IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/65370.html
   My bibliography  Save this paper

Measuring the independence of audit oversight entities: a comparative empirical analysis

Author

Listed:
  • Löhlein, Lukas

Abstract

Purpose: Independent audit oversight is a prerequisite for restoring public confidence in financial reporting and auditing after the past accounting scandals and the financial crisis. By analysing and comparing the independence of the audit oversight boards of 27 European Member States and the USA, this study aims to provide insights into the question of how independent “independent” audit oversight boards are. Design/methodology/approach: Independence is measured in terms of the organisational compositions and regulatory competences of the audit oversight authorities. The data were collected through an e-mail questionnaire that was sent to all European oversight authorities, and by analysing legal provisions of various regulators. The results are analysed and visualised by a Partial Order Scalogram Analysis with Coordinates, which allows conclusions about the similarities of various systems and their relative levels of independence. Both measurements are then equally combined into one value of material independence, which is used to rank the oversight authorities. Findings: Although all countries encounter similar pressures to establish profession-independent oversight systems, this study identifies how differently “independence” has been translated in regulatory outcomes. While all countries claim to possess formal independent oversight bodies, there is a visible gap between countries with comparatively strong independent oversight authorities and systems in which accounting bodies still maintain far-reaching regulatory influence. At the same time, the results question the role of the Public Company Accounting Oversight Board (PCAOB) as the globally perceived benchmark of an entirely independent regulator. Research limitations/implications: This study focuses on formal independence rather than de-facto independence. Future research has, therefore, to address how these formal arrangements have evolved in regulatory practice. Practical implications: Policy makers around the world perceive independent oversight as one of the essential elements of regulatory reforms aiming at restoring public confidence in the aftermath of past accounting scandals. This study enables the comparison and benchmarking of national specific regulatory designs with other forms of independent oversight. Originality/value: Although the role of independent regulation is a recurring theme in accounting research, a systematic and encompassing comparison of the intertwining of audit oversight authorities and the accounting profession has not yet been provided. This study takes a first step towards providing a quantifiable measure of the formal independence of audit oversight authorities by mobilizing concepts, methods and prior findings from the field of public policy research.

Suggested Citation

  • Löhlein, Lukas, 2017. "Measuring the independence of audit oversight entities: a comparative empirical analysis," LSE Research Online Documents on Economics 65370, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:65370
    as

