditors and high-quality engagements (IESBA 2021). Accordingly, the following statement is included in the correspondence table:

Alongside independence and competence requirements, effective monitoring, supervision and consultation are critical, especially concerning difficult or contentious issues (IAASB 2009). The ‘collective experience and technical expertise of the firm’ at the appropriate level on complex or controversial and ethical issues strengthen the overall audit process and firm culture (IAASB 2009:26–27):

Consultation in the form of second partner and other specialist reviews may bolster audit quality by safeguarding independence and ensuring that complex issues are not overlooked or misinterpreted during engagements (Barac et al. 2016). International Standard on Quality Control 1 emphasises the importance of continual improvement, internal quality control and sound documentation standards (IAASB 2009). Ensuring audits are completed and documented timeously is also key to sound audit quality:

The PAAB regulate the training and registration of accountants, as well as the contracts of training officers (PAAB 2022a). Training regulations include core administrative experience, assessment and disciplinary processes. The training regulations specify the selection of people with high intellectual ability, an increased focus on professional values, ethics and business acumen, as well as a balance of compulsory, elective and residual skills development (PAAB 2022a).

The content of the PAAB’s training programme covers accounting, external reporting and pervasive skills. Pervasive skills cover professional conduct, management and leadership, personal attributes and information technology (PAAB 2022a). These are provided to trainees through a combination of formal education and job experience (PAAB 2022a). With these points in mind, the following regulatory measures designed to drive better quality audits are identified:

Practice reviews are conducted in conjunction with the PAAB training regulations; accordingly, the correspondence table includes:

The Audit Development Programme (ADP) is a period of specialisation for professional accountants who wish to become Registered Auditors and Accountants (RAA) in Namibia (PAAB 2022b).

The ADP allows candidates to gain exposure to a broad range of complex matters faced by RAAs in practice and helps them to develop professional competence and judgement, ethical values, as well as lifelong learning skills (PAAB 2022b). The candidates are exposed to tasks that, over time, increase in complexity and allow candidates to take on more responsibility for the aspects of an audit engagement that present a greater risk to the firm, the clients and other stakeholders (PAAB 2022b). Once an RAA, these accountants are expected to continue refining their auditing and managing skills throughout their careers:

Continuing development of professional knowledge and skill has distinct benefits for the individual professional accountant in maintaining a high level of technical competence, developing new areas of expertise and increasing career options, job satisfaction and client satisfaction. Continuous Professional Development (CPD) can be structured or unstructured (ICAN 2018). Structured learning includes courses presented by educational institutions, member bodies or employers, individual study programmes, participation in conferences, NAM briefing sessions or discussion groups and service as a member of a technical committee of a professional body or firm (ICAN 2018). Members’ compliance with CPD requirements is monitored by ICAN. Non-compliant members must present plans to become compliant to the ICAN Secretariate or risk being removed from the register of members (ICAN 2018). The regulatory measures concerning this, are:

Peer reviews, together with mandatory inspections, were introduced as a means to re-establish the trust in the audit function by ensuring an improvement in audit quality (Löhlein 2016). There are opposing views on whether or not external quality control contributes positively to the improvement of audit quality. In the 6 years of inspection conducted by the PCAOB, which were underway in 2012, it remained unclear whether the inspection process benefited audit quality (Church & Shefchik 2012).

In Namibia, the PAAB is responsible for conducting practice reviews to build local capacity. These reviews are focused on technical, as well as ethical issues. In addition, one of the PAAB’s vital mandates is to investigate, through the PAAB Investigations Committee, any allegations of improper conduct that are reported (PAAB 2020):

The next section presents the method used and demonstrates how the above regulatory and quality elements were used in the research.

Purposeful selection of Namibian audit experts and a small sample size enhance the quality of the research findings (Maroun 2017; Maroun, Turner & Sartorius 2011; Ram 2018) by ensuring that only participants with extensive audit experience and knowledge of ISQC 1 and Namibian regulation are engaged. This also ensures that the day-to-day audit experiences of the participants are incorporated in the research. Seventy-three potential participants were engaged while 42 responded. This response rate may appear low relative to international studies on audit quality but reflects the size of the Namibian capital market, as well as the local accounting and auditing profession.

