Transcript Research Opportunities in Auditing

Research Opportunities in
Auditing
Ann Vanstraelen, Maastricht University
Doctoral Consortium AAA- Auditing Section
12 January 2012
Outline
Why doing a PhD in auditing?
 Audit market & regulation
 Different players in the ‘auditing game’
 How can we advance our knowledge?
 Main changes in EU regulation
 Current issues & research opportunities
 Concluding comments
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Why doing a PhD in auditing?
Effective & efficient allocation of
resources
Human capital
Stakeholders
Auditing profession
Audit demand
Audit supply
Audit market
Audit market & regulation
What is the ‘raison d’être’ of the audit
market?
 When do regulators perceive the need to
intervene?
 Important changes in the regulatory
landscape of accounting & auditing
 Research opportunities of global interest
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Different players in ‘auditing game’
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Academics:
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Auditing profession:
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In the past: research largely ignored by policymakers
Currently: more interest in research by
standardsetters and regulators
In the past: in the ‘driver’s seat’
Standardsetters and regulators:
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Currently: dominant players using voice of
stakeholders
How can we advance our
knowledge in auditing?
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Interaction is needed between academics and the
auditing profession
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Auditing profession should open up
Much more to be learned: e.g. gain insight into effectiveness
and efficiency of the audit process
Risk of standard rules & compliance check by POB: ignore
idiosyncratic nature of auditing (Knechel, 2009).
Effects of individual auditors on audit quality
 Impact of new (proposed) regulations on auditor
incentives & behavior
 Try to break down myths and presumptions used by
regulators as arguments to intervene
Main changes in EU regulation
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One set of EU regulations for financial reporting and
auditing with the objective of harmonizing financial
reports and audits
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IFRS: 2005
ISA: expected 2012
Introduction of independent oversight & enforcement
over financial reporting and auditing
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Oversight of financial reporting done by national securities
authorities
Oversight of auditing done by national securities authorities or
auditing profession with an independent monitoring body
Coordinate and facilitate consistency of oversight activities:
ESMA
Main changes in EU regulation
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Revised 8th EU Directive (2006,
implementation deadline 2008)
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A lot of similarities with SOX
Some unique aspects
EU Green paper on Audit Policy (October 2010)
After consultation proposals issued (November 2011)
to be approved by the European parliament
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1/3 revenues from PIEs: pure audit firms
Mandatory audit firm rotation: 6 years
…
Main changes in EU regulation
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…create interesting settings. Examples:
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Common standards with national oversight
& enforcement
Competition to attract foreign investors?
 Can harmonization goal be achieved?
 Divergence: national versus international
standards
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EU only sets minimum standards
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E.g. joint audit is voluntary
Current issues & research
opportunities in auditing
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Public oversight
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Emerging field of research
Not much known yet about most efficient and
effective ways of public oversight
Not much known yet about effectiveness, impact on
auditor behavior, economic consequences
EU interesting setting:
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Different options to organize public oversight
Variation in level of transparency on inspection results
Current issues & research
opportunities in auditing
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Audit market concentration
Key issue of concern in EC Green paper on
Audit policy (October 2010)
 Substantial body of research, but key
question remains relevant
 EU interesting setting:
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substantial variation in the audit market in terms
of dominance of the Big 4 and level of
concentration within the Big 4 (Francis et al.
2011)
Current issues & research
opportunities in auditing
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Audit quality
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Large body of literature on AQ and differential AQ (see Francis,
AJPT, 2011 for overview)
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Key issue:
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Instruments to measure AQ are limited
Regulators are working on developing AQ indicators
More interaction with the auditing profession
Some questions:
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What is the relationship between audit quality, transparency and
competition?
What is the role of the AC in the supervision of the audit
function?
Is it optimal to strive for a uniform level of AQ for all audit firms
irrespective of size and client portfolio composition?
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EU: thresholds for mandatory statutory audit vary substantially
Current issues & research
opportunities in auditing
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Audit firm ownership structures
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Potential entry barriers to the audit market of large
public companies is an ongoing subject of study
and debate
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Audit firm ownership structures could be one of these
entry barriers
Policy-makers (EU, IOSCO, FRC) raise a number of
questions:
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How important are the existing (and alternative) ownership
restrictions to AQ and audit market concentration?
EU interesting setting: Examples of professional services
firms with audit practives that use alternative corporate
structures
Current issues & research
opportunities in auditing
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Audit firm operating structures
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Global audit firm networks: continue to a relevant
research topic (Carson 2009)
Well-known and documented gap between
‘international branding’ and ‘actual conduct’ of
audits across the world (e.g. Francis and Wang
2008)
Big 4 audit firms are networks of national firms 
legal integration
Recently: establishment of pan-European legal
entities
Current issues & research
opportunities in auditing
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Audit firm governance
Transparency
 EU front runner
 Not much is known yet about audit firm
governance, auditor behavior and role of
transparency
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Current issues & research
opportunities in auditing
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Auditor liability
Liability reforms claimed by audit firms
 Legal incentives affect auditor behavior
 Not much known about costs and benefits
of different liability regimes
 EU interesting setting: different national
liability regimes
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Concluding comments
All aspects of legal and regulatory
environment jointly shape auditor
incentives, behavior and ultimately audit
quality
 Public policy debates provide a lot of
inspiration for researchers but….
 ….perform research that can help
advance our knowledge on auditing!
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