    Download full text from publisher

    File URL: http://eprints.lse.ac.uk/65370/
    File Function: Open access version.
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Geoff Edwards & Leonard Waverman, 2006. "The Effects of Public Ownership and Regulatory Independence on Regulatory Outcomes," Journal of Regulatory Economics, Springer, vol. 29(1), pages 23-67, January.
    2. Puxty, A. G. & Willmott, Hugh C. & Cooper, David J. & Lowe, Tony, 1987. "Modes of regulation in advanced capitalism: Locating accountancy in four countries," Accounting, Organizations and Society, Elsevier, vol. 12(3), pages 273-291, April.
    3. Caramanis, Constantinos & Dedoulis, Emmanouil & Leventis, Stergios, 2015. "Transplanting Anglo-American accounting oversight boards to a diverse institutional context," Accounting, Organizations and Society, Elsevier, vol. 42(C), pages 12-31.
    4. Hayo, Bernd & Voigt, Stefan, 2007. "Explaining de facto judicial independence," International Review of Law and Economics, Elsevier, vol. 27(3), pages 269-290, September.
    5. Majone, Giandomenico, 1997. "From the Positive to the Regulatory State: Causes and Consequences of Changes in the Mode of Governance," Journal of Public Policy, Cambridge University Press, vol. 17(2), pages 139-167, May.
    6. Quick, Reiner & Turley, Stuart & Willekens, Marleen, 2008. "Auditing, Trust and Governance. Developing regulation in Europe," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35700, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    7. Covaleski, Mark A. & Dirsmith, Mark W. & Rittenberg, Larry, 2003. "Jurisdictional disputes over professional work: the institutionalization of the global knowledge expert," Accounting, Organizations and Society, Elsevier, vol. 28(4), pages 323-355, May.
    8. Cukierman, Alex & Webb, Steven B, 1995. "Political Influence on the Central Bank: International Evidence," The World Bank Economic Review, World Bank, vol. 9(3), pages 397-423, September.
    9. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," The World Bank Economic Review, World Bank, vol. 6(3), pages 353-398, September.
    10. Bedard, Jean, 2001. "The disciplinary process of the accounting profession: protecting the public or the profession? The Quebec experience," Journal of Accounting and Public Policy, Elsevier, vol. 20(4-5), pages 399-437.
    11. Cooper, David J. & Robson, Keith, 2006. "Accounting, professions and regulation: Locating the sites of professionalization," Accounting, Organizations and Society, Elsevier, vol. 31(4-5), pages 415-444.
    12. Canning, Mary & O’Dwyer, Brendan, 2013. "The dynamics of a regulatory space realignment: Strategic responses in a local context," Accounting, Organizations and Society, Elsevier, vol. 38(3), pages 169-194.
    13. Christopher Humphrey & Asad Kausar & Anne Loft & Margaret Woods, 2011. "Regulating Audit beyond the Crisis: A Critical Discussion of the EU Green Paper," European Accounting Review, Taylor & Francis Journals, vol. 20(3), pages 431-457, June.
    14. Suddaby, Roy & Cooper, David J. & Greenwood, Royston, 2007. "Transnational regulation of professional services: Governance dynamics of field level organizational change," Accounting, Organizations and Society, Elsevier, vol. 32(4-5), pages 333-362.
    15. Lisa Evans & Christopher Nobes, 1998. "Harmonization relating to auditor independence: the Eighth Directive, the UK and Germany," European Accounting Review, Taylor & Francis Journals, vol. 7(3), pages 493-516.
    16. Malsch, Bertrand & Gendron, Yves, 2011. "Reining in auditors: On the dynamics of power surrounding an “innovation” in the regulatory space," Accounting, Organizations and Society, Elsevier, vol. 36(7), pages 456-476.
    17. Humphrey, Christopher & Loft, Anne & Woods, Margaret, 2009. "The global audit profession and the international financial architecture: Understanding regulatory relationships at a time of financial crisis," Accounting, Organizations and Society, Elsevier, vol. 34(6-7), pages 810-825, August.
    18. Quick, Reiner & Baker, R. & Mikol, A., 2001. "Regulation of the Statutory Auditor in the European Union: A Comparative Survey of the United Kingdom, France and Germany," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 67744, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Canning, Mary & O'Dwyer, Brendan, 2016. "Institutional work and regulatory change in the accounting profession," Accounting, Organizations and Society, Elsevier, vol. 54(C), pages 1-21.
    2. Löhlein, Lukas & Müßig, Anke, 2020. "At the boundaries of institutional theorizing: Individual entrepreneurship in episodes of regulatory change," Accounting, Organizations and Society, Elsevier, vol. 83(C).
    3. Samsonova-Taddei, Anna & Humphrey, Christopher, 2015. "Risk and the construction of a European audit policy agenda: The case of auditor liability," Accounting, Organizations and Society, Elsevier, vol. 41(C), pages 55-72.
    4. Canning, Mary & O’Dwyer, Brendan, 2013. "The dynamics of a regulatory space realignment: Strategic responses in a local context," Accounting, Organizations and Society, Elsevier, vol. 38(3), pages 169-194.
    5. Suddaby, Roy & Cooper, David J. & Greenwood, Royston, 2007. "Transnational regulation of professional services: Governance dynamics of field level organizational change," Accounting, Organizations and Society, Elsevier, vol. 32(4-5), pages 333-362.
    6. Xu, Shirley Geyi & Andrew, Brian, 2021. "Competing for the leading role: Trials in categorizing greenhouse and energy auditors," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 77(C).
    7. Suddaby, Roy & Saxton, Gregory D. & Gunz, Sally, 2015. "Twittering change: The institutional work of domain change in accounting expertise," Accounting, Organizations and Society, Elsevier, vol. 45(C), pages 52-68.
    8. Malsch, Bertrand & Gendron, Yves, 2011. "Reining in auditors: On the dynamics of power surrounding an “innovation” in the regulatory space," Accounting, Organizations and Society, Elsevier, vol. 36(7), pages 456-476.
    9. Kettunen, Jaana, 2017. "Interlingual translation of the International Financial Reporting Standards as institutional work," Accounting, Organizations and Society, Elsevier, vol. 56(C), pages 38-54.
    10. Baudot, Lisa & Cooper, David J., 2022. "Regulatory mandates and responses to uncomfortable knowledge: The case of country-by-country reporting in the extractive sector," Accounting, Organizations and Society, Elsevier, vol. 99(C).
    11. Alon, Anna & Dwyer, Peggy D., 2016. "SEC's acceptance of IFRS-based financial reporting: An examination based in institutional theory," Accounting, Organizations and Society, Elsevier, vol. 48(C), pages 1-16.
    12. Ramirez, Carlos, 2009. "Constructing the governable small practitioner: The changing nature of professional bodies and the management of professional accountants' identities in the UK," Accounting, Organizations and Society, Elsevier, vol. 34(3-4), pages 381-408, April.
    13. Caramanis, Constantinos & Dedoulis, Emmanouil & Leventis, Stergios, 2015. "Transplanting Anglo-American accounting oversight boards to a diverse institutional context," Accounting, Organizations and Society, Elsevier, vol. 42(C), pages 12-31.
    14. Löhlein, Lukas, 2016. "From peer review to PCAOB inspections: Regulating for audit quality in the U.S," Journal of Accounting Literature, Elsevier, vol. 36(C), pages 28-47.
    15. Löhlein, Lukas, 2016. "From peer review to PCAOB inspections: regulating for audit quality in the U.S," LSE Research Online Documents on Economics 67147, London School of Economics and Political Science, LSE Library.
    16. Bernd Hayo & Stefan Voigt, 2008. "Inflation, Central Bank Independence, and the Legal System," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(4), pages 751-777, December.
    17. Chris Hanretty & Christel Koop, 2013. "Shall the law set them free? The formal and actual independence of regulatory agencies," Regulation & Governance, John Wiley & Sons, vol. 7(2), pages 195-214, June.
    18. Carlin Dowling & W. Robert Knechel & Robyn Moroney, 2018. "Public Oversight of Audit Firms: The Slippery Slope of Enforcing Regulation," Abacus, Accounting Foundation, University of Sydney, vol. 54(3), pages 353-380, September.
    19. Ghattas, Peter & Soobaroyen, Teerooven & Marnet, Oliver, 2021. "Charting the development of the Egyptian accounting profession (1946–2016): An analysis of the State-Profession dynamics," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 78(C).
    20. Dunne, Neil J. & Brennan, Niamh M. & Kirwan, Collette E., 2021. "Impression management and Big Four auditors: Scrutiny at a public inquiry," Accounting, Organizations and Society, Elsevier, vol. 88(C).

    More about this item

    Keywords

    audit oversight; audit regulation; cross-country comparison; PCAOB; regulatory independence;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:65370. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: LSERO Manager (email available below). General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.