Audit Reform Research Articles

Audit reform: Examining the proposals from a liability perspective

Audit reform: Examining the proposals from a liability perspective

The UK government audit reforms fail to deal with the audit crisis

This paper is a brief commentary upon the recent auditing reforms proposed by the government and a number of state‐sponsored reports. It argues that the government proposals fail to tackle the recurring faultlines in external audits.

Securing investor trust: Four elements for effective audit reform

Securing investor trust: Four elements for effective audit reform

Rebuilding trust and the role of audit: The impact of the UK audit reform proposals on other standard‐setters

Rebuilding trust and the role of audit: The impact of the UK audit reform proposals on other standard‐setters

International Accounting and Auditing Standards Adoption in Non-EU Eastern European Countries: Review of Regulations and Literature

ABSTRACTIn this paper, we review the regulations and research on the adoption of international accounting and audit standards in 11 Eastern European countries outside of the European Union. We find many regulatory commonalities among these jurisdictions related to their Communist bloc heritage. The state remains the most important stakeholder and tax accounting dominates financial reporting. The work of local auditors is considered less reliable than that of their Big 4 counterparts. International organizations and the Big 4 auditors provide stimuli for and assistance with international standards' adoption. Accounting and audit research is limited. The scarcity of data forces most authors to focus on the qualitative evaluation of accounting and audit reforms. Some opt for surveys. Few papers include empirical analyses. Our review covers jurisdictions, which have received limited attention in prior literature. We inform future empirical work and speak to the generalizability of previous research findings to this set of countries.

Aspects Regarding the Structure of the Financial Audit Market in the European Union from Fees Perspective

The audit market, developed out of the need to strengthen the credibility and the quality of financial reporting, has led since the 1980s to a concentration around large audit firms, the dominance effect being marked on the one hand by the auditor’s increasing reputation and notoriety, and on the other hand by the client’s association with a reputed auditor, which contributes to improving the company’s image on the market. In this context, a major issue is represented by the level of the fees charged, as they represent key elements that may affect the auditor’s independence. Moreover, a sensitive aspect is the relationship between the fee charged for financial audit services and the one for non-audit services and the compensation practices between them. The European Commission wants to facilitate competition in an overly concentrated market and also provide the opportunity for small and medium-sized audit firms to become active players in the large corporate audit market through joint audit, in which at least one of the audit firms is not part of the Big4 group. The mandatory audit firm rotation and the limitation on the non-audit services provided are the main aspects of the recent audit reform that directly influences the fee level. The main purpose of this study is to analyse whether there is a pattern of audit costs at the community level. In this context, this paper aims to assess the uniformity of audit costs, namely to determine the structure of the audit market in the European Union. The research involves data set comparison methods, by analysing a sample of 2,896 firms listed on the stock exchange in 35 different states over the period 2013-2021.

Taming the few: Platform regulation, independent audits, and the risks of capture created by the DMA and DSA

In its attempt to better regulate the platform economy, the European Commission recently proposed a Digital Markets Act (DMA) and a Digital Services Act (DSA). While the DMA addresses worries about digital markets not functioning properly, the DSA is concerned with societal harms stemming from the dissemination of (illegal) content on platforms. Both proposals focus on the relative size of platforms. The DMA applies to ‘gatekeeper’ platforms and the DSA has a special regime of scrutiny for ‘very large online platforms’ (VLOPs). Focusing on size, however, can have negative consequences for the enforcement of the DSA: First, risks disseminated by platforms below the VLOP-threshold reside in a regulatory blind spot. Second, VLOPs may leverage their market power against their new mandatory auditors and risk assessors, a threat theorised as ‘audit capture’ in this article. As a result, societal risks may remain undiscovered or downplayed and consumers and citizens may be harmed. This article traces the origin of the size criteria in the legislative history of the DMA and DSA proposals. It argues for safeguards against audit capture and adverse incentive structures in the DSA. The article draws on the debate on audit reform in the aftermath of the global financial crisis of 2007–2008 to provide blueprints for fixing the regulatory gap.

