Project Number – 2017B06

2017B06 – How is auditor commercialism related to audit quality and efficiency?

What?

This study will (1) examine whether a tradeoff actually exists between auditors’ commercial and professional motivations and (2) whether audit firms’ quality control mechanisms create conditions in which the two sets of motivations are (or can be) even mutually reinforcing.

Why?

Stakeholders to the auditing process have frequently asserted that there is a fundamental conflict between auditors’ professional obligations and commercial interests, i.e., auditing as a profession versus auditing as a business – fueling regulatory and standard-setting interventions. The study may very well contribute to the demystification of current perceptions of (partners’ and firms’) focus on commercialism versus professionalism (or regulatory focus on quality over the firms’ business model).

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The first decade of the FAR: past, present and future

This commemorative booklet marks the tenth anniversary of the Foundation for Auditing Research (FAR). It reflects on FAR’s journey as a unique platform where academic research and audit practice meet to advance audit quality. The publication highlights:

FAR’s Mission and Impact: How FAR evolved from an ambition into a reality, fostering collaboration between researchers and practitioners through access to real-world audit data.
Insights from Leadership: An interview with founding academic director Jan Bouwens and his successor Anna Gold on FAR’s achievements, challenges, and future priorities.
Research Highlights: Four featured studies on topics such as auditors’ commercial efforts, student expectations versus auditor experiences, data analytics and professional skepticism, and learning within audit teams.
Key Figures and Projects: An overview of FAR’s outputs, including practice notes, masterclasses, conferences, and a growing portfolio of research projects.

The booklet not only looks back with pride but also outlines ambitions for the future of strengthening knowledge transfer, increasing practical usability of research, and deepening engagement across audit firms and academia.

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Where does the time go? Auditors commercial effort, professional effort, and audit quality

This study tests the taken-for-granted assumption that auditors’ commercial motivation threatens audit quality using internal time reporting data from two Big Four firms in the Netherlands. The research team examined whether auditors’ commercial effort is associated with their compensation, total effort on their audit engagements, and audit engagement quality. The researchers find some evidence of a positive relation between commercial effort and compensation. They find no evidence that auditors’ commercial effort is associated with total audit effort in their portfolio and, most importantly, they find no evidence of a negative relation between auditors’ commercial effort and audit quality. This challenges widely held beliefs that commercial effort is necessarily problematic for auditing. Further, the researchers find that auditors’ commercial effort is positively related to their reliance on quality control—proxied as technical consultations—and that there is a positive indirect effect of commercial effort on audit quality via consultations. That is, they identify conditions in which auditors’ commercial effort increases audit quality, suggesting that further restrictions on commercial effort are likely unnecessary.

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How is auditor commercialism related to audit quality?

It is taken for granted that a fundamental conflict exists between auditors’ professional responsibilities and their commercial interests. While there is no direct evidence to support this widely held belief, it onetheless fuels extensive, costly regulatory and standard-setting activities. We propose to examine whether auditors’ commercial and professional motivations actually conflict. Moreover, we argue that quality control mechanisms in audit firms—e.g., performance evaluation and technical consultation procedures—create conditions in which the two sets of motivations are likely mutually reinforcing. To test our research question, we will examine whether auditors’ commercial activity is related to indicators of audit quality such as individual performance evaluations and engagement quality reviews. We expect to find that firms reward auditors’ commercial activity. However, contrary to critics’ concerns, we also hypothesize that auditors’ commercial activity will be positively related to audit quality. For reasons discussed in this note, we argue that auditors who base their professional identity more on being successful at commercial endeavors will be more willing to access quality control mechanisms (e.g., ask for help from consultations). As far as we are aware, our examination will provide the first direct evidence on the beneficial effects of commercial motivations for auditors.

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How is auditor commercialism related to audit quality?

It is taken for granted that a fundamental conflict exists between auditors’ professional responsibilities and their commercial interests. While there is no direct evidence to support this widely held belief, it nonetheless fuels extensive, costly regulatory and standard-setting activities. We propose to examine whether auditors’ commercial and professional motivations actually conflict. Moreover, we argue that quality control mechanisms in audit firms, e.g., performance evaluation and technical consultation procedures, create conditions in which the two sets of motivations are likely mutually reinforcing. To test our research question, we will examine whether auditors’ commercial activity is related to indicators of audit quality such as individual performance evaluations and engagement quality reviews. We expect to find that firms reward auditors’ commercial activity. However, contrary to critics’ concerns, we also hypothesize that auditors’ commercial activity will be positively related to audit quality. For reasons discussed in this note, we argue that auditors who base their professional identity more on being successful at commercial endeavors will be more willing to access quality control mechanisms (e.g., ask for help from consultations). As far as we are aware, our examination will provide the first direct evidence on the beneficial effects of commercial motivations for auditors.

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How is auditor commercialism related to audit quality and efficiency?

This literature review synthesizes research on whether auditors’ commercial activity conflicts with professional obligations, or whether the two can coexist and even reinforce each other through firm-level quality controls. It frames the debate between the “trade‑off” view, where commercialism undermines professionalism, and an alternative perspective that highlights complementary roles of both logics in audit practice. The review also traces the evolution of organizational control in public accounting firms, from collegial autonomy to more formal structures, and considers how mechanisms such as technical consultations may help align commercial goals with high audit quality and engagement efficiency. Based on gaps in prior evidence, the authors call for empirical tests linking auditors’ commercial activity to individual performance evaluations, promotion decisions, and indicators of audit quality, expecting that commercial efforts can be rewarded without compromising quality.

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