For the correspondence analysis, there is a direct relationship between the sample size and the number of row and column headings. Studies with comparable correspondence tables (in terms of the number of row and column points) rely on samples consistent with those proposed by this article (Kudlats et al. 2014; Ram et al. 2016; Ram 2018).

The PAAB and ICAN helped to distribute the correspondence table to potential participants. A covering letter informed them of the purpose and nature of the research. It also included instructions on how to complete the correspondence analysis. The participants were asked to mark an ‘X’ in cells where the ISQC 1 audit quality elements (rows) correspond positively with the respective external regulation (columns).

Descriptive statistics and a correlation matrix were generated from the correspondence table (Kudlats et al. 2014). The results were accumulated into a single frequency table and a two-variable scatterplot (Bendixen 1996). Column headings (quality indicators) were used to label the axes in the final correspondence plot. Namibian regulatory measures were then positioned based on their size, correlation with the axes and inertial contribution. This is explained in more detail below (see Figure 1).

The approach of Kudlats et al. (2014), was followed. Step one is to determine the strength of associations between ISQC 1 quality traits and regulatory measures. This was measured through the inertial contribution that each point makes to the total inertia of the model. Inertia is described as the key measure of association within the plot (Ram 2018), which is developed to position each of the regulatory measures with respect to the four categories of quality traits.

Step two involves determining a suitable number of dimensions. In general, two dimensions on the correspondence plot are acceptable because of the complexity of analysing plots with three or more dimensions (Ram 2018). Where a two-dimensional solution accounts for a significant portion of the total inertia of the model, two dimensions are considered appropriate (Bendixen 1996).

Step three is to interpret the dimensional representation (Ram 2018). Based on the descriptive statistics, the quality traits (row headings) and regulatory measures (column headings) that are statistically significant were determined and displayed on the correspondence plot. The total inertia of the model is allocated independently, but equally, to each quality trait and regulatory measure by dividing the total inertia of 100% by the number of points. Where the inertial contribution of a quality trait or regulatory measure exceeds the average inertia per trait and measure, it is considered statistically significant (Kudlats et al. 2014; Ram 2018).

Step four involves assigning a dimensional reference and the researcher placed each significant trait and measure on the plot, based on the co-ordinates of each point. The sign of the co-ordinate (positive or negative) provides the necessary evidence for whether a significant regulatory measure is to be placed on the positive or negative side of the relevant x- or y-axis. For each placement, the grouping of significant traits is analysed for interconnections and, based on these findings, each of the four-axis placements is named.

The row and column points are then shown on the same graphical display to allow for easy visualisation of the associations (Doey & Kurta 2011). A Chi-square statistic is used to measure the distance between points on the scatterplot and, in turn, measure the association among variables (Bendixen 1996; Doey & Kurta 2011).

To aid further analysis of the results from the correspondence analysis, a limited number of semi-structured interviews was conducted with the respondents.

The results indicate that there is a strong correlation between the maintenance of independence (Q2), consultation on complex issues (Q5) and the regulatory measure enforcing the investigation of improper conduct (R6). The correlation between independence and investigations of improper conduct supports the notion that external regulation improves independence in appearance, improving credibility. It is also likely to improve independence, as there is a credible risk of sanctions, should there be a lack of independence (ICAN 2014). In other words, independence standing alone is insufficient and requires enforcement.

Independent auditors may also be more likely to consult on complex and potential audit issues. This is because the auditor will not be discouraged from thoroughly investigating the matters to ensure audit quality for fear of risking their self-interests (Maroun & Atkins 2014). Finally, with audit still being a for-profit business, strong investigations over improper conduct may be useful to audit managers that feel the need to justify increased audit expenses to ensure appropriate audit quality. Namibian audit experts took a similar view:

The Namibian audit profession has historically been predominantly self-regulated, with external regulation only bolstering the self-regulatory measures already in place. Both independence and consultation have become an inherent part of audit methodologies. The added external regulation, relating to the PAAB’s investigations process, highlights the importance of these two quality traits:

The size of the firm plays a role in determining whether it has the necessary resources to employ full-time or ad-hoc internal specialists. As highlighted by DeAngelo (1981), the size of the audit firm is commonly used as an indicator of audit quality. The smaller firms usually do not require specialists’ expertise because of the smaller size and level of complexity of their clients. The smaller firms, however, recognise the importance of consultation and, while they may not have the expertise in-house, external consultants are engaged as required. This approach is supported by ISQC 1 which indicates that smaller firms can consult externally by making use of ‘advisory services provided by other firms, professional or regulatory bodies or commercial organisations which provide the relevant services’ (IAASB, 2009, p. 62):

Independence is a key priority for audit firms of all sizes. The strong association between these two quality traits and the PAAB’s investigations process suggests that in Namibia there is a strong motivation to comply with and apply these to ensure that the practitioners conduct themselves appropriately at all times.

