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Analysis of the Effects of UK Regulation of the Auditing Profession

Info: 7657 words (31 pages) Example Literature Review
Published: 28th Oct 2021

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Tagged: Accounting


The intent of this literature review is to analyse the different types of audit regulation that has been implemented in the UK throughout a large period of time, starting from the 1980s until recently. Throughout this literature review, the effect of the implemented regulation on the auditing profession is analysed, as well as how the auditors themselves perceive the regulation. Stakeholder perceptions, such as the public’s reaction to auditor regulation are also evaluated. Furthermore, issues that exist within audit which include, transparency, independence, efficiency and effectiveness are assessed in detail. The study is structured in a cohesive manner. The beginning introduces auditing regulation that is significant and provides some explanation then, the key issues of the auditing profession that relate to the research question are highlighted and discussed. Following this, there is a detailed discussion on the literature which includes why each piece of work was included. The methodology discusses common approaches to collecting data such as questionnaires, interviews and existing literature. Then a detailed review of the literature is conducted where the literature’s relevance to the research question is assessed and the literature’s main findings are also presented. Gaps existing in the literature are mentioned and discussed in detail; these include a larger scope of research, more insight into firms other than the big four audit firms, data collection regarding public perceptions of audit, comparable literature across audit regulation in different countries and also, more quantitative data which will provide factual evidence. Lastly the conclusion provides a detailed discussion of the quality of the literature in this topic and finds that, even though there are some gaps in research, overall the topic includes a variety of literature that is available which covers a broad time frame. The literature also uses a range of methodology and includes a range of stakeholder perceptions in regard to regulation. The literature reviewed was sufficient in answering the research question and provided enough insight into audit regulation to show that the overall consensus across the different stakeholders of auditing and also the auditing profession itself, finds that regulation is generally beneficial.


FRC - Financial Regulatory Council

AD - Audit Director

FM - Finance Manager

ISA - International Standards on Accounting

IAASB - International Auditing and Assurance Standards Board

AP - Audit Partner

SOX - Sarbanes – Oxley

US - United States

UK - United Kingdom

APB - Audit Practice Board

IIA - Institute of Internal Auditors


This critical literature review aims to analyse a range of literature on the topic of auditing and United Kingdom (UK) regulation that has had an impact on the auditing industry. It aims to do this by looking at a variety of existing literature which explains and provides information on how audit regulation has changed within the UK. Furthermore, it also analyses the literature to understand what the effects of the regulatory changes mean for UK auditors as well as other stakeholders such as companies requiring audit and also the general public. This literature will then be critically assessed to see how adequate it is in answering the question. In addition to this; how effective the data collection methods are, the strength of the conclusion and the comprehensiveness of the literature will also be evaluated in this critical literature review.

The topic of auditing was quite interesting for a number of reasons. The first reason as to why audit was chosen as a topic is because, audit is an integral part of business operations and holds a lot of importance. However, there are always issues arising within audit and the controversy of the topic provides an interesting insight into the effects audit has on its stakeholders. Auditing as a profession is always under constant scrutiny by the public and therefore any changes that occur within audit always provide new perceptions by the public which is quite interesting as the opinions are very varied. Lastly, audit regulation changes are constant, as a result of this, there is always up to date literature being published in accordance with the new regulation that is being introduced. As a result of the constant changes, the literature available would be extensive which is why this topic was noteworthy.

The reasoning behind the research question was to explore an expansive amount of literature and therefore there is no time constraint or limiting factors within the question. The question chosen also refers to regulation, this includes but isn’t limited to audit regulation and so accounting regulation that affects auditors is also discussed as well as EU regulation, such as the eighth directive which is referred to and explained later on. The effects relating to the auditing profession that are being explored in this question range from public perception of the auditors to how those in the auditing profession feel about the regulatory changes as well as any other stakeholders that may be affected by the regulation. The constant regulatory changes that occur in relation to audit, are why this review looks at literature ranging from work taking place in the 1980s to more recent pieces of literature. Lastly, the lack of limiting factors in regard to the research question exist to provide a broader view and to enable analysis of a larger amount of literature.

