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Article
Publication date: 1 December 2003

Ian P. Dewing

This paper examines post‐Enron developments in UK audit and corporate governance regulation. It considers the latest government‐initiated reviews into audit regulation

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Abstract

This paper examines post‐Enron developments in UK audit and corporate governance regulation. It considers the latest government‐initiated reviews into audit regulation, specifically those conducted by the Co‐ordinating Group on Audit and Accounting Issues and the DTI Review Team, and into corporate governance, specifically those undertaken by Derek Higgs and Sir Robert Smith. The paper notes that the reviews were undertaken in the context of developments initiated both before and after the collapse of Enron, including, respectively, the new system for the regulation of the UK accountancy profession as established by the Accountancy Foundation, and the US Sarbanes‐Oxley Act. The reviews have been welcomed by government and thus should play a large part in setting the agenda for the future regulation of UK audit and corporate governance. The proposals for auditing share a number of characteristics with the recommendations of a pre‐Enron empirical study which investigated the regulation of UK listed company audit, although significant distinctions remain. The proposals for corporate governance continue the ‘comply or explain’ approach and do not recommend passing its regulation from the Financial Reporting Council to another independent body of ‘stature’ such as the Financial Services Authority (FSA). It is concluded that key to successful implementation of recent proposals will be the need, for audit, to demonstrate that there is no cosy relationship between regulators and the auditing profession, especially the ‘Big Four’ firms, and, for corporate governance, a willingness to look outside the ‘one‐size‐fits‐all’ approach.

Details

Journal of Financial Regulation and Compliance, vol. 11 no. 4
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 1 August 1997

Ian P. Dewing and Peter O Russell

There has been widespread recent public debate about problems of corporate governance, accountability and audit regulation in the UK. In the arena of UK audit regulation

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Abstract

There has been widespread recent public debate about problems of corporate governance, accountability and audit regulation in the UK. In the arena of UK audit regulation, the Auditing Practices Board’s publications, The Audit Agenda and The Audit Research Agenda, contain a discussion of audit regulation and call for research into the problem. This article reviews the “macro”, “micro” and “international” models for the regulation of audit that have already been proposed in the literature, and considers the appropriateness of the models to improve the regulation of company audit in the UK. The main conclusion is that while each of the models proposed have superficial attractions, there is a danger of considering them out of context. More research is needed into the practicalities, costs and benefits of the various models that have been suggested. Without such research there is a risk that any reform may not improve, or indeed may reduce, the effectiveness of the existing regulatory framework.

Details

Managerial Auditing Journal, vol. 12 no. 6
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 5 October 2015

W Robert Knechel

The purpose of this paper is to summarize the effect that the passage of the Sarbanes–Oxley Act of 2002 (SOX) by the US Congress had on audit research. More specifically…

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Abstract

Purpose

The purpose of this paper is to summarize the effect that the passage of the Sarbanes–Oxley Act of 2002 (SOX) by the US Congress had on audit research. More specifically, the paper compares the nature of research about auditing conducted before the Act’s passage to the nature of research about audit regulation that dominates the literature since its passage.

Design/methodology/approach

The paper builds on an extensive review of the research literature before and after the passage of SOX to suggest and examine potential future research paths that might develop in auditing. The streams of research are linked and organized around four themes: auditing as a competitive process, auditing as a service process, auditing as a production process and auditing as a quality control process.

Findings

In general, auditing research prior to SOX tended to focus on issues encountered in the practice of auditing with tangential implications for audit regulation. The passage of SOX had the effect of focusing audit research on the nature, costs and benefits of regulation, particularly the components of the law that had the most effect on auditing such as the prohibition against many non-audit services, the establishment of the Public Company Accounting Oversight Board as a standard setter that also inspects audit firms, and the introduction of the requirement that a client’s internal control over financial reporting be examined and opined upon as part of an integrated audit. Although this research has increased our understanding of auditing and regulation, the heavy focus on SOX has pushed research about auditing itself to a lesser role. The profession’s, academy’s and regulatory understanding of auditing may benefit from a more balanced approach to auditing as something separate from the regulation of auditing.

