Assessing the Influence of Regulatory Changes on the Practice and Effectiveness of External Auditing

Posted: Jan 18, 2023

• Brooks Kennedy
• Brody Jenkins
• Eliza Fisher

Abstract

The landscape of external auditing has undergone substantial transformation in recent decades, driven by a complex interplay of regulatory reforms, technological advancements, and evolving stakeholder expectations. Following major financial scandals and systemic failures, regulatory bodies worldwide have implemented sweeping changes aimed at enhancing audit quality, strengthening auditor independence, and restoring public confidence in financial reporting. These regulatory interventions have manifested in various forms, including the Sarbanes-Oxley Act in the United States, the European Union's Audit Reform, and numerous national-level initiatives targeting audit market concentration and professional standards. Despite the proliferation of these regulatory measures, empirical evidence regarding their effectiveness remains mixed and context-dependent, necessitating a comprehensive assessment of how regulatory changes influence both the practice and ultimate effectiveness of external auditing. This research addresses critical gaps in the existing literature by developing an integrated framework for evaluating regulatory impact that accounts for both direct outcomes and indirect consequences. Traditional approaches to assessing audit regulation have often focused narrowly on specific metrics such as audit fees, reporting timeliness, or restatement frequencies, while neglecting the broader ecosystem of audit practice transformation. Our study adopts a more holistic perspective, examining how regulatory changes reshape audit methodologies, alter auditor-client relationships, modify risk assessment processes, and ultimately affect the fundamental objective of external auditing: providing reasonable assurance about the fairness of financial statements.