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Practice note: Is the internal value of the external audit greater for owner-managed businesses than for public interest entities? Dr. Mahmoud Gad Dr. Robin Litjens RA Prof. dr. Jeroen Suijs Details
 

The research study by Gad, Litjens en Suijs relates to the question of the Foundation for Auditing Research whether there exists a need for ‘different audits for different purposes’. Does the external audit of a public interest entity require a different approach than the external audit of an owner-managed business? In order to answer this question, it is appropriate to analyze the differences in value of the external audit for a public interest entity versus an owner-managed business.

Authors

Dr. Mahmoud Gad

Lecturer, Lancaster University 

Dr. Robin Litjens RA

Assistant Professor of Accounting at Tilburg University

Prof. dr. Jeroen Suijs

Professor of Financial Accounting at Erasmus University Rotterdam

Practice note: Is voor DGA-ondernemingen de interne waarde van de externe controle groter dan voor organisaties van openbaar belang? (Dutch) Prof. dr. Jeroen Suijs Dr. Mahmoud Gad Dr. Robin Litjens RA Details
 

Het onderzoek van Gad, Litjens en Suijs sluit aan op de vraag vanuit de Foundation for Auditing Research of er behoefte bestaat aan ‘different audits for different purposes’. Moet en kan de audit voor een organisatie van openbaar belang (OOB) anders worden aangepakt dan bijvoorbeeld voor een onderneming die door een DGA wordt geleid?

Authors

Prof. dr. Jeroen Suijs

Professor of Financial Accounting at Erasmus University Rotterdam

Dr. Mahmoud Gad

Lecturer, Lancaster University 

Dr. Robin Litjens RA

Assistant Professor of Accounting at Tilburg University

FAR Literature review: do private firm audits serve a different purpose? Dr. Mahmoud Gad Dr. Robin Litjens RA Prof. dr. Jeroen Suijs Details
 

The Dutch market for mandatory audit services is heterogenous and includes publicly listed and private firms. While private firms dominate the market, existing audit research focusses primarily on listed firms where audit demand originates from external stakeholders such as shareholders assisting them in the monitoring of management. This is surprising as private firms represent a significant portion of the economy in most countries.

Private firms generally face different incentives in terms of accounting and auditing demand. For example, private firms that are not run by owner-manager may have agency conflicts that drives the demand for audit. However, in private owner-managed firms external audit demand can arise from other, more internal, factors that are difficult to observe and less well understood, such as compensation for lacking internal controls. Legislators across the world seem to acknowledge this variation and mandate audits to a varying degree, for instance dependent on private firm size. Yet, institutional heterogeneity is large, varying from mandating audits for very few (e.g., United States) to all (e.g., Sweden) private firms.

Furthering our understanding of internal value factors of private firm external audits and their effect on audit pricing, audit effort and audit quality is therefore relevant. It can assist regulators in determining the scope (which private firms) and features of a private firm audit (e.g. independence regulation, exclusion of certain non-audit services). Understanding internal value factors can assist auditors and audit firms in how to price and ‘produce’ private firm audits and the effects of these decisions on audit quality.

Authors

Dr. Mahmoud Gad

Lecturer, Lancaster University 

Dr. Robin Litjens RA

Assistant Professor of Accounting at Tilburg University

Prof. dr. Jeroen Suijs

Professor of Financial Accounting at Erasmus University Rotterdam