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Principles‐Based versus Rules‐Based Auditing Standards: The Effect of the Transition from AS2 to AS5
Author(s) -
Sin Fang Yun,
Moroney Robyn,
Strydom Maria
Publication year - 2015
Publication title -
international journal of auditing
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.583
H-Index - 21
eISSN - 1099-1123
pISSN - 1090-6738
DOI - 10.1111/ijau.12045
Subject(s) - audit , accounting , business , context (archaeology) , redundancy (engineering) , big data , control (management) , computer science , data mining , paleontology , artificial intelligence , biology , operating system
The transition from a rules‐based auditing standard ( AS2 ) to a principles‐based auditing standard ( AS5 ) provides a context to assess how such a change impacts audit outcomes. Under a rules‐based auditing standard, audit processes are relatively uniform, unscaleable and include significant redundancy. Under a principles‐based auditing standard, audit effort can be directed to where risk is greatest; audits are scalable and can be customized. We find that the post‐ SOX shedding of risky clients by the Big 4 meant that non‐Big 4 clients were more likely than Big 4 clients to disclose material internal control weaknesses ( MICWs ) when assured under AS2 . This gap narrowed significantly following the transition to AS5 , when risk‐based customized audits were possible which benefited Big 4 firms to a greater extent than non‐Big 4 firms.