Competition and auditing: esteemed but incompatible ideas

Abstract

The ideas of competition and financial auditing are both socially esteemed and expected to benefit the national economy. Applying a historical perspective, the chapter clarifies how the relationship between the two ideas emerged and developed. Was it possible for financial auditors to simultaneously compete for the appreciation of two stakeholder groups with conflicting interests—client firms and the users of financial statements? It is concluded that combining the idea of competition with that of financial auditing does not elicit the expected benefits of any of the ideas. Auditors, regulators, and academics all relate the idea of competition to economic relationships with client firms, whereas relationships with other stakeholders are observed rhetorically. Yet these stakeholders constitute the very rationale for financial auditing. The compatibility of institutionalized, socially esteemed ideas is ignored even though this goes contrary to the expected benefits of these ideas.