Financial Auditing as an Economic Service

Abstract

SUMMARY This article summarizes Knechel, Thomas, and Driskill (2020), conceptualizing financial auditing as an economic service. In contrast to the production of tangible goods, a central characteristic of economic services is substantial customer/client participation in the production process. Financial auditing is an intensive collaborative network service due to the multiple parties involved in the production and consumption of the resulting output. This introduces significant heterogeneity and complexity into the planning and conduct of the audit, the resulting audit output, and perceptions of audit quality. While the independence of the auditor is necessary, ignoring the essential nature of auditor-client cooperation may generate unexpected costs which impair audit quality. The multitude of parties involved in an audit creates tension between audit quality and audit efficiency and makes objective definitions of audit quality difficult. Excessive standardization of the audit process may not increase audit quality. JEL Classifications: G18; G28; G34; G38.