Dawn and Dusk of the Nation State in Auditing: From Supervising Private Arrangements to Transnational Governance
Auditing is the oldest mechanism to enforce the quality of financial disclosures. Audits are performed by external accountants, who are appointed by the firms that prepare and submit the reports. As a result of this process, attested financial reports are published. In this particular situation, the credibility of the auditor and of the methods employed for the audit plays a decisive role. If the auditor is not sufficiently independent or if the methods employed are not effective for detecting shortcomings, the accreditation of the accounts will not be of much value. For a long time, it was the accounting profession that established standards to maintain the quality of audits. These standards comprised organizational mechanisms such as access to the profession and procedural regulation on how to conduct the audit itself. Increasingly the stock exchanges and the state have relied on the mere existence of audits as an enforcement mechanism but abstained largely from setting detailed regulations on how the audits should be done. In most cases, the self-regulatory nature of the profession stayed intact. The profession reached out internationally and developed a framework for setting International Auditing Standards early on. While the US largely ignored these developments, the EU has used the profession’s transnational arrangements in its attempt to harmonize auditing standards.
KeywordsAudit Firm Accounting Profession Financial Account Standard Board Audit Standard Auditor Independence
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