{"title":"Auditor's professional judgment, audit efficiency and interplay between legal liability and regulatory oversight","authors":"Francois Larmande , Cédric Lesage","doi":"10.1016/j.jaccpubpol.2023.107130","DOIUrl":null,"url":null,"abstract":"<div><p>This paper analyzes the impact of two enforcement mechanisms – regulatory oversight (inspection by the Public Accounting Oversight Board – PCAOB) and legal liability – on audit effectiveness and audit efficiency, when auditor's professional judgment is at stake. Professional judgment is a double-edged sword: used wisely, it enables efficient audit performance, but can also be used as an excuse to put in an insufficient effort, leading to an ineffective audit. The model shows that regulatory oversight is better at enforcing audit effectiveness, while legal liability is better at inducing efficiency. Moreover, switching from a pure legal liability regime to a joint regime that includes both enforcement mechanisms is found to improve audit effectiveness, limit auditor's professional judgment, and worsen efficiency. The study provides insights into the effects of the creation of the PCAOB and offers policy implications for regulators.</p></div>","PeriodicalId":48070,"journal":{"name":"Journal of Accounting and Public Policy","volume":null,"pages":null},"PeriodicalIF":3.3000,"publicationDate":"2023-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Accounting and Public Policy","FirstCategoryId":"91","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S027842542300090X","RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
This paper analyzes the impact of two enforcement mechanisms – regulatory oversight (inspection by the Public Accounting Oversight Board – PCAOB) and legal liability – on audit effectiveness and audit efficiency, when auditor's professional judgment is at stake. Professional judgment is a double-edged sword: used wisely, it enables efficient audit performance, but can also be used as an excuse to put in an insufficient effort, leading to an ineffective audit. The model shows that regulatory oversight is better at enforcing audit effectiveness, while legal liability is better at inducing efficiency. Moreover, switching from a pure legal liability regime to a joint regime that includes both enforcement mechanisms is found to improve audit effectiveness, limit auditor's professional judgment, and worsen efficiency. The study provides insights into the effects of the creation of the PCAOB and offers policy implications for regulators.
期刊介绍：
The Journal of Accounting and Public Policy publishes research papers focusing on the intersection between accounting and public policy. Preference is given to papers illuminating through theoretical or empirical analysis, the effects of accounting on public policy and vice-versa. Subjects treated in this journal include the interface of accounting with economics, political science, sociology, or law. The Journal includes a section entitled Accounting Letters. This section publishes short research articles that should not exceed approximately 3,000 words. The objective of this section is to facilitate the rapid dissemination of important accounting research. Accordingly, articles submitted to this section will be reviewed within fours weeks of receipt, revisions will be limited to one, and publication will occur within four months of acceptance.
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