Investigating ISA adaptation in a developing country context: the selective influence of Big Four affiliates

ABSTRACT

This paper examines how the national process of adapting the International Standards on Auditing (ISAs) unfolds in developing countries, focusing on the case of Egypt. The study relies on data gathered from 33 semi-structured interviews with government officials and senior auditors alongside documentary evidence. Our findings show how legacy state institutions that were involved in the national standard-setting committee have largely fallen short of their aspirations to align local auditing standards with the expectations set out in the ISAs. The lack of a coherent approach to developing state policy objectives, resources, and public consultation, together with technical demands and translation difficulties, hampered the process. Such weaknesses provided an opportunity for the local Big Four affiliates to become deeply involved. The firms’ strategic manoeuvres were driven not only by a material desire to protect their market position/status but also by a commitment to a perceived national duty to support government attempts at national standard-setting. Importantly, our findings reveal the selectivity of such interventions and the differential impact of ISA adaptation on the diverse constituency of audit firms. Theoretically, we propose the institutional void perspective to conceptualise the intervention of private actors as well as to articulate the elements of a void in an audit regulatory process. While Big Four firms typically seek to position themselves in such processes, we argue that international reforms and policies should focus on fostering a more inclusive, accountable, and deliberative system that promotes the presence of diverse, independent and representative local audit actors.

KEYWORDS:

• International Standards on Auditing (ISA)
• adaptation
• Egypt
• audit regulation
• institutional void

Acknowledgement

We extend our gratitude to the interviewees in Egypt for their invaluable insights and participation. We also deeply appreciate the editor, associate editor and reviewers for their constructive feedback and steadfast support throughout the review process. Their thoughtful critiques and exemplary guidance have significantly enhanced the quality of this paper.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 A full list of abbreviations is provided in Appendix 1.

2 The IOSCO endorsed the replacement of the previous ISAs with the restructured and improved Clarified ISAs, issued in 2009.

3 PIOB members included organisations such as the Financial Stability Board (FSB), the IOSCO, the Basel Committee on Banking Supervision (BCBS), the International Association of Insurance Supervisors (IAIS), the EC and the WB (Humphrey & Loft, 2009a).

4 It is noteworthy that some argued that the resources allocated to the DNPTF did not indicate a genuine interest to encompass concerns from a broader constituency of countries (Loft et al., 2006; Wade, 2007).

5 IFAC definitions as of 2017: Adopted: ISA in effect at the time of the assessment have been adopted and are effective for all mandatory audits. Partially Adopted: An earlier version of ISA (2009 or later) has been adopted or not all ISA have been adopted or ISA are required for application in selected types of audits. Not Adopted: Pre-2009 version of ISA has been adopted or ISAs have not been adopted (IFAC, 2017) .

6 ESAs issued in 2008 were based on the IFAC’s 2005 ISA.

7 The new/current PCSAA includes seven members: (i) the president of the FRA (serving as the committee chairman); (ii) the president of the Egyptian Authority for Investment and Free Trade (EAIFT) or his representative; (iii) a representative of the Central Auditing Organization (CAO); (iv) the president of the Egyptian Institute for Accountants and Auditors (EIAA); (v) the president of the Egyptian Society of Accountants and Auditors (ESAA); (vi) the head of the accounting & auditing sector at the SCP; and (vii) an accounting expert chosen by the committee chairman.