Audit Reform around the World and Implications for the U.S. Audit Market

• In Event: Breakfast with Research Round Table Forum
  In Workshop: Table 4

Abstract

Audit reforms adopted in April 2014 by the EU Parliament will require, among other provisions, mandatory audit firm rotation within the EU. We identify reforms adopted in the EU, Australia and Canada and discuss the arguments for and against these reforms prior to their adoption. We discuss the projected effects of the reforms and the impact of recent reforms already in place (cf., audit transparency reports). We then discuss the implications of these reforms for the US public company audit environment.
Both the US PCAOB and the UK Competition Commission explored and rejected the mandatory audit firm rotation requirement, while the EU Parliament adopted it. One major difference was in the reason rotation was deemed desirable. The argument in the US was to improve auditor independence and audit quality. In the UK and EU, increasing audit competition among the largest four firms, as well as encouraging smaller firms to compete and thereby improve audit quality through this increased competition, was the focus.

We review the Canadian response to the circumstances which, in the US, led to the Sarbanes-Oxley Act of 2002 and the effects this has had in Canada over the last twelve years. We discuss the audit transparency reports now required in Australia and the EU (under Directive 8).

Finally, we discuss possible effects of the various changes being implemented in these other major audit markets on the US public company audit market.

Authors

• Joel Pike, University of Northern Iowa

• Gerald Smith, University of Northern Iowa