This book firstly examined the private mechanisms used to safeguard quality in auditing, in order to define rules capable of facilitating the performance of market forces. Thus, a general theory of private quality assurance in auditing was developed, based on the use of “quasi-rents” to self-enforce quality dimensions. This theory was then applied in the second part of the book to search for and define an efficient regulation of the provision of non-audit services by auditors and auditing firms to their audit clients. From examining the particular problems posed by these services, several conclusions have been reached regarding their effects: they are claimed to reduce total costs, increase technical competence and motivate more intense competition. Furthermore, they do not necessarily damage auditor independence nor the quality of non-audit services. This assessment leads, in the normative sphere, to recommending a legislative policy aimed at facilitating the development and use of safeguards provided by the free action of market forces. Regulation should thus aim to enable the parties—audit firms, self-regulatory bodies and audit clients—to discover through competitive market interaction both the most efficient mix of services and the corresponding quality safeguards, adjusting for the costs and benefits of each possibility. Particular emphasis has been placed on the role played by fee income diversification and the enhancement through disclosure rules of market incentives to diversify.
KeywordsAudit Firm Audit Quality Professional Judgement Voluntary Disclosure Specific Asset
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