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The publication of the European Commission Green Paper, "Audit Policy: Lessons from the Crisis" in October 2010, has stirred up a lively debate on the role of joint audits. This literature review identifies and evaluates, for the benefit of future research and regulators, existing evidence about joint audits. We find limited empirical support to suggest that joint audits lead to increased audit quality, but some empirical support to suggest that joint audits lead to additional costs. Overall, this paper indicates that joint audit should be seen as a mechanism that is embedded in a broader institutional context, and not be considered in isolation from other factors that might impact the audit market. The results indicate that various country-level characteristics are simultaneously at play. While joint audits can potentially enhance the audit market competition by allowing smaller audit firms to maintain larger market shares, the related impact on audit quality has not yet been clearly demonstrated and thus provides a promising avenue for future research.3

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Prior research has documented the continued existence of an expectation gap, defined as the divergence between the public's and the profession's conceptions of auditor's duties, despite the auditing profession's attempt to adopt standards and practices to close this gap. In this paper, we consider one potential explanation for the persistence of the expectation gap: the role of media bias in shaping public opinion and views. We analyze press articles covering 40 U.S. corporate fraud cases discovered between 1992 and 2011. We compare the auditor's duties, described by the auditing standards, with the description of the fraud cases as found in the press articles. We draw upon prior research to identify three sources of the expectation gap: deficient performance, deficient standards, and unreasonable expectations. The results of our analysis provide evidence that (1) the performance gap can be reduced by strengthening auditor's willingness and ability to apply existing auditing standards concerning fraud detection; (2) the standards gap can be narrowed by improving existing auditing standards; and (3) unreasonable expectations, however, involve elements beyond the profession's sphere of control. As a result, the expectation gap is unlikely to disappear given the media's tendency to bias, with an overemphasis of unreasonable expectations in their coverage of frauds and press articles tending to reinforce the view that the auditor should take more responsibility for detecting fraud, irrespective of whether this is feasible at a reasonable cost. In addition to the primary role of the press in perpetuating the expectation gap, a second reason for continuation of the expectation gap is that the rational auditor will have difficulty in assessing subjective components of fraudulent behavior.

European Commission (EC 2011) has recently suggested joint audit -broadly defined as an audit where two independent auditors are jointly liable for the audit report -as a way a way to increase audit quality after the financial crisis and to mitigate audit market concentration, by enlarging the audit offer. Big 4 audit firms have fought this proposal by arguing its unbearable cost while 2 nd Tier audit firms have supported it by arguing its added quality. This conflicting position leads us to question their claim of public interest concern. As group-interest economic regulation theories predict that the absence of any effect of a new regulation (here: joint audit) is an evidence of a group rather than a public-interest concern, we test both cost and quality arguments. We perform our main analysis on Denmark (2002Denmark ( -2010, which gave up the mandatory joint audit in 2005. We test the impact of joint audit on both audit costs proxied by audit fees or total fees and audit quality proxied by abnormal accruals. Our results confirm 1) the nonsignificance association between fees (either audit fees or total fees) and joint audit, and 2) the non-significance association between abnormal accrual and joint audit. We then apply the same approach on a matched French-German sample to assess the arguments based on the French case, as France is characterized by a long tradition of joint audit. We find 1) similar results for audit quality (no significant differences between both countries regarding abnormal accrual in France); and 2) higher fees (audit fees and total fees) in France. However, as given the impossibility to disentangle the effect of joint audit from other institutional differences (as for instance the ban of joint provision of audit and non-audit services in France), we conclude that any argument based on the French case only is dubious. As given the non significance of the hypothesized positive association between joint audit and audit cost or quality, we conclude that arguments raised by both parties relate more to the defense of their private interest than the public (firms or shareholders") interests. The results are of interest for regulators and actors in the audit market.

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