Presentation Transcript

1. Research Opportunities in Auditing

   Ann Vanstraelen, Maastricht University Doctoral Consortium AAA- Auditing Section 12 January 2012
2. 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
3. Why doing a PhD in auditing? Effective & efficient allocation of Human capital resources Stakeholders Auditing profession Audit demand Audit supply Audit market
4. 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
5. Different players in ‘auditing game’ Academics: In the past: research largely ignored by policy-makers Currently: more interest in research by standardsetters and regulators Auditing profession: In the past: in the ‘driver’s seat’ Standardsetters and regulators: Currently: dominant players using voice of stakeholders
6. How can we advance our knowledge in auditing? Interaction is needed between academics and the auditing profession 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
7. Main changes in EU regulation One set of EU regulations for financial reporting and auditing with the objective of harmonizing financial reports and audits IFRS: 2005 ISA: expected 2012 Introduction of independent oversight & enforcement over financial reporting and auditing 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
8. Main changes in EU regulation Revised 8th EU Directive (2006, implementation deadline 2008) 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 1/3 revenues from PIEs: pure audit firms Mandatory audit firm rotation: 6 years …
9. Main changes in EU regulation …create interesting settings. Examples: Common standards with national oversight & enforcement Competition to attract foreign investors? Can harmonization goal be achieved? Divergence: national versus international standards EU only sets minimum standards E.g. joint audit is voluntary
10. Current issues & research opportunities in auditing Public oversight 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: Different options to organize public oversight Variation in level of transparency on inspection results
11. Current issues & research opportunities in auditing 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: 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)
12. Current issues & research opportunities in auditing Audit quality Large body of literature on AQ and differential AQ (see Francis, AJPT, 2011 for overview) Key issue: Instruments to measure AQ are limited Regulators are working on developing AQ indicators More interaction with the auditing profession Some questions: 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? EU: thresholds for mandatory statutory audit vary substantially
13. Current issues & research opportunities in auditing Audit firm ownership structures Potential entry barriers to the audit market of large public companies is an ongoing subject of study and debate Audit firm ownership structures could be one of these entry barriers Policy-makers (EU, IOSCO, FRC) raise a number of questions: 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
14. Current issues & research opportunities in auditing Audit firm operating structures 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
15. Current issues & research opportunities in auditing Audit firm governance Transparency EU front runner Not much is known yet about audit firm governance, auditor behavior and role of transparency
16. Current issues & research opportunities in auditing 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
17. 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!