Effects of New Audit Regulation on Auditor´s Perceptions by Independence Issues, Audit Planning Activities and Reporting Decisions: Comparative Questionnaire Surveys 1995 and 2005 in a Danish Context

This paper examines the effects of new audit regulation on the behaviour of Danish State Authorized Public Accountants when they confront independence threats, audit planning activities and the reporting of critical findings in the audit report.

The detail approach and the stressing of the importance of scepticism in new audit regulation are expected to make the auditors´ decisions by interpreting principles more restrictive, or direct in conformity with prescriptive regulation, whereas the importance of professional judgement is diminishing by independence threats and reporting decisions. Furthermore, the complexity of the new audit process is likely to increase the weight of planning and reporting activities, the use of qualified resources (senior staff and State Authorized Public Accountants) and interim auditing.

The approach used is questionnaire surveys in 1995 and 2005 respectively, in 1995 with 94 and in 2005 with 121 State Authorized Public Accountants as respondents.

The hypotheses are supported, except for the absence of an expected complexity effect of the new audit process in the context of a small audit engagement. Auditors are more restrictive in 2005 when confronted with threats of self evaluations by second engagements for an audit client. By a big audit client they take the complexity of the new audit process into account. And they do more often report critical findings in compliance with regulation in 2005. Finally their reporting decisions are less influenced by external factors such as potential consequences for the client or for their personal relationship with client management in 2005.

Furthermore it seems likely that many of the effects are more conspicuous in Big Four audit firms. This could portend more strict reactions in the future in general given that new tendencies are first discernible in big leading audit firms.