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This paper aims to examine how a firm’s exposure to economic policy uncertainty affects the auditors’ perceptions of financial reporting risk. Firms that are more sensitive to policy uncertainty are predicted to engage in more earnings management because these firms are more likely to experience greater uncertainty in future operations. Audit fees will reflect this reporting risk. On the other hand, auditors might feel more fee pressure from policy-sensitive firms because firms are more inclined to reduce spending in the face of uncertainty and subsequently charge lower fees.

The author tests my hypothesis using U.S. data on audit fees and client characteristics of public companies between the years 2001 and 2021. The author estimates a standard audit fee model based on the audit fee literature (Hay et al., 2006) while also including the two policy sensitivity measures. This study uses panel data methods that allow time-series analyses, providing a powerful setting to test dynamic audit fee adjustment to improve the understanding of the audit market.

The results suggest that audit fee is higher for policy-sensitive firms than for policy-neutral firms. These results are robust to various proxies of policy sensitivity and various specifications designed to mitigate the endogeneity concerns. The study provides assurance that on average, auditor pricing reflects client risk adequately, mitigating the concern that auditors give in to fee pressure and compromise audit quality as a result.

While the findings from this study should be of value to regulators and academics seeking to understand audit activities amid escalating macroeconomic uncertainty, when interpreting these results, several limitations must be considered. The study does not examine how external auditors evaluate risks tied to policy uncertainty. A comprehensive understanding of how and why external auditors respond to heightened policy uncertainty faced by firms could be better achieved through interviews with external auditors and audit committee members. In addition, while this study posits that auditors adjust their approach in response to changes in policy uncertainty, largely due to potential shifts in the risks of material misstatement, there might be additional factors at play that warrant higher audit fees post a change in policy uncertainty. For instance, specific policy changes may give rise to new risks or modify existing ones, thereby precipitating increased scrutiny of records and procedures as company directors’ demand. These aspects offer potential avenues for future research.

This study underscores the significant role of policy sensitivity in determining audit fees and audit quality. Policy-sensitive firms present unique complexities and potential risks that require additional effort and vigilance from auditors. Auditors must develop a specialized understanding of sectors prone to policy fluctuations to navigate these unique challenges effectively. In addition, the role of professional standards boards and regulators in establishing guidelines for auditing policy-sensitive firms cannot be understated. Such guidelines could lead to more consistent audit practices and improved audit quality. Finally, by recognizing and effectively responding to the policy sensitivity of client firms, audit firms can mitigate their own risks, strengthen public trust and enhance the reliability of financial reports.

First, this study adds to an emerging stream of auditing literature that focuses on how audit fees interact with a firm’s external environment by providing evidence of an unexplored implication, a firm-specific policy sensitivity. Second, my main construct, policy sensitivity, provides two distinct advantages over other variables used in prior studies that explore the relationship between audit fees and external firm environments. Third, this study answers the calls for research by De Villiers et al. (2013, p. 3), who identified the cost behavior of audit fees, especially over time, as an area not well understood.

Provides a response to a 1994 article in a Berlin daily newspaper reprimanding the German Federal Court of Audit (FCA) for allegedly exceeding its powers, since it is not a policy‐making body. Sets out to explain how the FCA, in spite of its obligations to exercise self‐restraint in matters of policy, may influence policy decisions. Cites the FCA′s reports on the Eurofighter 2000 and on the new Parliament building in Bonn as examples. Describes the FCA′s role in relation to Parliament and Government and explains its involvement in budget negotiations. Provides specific examples of matters in which the FCA has had an advisory role.

Gaining an understanding of the business and accounting processes of the insurers concerned is a key element of the complex, high‐risk external audits1 of listed South African long‐term insurers. In this empirical study, the value chain concept developed by Porter in the 1980s is customised for listed South African long‐term insurers. Furthermore, the accounting support processes that affect the high‐risk components of policy liabilities and the related earnings of these insurers are identified. The generic value chain and list of accounting support processes developed in this study are useful tools to assist auditors in gaining an understanding of the business and accounting processes of these insurers.

This study aims to explore whether an auditee’s audit quality influences its payout policies (i.e. each form of dividend payouts and stock repurchase payouts).

Based on a panel data of US public firms, from 2004 to 2018, and Tobit estimators, this study aims to examine whether auditees’ audit quality is related to their payouts and under which circumstances (from the standpoints of auditees’ information asymmetry, refinancing risk, corporate governance and financial constraints) the aforesaid associations are more pronounced.

The findings of this study imply that auditees’ audit quality is positively related to auditees’ payouts. Further examination suggests that this positive relationship is stronger for auditees with higher information asymmetry, lower financial constraints and refinancing risk and for those with weaker governance. Finally, this study documents that dividend payouts are more stable for auditees with high-quality audits than those with low-quality audits. The results support the view that auditees’ transparency (reflected in high-quality audits) could be a crucial driver and rationale for their payout policies and, ultimately, overall policies.

By combining two different research lines of audit quality and corporate payout policies, this paper adds to both literature, as it is a novel one to document the contributing function and impact of audit quality on auditee’s payout policies (tangible financial decisions and policies). The findings are significant considering that it documents high-quality audits affecting the auditees besides their financial reporting quality. This study also shows the moderating roles of the auditee’s information asymmetry, rollover risk, financial constraints and corporate governance in the relation between audit quality and an auditee’s payout decisions. Furthermore, the findings can help shareholders (aiding them in determining companies with high payout policies), regulators and policymakers who emphasize audit quality. The results indicate that policymakers’ and standard setters’ efforts fostering high-quality audits should be in conjunction with firm payout standards.

