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The purpose of the paper is to develop, test, and improve a structural equation model (SEM) of client satisfaction with the audit, and of client perception of the usefulness of the audit to external stakeholders.

A questionnaire was mailed to audit clients, i.e. managers of Swedish limited companies with 50 or more employees; 627 useable questionnaires were returned, giving a response rate of 43 percent. Data were processed using the SEM software LISREL.

The data suggest that auditors face difficulties in handling divided loyalties, as audit clients perceive a strong relationship between client satisfaction and usefulness to external stakeholders. Signing auditor competence is positively and auditor skepticism negatively related to both client satisfaction and usefulness to external stakeholders.

The paper focuses solely on the auditor and audit team levels and uses a limited number of independent variables.

The findings extend previous results, indicating that client relationships with both signing auditors and audit assistants affect client satisfaction positively, but have no significant connection with usefulness to external stakeholders. Consequently, it would be useful to consider organizing audit teams in which the various members have distinct roles.

The study addresses an issue most auditing research has not explicitly considered: the distinction between client satisfaction with the audit and client perceptions of the usefulness of the audit to external stakeholders.