This review begins with some background on the auditing profession which includes how an auditor is defined, following this, the different forms of regulation that have been implemented throughout the years are discussed. Thenceforth, a number of issues which arise in relation to auditing are reviewed, these issues include auditor’s independence, the oligopoly that exists within the audit industry, transparency of information and the Arthur Anderson collapse. After the background and key issues have been covered, the literature is looked at in detail. Firstly, an explanation as to why the selection of literature used was chosen. After this explanation, the way in which data is collected and the methodology of the research carried out by the literature is analysed. The literature is then reviewed to assess whether it was able to answer the initial research question. Then the findings of the literature are discussed, including further discussion on the initial research question. To finish off, there is a discussion on the shortcomings of the literature and research gaps that exist and haven’t been explored. Finally, the conclusion is presented, and the references follow on from this.

Background of auditing regulation

The definition of auditing has been amended several times over the years as a result of change in regulation and regulatory bodies. The most recent change was inclusion of the word independent in the definition (Vinten, 1999). In regard to the history of auditing, it has a very long and extensive background that includes many years prior to the discussion in this literature review that won’t be included. Audit regulation is constantly being introduced or amended as a result of changes in the economy and within the accountancy profession. Auditing changes also occur as a response to changes in other countries. Additionally, audit regulatory changes are the result of both statutory bodies as well as non-statutory bodies which have the power to make these changes. Some of the more significant regulatory changes and regulatory bodies in auditing include the eighth directive, the institute of chartered accountants of Scotland (ICAS), the United Kingdom (UK) revised code and the Financial Regulatory Council (FRC), to name a few. This literature review looks at regulatory changes over a large period of time, from the 1980s to recently. In order to gain a comprehensive understanding of the literature on auditing, some of the regulations are discussed below.

The eighth directive is the oldest regulation that will be discussed in this review and also one of the more significant regulations mentioned, it was implemented by the EU in 1984 and stated that member states would be responsible for the regulation of auditors independently (Cooper et al, 1996).  Following on from the eighth directive, in 1996, ICAS which was a non-statutory regulatory body, introduced some changes in regulation. These changes were intended to promote auditor independence (Beattie et al, 1999). Also supporting this was the Institute of Internal Auditors (IIA) and their new definition of audit that focused on independence and objectivity (Vinten, 1999).

Dewey (2003), looks at the regulatory changes that occurred within accountancy, which was bought into effect by the accountancy foundation. Dewey (2003) also mentions the Sarbanes-Oxley (SOX) Act and although this is US legislation, it occurred at a time when changes were being made in both the UK and the United States (US) and so is important in that respect. Moreover, Dewey (2003) explores the relationship between the regulatory bodies and the auditors and discusses the need for professionalism. A few years after, the UK introduced a revised code in 2010, which outlined basic necessities in relation to auditing in UK companies, such as implementation of an audit committee and disclosure of auditing information (Avison and Cowton, 2012)

Lastly, the most recent regulatory changes in regard to auditing were mentioned in the literature by Eldaly and Abdul-Kader (2019) and were bought about by the FRC, these changes were in the form of three main strategies which had the intent to rectify the issues found within the profession. These three strategies are; improvement in audit quality, increased transparency and easier access to enter the audit market (Eldaly and Abdul-Kader, 2019)

Key issues found in the auditing profession

Before the literature is reviewed it’s important to understand some key issues that auditors face in their profession. The issues that will be mentioned not only affect auditors but also other stakeholders, such as the public, accounting firms and also companies that require audits. These key issues include, but aren’t limited to, independence, transparency, public perception issues as well as the failure of Arthur Anderson and concentration of auditors.

Independence is an issue arising within the audit profession, complete independence is not feasible as the auditor cannot completely detach themselves from the firm in which they’re carrying out an audit. However, the aim in regard to independence is to ensure that a professional and truthful opinion is given, and independence isn’t severely compromised. Alhadab (2018) looks at the issue of independence, the research conducted in this paper is in relation to abnormal audit fees and whether this has any repercussions on the type of audit work that is carried out. Vinten (1999) also focuses on the issue of independence as it looks to see whether the framework implemented can rectify any familiarity issues that arise within the auditing profession.

