This paper examines the effect of the European public audit oversight reform on audit quality. Accounting scandals at the beginning of the 21th century called the audit profession into question and raised serious concerns on the oversight system in place. In an attempt to regain investors’ confidence, the European Commission (hereafter referred to as EC) followed the American example and passed Directive 2006/43/EC, which requires the Member States of the European Union (hereafter referred to as EU) to set up public oversight systems for statutory auditors and audit firms.
The paper provides empirical evidence that managers are less likely to commit earnings management in the years following the regulatory reform compared to the years preceding the reform, indicating higher audit quality in the post-reform period. Member States of the EU can choose between two options for national public oversight of auditors; the full-time inspection model and the model which consists of peer reviews with an independent commission monitoring this process. I run several analyses with different models and test whether firms in jurisdictions that implemented the full-time inspection model exhibit lower discretionary accruals compared to firms in jurisdictions that implemented the modified peer review model. The results are contradicting and do not support a conclusion.
Inhaltsverzeichnis
I. INTRODUCTION
II. BACKGROUND
THE PIONEER – PUBLIC AUDIT OVERSIGHT IN THE U.S
THE FOLLOWER – PUBLIC AUDIT OVERSIGHT IN THE EU
THE VOLUNTEERS – PUBLIC AUDIT OVERSIGHT AT AN INTERNATIONAL LEVEL
THE INTENTION – ENHANCEMENT OF AUDIT QUALITY
AUDIT QUALITY
LINKING PUBLIC AUDIT OVERSIGHT TO AUDIT QUALITY
III. LITERATURE REVIEW AND DEVELOPMENT OF HYPOTHESES
RESEARCH ON SELF-REGULATED PEER REVIEWS
RESEARCH ON INDEPENDENT INSPECTIONS
IV. DATA AND RESEARCH METHOD
SAMPLE AND DESCRIPTIVE STATISTICS
EMPIRICAL MODEL
THE MODIFIED JONES MODEL
ABNORMAL WORKING CAPITAL ACCRUALS
DEPENDENT VARIABLE
INDEPENDENT VARIABLES
CONTROL VARIABLES
V. EMPIRICAL RESULTS
VI. SENSITIVITY TEST
VII. ROBUSTNESS TEST
VIII. CONCLUSION
IX. REFERENCES
X. Appendix
Appendix E: Description of the Dechow and Dichev Model
- Quote paper
- Matthias Linke (Author), 2015, The European Public Audit Oversight Reform. Which Effect Does it Have on Audit Quality?, Munich, GRIN Verlag, https://www.grin.com/document/495142
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