Joint Audit: Issues and Challenges for Researchers and Policy-Makers

Abstract

The publication of the European Commission Green Paper, ‘Audit Policy: Lessons from the Crisis’ in October 2010, has stirred up a lively debate on the role of joint audits. This literature review identifies and evaluates, for the benefit of future research and regulators, existing evidence about joint audits. We find limited empirical support to suggest that joint audits lead to increased audit quality, but some empirical support to suggest that joint audits lead to additional costs. Overall, this paper indicates that joint audit should be seen as a mechanism that is embedded in a broader institutional context and not be considered in isolation from other factors that might impact the audit market. The results indicate that various country-level characteristics are simultaneously at play. While joint audits can potentially enhance the audit market competition by allowing smaller audit firms to maintain larger market shares, the related impact on audit quality has not yet been clearly demonstrated and thus provides a promising avenue for future research.

Acknowledgements

The authors acknowledge the financial support of the Institute of Chartered Accountants of Scotland (ICAS). Cédric Lesage acknowledges the financial support of the HEC Foundation (Project F1103). He is member of the GREGHEC, CNRS Unit, UMR 2959. This paper is based on a literature review conducted for ICAS, which is available in http://icas.org.uk/jointaudit/.

Notes

1 The regulatory proposal of November 2011 does not require a pairing of a Big 4 audit firm with a non-Big 4 audit firm (EC, 2011a, art. 31, para. 1, sentence 4).

2 The effect of joint auditor pair choices on audit fees is presented in Section 5.