Transparency relates to the level of information made available to the public and so affects the public’s perception of auditors. The issue of transparency arises where audit information isn’t readily available and therefore raises concerns with the public. Despite transparency improving as a response to regulation such as non-statutory bodies like the financial regulatory council (FRC) implementing changes (Eldaly and Abdul-Kader, 2018) all audit information is still not accessible and some pieces of information may be secure and private. This therefore reduces the public’s trust in auditors as it is harder to trust information that is unobtainable and unseen and is an issue for that reason.

A major event that occurred in the auditing profession that had a large effect on the industry was the failure of an audit firm known as Arthur Anderson. Dewing (2003) explains the failure was due to lack of independence and transparency of the audit firm in relation to the audit of Enron, where the auditors had become compromised and so provided incorrect audit reports. It also looks at the implications of such a failure and regulation that came about as a response to it. This was seen as such a large issue as it was one out of five firms who controlled the audit market at the time, and it questioned the integrity of the four other firms who share the market and whether they exercised truthful and professional behaviour in relation to their audits.

Following on from this, concentration of auditors and the oligopoly in the audit market is also seen as a large issue, especially for firms requiring audits. Prior to the Arthur Anderson collapse five firms dominated the market, but now there are only four firms because of the collapse. As a result of just four firms dominating the market, an oligopoly is operating and there is no room for competition and significant barriers to entry. Clacher et al (2019) looks at the extent to which lack of choice in the auditing market causes issues for private UK companies. Lack of entry in the market is also an issue for smaller accountancy firms who don’t have an opportunity to take on audit work.

Justifications for literature chosen

The approach to selecting literature for this review was to collect a variety of sources in which a range of opinions are presented. Although some sources may not answer the question directly, the information provided in the literature is able to provide some insight into understanding the overall topic and for this reason are still part of this literature review. In addition to this, it was also necessary to collect literature that spans over a large time frame as audit regulation is changing constantly and so it was important to understand how regulation affected the industry at each significant regulatory implementation, from 1980s to current audit regulation.

Cooper et al (1996), Beattie et al (1999), Vinten (1999), Dewing (2003), Avison and Cowton (2012) and Eldaly and Abdul-Kader (2018) all take the same approach in which they look at a specific regulation and analyse the effects this had on the stakeholders in detail. Cooper et al (1996) looks at the eighth directive implemented by the EU, it’s one of the earlier pieces of audit legislation and directed member states to regulate auditors independently. Beattie et al (1999) and Vinten (1999) both look at the regulation that came into effect during the 1990s, where Beattie et al (1999) focuses on the changes set out by ICAS to maintain independence, Vinten (1999) discusses the auditing framework that was in effect in 1999 and also looks at how this aimed to ensure independence within auditors. Dewing (2003), Avison and Cowton (2012) and Eldaly and Abdul-Kader (2018) are more up to date literature. Dewing (2003) specifically looks at the implications of the Arthur Anderson issue that occurred and what regulation was put into place to rectify the mistakes made, it also looks at auditing regulation prior to the Arthur Anderson event and by doing so is able to find where the regulation failed. Finally, Avison and Cowton (2012) and Eldaly and Abdul-Kader (2018) both look at the revised code and the FRC in more recent years and how this has affected current auditors. These pieces of literature allowed for a detailed analysis of individual regulation that occurred within the auditing industry throughout the years. It also allows for an insight into issues with the previous regulation and where it went wrong.

Quick et al (2008), Ojo (2008), Alhadab (2018) and Clacher et al (2019) are quite similar in terms of the issues they cover, all of these pieces of literature look at how regulation has been implemented to tackle problems that exist within the auditing environment. These include problems such as oligopoly, reliability, efficiency, irregular audit fees and also public trust within auditors. Quick et al (2008) looks at reliability and trust within auditors, it analyses how auditing regulation focuses on creating reliable auditing, especially as a result of major events such as the Arthur Anderson issue. Alhadab (2018) also provides more insight into this and looks at abnormal audit fees and how this raises concern for independence within auditors which creates Whereas the main focus of Ojo (2008) is the efficiency of audit and how regulation aids in that whilst also looking at the greater financial services industry and external auditors as regulators of that. Similar to Ojo (2008), Clacher et al (2019) takes a wider stance and looks at the accounting profession and the lack of entry into the auditing market as a result of the big 4. These pieces of literature were selected as they provide an in-depth analysis of issues and the regulations helpfulness in resolving these issues.

