The Correlation between External Audit and Financial Performance of Banks from Romania

The audit function plays a particularly important role as part of the corporate mechanism, due to the extra value it provides with the corporate governance, which is why, over the years, this issue has been assiduously studied and became the topic of numerous studies and analyses. The objective of this article is to provide an analysis of the potential relationships between the quality of external audit (assessed through membership to the Big Four: the largest four auditing firms, namely PricewaterhouseCoopers, KPMG, Ernst & Young and Deloitte) and financial performance (assessed by profitability, assets quality and solvency) of the banking system in Romania. Hence, the authors tried to find answers, advocated by the results of the conducted empirical analysis, to the following questions: Does the quality of external audit affects the financial performance of banks in Romania? How is registered the added value of external audit quality at credit institutions level? In order to test the assumptions made, it was used a predominantly quantitative research methodology, which is based on a deductive statistical analysis. The starting point is agency theory, the main objective is to test and identify the potential cause-effect relationships, while analyzing their significance weight. As a result of this research, it can be concluded that there is a positive correlation between external audit quality and financial performance of the credit institutions in the Romanian banking system, although it is not a significant one.