Originality/value

The intent of this paper is to challenge the way researchers think about research questions in auditing. Hopefully, this approach will encourage auditing researchers to look at the audit and audit regulation through a new lens, testing propositions and aspects of auditing that have been overlooked by the dominate focus on audit regulation over the past decade.

Details

Managerial Auditing Journal, vol. 30 no. 8/9
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 2 June 2016

Lukas Löhlein

This study reviews the existing literature on the U.S. peer review system and the Public Company Accounting Oversight Board (PCAOB) inspection system to assess our…

Abstract

This study reviews the existing literature on the U.S. peer review system and the Public Company Accounting Oversight Board (PCAOB) inspection system to assess our knowledge of audit regulation. The traditional self-regulatory system of the accounting profession came to an end, in 2002, when the PCAOB was established to oversee the audit firms of publicly traded companies. This paper contributes to the controversial debate about self-regulation versus independent regulation by analyzing, categorizing, and comparing the research findings on the peer review system and the PCAOB system along three dimensions: the validity of peer reviews and PCAOB inspections, the recognition of reviews and inspections by decision-makers (e.g., investors, bankers, committees), and the effect of reviews and inspections on audit quality. Synthesizing the research on the regulatory regimes suggests that the notion of external quality control, both through peer reviews and government inspections, is positively linked with an improvement of audit quality. At the same time, the analysis indicates that external users do not seem to recognise peer review and PCAOB reports as very useful instruments for decision-making, which is in line with an identified rather skeptical perception of the audit profession on reviews and inspections. Overall, this study reveals that although the academic literature on peer review and PCAOB inspection is extensive it has not produced definitive conclusions concerning various aspects of audit regulation. This paper shows how this blurred picture is due to conflicting research findings, the dominance of the quantitative research paradigm, and unchallenged assumptions within the literature, and concludes by proposing research opportunities for the future.

Article
Publication date: 2 June 2014

Warren Maroun and Jill Atkins

The purpose of this paper is to explore how notions of disciplinary power manifest themselves in audit regulatory developments. When it comes to research on the…

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Abstract

Purpose

The purpose of this paper is to explore how notions of disciplinary power manifest themselves in audit regulatory developments. When it comes to research on the relationship between audit quality and regulation, much of the prior scholarly work has kept to the positivist tradition of quantitative analysis under the guise of “economic rationality”. In contrast, this research takes an interpretive approach to provide an alternate and unique perspective, using motifs of Foucauldian power and control to illuminate the operation of external regulation in a South African setting. The paper examines what may be loosely described as a mandatory whistle-blowing duty imposed on external auditors.

Design/methodology/approach

Detailed interviews with some of South Africa's leading corporate governance experts are used to highlight the disciplinary effect of an auditor's duty to bring reportable irregularities to the attention of an independent regulator.

Findings

Blowing the whistle on irregularities contributes, not only to increasing the information made available to stakeholders, but to creating a valid expectation of auditors serving the public interest by enhancing a sense of transparency and accountability. Elements of resistance to panoptic-like control are, however, also present suggesting that, in part, the regulation may simply be creating the illusion of active reporting.

Research limitations/implications

The research relies on a relatively small sample of subject experts and does not provide a complete account of regulatory developments taking place in South Africa and abroad. Additional research on the role of whistle-blowing in an external audit setting is needed focusing particularly on similarities and variations in interpretations of reporting by auditors from the perspective of more diverse stakeholder groups.

Practical/implications

Mandatory reporting of irregularities by auditors can provided additional useful information for stakeholders and may contribute to demands for more effective reporting by auditors.

Social implications

Arms-length regulation of the audit profession should not be seen only as a means of improving audit quality and the utility of audit reports. Powerful social forces are also. This research demonstrates how laws and regulations have a potential disciplinary effect on the audit profession that contributes to a restoration of confidence in the audit process after it is best by scandals, even if motifs of power and control are somewhat illusionary.

Originality/value

This research addresses the need for more detailed analysis of precisely how mechanisms of accountability and transparency operate in the broader corporate governance arena. The paper also contributes to the calls for more detailed, context-specific studies of audit. Finally, this paper is one of the first to employ a critical theoretical perspective on audit in an African setting, responding to the need for contextual, methodological and theoretical eclecticism in the area of corporate governance research.