Dewing and Russell (2002) and Dewing and Russell (1997) have different aims in regard to their research. Dewing and Russell (2002) focuses more on how audit regulation aids in correcting the issues within the profession, however it also aims to carry out an analysis of stakeholder perceptions of existing regulation. It goes into great detail of how people in the auditing profession view regulations and whether they require more or less. The benefit of this literature is that it gives a broad range of opinions of people at different levels within the profession and how they view the current regulation in place. On the other hand, Dewing and Russell (1997) has a different approach and instead looks at models of audit regulation such as micro and macro models. It then provides an in-depth review of each model and the subsequent effect they would each have, not only on the auditing industry but also on auditors and the public too.

Methodology of data collection and research carried out

The data collection methods from the literature reviewed varied quite extensively, as a number of approaches were taken. Primary data is generally seen as a better approach to conducting research as opposed to secondary data, as it requires the data collected to be more specific, whereas secondary data may not directly relate to the issue at hand.  Also, in relation to this exact field of research, where regulations are constantly changing and new additions are being implemented, primary research remains more favourable as it allows more relevant data to be collected and used. The articles that were analysed in this literature review used existing literature but also carried out their own data acquisition techniques, except for Cooper et al (1996) which only used secondary data. In the case of Cooper et al (1996), the data used was regarding legislation prior to any changes that occurred and so the findings are not completely up to date and relevant for this reason. On the other hand, Dewing (2003), mainly used a range of secondary data such as regulation, reports and existing surveys and polls but was still able to provide a strong conclusion. Therefore, secondary data as a main approach to research is not always detrimental to the findings of a report.

In this particular topic area, there was a disparity between quantitative and qualitative data, as the preferred method found was qualitative. Beattie et al (1999), Eldaly and Abdul-Kader (2018) and Dewing and Russell (2002) all use methods resulting in opinions of the subjects being used as data. For example, Beattie et al (1999) used questionnaires in which the respondents provided their opinions using a scale of 1-5 and 45 factors were used to refer to. In this case, the results could be compared as the opinions were given in a numerical format. On the other hand, Eldaly and Abdul-Kader (2018) and Dewing and Russell (2002) used interviews, the respondents included a variety of stakeholders of the auditing profession and therefore was not limited in this regard. On the other hand, where opinions are given as a method of research it is difficult to compare results and so this is seen as a drawback to qualitative research. Vinten (1999) was another piece of literature that used qualitative means to collect data, however rather than interviews or questionnaire it looked at psychological evidence and though this was a unique way to acquire data it was supported by existing literature which then allowed the author to come to a conclusion.

Nonetheless, literature that included quantitative data was also reviewed. For example, Alhadab (2018) carried out linear regression to test the relationship that existed between out of the norm audit fees and earnings management and was able to look at a large sample of 1055 to support its findings. Quantitative data is generally seen as superior to qualitative as it allows for comparison and also presents factual findings. Nonetheless, in the case of this topic which aims to find how regulations have been perceived, opinions are more beneficial as opposed numerical data.

The number of firms used in the data collection process alternates, Alhadab (2018) was able to use a larger sample of 1055 as it was set over a longer period of time from 2006 – 2015 and also looked at FTSE 350 companies. Whereas Vinten (1999) only did 17 interviews as their focus was on the big 4 firm, even though this seems like a restricted sample size, it is justifiable due to the big 4 controlling most of the audit market. Dewing and Russell (2002) looked at 13 interviews being conducted which at first glance seems like a limited number, however the candidates being interviewed came from a range of backgrounds including those actively in the industry such as audit partners, to the more senior academics who have more knowledge of the background. Therefore, Dewing and Russell (2002) shows a variety of views and thus the limited number of candidates interviewed isn’t an issue. Finally, Beattie et al (1999) looked at finance directors and audit partners, they looked at 607 surveys collectively but of these only used 153 responses from Finance directors and 244 from audit partners were used. The fact that all the questionnaires weren’t used reflects positively on the diligence of the research carried out in this case, and shows that only appropriate and sufficient evidence was a part of this literature

A lot of the literature was not limited to just the UK. Quick et al (2008) carried this aspect out with the most sufficiency as different sections of the literature contained effects of audit regulation on other countries in detail. Other literature was more focused on the UK and only mentioned other countries as a method of comparison, Dewing (2003) looks at other countries which allows it to provide insight in the difference and similarities in audit regulation – the US and SOX are mentioned. Also, Cooper et al (1996) looks at audit regulation implemented in Europe and the consequent effect this had on the UK and so, provides a broader perspective.

