Regulering af kvalitetskontrol i revisorbranchen

Andres Laursen & Brian Thomassen

Student thesis: Master thesis


The confidence to the audit profession has fallen in line with the many business scandals there have been in recent decades. What is the audit profession going to do as a result of this criticism of the whole self-regulating idea? Are they going to improve themselves and make the confidence come back, or are they waiting, like they have usually done, for the legal authorities to come and solve the problem by further regulations? Based on the problems above, we will in this thesis examine how the audit profession is regulated, and what consequences the transition from self-regulation to legal regulation has had on the quality control of the auditor's work. The audit profession has been characterized by being self-regulated. However, it has changed significantly within the last two decades, and the profession has moved towards more legal regulation. We have therefore, based on Jørgen Dalberg-Larsen’s regulation forms, defined how the auditor's work can be regulated either by the auditors themselves, legal authorities or market forces. The selfregulated entities like FSR, FEE and IFAC represent the audit profession and they are responsible for keeping the profession professionally updated. The history of external quality control in Denmark began in 1994 when the association FSR started to systematically control their members. In 2003 the Danish Parliament decided to establish a public oversight board, which until now has controlled all the audit companies. This development from self-regulation to legal regulation had an effect on the already declining confidence in the public to the auditor’s work, not only to the quality control, but also to the profession in general. The increased legal regulation of the audit profession is due to fundamental lack of confidence from the public to the auditor’s work and to the profession’s self-regulated power. This lack of confidence has been tackled with massive legal regulation, but who in the public has lost the confidence to the auditors work? It’s not the professionals, who work with annual reports, but instead the rest of the public. The problem with the rest of the public is that they don’t have adequate understanding of the auditor’s work. Therefore there is an understanding gap, between the auditor and the public. This gap causes the lack of confidence, so the gap must be reduced before the confidence to the audit profession can be restored, which we think should be done through better communication. The legal regulation affects the audit profession with massive regulation on especially the quality area, which means that the auditing moves towards a compliance culture, where the focus is on compliance to the rules and not so much on making a product the stakeholders and the public can use. The Danish oversight board is a result of the legal regulation and it has led to massive focus on the quality systems in the audit firms. Many smaller accounting firms have been forced to close or merge with larger firms to meet the stricter rules. This will be a problem for the whole society because the audit profession has a big influence on the financial system. The public oversight board was expected to prevent more business scandals in which the auditor can be blamed. Furthermore, the confidence among the public to the audit profession was expected to improve, when they realize that the audit profession is not to be blamed. We have used the annual statements from the Danish public oversight board and compared them with the statements from FSR to analyze whether there has been a development or not regarding the quality control of the audit profession. Our analysis shows that the State Authorized Public Accountants (93 %) in generally have better acceptance rates when getting controlled than the Registered Public Accountants (78 %). Furthermore it shows that the State Authorized Public Accountants have the same acceptance rates (93 %) when they were controlled by FSR and later the Public Oversight Board. Our analysis also shows that the Public Oversight Board has the authority to fine the audit firms if they fail to meet the demands to the quality systems. FSR didn’t have the possibility to fine its members, which meant that there were several accounting firms that drove their practice without having to comply with the requirements for good auditor practice. With the new Audit Act, all audit firms now has to follow these rules, and not only the ones that were members of FSR and FRR. This has led to many accountants choosing to deregister themselves at E&S as a direct consequence of the new Audit Act. The new Audit Act has also led to a stricter fine policy in case the audit firms fail to meet the demands to the quality systems. We believe that by regulating the quality control for auditors by law, the public has the security for a better audit product. This means that the confidence among the public to the audit profession will stabilize and maybe even rise over time.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2010
Number of pages114