Details

Accounting, Auditing & Accountability Journal, vol. 27 no. 5
Type: Research Article
ISSN: 0951-3574

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Article
Publication date: 5 May 2014

C. Richard Baker, Jean Bédard and Christian Prat dit Hauret

This paper aims to examine the recent evolution of the regulation of statutory auditing since the passage of the Sarbanes-Oxley Act of 2002 in the USA by comparing the…

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Abstract

Purpose

This paper aims to examine the recent evolution of the regulation of statutory auditing since the passage of the Sarbanes-Oxley Act of 2002 in the USA by comparing the regulatory structures for auditing in the USA, France and Canada.

Design/methodology/approach

Using publicly available documents, the paper seeks to understand how the regulatory structures for statutory auditing have changed in the period since the passage of the Sarbanes-Oxley Act. The USA, France and Canada were chosen for analysis because prior to Sarbanes-Oxley the regulatory structures of these three countries were relatively distinct, whereas subsequent to the Act they appear to be becoming similar.

Findings

The authors interpret the increasing apparent similarity in the regulatory structures for statutory auditing in these three countries to be the result of external pressures from global capital markets for standardized regulatory practices. However, this apparent similarity may also be a form of “decoupling”, whereby actors in the institutional field of professional regulation, under pressures from powerful external forces, seek to enhance their legitimacy while maintaining internal flexibility and a certain capacity for resistance against external pressures in the institutional field.

Research limitations/implications

The paper relies on a qualitative analysis of regulatory structures based on a review and analysis of publicly available documents and legislation. As such, it has limitations similar to other qualitative studies.

Practical implications

The regulation of statutory auditing is important to society both to assure the proper functioning of capital markets and to provide reliable information to the general public. Gaining a better understanding of the regulatory structures for statutory auditing advances the public interest.

Originality/value

There have been few prior research efforts that have examined the regulation of statutory auditing through the lens of new institutional theory.

Details

Managerial Auditing Journal, vol. 29 no. 5
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 1 January 1999

Vivien Beattie, Richard Brandt and Stella Fearnley

The Department of Trade and Industry (DTI) issued a consultation document in November 1998, which set out a framework for the independent regulation of the accountancy…

Abstract

The Department of Trade and Industry (DTI) issued a consultation document in November 1998, which set out a framework for the independent regulation of the accountancy profession. This framework broadly adopts the proposals put forward by the profession itself. In this paper, the focus is on audit regulation. The current regime is outlined and its structural weaknesses and procedural problems identified. The proposed reforms are described and critically evaluated. It is argued that the proposed reforms offer only a partial solution to regulatory concerns, since no changes are proposed to the existing regime either for registration, or for monitoring and discipline of the majority of audit cases. An expanded framework that rationalises current practices and provides a more comprehensive solution is suggested. A critical feature of the proposal is that a distinction is made between audits of small entities and audits of major listed companies, only the latter of which are of public interest. Each would have distinct licensing and monitoring procedures.

Details

Journal of Financial Regulation and Compliance, vol. 7 no. 1
Type: Research Article
ISSN: 1358-1988

Article
Publication date: 2 February 2022

Elina Haapamäki

Neo-institutional theory (NIT) has strengthened its position as one of the theories and frameworks used to investigate accounting as organizational, legislative, social…

Abstract

Purpose

Neo-institutional theory (NIT) has strengthened its position as one of the theories and frameworks used to investigate accounting as organizational, legislative, social and policymaking phenomena. This study aims to review how aspects of NIT are used and understood by accounting researchers. As a growing body of accounting and auditing articles in recent years has used NIT as a theoretical framework, this paper reviews and analyzes articles using NIT.

Design/methodology/approach

This study develops a comprehensive synthesis of current academic knowledge about NIT in accounting and auditing regulation literature. Further, it reveals areas requiring further examination.