Literatures ability to answer the research question

Due to the fact that a variety of literature was studied, the findings differ in regard to the question at hand, which is the effect UK audit regulation has on the auditing profession and consequently the shift it causes in public perception of auditors. Some pieces of literature agree that regulation put in place has added value to the auditing profession by promoting independence, transparency and attempting to rectify the key issues in auditing. Whereas other pieces of literature would state that stricter regulation isn’t necessary as auditors don’t prefer it. Finally, there is also an opinion that too much regulation gives the impression that there’s something wrong with the auditing profession that needs to be corrected and therefore, in this case, regulation provides an adverse effect on the profession.

Beattie et al (1999) is able to answer the research question by stating that “audit regulation has had a major impact upon the auditing environment” (Beattie et al, 1999) which infers that the effect of the regulation such as changes made by ICAS has definitely changed the auditing profession. Cooper et al (1996) adds to this by stating that the regulation put in place such as the APB gave auditors more exposure in regard to the EU and as a result made UK auditors more popular. Therefore, the effect the regulation had on the profession was optimistic.

Eldaly and Abdul-Kader (2018), Clacher et al (2019) and Dewing (2003) all answer the research question by coming to the conclusion that auditing regulation impacts the audit profession positively. Eldaly and Abdul-Kader (2018) states that currently the big four audit firms abide by regulation and as a result, the auditing profession has more transparency and more information provision. The increase in transparency has allowed the public to be less hesitant when trusting auditors as they have accessibility to more audit documentation and so improves their perception of the profession. Clacher et al (2019) and Dewing (2003) agree with Eldaly and Abdul-Kader (2018) in that the auditing industry currently is quite concentrated and as a result of this auditor’s independence is often questioned. As a result, further regulation is suggested, Dewing (2003) states that the auditing profession isn’t self-sufficient in correcting the issues it faces such as independence issues. Further implementation of regulatory bodies would aid with this by allowing reviews of audits to ensure independence. On the other hand, Clacher et al (2019) states the concentration of the audit market needs to be rectified to reduce bias, this would then create an opening to the audit market allowing for more competition. The increase of audit firms in the market would be beneficial for the profession as it would allow for better competition and opportunities for auditors other than the big four firms.

Dewing and Russell (1997) has a mixed view in that it states that the current regulation is efficient and thus helps the auditing profession. However, the regulation in place is associated with the attempt to rectify issues within the auditing industry. As a result, it creates the perception that auditors don’t look out for public interest and only do so due to the regulation in place. Vinten (1999) goes onto discuss that the regulation in place allows guidance of the auditing profession without controlling it. It also supports non statutory regulation as opposed to statutory as the audit profession should practice good ethics and therefore should not need a strict form of regulation. Statutory audit regulation is seen as too constricting in this case. Dewing and Russell (2002) mentions the opinions of those in the profession in relation to regulation and states that those actively occupied as auditors prefer less intervention and prefer a weak method of regulation. These examples show that despite the intentions of regulation, it may not always have the intended positive effect on the profession.

Strength of the findings of the literature

The literature concludes their findings in different ways, some find that regulation is quite positive and is necessary in allowing the audit profession to thrive. Whereas others state that the research carried out demonstrates that regulation isn’t favoured and is quite constricting. The strength of the conclusion also varies, some come to a strong conclusion whereas other sources of literature state that the findings are not conclusive as there is room for improvement in regards to the research Also, other aspects are brought into the discussion such as the issue of independence and further regulation prospects, as well as oligopoly in reference to the big four who currently dominate the audit market.

The literature that found regulation to be positive are Vinten (1999), Eldaly and Abdul-Kader (2018) and Quick et al (2008). Vinten (1999) and Quick et al (2008) both agree that the introduction of regulatory bodies and independent regulation was able to improve transparency and effectiveness, Quick et al (2008) goes onto mention that after the issues that occurred in 2001, regulation was necessary in order to take steps towards rectifying the issues that were being faced in the economy, and thus this piece of literature firmly supports audit regulation. Eldaly and Abdul-Kader (2018) came to a strong conclusion and found that from their research there were three strategies that would improve auditing in the UK. These three strategies were increased transparency which would allow the public more access to audit information, improved quality so that audits become more efficient and lastly a reduction in barriers to entry which would allow for more firms to enter the market.

