**1. Introduction**

The progressive reading has shown that the EAC is considered a central governance mechanism around which several other mechanisms and stakeholders are correlated [1]. Banks'shareholders appoint a renowned audit corporation and choose a reputable EA to obtain sufficient assurance that presents a good report quality. Generally, the best EAC in management control is increasingly becoming an obligation in the banking system to strengthen internal governance, which exposes managers to disciplinary forces inside and outside the bank. Besides, banks can be companies in other banks or subsidiaries in multinational bank groups; thus, they manage high capital and are forced to allocate it more efficiently. In practice, the EAC can threaten managers who benefit from their positions and act according to their interests without considering those of shareholders. This will subsequently cause suspicious consequences that can negatively influence the banks' FP.

Moreover, external governance represents stakeholders' control, with the markets allowing the completion of internal governance [2]. Among these mechanisms that are part of external governance, we cite the financial market, the market for goods and services, the labor market for managers, EA, etc. Hence, external audits address the importance of the EAC to the EAQ. According to Caprio and Levine [3], the possible sources of banks' external governance are fourfold. These sources are creditors, shareholders, governments, and competitive discipline in product and service markets. To evaluate the EAQ, we chose the EAC as an external governance mechanism to meet the expectations of shareholders and creditors [4]. Nevertheless, all competitive external audit mechanisms may urge managers to behave opportunistically since the impact of substitutability leads to information asymmetry between the mechanisms or between managers and investors within the same bank. Audit opinion shopping was extensively studied in accounting research. Many firms are committed to opinion shopping by influencing or even manipulating their auditor's decision to obtain the estimated opinion [5]. Therefore, the accumulation of these acts will destroy the process of creating FP and weaken the audit's protective effect on investors.

The banks' control policy that complies with standards of good governance practices requires the disclosure of reliable information that is relevant, intelligible, and accurate to promote performance, maintain stability, and reflect the banks' real situation [6]. However, several empirical studies explored the effect of the EAQ on earnings management, FP evolution, financial handling, and banks' accounting restatements [7–15]; since the appearance of such financial and accounting phenomena created a paradox and confirmed that the theoretical foundations for selecting the EA differ from the real and practical criteria. Because there are no studies that discussed the standard basis on which the banks select their auditors and the effects of the EAC on the banks' FP, we took the initiative to resolve this issue by focusing on the two famous bank types, namely Islamic banks and conventional banks.

Before studying the difference between the detailed effects of the EAC within conventional and Islamic banks, it seems appropriate to, first, draw the readers' attention to the fact that an overview of the literature on the EAC sheds light on two separate lines of research: the effect of the EAC on governance quality [16–22] and the impact of the EAC on FP [13, 23–27]. **Figure 1** schematizes the link between the EAC and FP measurements in the presence of endogenous and exogenous factors that can create practical flows that lead to altering the EAC or influencing FP.

The financial audit that is conducted by a BIG4 auditor has a major effect on other internal governance mechanisms. Therefore, an independent external audit plays a crucial role in maintaining stakeholders' confidence in financial reports and contributes to reducing agency costs [28, 29]. Shareholders aim to curb agency costs, optimize the FP, increase owners' dividends, gain the confidence of the financial markets, and protect the interests of current and potential investors. It is a complicated, multidimensional relationship where the shareholders control the auditor and the auditor controls the managers. An auditor's conspiracy with the officers will result in a conflict of interest between the shareholders and the officers. When shareholders discover this complicity, the auditor risks losing their bank fees.

