Struggle Over Joint Audit: On Behalf of Public Interest?

49 Pages Posted: 17 Nov 2012

See all articles by Cédric Lesage

Cédric Lesage

JMSB

Nicole V.S. Ratzinger-Sakel

University of Hamburg

Jaana Maria Kettunen

University of Jyväskylä - School of Business and Economics

Date Written: October 10, 2012

Abstract

This paper studies the claimed costs and benefits of joint audit that has recently been suggested by the European Commission (EC 2011) as a way to increase the market efficiency. This initiative has raised a vivid debate between the Big and the 2nd Tier audit firms. While both claim acting on behalf of public interest protection, the former fight the proposal by arguing its unbearable cost while the latter support it by arguing its added quality. This conflicting position leads us to question their claim of public interest concern. As group-interest economic regulation theories predict that the absence of any effect of a new regulation (here: joint audit) is an evidence of a group rather than a public-interest concern, we test both cost and quality arguments.

We perform our analysis on Denmark (2002-2010), which gave up the mandatory joint audit in 2005. We test the impact of joint audit on both audit costs surrogated by audit fees or total fees and audit quality surrogated by abnormal accruals. Our results confirm 1) the non-significance association between joint audit and fees (either audit fees or total fees), and 2) the non-significance association between joint audit and abnormal accrual. As given the non-significance of the hypothesized positive association between joint audit and audit cost or quality, we conclude that arguments raised by both parties relate more to the defense of their private interest than the public (firms’ or shareholders’) interests. The results are of interest for regulators and actors in the audit market.

Keywords: joint audit, economic regulation, fees, accruals, audit quality

Suggested Citation

Lesage, Cédric and Ratzinger-Sakel, Nicole V.S. and Kettunen, Jaana Maria, Struggle Over Joint Audit: On Behalf of Public Interest? (October 10, 2012). Available at SSRN: https://ssrn.com/abstract=2176729 or http://dx.doi.org/10.2139/ssrn.2176729

Cédric Lesage (Contact Author)

JMSB ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada

Nicole V.S. Ratzinger-Sakel

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

Jaana Maria Kettunen

University of Jyväskylä - School of Business and Economics ( email )

University of Jyväskylä
PO Box 35
FIN 40351, FIN-40014
Finland

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