Ph.D Jørgen Valther Hansen

Abstract:

Auditing is essentially a public interest function. As other professions, audit practitioners are organized in private profit-seeking firms, the auditees elect their audit firm, and the audit fees are priced on the basis of market forces. This means that auditors have commercial interests which operate alongside their public interest obligations. While the commercial interest is perceived to ensure the continuing development of audit, e.g. by the development of audit techniques, an efficient and effective audit process, and offering attractive career opportunities in auditing, there are also potential tensions between the commercial and public interests. Such tensions have always existed and are generally accepted as a fairly modest price for the advantages of having auditing organized in private profit-seeking firms. The Big 4 accounting firms have gone through decades of expansion, globalization and centralization of their governance structures and although they are formally structured as partnerships, their management structure bears more resemblance to those of multinational enterprises. Commercial interests have led Big 4 to expand services to a level where a majority of their revenues and profits are generated from services other than audit services. This means that the Big 4 firms have the majority of their business activities outside of their public interest remit. The relative significance of non-audit services is expected to increase in the coming years. These developments have occurred simultaneously with changes in the way in which regulators, professional institutes and also the Big 4 themselves address potential tensions between commercial and public interests in audit firms. This implies, among other things, that we are facing rather new and unexplored dynamics of new regulation, public oversight and competitive environment among the Big 4. This project aims to study how the key actors (in particular the Big 4 and the regulators) perceive the threats to auditing as a public interest function, what measures they apply to safeguard the public interest and to what extent they engage to ensure maximum benefit of their collective efforts. We have yet to see the extent to which these efforts are robust and how different aspects of ‘public interest safeguards’ (e.g. at the Big 4-level or via public oversight) interact and build upon each other and whether they produce intended, untended or adverse effects.