Thiss essay examines the existing system of audit regulation as a mechanisms used to safeguard quality of financial statement. An outline is given for the role of these regulations as a key ingredient for audit quality. Particular attention is paid to the function of regulatory bodies in facilitating and strengthens the protective operation of the market. By making sense of the interaction between regulation, quality attributes and private safeguards. The analysis helps to evaluate the relative merits of different regulatory options that could improve the existing system of audit particularly to the idea of independent state body and its advantageous and disadvantageous.
1 Background.
The demand for auditing services arises from a need to facilitate dealings between the parties involved in business relationships "shareholders, creditors, public authorities, employees and customers, etc. Exchanges between such parties are usually costly since informational asymmetries give rise to uncertainty concerning the performance of the contractual obligations.
In this context of contractual opportunism and, along with other instruments and safeguards, accounts are used to enhance the likelihood of performance and demonstrate a willingness to perform to potential contracting parties. The preparation of accounts is controlled by one of.
the parties only (either the executives of a large company or an individual businessman in smaller undertakings). In this way, figures can be produced at lower cost but they are also used "perhaps principally "for internal management and control purposes. This dual capacity.
of executives and businessmen as agents to be monitored and as those responsible for actually preparing the accounts reduces the value of the latter to third parties. A review of accounts by an independent expert, the external auditor, is useful to enhance their reliability in the eyes of other contracting parties who are not involved in their preparation.