The audit reform in the United Kingdom: Challenges and the future

Subject. Intended to counter fraud and unreasonably high bonuses for top executives, the U.K. corporate governance and audit reform implies some changes so as to improve the financial transparency of companies, primarily, large and public interest entities. The reform is called to maintain the lucrativeness and competitiveness of the U.K. financial markets, creating a sustainable and manageable environment, which major long-term investors seek. Objectives. I review and summarize proposals set out in the reform as best-in-class practices, which may work in auditing and assurance in Russia and underlie respective changes. The reform may contribute to the auditing profession, help avoid accounting scandals and corporate failure. Methods. Studying the audit reform, I applied methods of analysis, generalization, and analogy. Results. Having analyzed the reform plan, I found valuable ideas concerning directors’ responsibilities, corporate reporting and auditing. The reform suggests that the Audit, Reporting and Governance Authority should be established. The definition of public interest entities became broader. Audit boards are now to meet additional requirements. The audit market will be overhauled by segregating auditing and consultancy units of the Big Four companies and introducing statutory audit, which should be jointly performed by major and smaller entities, and tightening audit transparency rules. Hence, top executives will be more responsible and liable for financial reporting and increased transparency of internal control and trade account settlement principles. Such proposals should be adapted to the audit regulation practice in Russia and be applied with reference to the recent legislative novels. Conclusions. The quality of audit is critical for the economy and the public, since it ensures the national credibility as a capital market. Any sustainable economy needs a comprehensive approach, which combines the audit reform and corporate governance and accounting standards reform.

Democracy, accountability and audit: the creation of the UK NAO as a defence of liberty

PurposeThe study focusses on explaining why advocates for reform to state audit in the United Kingdom (UK) in the early 1980s, focussed on improving the links between the new National Audit Office (NAO) and Parliament, rather than on traditional notions of audit independence. The study shows how this focus on the auditor's link to Parliament depends on a particular concept of liberty and relates this to the wider literature on the place of audit in democratic society.Design/methodology/approachUnderstanding the issue of independence of audit in protecting the liberties and rights of citizens needs addressed. In this article, the authors investigate the creation of audit independence in the UK in the National Audit Act (1983). To do so, the authors employ a neo-Roman concept of liberty to historical archives ranging from the late 1960s to 1983.FindingsThe study shows that advocates for audit reform in the UK from the 1960s to the 1980s were arguing for an extension to Parliament's power to hold the executive to account and that their focus was influential on the way that the new NAO was established. Using a neo-Roman concept of liberty, the authors show that they believed Parliamentary surveillance of the executive was necessary to secure liberty within the UK.Research limitations/implicationsThe neo-Roman republican concept of liberty extends previous studies in considering the importance of audit for public accountability, the preservation of liberty and democracy.Practical implicationsPublic sector audit can be a fundamentally democratic activity. Auditors should be alert to the constitutional importance of their work and see parliamentary accountability as a key objective.Originality/valueThe neo-Roman concept of liberty extends previous studies in considering the importance of audit for public accountability, preservation of liberty and democracy.

Assessing the development of performance audit methodology in the supreme audit institution: The case of Indonesia

Badan Pemeriksa Keuangan (BPK), or The Audit Board of the Republic of Indonesia, has introduced performance audits intensively since public sector audit reforms were initiated in 2001. However, the implementation of performance audits still faces several obstacles. This study examines the development of the performance audit methodology in BPK, which can be divided into three stages: before the revitalization of BPK in 2006, the initial development of performance audits during 2006-2010, and the maturity of the implementation of performance audits since 2011. This study concludes that several key factors have affected the implementation of performance audits at BPK, including the development of audit guidelines, the dynamics of medium-term government planning, the focus of the BPK’s Management, and assistance provided by other supreme audit institutions (SAI). To address new realities and challenges in the future, more sophisticated performance audit methods need to be adopted by BPK, such as big data analytics, the adoption of governance audits, and employing public policy analysis. Without adopting such methods, the institutionalization of ​​effective performance audits might not be achieved in the future.

