The Impact of the Spanish Financial Act (44|2002) on Audit Quality

Revista Española de Financiación y Contabilidad (REFC)/ Spanish Journal of Finance and Accounting, Forthcoming

45 Pages Posted: 24 Jul 2012 Last revised: 7 Aug 2019

See all articles by Elena de las Heras

Elena de las Heras

Universidad Autónoma de Madrid

Leandro Canibano

Universidad Autonoma de Madrid

José António Cardoso Moreira

cef.up / Faculdade de Economia / Universidade do Porto

Date Written: July 24, 2012

Abstract

This study examines the impact of the Financial Act 44|2002 (FA henceforth) on audit quality in Spain. Our goal is to provide empirical evidence on whether the audit reforms recommended by the EU and introduced under the FA actually result in higher audit quality. These audit reforms introduce rules and actions to reinforce auditor independence and competence and thus, incentivise audit quality. The public oversight body for the audit profession (the Institute of Accounting and Auditing- ICAC) and the main professional audit body (the Spanish Institute of Chartered Accountants- ICJCE) maintain the view that the changes ensure and increase audit quality [Fernández and Combarros 2002; Atarés and Canales 2004]. However there is no empirical evidence to support this argument. We empirically test the effect of the FA on audit quality by assessing the ability of auditors to constrain opportunistic earnings management practices. We use data from Spanish companies for the pre- and post-FA periods 2000-2001 and 2003-2004 respectively. The study shows that audit quality has increased after the FA. These results support European recommendations on questions regarding audit regulation.

Keywords: audit quality, earnings management, audit reforms, Financial Act 44|2002

JEL Classification: M40, M41

Suggested Citation

de las Heras, Elena and Cañibano, Leandro and Cardoso Moreira, José António, The Impact of the Spanish Financial Act (44|2002) on Audit Quality (July 24, 2012). Revista Española de Financiación y Contabilidad (REFC)/ Spanish Journal of Finance and Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2116229

Elena De las Heras (Contact Author)

Universidad Autónoma de Madrid ( email )

Avda. Fco. Tomas y Valiente 5
Madrid, Madrid 28049
Spain

Leandro Cañibano

Universidad Autonoma de Madrid ( email )

Campus de Cantoblanco
Madrid, Madrid 28049
Spain

José António Cardoso Moreira

cef.up / Faculdade de Economia / Universidade do Porto ( email )

Rua Dr. Roberto Frias
4200-464 Porto
Portugal

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