Willekens, Marleen (1995) Economic aspects of audit regulation and auditor liability. PhD thesis, University of Warwick.

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Abstract

This thesis provides one of the first (to the author's knowledge, the first) micro-economic
analyses of audit regulation and auditor liability. The analysis draws on insights from the
economics and law literature that liability and regulation affect behaviour of individuals and
organisations. The major research questions addressed in the thesis are the following: 1) How is
demand for external audit services affected by joint and several liability of directors and external
auditors? 2) How do auditor liability and professional audit standards affect audit quality? 3) Is
it in the public interest to use auditor liability and professional audit standards jointly to monitor
audit quality? The analysis is general, in the sense that a number of alternative regulatory
scenarios are considered, and therefore hopes to be of relevance to various legal environments.
Propositions about audit demand and production behaviour are drawn, as well as corollaries
about the welfare implications of audit regulation and liability.
Some major conclusions from the economic analysis are the following. 1) Consistency in judicial
reasoning should be promoted. Certainty about what constitutes 'due care' leads to compliance by
directors and auditors. 2) Uncertainty about due care crucially affects behaviour, both of
auditors and directors. 3) Liability insurance arguments are irrelevant for audit demand when the
due care level for directors is fairly certain. 4) Statutory audit requirements should only be
imposed under limited circumstances. 5) More prescriptive professional audit standards have a
positive effect on audit quality, but one standard for all client situations can never lead to social
efficiency. 6) Liability restriction has a negative effect on audit quality. It may however promote
socially efficient behaviour when there is overproduction of audit quality. 7) The joint use of
liability restriction and more prescriptive professional audit standards may lead to a status quo in
terms of audit quality produced, and therefore not welfare improving.

Item Type:	Thesis (PhD)
Subjects:	H Social Sciences > HF Commerce > HF5601 Accounting
Library of Congress Subject Headings (LCSH):	Auditing -- Law and legislation -- Economic aspects, Auditing -- Standards -- Economic aspects, Auditors -- Malpractice -- Economic aspects
Official Date:	March 1995
Dates:	Date Event March 1995 Submitted
Institution:	University of Warwick
Theses Department:	Warwick Business School
Thesis Type:	PhD
Publication Status:	Unpublished
Supervisor(s)/Advisor:	Steele, Anthony ; Miltz, David
Sponsors:	University of Warwick. Dept. of Accounting and Finance
Extent:	xiii, 280 leaves
Language:	eng

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