Regulating Audit Quality: Restoring Trust and Legitimacy

Forthcoming, Accounting Forum 2012 (Vol 36/No 1)

31 Pages Posted: 28 Apr 2012

See all articles by Mahbub Zaman

Mahbub Zaman

Hull University Business School

Claus Holm

Aarhus University - Department of Economics and Business

Date Written: April 27, 2012

Abstract

The global financial crisis, corporate failures and scandals in many countries raise significant questions audit quality. In the UK, the FRC took the unprecedented step of codifying audit quality in its ‘Audit Quality Framework’. We analyse the extent to which audit firms, professional bodies, and investors considered the FRC proposals sufficient for addressing concerns about audit quality. Using impression management and legitimacy as a framework to analyze stakeholder responses we go beyond audit quality drivers identified by the FRC. In contrast to the drivers identified by the FRC, our focus on transparency, expertise, professionalism and commercialisation of the audit shows that FRC, audit firms and professional bodies have mainly focused on issues which possibly do not pose a threat to the commercial interest of audit firms. Overall, our analysis shows that regulatory and professional bodies engaged in image management and the promotion of audit quality in an attempt to remedy tarnished image and augment their legitimacy and standing. In attempting to restore trust and legitimacy regulatory bodies, such as the FRC, have to reconcile complex often contradictory stakeholder demands.

Keywords: Audit quality, Regulation, Audit firms, Legitimacy, Impression management

Suggested Citation

Zaman, Mahbub and Holm, Claus, Regulating Audit Quality: Restoring Trust and Legitimacy (April 27, 2012). Forthcoming, Accounting Forum 2012 (Vol 36/No 1). Available at SSRN: https://ssrn.com/abstract=2046922

Mahbub Zaman (Contact Author)

Hull University Business School ( email )

Hull, HU6 7RX
United Kingdom

HOME PAGE: http://www.mahbubzaman.com

Claus Holm

Aarhus University - Department of Economics and Business ( email )

Fuglesangs Alle 4
Aarhus University
Aarhus C, Danmark DK-8210
Denmark
40422778 (Phone)
40422778 (Fax)

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