Audit and the Pursuit of Dynamic Repair

Is audit capable of evolving into something that is more consistently valued and socially purposeful? We address this fundamental question, utilizing Sennett’s (2008). The Craftsman. New Haven: Yale University Press) notion of ‘dynamic repair’ to present four key ways of thinking differently about the statutory financial audit and its core conceptual foundations. First, we highlight the capacity for audit to be regarded as a first-order function of value in its own right rather than a second-order function inherently dependent on corporate financial statements. Second, we call for a change in the assumed relationship between audit and assurance, arguing that assurance should be treated as a sub-set of audit rather than the other way round. Third, we consider the scope for audit standard setting to provide a space for ‘product’ innovation. Finally, we advocate moving beyond presumptions that the current statutory financial audit serves ‘the public interest’ to asking deeper questions about the type of society we want to inhabit and whether audit has a more direct and valued contribution to make. Collectively, such re-conceptualizations offer a broader canvas for audit innovation and can help to sustain the promise of current audit reform initiatives proposed by the Brydon Report and others.

Influence of auditor's gender, experience, rule observance attitudes and critical thinking disposition on materiality judgements

Recent audit reforms prescribe an all‐inclusive approach to materiality decisions including both qualitative and quantitative information. We examine the effect of gender, experience, rule observance attitudes and critical thinking disposition of auditors on their materiality judgements. Our results support the hypothesis that female auditors utilise more qualitative information in assessing materiality judgements compared with their male counterparts. Our findings also demonstrate that auditors with low rule observance attitudes, high critical thinking disposition and increased audit experience are likely to provide a more accurate materiality judgement compared with auditors with high rule observance attitudes, low critical thinking disposition and less experience. The results of the study have implications for policymakers to coordinate with educators to develop ways to reduce differences in judgements of auditors due to variances in critical thinking disposition, audit experience and rule observance attitudes through necessary training and education.

The Audit Reform and Non-Audit Services in the Light of the Big-4 Transparency Reports – the EU Perspective

The aim of this article is to compare and contrast three different approaches towards non-audit services (henceforth “NAS”) based on: 1) researchers’ views, 2) the EU regulation, and 3) the provision of NAS by the Big-4 firms operating in twenty-seven EU member states. Therefore, the article includes: (i) a literature review of various NAS aspects, (ii) an analysis of the EU reform in terms of NAS, and (iii) an empirical analysis of NAS fees which have been disclosed in the Big-4 transparency reports for the period 2017-2019.The literature review shows: a) lack of consensus between researchers about the potential consequences of the NAS provision in general, b) quite limited or little evidence of the consequences of the NAS restrictions as part of the EU audit reform, c) ambiguity in terms of the NAS definition itself which results mainly from insufficient NAS disclosures and lack of a detailed NAS split.The EU regulators addressed these concerns only in very narrow aspects, i.e., through: (1) the NAS black list, (2) the NAS cap, and (3) the strong emphasis on public-interest entities (henceforth “PIEs”). What is more, NAS disclosure requirements in the transparency reports are limited only to two categories.Finally, the results of the empirical study indicate the significant differences at the NAS fee level among the EU member states. The analysis shows a particular importance of NAS fees from other clients as a substantial revenue stream for the Big-4 firms. The results suggest also a significant increase in this category in 2018 when NAS fees from other clients increased by net EUR809 million (13%). However, this strong trend was not confirmed in the following year.All in all, the study underlines deficiency in proper NAS disclosure and reporting which might be observed also in the case of transparency reports. All findings of this study may be another argument for regulators to address the problem of NAS in more detail starting from their advice on a NAS taxonomy which might be used then as a point of reference. It would be also beneficial for researchers exploring the NAS aspect and, thus, may enhance data and results comparability between studies. Additional disclosure requirements like NAS provided to PIEs or a recurring or non-recurring character of NAS would also support the better understanding and evaluation of the consequences of the EU audit reform.