The purpose of this paper is to contribute to the development of a policy model for the accounting and auditing profession that fits the current fragmented regulatory context of the UAE and GCC, and could help accountancy to become a cornerstone of an improved corporate governance regime. This paper aims to focus on the features of accountancy within the UAE and GCC, and develop some suggestions for a regional model.

This is a qualitative paper. Data for this paper were collected via in‐depth interviews with partners in Big Four audit firms in the UAE, accounting academics, and accounting students at the UAEU. Valuable primary sources of data were also web sites and publications from official organizations. A short survey was also administered to students.

In summary, accountancy's regulatory context in the UAE has remained fragmented. The state has taken the lead role, regulating in some detail the affairs of audit firms. The fragmented regulatory context of accounting and auditing in the UAE has allowed the Big Four to import their global quality assurance systems into the UAE, hiring mainly auditors with foreign examined qualifications. This may present advantages for the policy objective “internationalisation of the UAE economy”. It may, however, be regarded as suboptimal for the policy objectives “localisation of the accountancy profession to support the growth and development of local (family) businesses” and “Emiratisation of the accountancy profession”.

It is suggested that the possible shape of a stronger UAE‐based accountancy profession be investigated in more detail and its suggested positive effects for specific, relevant UAE policies be put to the test. More interviews with other relevant institutions and local accountants would have enriched understanding of the profession.

Understanding the financial regulatory context of UAE is crucial for the understanding and further development of the profession. The Big Four firms have a key role to play in orchestrating efforts towards further professional development.

Small and medium‐sized practitioners need to be supported by a clearer regulatory context, which allows them to exist alongside the Big Four.

The paper presents empirical and qualitative evidence about the regulatory context of the UAE.

In recent international debates on auditing regulation, Spain has assumed a real prominence as a claimed practical example of where a policy of mandatory audit firm rotation did not work and was duly abolished. This study aims to provide an analysis of the implementation and subsequent removal of mandatory audit firm rotation in Spain in the 1990s.

This takes the form of historical analysis; the evidence in the paper derives from congressional hearings, financial newspapers and documents produced by the professional associations of auditors in Spain.

This paper demonstrates that at no stage was mandatory rotation of audit firms ever enforced on Spanish auditors. Further, the revision and subsequent removal of the Spanish law on mandatory audit firm rotation emerge as a rather politicized process, with no evident reference being made in the process of legislative reform to Spanish auditing experiences. The analysis also reveals that at the very time that Spain was being cited internationally for rejecting mandatory audit firm rotation, Spanish political parties and regulators were debating whether to “re‐introduce” such a regulation.

The clear implication of the paper is that considerable caution needs to be taken in today's international‐auditing arena, when analyzing the standpoints and claims made by professional associations and the evidence they provide to support their arguments for and against regulatory reform.

This paper examines international pronouncements on the audit function and Internet financial reporting and assesses whether the practices and policies reflected in these pronouncements are followed by the auditors of top South African companies. As a secondary objective, this study also attempted to determine how South African auditors perceive the influence that Internet reporting may have on the auditing profession in future. The analysis shows that many of the procedures required of auditors and Internet reporting have already been defined by international standardsetting bodies, but that the audit firms which responded to the questionnaire in this study do not yet have well‐established policies and practices regarding Internet reporting. There is still some uncertainty regarding Internet financial reporting in the responding audit firms, as was reflected in their perceptions of the future of Internet financial reporting and its impact on the audit function. The responding audit firms were reluctant to expand their responsibilities with regard to Internet financial reporting.

The value and role of the environmental audit for local authorities is outlined. The audit must be seen as a tool to help formulate and implement the Environmental Policy/Action Plan for the authority. The audit generally covers three areas: a review of the existing environmental conditions; a review of policies; and a review of practices. The issues covered in these three stages are illustrated.

The purpose of this study is to examine whether audit quality influences auditees' liquidity policy.

The author uses ordinary least squares (OLS) estimators, and we focus on a panel of US publicly traded companies (36,118 company-year observations) over the period of 2004–2019 to examine the effect of audit quality on auditees' cash reserves.

The author finds that high quality audits are negatively related to auditees' cash reserves. Additional analyses show that the potential channel by which audit quality influences these reserves is financial constraints (FC). Particularly, his results suggest that an auditee's FC serve as an intermediary in the association between audit quality and auditee's cash reserves. Ultimately, we show that high quality audits raise the market value relevance of an extra dollar in cash reserves.

By linking two distinct research lines of audit quality and corporate cash reserves, this study adds to both lines of literature, as it is a novel one (to the best of the author’s knowledge) to provide evidence about the effect of audit quality on the auditees' liquidity policy (a real economic decision and internal financial policy) that ultimately boosts the auditees' investment efficiency. The author’s findings are consistent with influential monitoring and an insurance-like function of high quality audits in reducing information asymmetry and its consequences. His results also support the argument that auditees' transparency through high quality audits can be a pivotal determinant of their liquidity policy.