Voluntary Auditing: A Synthesis of the Literature

Abstract

Voluntary auditing has received increased attention from researchers in recent decades. Empirical studies that have examined demand for voluntary audits have suggested that regulatory intervention may not always be necessary, though some argue that regulators protect society from market failure by demanding statutory audits [Barton, J., & Waymire, G. (2004). Investor protection under unregulated financial reporting. Journal of Accounting and Economics, 38, 65–116]. To date, there has been no review of the literature on determinants of voluntary audits. I provide a research framework to categorize the attributes that affect demand for voluntary audits and identify areas that need further examination. While the given compact body of literature has served different purposes, two major reasons for voluntary auditing are apparent: the importance of audited financial statements to lenders and the intention to further deregulate audits for smaller companies to relieve cost burdens. However, I contribute to the auditing literature by identifying the main attributes associated with the demand for voluntary audit. In doing so, I develop a framework consisting of firm attributes, separation of ownership and control attributes, agency relationship attributes, management attributes, and signalling attributes.

Keywords:

• voluntary auditing
• auditing practices
• audit demand

Notes

1 For example, in the EU Member States, limited liability companies are exempted from a statutory audit if for two consecutive years, two of three defined thresholds are not exceeded. In general, these thresholds are defined using balance sheet total, net turnover, and average number of employees during the financial year.

Additional information

Funding

The author gratefully acknowledges the financial support received from the Finnish Cultural Foundation, the Foundation for Economic Education, the Evald and Hilda Nissi Foundation, the Jenny and Antti Wihuri Foundation, the Marcus Wallenberg Foundation, and Nordea Bank Foundation.