Findings

The findings of this study indicate that prior studies have found evidence that accounting and auditing regulation is associated with all forms of isomorphism (coercive, mimetic and normative). For instance, institutional pressures influence the accounting and auditing standards adoption in different environments. Therefore, the synthesis of the literature suggests that coercive, mimetic and normative pressures have played a significant role in the harmonization of accounting and auditing practices worldwide. To conclude, NIT has become one of the relevant alternative approaches used to explore accounting and auditing regulation as a complex phenomenon.

Research limitations/implications

Accounting has often been referred to as a “narrow” and “technical” topic. In a way, NIT broadens the research field by extending, for instance, the approach of which external and internal pressures are associated with accounting standards adoption and why different accounting practices are adopted.

Originality/value

This study informs accounting scholars as to how NIT has been applied, and can be applied, in the accounting and auditing regulation literature. This benefits accounting researchers if they are considering whether to use NIT in their research. This study evaluates the contribution of NIT within this research field. It can be suggested that accounting researchers need to become more aware of the debates within the NIT literature, particularly as the theory is seen as conceptually ambiguous. To conclude, the synthesis highlights that NIT has offered a range of important contributions and has drawn attention to the link between accounting and auditing regulation research and the institutional environment.

Details

Managerial Auditing Journal, vol. 37 no. 3
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 15 May 2018

R. Mithu Dey and Lucy Lim

Setting audit fees is a persistent source of stress for auditors who must, on one hand, comply with the increasing government regulations that generally cause costs to…

Abstract

Purpose

Setting audit fees is a persistent source of stress for auditors who must, on one hand, comply with the increasing government regulations that generally cause costs to rise; and on the other hand, respond to client pressures to keep audit fees down. In the post-scandal environment of Enron, WorldCom, and the demise of Arthur Andersen, policy makers have introduced additional costs for auditors by increasing regulations and creating a new industry watchdog – the Public Company Accounting Oversight Board (PCAOB). In this environment of constant pricing-cost tension for the auditor, the purpose of this paper is to examine audit fee trends over an extended period, 2000-2014.

Design/methodology/approach

The authors calculate the unexpected audit fees using the audit fee model. The authors examine audit fee trends while controlling for changes due to inflation, auditor wages, and other audit fee determinants.

Findings

The key findings indicate that audit fees increased in response to the promulgation of new audit regulations requiring additional audit work, the Sarbanes-Oxley (SOX) Act of 2002 and Auditing Standard No. 2 in 2004. Additionally, the authors find that audit fees decreased after new regulations alleviating audit work, namely the passage of Auditing Standard No. 5 in 2007, and remained unchanged when new regulations had a minimal impact on audit work, namely the Dodd-Frank Act of 2010.

Practical implications

The findings of this research are relevant to audit clients, auditors, and regulators as they weigh the cost and benefits of significant new audit regulations and their impacts on audit fees.

Originality/value

Using the more recent US data, the results in this paper show how events changed audit fee trends in recent years. The findings indicate that audit fees increased after the passage of new audit regulations such as the SOX Act of 2002, Auditing Standards No. 2 in 2004, and decreased after the passage of Auditing Standards No. 5 in 2007.

Details

American Journal of Business, vol. 33 no. 1/2
Type: Research Article
ISSN: 1935-5181

Keywords

Article
Publication date: 1 February 1994

STELLA FEARNLEY and MICHAEL PAGE

A new regime for registering and monitoring auditors has come into force in Great Britain. The power to make rules for audit practice, qualification and registration has…

Abstract

A new regime for registering and monitoring auditors has come into force in Great Britain. The power to make rules for audit practice, qualification and registration has been delegated to the professional accountancy bodies. Two significantly different systems have come into being, the one operated by the Institutes of Chartered Accountants and the other by the Chartered Association of Certified Accountants. The audit register contains a mixture of information derived from different registration practices. There is evidence that the new regime has significantly increased the cost of auditing small limited companies at a time when the usefulness of such audits is widely questioned, even by auditors themselves. The effects of the new regime on the audit of large companies, about which there has been public concern following recent company collapses, appear limited.

Details

Journal of Financial Regulation and Compliance, vol. 2 no. 2
Type: Research Article
ISSN: 1358-1988

1 – 10 of over 21000