Paper #452

Title:

Audit quality: Attributes, private safeguards and the role of regulation

Author:

Benito Arruñada

Date:

January 2000

Abstract:

This article examines the private mechanisms used to safeguard quality in auditing, with a view to defining rules capable of facilitating the performance of market forces. An outline is given of a general theory of private quality assurance in auditing, based on the use of quasi-rents to self-enforce quality dimensions. Particular attention is paid to the role of fee income diversification as the key ingredient of private incentives for audit quality. The role of public regulation is then situated in the context defined by the presence of these safeguard mechanisms. This helps in defining the content of rules and the function of regulatory bodies in facilitating and strengthening the protective operation of the market. By making sense of the interaction between regulation, quality attributes and private safeguards, the analysis helps to evaluate the relative merits of different regulatory options.

Keywords:

Auditing, quality, self-enforcement, regulation, diversification

JEL codes:

K22, K23, M40

Area of Research:

Business Economics and Industrial Organization

Published in:

European Accounting Review, 9, 2, (2000), pp. 205-24

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