Free to Choose: Do Voluntary Audit Reforms Increase Employment Growth?

Many European countries have abolished mandatory audits for small firms to reduce the regulatory and administrative burden for these firms. However, we still lack knowledge on whether such legislative changes affect employment growth for those firms that become free to choose to have external audits. We investigate this question using a Swedish reform that made audits voluntary for small firms fulfilling certain requirements. The reform created an almost ideal natural experiment, which we use to evaluate the effects of voluntary audits on employment growth for small firms using a difference-in-difference estimator. We find that firms which fulfilled the requirements for voluntary auditing, compared to a control group of similar firms that did not, increased their employment growth rate by 0.59%. This corresponds to 2,770 jobs being created in the year following the reform, suggesting that mandatory audits act as a growth barrier for small firms.

Investigating recent audit reform in the Australian context: An analysis of the KAM disclosures in audit reports 2017–2018

The aim of this study is to explore the new Australian auditing regulations around Key Audit Matters (KAMs), fully adopted since 2017, by reporting on matters published in over 3,000 Australian statutory audit reports from 2017 to and including 2018 reports. The study provides the first evidence on whether auditors used the same or different disclosures related to audit procedures when reporting on the same KAM in the second year in Australia. The findings suggest the most common KAM disclosures are related to “impairments of goodwill and intangible assets,” “revenue recognition,” “asset valuation,” “acquisitions,” and “exploration and evaluation.” Around 70% of Australian auditees had the same KAMs disclosed in both years 2017 and 2018. The study found differences between large and small audit practitioners related to the average number of KAMs disclosed and the average number of audit procedures undertaken per KAM. There were also differences found between industries and auditee size.

Mandatory rotation of audit firms and auditors in Greece

This paper aims to examine the question of whether the mandatory rotation of audit firms and auditors, which is part of the new European Audit Reform, is a desirable measure in Greece. A comprehensive literature review of related studies from Europe and around the world was performed to study the issue. We conduct an empirical analysis focusing on auditors working in Greek audit firms and present the results of the responses from 115 members of the Institute of Certified Public Accountants of Greece. Empirical findings provide mixed results with regard to the implications of mandatory rotation. Most of the respondents agree that mandatory rotation will increase the overall costs of the audit process. However, they also conclude that it will increase both auditor independence and resistance to the management of audited firms. The findings of the study should be of interest to policymakers, regulators and audit firms in Greece and Europe. This is the first study that investigates the effects of mandatory rotation on audit quality in Greece since the establishment of the new regulatory audit framework. The study focuses on auditors’ views considering their decisive role in achieving audit quality. The conclusions of this study are generally in line with those indicated in the literature.

Pengaruh Independensi Dan Kompetensi Aparat Inspektorat Kota Ambon Terhadap Kualitas Audit

<em>To realize Good Governance in the regional government area, government must make reform in all aspects of regional financial management. One of the steps by regional government is to carry out audit reforms, both internal and external in the administration of government. Through audit reforms it is expected that audit activities in the government environment can more optimally, so as to readuce the occurrence of procedural errors and criminal acts that have an impact on state losses. This research aims to test and analyze the influence of independence and competence of Ambon City Inspectorate of the Audit quality both simultaneously and partially. The population in this study is all government functional apparatus that works at the Ambon City Inspectorate Office, which serves as a sample of research using the census method where the sample equals the population. Independent variables in this study are independence and competence, while the dependencies variable is the quality of the audit. Data collection methods used in this research is a survey method using a detailed questionnaire. The questionnaire was disseminated as many as 38 questionnaires, but only 36 questionnaires were returned. The collected Data is analyzed by descriptive and statistical techniques. The results showed that by partial (1) The independence of the city's Inspectorate of Ambon has an effect on audit quality. (2) The competence of the city's inspectorate of Ambon affects audit quality. (3) simultaneously the independence and competence of the City of Inspectorate Ambon has an effect on the quality of audit.</em><br /><em>Keywords: independence, competence, and Audit quality.</em>