On the other hand, Dewing and Russell (2002) and Dewing and Russell (1997) concluded that regulation didn’t always create positive outcomes. Dewing and Russell (1997) states that regulation may be sufficient and carry out its intended use, however excessive regulation can create a negative public perception and may lead the public to believing that auditors aren’t self-sufficient enough to be ethical without regulation. This means that Dewing and Russell (1997) found too much regulation to be negative. Dewing and Russell (2002) supports the notion of disagreeing with regulation. This is as a result of the research carried out involving participants in the auditing profession who stated that they felt they could be independent in governing themselves and preferred weaker methods of regulation, such as non-statutory bodies.

Other conclusions found in the literature include issues regarding independence, oligopoly and insufficiency. Ojo (2008) discusses the issue of oligopoly and concludes that the big four firms control too much of the market for any changes to be made. Clacher et al (2019) also agrees with this and further mentions that the market is defined by “the tight oligopoly maintained by the big four audit firms” (Clacher et al, 2019). Both Ojo (2008) and Clacher et al (2019) come to the conclusion that oligopoly is an issue within auditing that the regulation has yet to rectify. Dewing (2003) has a conflicting view on regulation and agrees that even though its intent is to aid auditors, the impression it provides is that there is still room for improvement in relation to regulation and the regulation that currently exists is insufficient on its own.

Suggestions for further research

On the topic of the effects of regulation on the auditing profession there are a few recommendations that can be implemented to improve research in this area. To begin with, the scope of reactions to audit regulation was limited. Research demonstrating the change in the public’s perception of auditors as a result of the new regulation was inadequate to an extent. Despite much of the research mentioning that the regulatory changes were introduced to protect the public it is not apparent as to whether the public agree or disagree with the changes made. The research that was carried out mainly focused on the opinions of those actively involved within the profession, such as fund managers and audit partners. While their opinions provide a good insight into how those actively involved in the profession feel about the regulatory changes, due to this same reason, their opinion may be biased. The research gap identified in this case was lack of public opinion.

Additionally, much of the literature principally focused on the big four firms in auditing, although an oligopoly exists in the auditing profession, it would provide a broader view if more firms were used. For example, where Avison and Cowton (2012) used 50 companies and Alhadab (2018) looked at a sample of 1055, these articles were able to come to a more inclusive conclusion by looking at a variety of opinions. Therefore, to extend research on this topic it would be beneficial to be more inclusive, in relation to the number of firms used, when carrying out data collection.

Another avenue to broaden the literature would be relating to the type of research conducted. In general articles such as Cooper et al (1996), Dewing and Russell (1997) and Beattie et al (1999) used existing research as their main method of information collection. To improve upon this, there could be more primary research included in the articles. Furthermore, the research that exists on the topic of audit regulation consists mostly of qualitative methods, where surveys are carried out and opinions are provided. For example, Dewing (2002) and Eldaly and Abdul-Kader (2018) used questionnaires to gather data. Although these questionnaires allow inferences to be made on how those in the profession felt about regulatory changes, such information is very difficult to compare. On the other hand, where Alhadab (2018) used linear regression and Quick et al (2008) used a comparative overview both pieces of literature included comparison between other countries in their research. By using a mixture of qualitative and quantitative research methods, a gap could be filled where opinions are included in the research but also factual information which would allow for comparison between countries.

The research could definitely be improved by way of including more comparisons. The literature contains limited comparison between countries. As mentioned before, Quick et al (2008) and Alhadab (2018) both include comparisons in relation to other countries. Quick et al (2008) provides extensive audit regulation analysis from a variety of countries including America and Russia which allows for comparison. The majority of literature relating to audit, does not include this and is therefore constricted in this way. The comparison between countries allows a better opinion to be formed on whether the reactions to the regulatory changes that occur in the UK are justified.

