Understanding financial auditing from a service perspective

This paper draws from the service science and professional service literatures to conceptualize financial auditing as an economic service. A central characteristic of economic services is the participation of the customer/client in the production process. The necessity of having the customer/client be a co-producer introduces greater heterogeneity to the provision of services relative to the manufacturing of goods which, in turn, creates a tension between service quality and service efficiency. One implication of this tension is that standardization of the audit process may not increase audit quality. We further argue that audit research should give more attention to the idiosyncratic nature of audit engagements and the importance of successful cooperation between the service provider (the audit firm) and the client for improving audit quality. Utilizing research on service networks, we draw attention to a broader perspective than the dyadic relations of service provider and client to show that the possible frictions between the value of co-creation of the service and the independence of the service professional are endemic to the service process, implying that efforts to maximize auditor independence may have unexpected costs that impair audit quality.