Audit independence and nonaudit services: a comparative study in differing British and French perspectives

This paper presents a comparative study of respective positions of the British and French public accounting professions on whether independence of the statutory auditor is at material risk of compromise from supply of nonaudit services by audit firms to audit clients. For the purpose of the study, attention was confined to regulatory texts and professional audit standards in both countries. It examines historical factors in the development of public accounting and auditing in Britain and France that have led to an accommodating attitude towards joint supply of audit and nonaudit services in the former and a less accommodating and more highly regulated stance in the latter. As a basis for interpreting the significance of these different national positions, the issue of joint supply is considered in an agency theory framework, in terms of relative advantages and disadvantages from joint supply of audit and nonaudit services to audit firms, management in place and external parties, notably shareholders. In practice, the issue turns largely on professional and regulatory specification of audit firm activities deemed incompatible with audit independence and on regulatory mechanisms for monitoring compliance in the matter. Although the French position is less accommodating, it is noted that major firms in France have adopted legal and organizational structures to deal with regulatory constraints and to protect their functioning as multi-service firms. At the same time, French regulatory authorities have hesitated to impose strong constraints on major firms, with the result that actual operation of the French audit market may not be as different from the British as it might at first appear.