In finding literature on auditing regulation changes, it was difficult to find more relevant pieces that still analysed and explained the repercussions of regulatory changes on auditing and the public’s perception on auditing as a result of this. The majority of articles existing which do include stakeholders views focused more on the regulation implemented prior to the crises that occurred. For example; Beattie et al (1999), Cooper et al (1996), Dewing and Russell (1997) and Vinten (1999) all comprise of research that took place before the 2000’s and focused on the regulation implemented prior to this time period. To rectify this, there is a gap in the literature which could be explored, this is the period surrounding the crises and the regulation introduced as a result of this. Examples of research that exist more recently include Dewing (2003) and whilst this provides a good analysis on how the regulation introduced was as a result of the crises that occurred it was written shortly after the event. A proposal to extend the research would be to look at the regulation in retrospect and review how the regulation effected the auditing profession and whether these effects still exist.


To conclude, the subject area chosen for this critical literature review was audit, and it was chosen as a result of its nature. The constant introduction and implementation in regulation and regulatory bodies, ensures that there is always current and up to date literature on this subject matter, and that perceptions of auditing from a stakeholder’s viewpoint is always changing. Also, the controversial nature of audit made it a very interesting and intriguing topic to review. Auditing is an integral part of business functions and so is an important aspect of accounting to review and understand, which is another reason as to why it was chosen. The research question mentions regulation and its subsequent effect. The nature or recipient of the effect isn’t specified in the question, and this allowed the research to have a broad scope which meant more literature could be reviewed. The question relates to regulation over a large period of time, dating from the 1980s to more current regulation. It also looks at a variety of stakeholders, from those actively involved in the auditing profession, to those no longer in it as well as the public who base their opinions upon the limited information they receive.

The literature was selected with the intent to provide an expansive set of findings and so it varied greatly. It was able to provide a chronological perspective of audit regulation and looked at older forms of regulation as well more current regulatory implementations. The effects of the regulations and regulatory bodies were assessed on different groups of stakeholders which meant the effects were evaluated extensively. Additionally, all the literature used different data collection methods, this allowed analysis of primary and secondary research as well as quantitative and qualitative methods, giving a variety of data results. The lack of literature that was found in this specific topic area included research on firms other than the big four, comparison of audit regulation across countries and also a more detailed analysis of public perceptions of regulations. Despite the gaps in research, the existing literature presents strong findings which diminish the need to explore these shortcomings further.

In general, the literature finds the effect of audit regulation to be positive, the effects are increased transparency, more independence and movement towards less concentrated competition. By working towards these the regulation is protecting the publics best interests first and foremost as they will have more access to information and will therefore be aware of what occurs in audits. Also, the movement towards less concentrated competition is positive not only for companies that require audits, who will now have more choice, but also accountancy firms who carry out auditing services as it gives them a chance to be considered as auditors. On the other hand, the negative effects of the regulation were found to be in regard to the stakeholder’s response. Auditors themselves preferred less regulation as they believed they were self-sufficient enough to carry out objectivity independently and saw no need for regulation or regulatory bodies. Another stakeholder that reacted negatively to audit regulation was the public. Even though regulation generally was intended to protect the public interest. the need for regulation raised concerns as to whether auditors were previously operating efficiently, and it also raised speculation onto whether auditors could operate effectively without regulations and regulatory bodies. In regard to the research question the majority of the literature found that despite some negative opinions the overall effect of regulation on the audit profession was positive as it provides auditors with guidelines to follow and also protects the publics interests, and smaller accounting firms.

As a result of this critical literature review it can be stated that the literature in relation to auditing in general is sufficient. The range of literature on audit covers a broad period of time, which allows the chronological effect of audit regulation to be identified. The literature also includes a variety of data collection methods from quantitative to qualitative providing a range of research. In relation to the specific question, the literature was proficient in answering the question due to the fact it provided a detailed analysis of a number of regulations and also specified the effects the regulations had on different stakeholders.


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Beattie, V., Brandt, R. and Fearnley, S. (1999). Perceptions of auditor independence: U.K. evidence.

Clacher, I.Duboisée de Ricquebourg, A. and May, A. (2019), “Who gets all the PIE? Regulation of the statutory audit for private UK companies”, Accounting, Auditing & Accountability Journal, Vol. 32 No. 5, pp. 1297-1324. Available at: https://doi-org.queens.ezp1.qub.ac.uk/10.1108/AAAJ-12-2015-2341

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