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Islamic Religiosity and Auditors’ Judgements: Evidence from Pakistan

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Abstract

We extend the literature by providing evidence that a cultural variable, intrinsic Islamic religiosity is important in understanding auditors’ judgement in the Islamic context of Pakistan. The intrinsic Islamic religiosity theoretical construct examined is Islamic Worldview (IW) which represents deeply held enduring and stable values which are likely to be dominant in influencing professionals’ judgements. Moreover, theoretical underpinning and empirical evidence in social psychology and organisational behaviour have established the critical role of intrinsic religiosity in influencing behaviour. Our first objective is to examine whether IW impacts auditors’ judgements in the context of their acceptance of uncorroborated low-reliability client-provided evidence. Understanding the potential impact of cultural factors on auditors’ acceptance of client-provided information is an essential factor in improving audit quality. Our findings support the hypothesis that auditors with high (low) IW scores are more (less) likely to accept uncorroborated low-reliability client-provided evidence. Our second objective is to examine the relationship between IW and auditors’ preference for exercising more or less judgements. Examining this topic is important because auditing is a judgement-based process: auditors’ judgements determine audit quality and, by extension, the quality of associated financial reports. Our findings provide overall support for the hypothesis that auditors with high (low) IW scores have a preference for exercising more (less) judgement. Our findings have implications for global and national standard setters, regulators, practitioners, and researchers. The results are also relevant to global audit firms and their affiliates, particularly networks operating in Islamic countries, in ensuring global consistency of audits.

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Notes

  1. Prior studies provide evidence that extrinsic religiosity whereby the utility of religion is in achieving self-interested, non-spiritual goals, is unrelated and does not lead to moral behaviour (Arli & Tjiptono, 2014; Arli, Septianto, & Chowdhury, 2020; Vitell, 2015). Moreover, Shahid (2021) measured accountants and business executives' extrinsic religiosity using the Islamic Religious Personality scale and established that subjects’ extrinsic religiosity is unrelated to their judgements in the context of social responsibility investments.

  2. Additional details regarding religiosity related auditing research are provided in “Background: Country Selection and Literature Review” section.

  3. In this study the audit evidence is uncorroborated internal information provided by the client. ISA 500 Audit Evidence (paragraph A31) sets out guidelines on the level of audit evidence reliability: “The reliability of information to be used as audit evidence, and therefore of the audit evidence itself, is influenced by its source and its nature …” According to ISA 500 (A31), “The reliability of audit evidence is increased when it is obtained from independent sources …” (i.e. uncorroborated client-provided internal evidence has a relatively low level of reliability).

  4. Islamic religiosity is a multi-dimensional construct related to the belief that Islam should direct one’s social, political, personal, and professional life (Al-Goaib, 2003; Fuller & Kurpershoek, 2013). It also refers to the extent of one’s beliefs and level of agreement with Islamic religious doctrines and adherence to rituals such as prayer and worship (Al-Goaib, 2003; Krauss et al., 2005). Given the theoretical and empirical support in the social psychology and organisational behaviour literature for intrinsic religiosity, we examine the intrinsic Islamic religiosity theoretical construct because this represents core deeply held enduring and stable values which are likely to be dominant in influencing auditors’ professionals’ judgements.

  5. In our study, we only measure auditors’ acceptance of client-provided evidence. It is important to note that our study is not designed to capture the quality of auditors’ judgements, which is a complex and multifaceted construct and needs to be examined from multiple dimensions (Martinov-Bennie & Pflugrath, 2009; IAASB, 2018).

  6. We cross-checked the country profile of ISA adoption published in the IFAC website (2020) and the member states of Organisation of Islamic Cooperation (2020) and identify 21 Islamic countries that have adopted ISAs. These include Albania, Bangladesh, Benin, Burkina Faso, Cameroon, Guyana, Indonesia, Jordan, Lebanon, Malaysia, Mozambique, Nigeria, Pakistan, Saudi Arabia, Senegal, Suriname, Togo, Tunisia, Turkey, Sierra Leone, and Uganda. In addition, eight other Islamic countries have partially adopted ISAs, including Azerbaijan, Egypt, Iraq, Kazakhstan, Kuwait, Morocco, Palestine, and Uzbekistan.

