The audit expectation gap and strengthened independence standards in the European Union: measuring the effects of the new EU Directive

Begoña García-Hernández, Antonio Duréndez and Alfonso A. Rojo-Ramírez

Accounting Forum, 2022, vol. 46, issue 3, 264-286

Abstract: The European Union has addressed the moral hazard that auditors may present by doubly reinforcing auditor independence. This has been done through the formulation of a general principle of independence in conjunction with a preventive and sanctioning framework of safeguards and prohibitions. This article evaluates whether the audit expectation gap has provoked a shift towards increasing the protection of auditor independence. The Directive provides a new framework to harmonise and protect auditor independence in the EU. The article covers a gap in relation to the effects of new auditing regulations within the EU affecting the ethical problem of auditor independence and its connection to the audit expectation gap. A qualitative study addressed to a sample of 192 auditors has been developed. Following the structural equation modelling methodology (PLS-SEM), our results display evidence of a relationship between the audit expectation gap and auditor independence. Furthermore, the results show a mediating effect of new auditor safeguards and quality controls and a sanctioning system to protect independence when an audit expectation gap exists. The results also show that the more restrictive auditor prohibitions considered in the latest European reform have a positive effect on the protection of auditor independence.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:taf:accfor:v:46:y:2022:i:3:p:264-286

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DOI: 10.1080/01559982.2021.1954359

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