Although the recent financial crises stem from the decline in the banks' FP, a noticeable increase is found in the practice of earnings management and the reporting of fictitious false FP levels, originating in most cases from false reporting and the lack of external audit transparency [18, 21, 30–32]. The banks' EAC may alter the

*How to Successfully Select the Best-Performing Bank Based on the Best Auditor's… DOI: http://dx.doi.org/10.5772/intechopen.113201*

**Figure 1.**

*Explanation of possible effects movements between EAC and FP.*

relevance of the audit engagement and ensure the financial statements' reliability. The Subprime scandal affected the stakeholders' trust through the financial information included in the auditors' reports. It destroyed financial reports users' trust, which raises the question of the auditors' honesty and independence and whether audit quality enhances the quality of disclosed information [33]. Kassem and Higson [34] concluded that EAs are liable for assessing corruption risks. Yet, external audit regulators could not clearly define their role. Moreover, Mohammad and Ahmed [35] proved that big audit corporations have no considerable impact on financial reporting quality.

Following the 2007 governance scandal, many multinational banks failed, and governments bailed out many financial institutions, whether in developed or undeveloped countries around the world. Because of the revival of interest in CBs and the credit governance problems, the false disclosure results and the FP swelling were transformed into toxic interest gains. The discussed gap originates from their bad EAC and the decline of their EAQ. It all depends on the bank's audit policy goal. Indeed, the EAC quality can make a radical change (positive/negative) through the integration of a constructive/destructive vision, the implementation of an efficient/deficient monitoring system, and the introduction of a good/bad transparency policy, whether in conventional or Islamic banks. However, because banks worked within an agency financial framework, financial reality showed many complicated details and opposite results from the expectations of the EAC. Furthermore, in the literature on IBs' governance, not many papers tackled the subject of EAC [36–38] because, in IBs,

there are other substitutable mechanisms like the Charia Supervisory Board and religion standards, where this mechanism has lost some of its importance.

At this stage, given that prior research on the impact of EAC on FP revealed inconsistent findings and EAC showed different and inclusive impacts on the association with banks' FP and that none of them has compared these impacts in conventional and Islamic banks, we examined whether the EAC provides indications on the development or the fall separately on the Islamic or conventional banks' FP. Furthermore, because the failure of banking transactions becomes imperative and occurs regardless of the bank type, we invested in this virgin field. Moreover, since the results evaluating the EAC's effect on the FP of conventional and Islamic banks are mixed, we tried to solve the ambiguity problem, find an effective solution to this contradiction, and definitively answer our comparative hypothesis. Based on the governance literature of Islamic and conventional banks, the criticisms of previous research showed that the EAC's impacts on conventional and Islamic FP are different. Some countries where banks applied international accounting standards also met international auditing standards. Other countries adopted local accounting and auditing standards. However, a third class of countries implemented specific sectoral accounting and auditing standards. Because there is no unique standard that organizes the external audit function [16], our explanatory paper aims to examine the link between the EAC and selected FP measures. This method will remain valid and useful in future studies in case the samples or contexts change.

With all this huge momentum of critics and challenges on the EAC on the IBs' FP and especially on the CBs' FP, financial literature may benefit from our study in many ways. From a practical perspective, our study improves how the EAC controls FP policy and determines the bank's fate. Indeed, our second practical contribution is to provide economic agents with the most serious bank type when choosing their EAs and in which bank type the EAC internal restrictions can force the EAQ and oblige the EA to respect their obligations towards the bank. Theoretically, we demonstrated that the banks' FP is a dependent variable of the impact generated by EAC which is a strategic process that leads either to the financial sustainability of the Islamic or/and conventional bank or to its exposure to unbearable financial shocks.

As an implication, this study will contribute to the disclosure quality of bank accounting information. Second, our research helps banks detect the weaknesses of the accounts' certification on the FP of such a bank type and correct possible threats resulting from the wrong EAC. Third, this study can help banks ameliorate their EAC quality, support the strengths and opportunities that promote the effectiveness of financial reporting, and maximize their FP via the EAC's generated impact. Fourth, our study also helps banks' investors choose the most efficient bank.

The present work is organized as follows: Section 2 provides a literature survey of structural differences between the impacts of EAC on the FP of Islamic and conventional banks. Section 3 exposes our methodology, tools, and data. Section 4 contains empirical results. Section 5 concludes the paper.