  7. Professional auditors in Pakistan have completed all academic and professional examination requirements and hold a minimum 3 years’ professional experience or they may hold recognised professional international qualifications (ICAP, 2017).

  8. Medium-tier auditing firms in Pakistan include local and international firms that need to have satisfactory Quality Control Review ratings from the Institute of Chartered Accountants of Pakistan (ICAP, 2016). All medium-tier auditing firms in Pakistan have adopted the ISAs.

  9. For example, Islam is also the second-largest religion in Europe, and it is projected that the Muslim population of Europe will reach between 7 and 14% by 2050 (Pew Research Center, 2017).

  10. The Sunni Hanafi School is one of the four principal Sunni schools of Islamic jurisprudence and was founded in the eighth century by Abū Ḥanīfa (Ramadan, Hisham M. (2006). Understanding Islamic Law: From Classical to Contemporary. Rowman Altamira. pp. 24–29.

  11. The Tawhidic paradigm is based on the individual’s subjective interpretation of the doctrine of divine unity and oneness of God (Mehmet, 1990; Wehr, 1976).

  12. In survey studies conducted in Islamic countries, the response rates reported by Ahmad et al. (2003), Lee et al. (2008), and Awang et al. (2019) are 41%, 46%, and 59% respectively. In the U.S., Behn et al. (2006) and Almer et al. (2014) reported response rates of 46% and 53%, respectively. In the U.K., Beattie et al. (2013) reported a response rate of 36%. In Hong Kong, Shafer (2015) reported a response rate of 30%.

  13. SDR bias is a known issue in religiosity studies and is a type of response bias where survey participants may have a tendency to answer questions to meet the expectations of others (Batson, Naifeh, & Pate, 1978). Prior research suggests that religiosity data should not be reported without an SDR check. To address the SDR bias in this study, the MPRI scale contains a lie scale to remove very high SDR responses from the sample.

  14. The items included in the lie scale were (1) I use the lessons from the Qur’an/Holy book/Scriptures in my conversations; (2) I am the first to greet when meeting another person; (3) I fulfil all my promises; (4) I perceive those who are not the same religion as mine as potential believers of my religion; (5) I gossip about others (reverse-scored item).

  15. Feedback was sought from 13 professional auditors, three senior academic researchers, and three regulators in Pakistan. Their comments were incorporated into the final version of the questionnaire to improve its readability and understandability.

  16. All number values are in Pakistani rupees (PKR) which is the official currency of Pakistan (1 USD = 104.8 PKR).

  17. Participants with a preference for the percentage method (i.e. less judgement) were expected to make no adjustment or only a small adjustment if they accepted that the debts would not be repaid. However, if they accepted that the two debts would be repaid in full, a reduction of the full amount of 1000 PKR million (USD 9.54 million) or close to it was expected. On the other hand, a wider range of adjustment (between zero and 1000 PKR million [USD 9.54 million]) was expected for participants with a preference for exercising more judgement, depending on whether they believed that the two doubtful debts were collectible or not.

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Authors and Affiliations

  1. Western Sydney University Online, Parramatta, NSW, Australia

    Nazia Adeel

  2. Department of Accounting and Corporate Governance, Macquarie Business School, Macquarie University, North Ryde, NSW, Australia

    Chris Patel & Nonna Martinov-Bennie

  3. Department of Financial Governance, University of South Africa, Pretoria, South Africa

    Nonna Martinov-Bennie

  4. Newcastle Business School, The University of Newcastle Sydney Campus, Sydney, NSW, Australia

    Sammy Xiaoyan Ying

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  1. Nazia Adeel
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Correspondence to Nonna Martinov-Bennie.

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Adeel, N., Patel, C., Martinov-Bennie, N. et al. Islamic Religiosity and Auditors’ Judgements: Evidence from Pakistan. J Bus Ethics 179, 551–572 (2022). https://doi.org/10.1007/s10551-021-04829-w

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