The influence of foreign direct investment on the Egyptian audit market: what do Big 4 partners’ perceptions tell us?

Abstract

Purpose

This study aims to examine the effects of the entry of foreign direct investments (FDIs) on the audit markets in developing countries (i.e. Egypt). There is a long-standing debate on the impact of FDIs on developing markets, but little is still known about the effect of FDI on national suppliers, such as audit firms.

Design/methodology/approach

This paper reports the results of a study that used qualitative research methods. It involves interviews with senior management teams of the Big 4 audit firms, to find out how these firms deal simultaneously with conflicting global and local influences. The interviews were complemented by the publicly available data on the firms’ websites as well as published reports related to the Egyptian economy and current investment regulations.

Findings

Drawing on the institutional theory, the findings suggest that an increased litigious environment, compliance with developed markets’ regulations, auditor regulatory sanctions and improved local accounting and auditing standards are highly significant consequences of foreign investment inflows. The findings indicate that more emphasis has been given to the quality of audit and auditors’ independence when auditing FDIs. Both audit regulators and audit firms in the domestic market pay higher attention to improving the quality of financial reports when FDIs have entered the market. More inspections and reviews for audit firms have been conducted, and local auditing and accounting standards have been revised to be in compliance with international standards.

Research limitations/implications

Our results have important implications for investors, regulatory authorities and governments in relation to the development, implementation and enforcement of international financial reporting and auditing standards.

Originality/value

Policymakers and regulators in Egypt have responded to international pressure by revitalizing their local accounting and auditing standards and adopting international financial reporting and auditing standards. The authors identify strategies that have been adopted by audit firms to face the FDIs’ challenges.

Citation

Eldaly, M.K., Elamer, A.A. and Abdel-Kader, M. (2024), "The influence of foreign direct investment on the Egyptian audit market: what do Big 4 partners’ perceptions tell us?", Journal of Financial Reporting and Accounting, Vol. 22 No. 4, pp. 1039-1061. https://doi.org/10.1108/JFRA-04-2022-0117