Transparency report disclosure by Australian audit firms and opportunities for research

Abstract

Purpose – The purpose of this study is to compare the information disclosed by leading Australian audit firms in their first-time audit firm transparency reports. Australia has mandated the preparation and release of transparency reports by audit firms in 2013 to provide better information to stakeholders about audit firms, their governance and their internal governance systems. These reports promote increased transparency regarding issues which are believed to contribute to audit quality. Design/methodology/approach – The paper takes the form of an archival analysis where the authors summarise the governance and other information for the 21 leading Australian audit firms as disclosed in their first-time 2013 transparency reports. Findings – The authors find that audit firms meet the minimum transparency report disclosure requirements, but have different approaches to governance in the areas which may impact audit quality. These areas include: the internal quality control systems, independence practices, continuing education and partners’ remuneration structures. The authors identify specific areas where transparency reports may give rise to future research opportunities. Originality/value – Australia is one of the first countries to require audit firms to publish transparency reports, and this is the first study to examine these reports. By summarising transparency report disclosures, we present a comprehensive picture of how Australian leading audit firms govern and oversee their business activities. This is useful to transparency report preparers, report users and regulators.

Comments of the Auditing Standards Committee of the Auditing Section of the American Accounting Association on the Concept Release, Potential Approach to Revisions to PCAOB Quality Control Standards

“…The introduction of transparency reporting in the European Union (EU), Australia, and Japan provides further support for an overall evaluation of the firm's quality control system effectiveness (IOSCO 2009). Both the EU's Eight Company Law Directive and the Australian Corporations Legislation Amendment (Audit Enhancement) Act 2012 include in the transparency reporting items a requirement to describe the firm's internal quality control system ("IQCS") and include a statement on the effectiveness of the IQCS (Fu, Carson, and Simnett 2015). The Japan CPA Act requires commensurate evaluation and disclosure related to the "performance of business operations and maintenance of service control framework" (IOSCO 2009;Fu et al 2015).…”

Corporate governance of audit firms: Assessing the usefulness of transparency reports in a Europe‐wide analysis

“…They examined the links between audit quality (proxied by the clients' earnings quality) and the reports issued by audit firms, but the researchers did not find a significant association. In the Australian context, Fu, Carson, and Simnett () compared the information disclosed by the 21 leading Australian audit firms in their first‐time TRs (issued in 2013) and they found that audit firms meet the minimum TR disclosure requirements, but have different approaches to governance in the areas that may affect audit quality.…”

“…In the Australian context, Fu, Carson, and Simnett (2015) compared the information disclosed by the 21 leading Australian audit firms in their first-time TRs (issued in 2013) and they found that audit firms meet the minimum TR disclosure requirements, but have different approaches to governance in the areas that may affect audit quality.…”

Transparency report delay and disclosure by Croatian audit firms

“…However, they find no association between the variations in the disclosure score and proxies of audit quality. Finally, Fu, Carson and Simnett [7] found that Australian audit firms do meet the minimum transparency report disclosure requirements, but have different approaches to governance in areas that may impact audit quality. These areas include: the internal quality control systems, independence practices, continuing education and partner remuneration structures.…”

“…Also, the US Treasury Advisory Committee recommended increased transparency in the governance of audit firms. Specifically, the Committee suggested that audit firms with 100 or more public clients should produce transparency reports annually [7]. In 2014, European Union (EU) requirements for transparency reporting by audit firms complied with Regulation No.…”