Optimal Regulation of Auditing

Giovanni Immordino and Marco Pagano

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: We study regulation of the auditing profession in a model where audit quality is unobservable and enforcing regulation is costly. The optimal audit standard falls short of the first-best audit quality, and is increasing in the riskiness of firms and in the amount of funding they seek. The model can encompass collusion between clients and auditors, arising from the joint provision of auditing and consulting services: deflecting collusion requires less ambitious standards. Finally, banning the provision of consulting services by auditors eliminates collusion but may not be optimal in the presence of economies of scope.

Keywords: auditing; regulation; enforcement; collusion. (search for similar items in EconPapers)
JEL-codes: G28 K22 M42 (search for similar items in EconPapers)
Date: 2005-03-01, Revised 2007-05-01
New Economics Papers: this item is included in nep-acc, nep-fin and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published in CESifo Economic Studies, Vol. 53, No. 3, September 2007, pages 363–388

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http://www.csef.it/WP/wp133.pdf (application/pdf)

Related works:
Journal Article: Optimal Regulation of Auditing (2007)
Working Paper: Optimal Regulation of Auditing (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:133

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