The role of external auditors in the financial reporting process

Forthcoming. Handbook on the Financial Reporting Environment (edited by W. Ge, A. Koester, and S. McVay, 2025), Edward Elgar Publishing Ltd.

38 Pages Posted: 3 Jan 2025

See all articles by Lauren M. Cunningham

Lauren M. Cunningham

University of Tennessee - Haslam College of Business

Sarah E. Stein

Virginia Tech

Date Written: November 08, 2024

Abstract

External auditors can increase stakeholders’ confidence in the financial reports provided by companies, which allows for better decision-making. However, there is often an expectations gap between what stakeholders believe auditors do and what auditors are required to do under the applicable auditing standards. This expectations gap is exacerbated by the fact that not all audits are created equal. Audit firms have access to different resources, which can affect the type and quality of audit services they can provide. In this chapter, we dig into how audits are conducted, what factors affect audit quality, and why stakeholders have a hard time distinguishing the quality of one audit from another. We conclude by discussing how stakeholders can engage with companies to gain more insight into the audit, and by looking forward to consider external auditors’ involvement in providing assurance over non-financial information (e.g., sustainability-related disclosures). 

Keywords: audit, Big 4, regulation, information asymmetry, investors, materiality

Suggested Citation

Cunningham, Lauren M. and Stein, Sarah E., The role of external auditors in the financial reporting process (November 08, 2024). Forthcoming. Handbook on the Financial Reporting Environment (edited by W. Ge, A. Koester, and S. McVay, 2025), Edward Elgar Publishing Ltd., Available at SSRN: https://ssrn.com/abstract=5072871 or http://dx.doi.org/10.2139/ssrn.5072871

Lauren M. Cunningham (Contact Author)

University of Tennessee - Haslam College of Business ( email )

Accounting and Information Management
603 Stokely Management Center
Knoxville, TN 37996
United States

Sarah E. Stein

Virginia Tech ( email )

250 Drillfield Drive
Blacksburg, VA 24061
United States

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