"Auditing is intended to instil trust and confidence in the representations of companies, however, there are many examples of corporate failure and misstatements that have cast doubt about audit effectiveness. Despite this, there has been only tinkering at the edges of a model that has persisted for centuries that is based on conflicted relationships. This has led to a focus on audit quality by legislators, statutory bodies, the profession and the public to find ways to modify the current model to ameliorate compromises that are inherent in it.
This paper presents the results of a Stated Preference Experiment (SPE) that considered participant preferences in respect of modifying the current financial statement audit (FSA) model or adopting a more disruptive approach by modifying a Warranty and Indemnity Insurance (W&II) model to replace FSA in an effort to improve audit quality.
This study finds that while most participants believed modifications were necessary to the current FSA model, adopting a disruptive approach is only favoured for companies with less financial market impact. Notwithstanding the greater support for a modified FSA model, limited support for a modified W&II model demonstrates the idea is worth pursuing."