Auditing research opportunities from an international perspective

• Author: Divesh S. Sharma
• Published date: 01 November 2017
• Date: 01 November 2017
• DOI: http://doi.org/10.1111/ijau.12096

EDITORIAL

Auditing research opportunities from an international

perspective

I am honored and privileged to serve as an editor of the International

Journal of Auditing (IJA). In his opening editorial, Editor‐in‐Chief

Professor David Hay (2014) highlighted that the Journal achieved an

A‐level rank in the journal rankings produced by the Australian

Business Deans Council. He also referred to some international

developments in audit regulations to motivate future research. In this

editorial, I take the opportunity to briefly outline how some regulations

can provide a fertile ground for future research within the scope of IJA.

It is 15 years since one of the most significant regulations

impacting the profession, practice, and research and education of

accounting and auditing—the Sarbanes‐Oxley Act (SOX)—was

introduced in 2002. This Act stimulated worldwide reforms to audit

regulations, rules and guidelines. While many countries adopted SOX

style regulations (see Monks & Minow, 2011), most adopted

principles‐based governance systems that vary widely across

countries. The common philosophy of these principles‐based gover-

nance systems is the notion that ‘no one size fits all’and publicly listed

companies are bestowed discretion to design and implement

governance systems according to their requirements. However, there

are de minimis guidelines (e.g., majority directors on a board should

be independent) and deviations should be explained, which is also

known as the ‘comply or explain’approach. While the divergence in

corporate governance systems and guidelines around the world might

seem to contradict the convergence toward greater foreign economic

trade and activity, proliferation of multinationals, and investments in

foreign securities, this divergence provides ample opportunities for

researchers and policy‐makers to learn from each other. Moreover,

the imperative for international audit research is heightened in an era

when international CPA firms are aggressively marketing themselves

as global networks of professional services firms in assurance, advi-

sory, and tax. This global reach raises its own set of issues such as

cross‐country consistency and oversight of the performance of the

audit. And then we have the International Auditing and Assurance

Standards Board (IAASB) regularly proposing and issuing new stan-

dards and guidelines (e.g., new auditor reporting requirements

effective December 15, 2016). Within this increasing internationaliza-

tion of auditing and assurance practices, our role as researchers to

provide rigorous evidence is invaluable to inform practice, policy

formulation, and future research and education.

I am passionate about corporate governance and audit research,

with the issue of non‐audit services being my favorite. Some believe

we have reached maturity on this topic. Rather, I believe we have a

long way to go as the debate on the merits and drawbacks of the

independent auditor jointly providing audit and non‐audit services is

far from over, and many questions remain unanswered. There is the

view that since SOX banned a lot of non‐audit services and the

European Union (EU) followed suit with an almost blanket ban on all

non‐audit services, there is little to debate. Rhetoric in the literature

suggest that the hasty SOX implementation may have been motivated

by political incentives and led to unintended consequences (DeFond &

Francis, 2005). What is noteworthy is that many countries have yet to

restrict or impose regulatory force on non‐audit services, and this

‘natural experimental’setting provides opportunities to delve deeper

into the antecedents and consequences of non‐audit services.

Countries such as Australia and New Zealand have a longer history

of reported non‐audit fee data that could be leveraged to answer

research questions that may not be possible in the US. For instance,

consider that despite investors’perceptions that non‐audit services

are still ‘bad’, why is it that companies continue to acquire non‐audit

services from the auditor? Do firms and investors derive non‐financial

reporting benefits from the joint procurement of audit and non‐audit

services? (We know joint provision can benefit audit quality.) What

are these benefits and do they accrue under certain conditions? How

have ‘regulatory’reforms affected these benefits, if any? These and

related questions can further inform the literature and policy‐makers.

Many regulatory mandates and guidelines around the world have a

common non‐audit service oversight mechanism; the audit committee.

However, the extent of responsibilities, powers and composition of the

audit committee vary not only within but across countries. The majority

of studies in this specific area are US based, but we have a lot to learn

about how audit committees function in other countries in the specific

context of non‐audit services and in relation to the audit generally. For

example, consider that many US studies find no evidence of non‐audit

services harming audit quality, yet studies in Australia, the UK, and Italy

show relatively clear evidence of non‐audit services potentially

undermining auditor independence. One reason for this variance is

explained by institutional differences as the US is much more litigious

than these other countries. Consequently, the interesting question

then is why auditors, executives, and firm‐level auditor governing

mechanisms in less litigious countries with developed capital markets

are taking seemingly greater reputational risks? What is the role or

influence of accounting firms as global networks with reference to

monitoring of audit quality or is the global reach a mere marketing

strategy? Are the research observations in less litigious countries

Received: 29 March 2017 Accepted: 30 March 2017

DOI: 10.1111/ijau.12096

Int J Audit. 2017;21:223–224. © 2017 John Wiley & Sons Ltdwileyonlinelibrary.com/journal/ijau 223