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Title:Optimal regulation of auditing PDF Logo
Authors:Pagano, Marco
Immordino, Giovanni
Issue Date:2007
Series/Report no.:CESifo working paper 1980
Abstract:We study regulation of the auditing profession in a model where audit quality is unobservable and enforcing regulation is costly. The optimal audit standard falls short of the first-best audit quality, and is increasing in the riskiness of firms and in the amount of funding they seek. The model can encompass collusion between clients and auditors, arising from the joint provision of auditing and consulting services: deflecting collusion requires less ambitious standards. Finally, banning the provision of consulting services by auditors eliminates collusion but may not be optimal in the presence of economies of scope.
JEL:G28
K22
M42
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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