Abstract:
The aim of this research was to develop an audit quality oversight framework for
European audit regulators, grounded in the EU Acquis Communautaire for statutory audit,
to guide the inspection of audit quality. The study explored the links between enhanced
audit quality, improved reliability of financial reporting, strengthened investor confidence
and greater market integrity. In doing so, it examined the influence of the external quality
control system on audit quality.
A mixed-methods approach was adopted, combining quantitative surveys and qualitative
semi-structured interviews. The surveys targeted audit companies (auditors),
professional audit organisations, European audit regulators, major financial regulators
and public interest entities across Europe. The semi-structured interviews involved
purposively selected participants from public interest entities.
The research establishes the framework’s conceptual foundation (Level 1) by
demonstrating how high-quality audits enhance financial reporting reliability, thereby
fostering investor confidence and strengthening market integrity. This foundation is built
on three pillars: securing audit quality, overseeing audit engagements and enhancing
auditor independence and ethics. The study further outlines the framework’s monitoring
and implementation strategies (Level 2) and emphasises its application benefits (Level
3), thus highlighting its practical value.
A significant finding of the research is the differing reliance on the external quality control system between local audit companies and international networks. Local companies,
which face greater financial and operational pressures from audit quality oversight, rely
more heavily on the external quality control system, using it to supplement their internal
control systems to enhance and maintain audit quality. In contrast, international networks,
supported by more robust internal control systems due to access to greater resources,
rely less on the external quality control system.
The study underscores the importance of maintaining the independence of the external
quality control system from non-audit professional influence since such influence can
impair audit quality. Conversely, when the external quality control system is managed by audit professionals, it has a positive effect on audit quality, especially for local audit
companies.
A risk-based approach to audit quality oversight is recommended, focusing on high-risk
audit engagements and areas where effective resource allocation and adherence to
auditing standards and ethical requirements are most critical to achieving high audit
quality.
