There is thus a demand amongst companies for independent auditing to reduce their contractual or transaction costs.
This has been verified empirically by observing that the increased contractual conflict resulting from a greater separation between ownership and control or a higher level of indebtedness leads to greater demand for auditing services. It has also been observed that contractual costs fall largely as auditing quality is increased. .
Auditing quality depends on the ability of the auditor to carry out a thorough examination of the accounts and detect possible errors or anomalies (technical competence) and his willingness to provide an objective opinion on them (his independence). Careful consideration of these two dimensions and the quality safeguards that are provided by the.
market is crucial for regulation to be efficient. In particular, technical competence can be hindered and independence trivialized if auditors are not allowed to exercise their professional judgment In addition, independence is not only a matter for the parties that are.
directly involved but also concerns third parties, mainly other clients.
Is a Regulation Necessary? .
Most industries of services is regulated by a body by one way or another, one role which regulation plays is assurance to users or consumers of a service that this service meets certain standards, if the audit profession any person could be an auditor and firm would not know which firm of audit to trust to perform work for them. In this respect the audit regulation acts as a kind of licensing authority. It sets standards which individuals must achieve before they are licensed to act as auditors, to prevent anyone no matter qualification he has to be an auditor unless he met the standard of the of the audit profession. Another respect of regulation is the setting of standards which audit practitioners must adhere to and which help ensure their work is of an adequate standard.