The competence of engagement team members (Q4) appears to be ameliorated by the regulatory requirement for eligible candidates to register for the ADP (R4) and to complete a portfolio of evidence in lieu of demonstrating the appropriate level of competence to register as an RAA in Namibia (R5).

The awareness of the importance of sufficient engagement team members with the required competence and capabilities has been highlighted as a key indicator of audit quality. As highlighted by the IoD (2016), effective leadership is exemplified by competence. The correspondence plot (Figure 1) indicated that there is a strong correlation between the competence of engagement team members and the implementation of the ADP. This demonstrates the positive link between effective leadership and competence. This correlation is further supported by the PAAB’s view that the ADP ultimately aims to develop, inter alia, the candidate’s professional competence, judgement and ethical values (PAAB 2022b):

From the above responses, this programme is perceived as positively contributing to the competence of potential RAAs:

The above respondent highlighted their audit firm’s commitment to the development of the trainees, before they came to a point in their careers where they are eligible to register for the ADP. The competence of any potential RAA starts on the first day of a traineeship; this is not necessarily covered by the ADP but starts by adopting a quality training programme.

This association supports the view that a critical factor that contributes to the legitimacy of the audit profession is technical expertise and competence (Power 2003) and that an increased level of competence, expertise and proficiency in an engagement team positively affects audit quality (PCAOB 2013). The strong association between Q4, R4 and R5, highlighted in the correspondence plot, complemented this view, and the responses of the participants further strengthened the association.

A culture of quality promoted by the firm leadership (Q1) shows a strong association with several regulatory measures, namely the training office accreditation process (R2), quality assurance reviews (R3), as well as the requirement for holders of the CA(NAM) designation to demonstrate continued development of professional knowledge and skill, which is monitored by the ICAN (R7).

The audit firm leadership or tone at the top plays a pivotal role in the emphasis of the culture of quality, as well as the importance of quality work over financial considerations (PCAOB 2013). This view is supported by the IAASB’s stance on firm leadership and the fact that it should promote an internal culture of quality (IAASB, 2009):

The correspondence plot highlights a correlation between the establishment of policies and procedures promoting a culture of quality driven by firm leaders and strengthened by enhanced supervision (Q1), the re-accreditation of training offices to ensure the quality of educational programmes (R2), the quality assurance review process (R3) and the requirement on CA(NAM) holders to demonstrate continued professional development (R7). This result is in line with ICAN’s opinion that CPD plays an important role in ensuring that a high level of technical competence is maintained (ICAN 2018).

Maintaining the required CPD hours is perceived as a critical part of promoting a culture of quality. This association is strongly supported by respondent P5, as it is perceived to contribute positively to audit quality as a whole:

Finally, the plot revealed that the registration and administration of training officers and training contracts (R1) address ethical compliance in terms of client acceptance and continuance procedures (Q3). The firm is responsible for ensuring that policies and procedures for the acceptance and continuance of client relationships and specific engagements are established (IAASB, 2009). Client acceptance procedures have also been used as an output measure of audit quality (Francis 2011). This association may indicate that the underlying concept used for ‘client acceptance and continuous procedures’ has become entrenched and deployed to other areas. This is considered a positive, as incorporating ethical and reputational considerations into more aspects of the functioning of audit firms is likely to both improve audit quality and rebuild trust in the profession (Knechel 2016). While a slight association can be made between Q3 and R1, the respondents all echo the sentiment that the association is remote, as expressed by a participant:

In this case, there is a disconnect between the initial findings from the correspondence plot and the perceptions of the audit experts. As correspondence analysis is an exploratory method, this type of disconnect is not unusual (Kudlats et al. 2014). Correspondence analysis should not be interpreted as providing evidence of quantitatively measuring the effect of the current regulatory measures on audit quality (Maroun 2014). The next section concludes the article.