Evolutionary Dynamics of Auditing Regulation under a Program Theory Perspective

Abstract

Pushed by the global financial crisis and by the need to restore trust in corporate financial information and on the audit function, the EC has reformed the audit regulatory framework by issuing the statutory audit Directive 2014/56/EU and the associated Regulation n. 537/2014. Adopting a program theory perspective, this research aims to answer to three different questions: (1) What are the EC’s intended objectives that led to the issuing of the Statutory Audit Reform?; (2) What are the measures actually put in place at the EU level in order to reach these intended objectives? and (3) How these measures have been implemented within the Italian context and what are the main change that the new regulatory framework produced/is supposed to produce?. The study provides evidence in which way the measures of the audit reform and the EC’s intended objectives have been translated and applied in the Italian audit environment. The proposed analysis revealed that the EC’s measures intended to lead to the desired outcomes has been subject to more or less substantive changes within the regulatory process. Moreover, the Italian experience seems to suggest that some the measures enacted in order to reach an overall enhancement of audit quality and auditor independence, as well as a more dynamicity in the audit market, such as mandatory audit firm rotation and prohibition of NAS, do not have a direct and positive effect on real auditors’ independence nor on market openness. Further research is needed in order to assess if and how the Statutory audit reform will produce its intended outcomes when it will become completely effective in all the Member States of the EU.