Struggle over joint audit: on behalf of public interest?

Cédric Lesage (1) , Sabine Ratzinger (2) , Jaana Kettunen (3)

1 GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC
2 Department of Orthopaedics
3 JYU - University of Jyväskylä

European Commission (EC 2011) has recently suggested joint audit - broadly defined as an audit where two independent auditors are jointly liable for the audit report - as a way a way to increase audit quality after the financial crisis and to mitigate audit market concentration, by enlarging the audit offer. Big 4 audit firms have fought this proposal by arguing its unbearable cost while 2nd Tier audit firms have supported it by arguing its added quality. This conflicting position leads us to question their claim of public interest concern. As group-interest economic regulation theories predict that the absence of any effect of a new regulation (here: joint audit) is an evidence of a group rather than a public-interest concern, we test both cost and quality arguments. We perform our main analysis on Denmark (2002-2010), which gave up the mandatory joint audit in 2005. We test the impact of joint audit on both audit costs proxied by audit fees or total fees and audit quality proxied by abnormal accruals. Our results confirm 1) the non-significance association between fees (either audit fees or total fees) and joint audit, and 2) the non-significance association between abnormal accrual and joint audit. We then apply the same approach on a matched French-German sample to assess the arguments based on the French case, as France is characterized by a long tradition of joint audit. We find 1) similar results for audit quality (no significant differences between both countries regarding abnormal accrual in France); and 2) higher fees (audit fees and total fees) in France. However, as given the impossibility to disentangle the effect of joint audit from other institutional differences (as for instance the ban of joint provision of audit and non-audit services in France), we conclude that any argument based on the French case only is dubious. As given the non significance of the hypothesized positive association between joint audit and audit cost or quality, we conclude that arguments raised by both parties relate more to the defense of their private interest than the public (firms or shareholders') interests. The results are of interest for regulators and actors in the audit market.

Mots clés: joint audit; economic regulation; fees; accruals; audit quality

Domaines: Gestion et management

Cédric Lesage, Sabine Ratzinger, Jaana Kettunen. Struggle over joint audit: on behalf of public interest?. Comptabilités et innovation, May 2012, Grenoble, France. pp.cd-rom. ⟨hal-00935004⟩