Market Competition and Auditor Independence

Abstract

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. In corporate series the past of unsignalled collapse two years, several Australia corporate have and been collapses. other associated jurisdictions As with with previous questionable have again generations witnessed accounting of a series of unsignalled corporate collapses. As with previous generations of corporate collapse several have been associated with questionable accounting policies and concerns with auditing quality. With the decomposition of the former global auditing firm once known as Arthur Andersen, the implications for the accounting profession are seen as more serious than ever before. Over many decades corporate community and regulators in Australia and other jurisdictions have implemented change after high profile company failures occur. Some of the implemented changes have, over time, enhanced the quality of auditing but we continue to see unsignalled corporate failures, prompting an ongoing perception that the audit process is not delivering a product of value to the market. This perception has been described as an ' expectations gap' , which arises in part because what is expected by market participants is not realistic. However, of serious concern for the auditing profession is the fact that there remain instances where people with clear understanding of audit processes and realistic expectations of audit outcomes raise concerns about audit quality. This paper argues for the creation of a market-observable audit independence quality control process, developed under the scrutiny of market competition. Such an independence quality control process needs to infiltrate the culture of the audit firm and, critically, to underpin the culture and ethos of the audit processes. Two alternative versions of the model are proposed. One of these involves