Unregulated Markets for Audit Services
The Japanese Accounting Review, Vol. 1, pp. 2-16, 2011
Posted: 29 Mar 2012 Last revised: 10 Sep 2015
Date Written: October 1, 2011
Certification of financial reports is tightly regulated with the intent to ensure the quality of this service. In order to place this market within a larger perspective, Part I of this paper presents archival data on certification activity in the economy. The finding of widespread availability of a diverse set of certifiers for most goods and services points to the competitive conditions that accounting firms may encounter as they attempt to expand their range of services. In Part II we examine an instance of audit firms unsuccessfully competing with non-traditional assurance providers of e-commerce privacy certification. Their failure appears to be attributable, at least in part, to the high cost of certification, inferior standards, and poor compliance by their clients. In Part III we document the types of certification reports issued by government agencies and private certification services. Private certification agencies issue more detailed and informative certification reports compared to government agencies. We discuss the implications of these findings for the market for audit services.
Keywords: Private Audit, Regulation, Certification Services, Audit Reports
JEL Classification: M49, G34, G38
Suggested Citation: Suggested Citation