The Time Dependence of Audit Firm Alumni Effects: Evidence from Audit Committees

This article empirically examines the time dependence of audit quality and audit fee effects resulting from the presence of audit firm alumni (AFA) on audit committees (ACs) in the German setting. Following the European Union's audit reform in 2014, the subject of this study is of particular importance, as European regulators have strengthened the position of ACs, while simultaneously restricting the presence of AFA on ACs. We find that the presence of AFA who have recently left their former employer on ACs is associated with higher audit quality, while we fail to find a significant effect on audit quality with regard to AFA who have left audit firms a longer period of time ago. In addition, the presence of AFA on ACs does not seem to affect audit fees. To the best of our knowledge, this study is the first to demonstrate time‐dependent AFA effects related to ACs.

Удосконалення професійних вимог до аудиторів за умов реформування незалежного аудиту в Україні

Удосконалення професійних вимог до аудиторів за умов реформування незалежного аудиту в Україні

미국의 공공조달법제와 조달방식의 발전과 GAO의 감사개혁방향

미국 연방정부의 공공조달법제는 독립전쟁 등 각종 전쟁을 수행하면서 원활한 전쟁물자 공급을 위해 급하게 마련되어서 많은 시행착오를 거치면서 발전되었으며 연방의회의 형식적 법률뿐만 아니라 행정입법과 판례에 의해서 오늘날의 형태를 갖추게 되었다. 미국의 연방조달법제에서 실무적으로는 1600면이 넘는 연방조달규칙이 핵심을 이루는데, 연방조달규칙상의 계약체결방식은 일반경쟁입찰과 경쟁적 협상으로 양분되다가 최근에는 불확정이행 및 불확정수량계약이 연방조달계약의 주요계약체결방식으로 대두되고 있다. 이런 공공조달방식의 변화는 기술발전과 시장의 변화 그리고 보다 효율적으로 물품을 조달하고 공적 자금으로 보다 나은 가치를 창조하고자 하는 욕구가 반영된 것이다. 다만, 입찰공고를 모두 충족시키고 기술적 우위가 비교적 적으며 이미 상세한 사양이 결정된 건설공사에서는 미국도 여전히 일반경쟁입찰방식이 사용된다는 점도 시사점이 있다. 경쟁협상방식에서 계약담당자에게 우리와 비교하여 많은 재량권이 존재하여 가격은 최저가가 아니더라도 기술적으로 진보한 업체를 선정할 수 있으며 입찰공고에 적시된 사항 이외의 것도 고려할 수 있도록 하는 부분은 공공조달시장이 투명화되고 이의절차가 잘 갖추어져 있으며 일반시민의 감시가 이루진다면 앞으로 적극적으로 도입을 고려해 볼 수 있는 부분으로 판단된다. 일반적으로 보통법의 전통으로 인하여 공법과 사법이 미분화되어 있다고 알려진 미국이지만, 공공조달법제에서는 우리보다 더 공법적 수정이 가미된 것으로 평가될 수 있다. 예를 들면, 편의적 계약해지제도를 도입하여 보통법상의 일반적 계약의 구속력을 수정한 것들도 공법적 관점의 도입으로 평가된다. 조달법체계를 개선하고 감사를 통해서 개선점을 찾으려는 노력도 행정현실과 사경제부분의 청렴성과 시장경쟁성에 의존하기 때문에 법제의 단순한 이식이 아니라 정확한 현실진단과 냉철한 자기반성의 기반위에서 기존의 실수와 문제점을 개선한다는 뚜렷한 목표의식하에서 이루어져야 할 것이며 그 개선과 목표설정은 국민의 참여와 감시가 전제되어야 할 것이다.