Joint Working Groups
In the Joint Working Groups [JWGs] top academics, the auditing practice and important stakeholders come together to compound their knowledge on significant audit issues. The purpose of these groups is to compose scientific based answers to key questions that practice and the society deal with on a day-to-day basis. The FAR has set up two JWGs in 2017: The (Future) Auditing (Partner) Business Model and Root Cause Analysis Methods in Auditing. Detailed information about the JWGs is listed below.
2017 - Future Audit Firm Business Model
Following the 2017 Research Agenda, FAR has initiated a Joint Working Group (JWG) project on “The (Future) Audit Firm Business Model”. With the proactive participation of top practitioners from the affiliated audit firms, top academic researchers and selected stakeholders, this JWG will meet at JWG Research Summits five to six times over a period of two to three years, with intermediate reports to be defined and delivered each summit.
This JWG had its initial Research Summit on October 4th, 2017 which was attended by the Big 4 and by Middle 5 Dutch audit firms affiliated to FAR, along with FAR’s academic board members. The objective of this summit was to define the JWG’s research objective, research agenda, and first research projects. William Ciconte (University of Illinois USA) and Marleen Willekens (KU Leuven University) shared what we already know from prior research and theory on questions like whether a tradeoff exists between auditors’ commercial and professional motivations and whether audit firms’ quality control mechanisms create conditions in which the two sets of motivations are (or can be) mutually reinforcing.
This first JWG Research Summit resulted in the following three (interrelated) focal points and illustrative questions:
- Audit firm business models: Is it appropriate to have the same firm deliver both audit and non-audit services (i.e., a multidisciplinary model versus an “audit only” model)? Does the existence of both within the same firm enhance or undermine audit quality (i.e., the relative balance of expertise versus independence)?
- Audit firm partnership, ownership, and governance models: Do the current partner profit sharing, compensation, and performance incentives systems appropriately influence the achievement of audit quality? Does the structure of international firm networks adequately support governance and quality assurance systems?
- The audit profession’s earnings model and audit markets (competition): What is the appropriate process for evaluating, selecting and appointing auditors? What is the role of auditor rotation, and corporate governance (e.g., the audit committee) in providing appropriate incentives to improve audit quality while controlling audit costs?
This Summit resulted in the following six research projects – with intermediate delivered over different periods of time:
- What do we already know from research about the impact of a combination of audit and non-audit services (1) within one firm and (2) for one client on audit quality in general and on the specific audit engagement? Additional focal points are knowledge spillovers, audit firm quality culture and multidisciplinary talent pool (e.g., attracting within firm expertise for audit purposes), the trade-off between independence and the auditor’s knowledge base, and different auditee market segments (e.g., public interest entities versus owner-managed-businesses).
- How have the Dutch audit firms’ partner profit sharing, compensation, and performance incentives systems developed over the past 10 years in relation to audit quality incentives? Additional focal points are (equal) firm based profit sharing versus partner performance systems, profit sharing systems across service lines, audit firm sustainability over the economic cycles of each of the service lines – and how these incentive systems relate to the firms’ overall audit quality assurance systems.
- How have the Dutch audit firms’ organizational structures and corporate governance systems developed over the past 10 years as part of the firms’ audit quality assurance systems? Focal points include the profession’s (historical) establishment, the development from partnerships to corporate models, and the role of the international firm networks in the quality assurance systems of the Dutch audit firms and audit quality for multinational group audits.
- How do audited companies (and their supervisory boards / audit committees / shareholders) select and appoint their auditors? What are primary selection criteria in design and practice (i.e., what are actual selection and appointment decisions made)? How are the (total) costs of auditing (thus including potential switching costs) considered in selection and appointment?
- What is the impact of (increased) audit committee involvement with the audit on audit quality? Additional focal points are a (post-implementation) comparison of AC involvement and audit quality and AC involvement in key audit matter reporting and issue-clearance (including related fee-issues).
- What is the effect on audit quality and auditor independence of auditor selection and appointment through a government organized agency (“government organized auditing”) compared to the current appointment system in the Netherlands? Additional focal point may be the statutory required audit versus voluntary auditing.
2017 - Root Cause Analysis Methods in Auditing
Following the 2017 Research Agenda, FAR has initiated a Joint Working Group (JWG) project on “Root Cause Analysis Methods in Auditing”. With the proactive participation of top practitioners from the affiliated audit firms, top academic researchers and selected stakeholders, this JWG will meet at JWG Research Summits five to six times over a period of two to three years, with intermediate reports to be defined and delivered each summit.
The first Summit is scheduled for Spring 2018. More information will follow shortly.