Abstract
The audit profession has been affected by several public corporate failures and accounting scandals
since the turn of the 21st century. The irregularities that lead to the collapse of Enron Corporation also
resulted in the demise of Arthur Andersen, their appointed auditors.
Industry regulators and lawmakers reacted to what seemed to be a never ending spate of accounting
scandals through broad consultation with stakeholders. This lead to numerous new legislation and
international auditing standards such as the introduction of the Sarbanes Oxley Act in the United
States of America, local proposed amendments to the Companies Act, no. 61 of 1973 as well the
enactment of the Auditing Profession Act in 2006 – all in an attempt to address concerns around the
quality of audit work and to restore the trust in the audit profession and the assurance that it provides.
These recent events in the profession have however been preceded by consolidation within the
industry between the largest international auditing firms. Many stakeholders have been concerned
about this consolidation in terms of its impact on competition within the audit services market and the
impact of competition from the “Big Four” on other market participants. Many studies have concluded
that it has become very difficult for firms in small and medium practice to compete against the larger
international audit firms, especially for the audits of large multi-national companies.
The many statutory changes resulting from reaction to corporate failures have further impacted on the
cost of training staff and updating systems and methodologies – costs which further hamper the ability
of medium and smaller audit firms to compete with the larger international audit firms for business.
Considering the South African audit industry, this study focuses on the engagement decision process
of registered auditors in medium practice in order to determine in what manner their decisions are
impacted by motivational drivers within the industry. This study continues to research the engagement
decision process, to consider risk evaluation at the core of the engagement decision and also concludes
on the audit procedures that typically form part of the engagement decision of registered auditors in
medium practice.
The findings of this study suggests that practitioners in medium audit practice are commercially
predisposed during their engagement decisions. This commercial predisposition, which is the likely
result of significant competition within the auditing profession in South Africa, does impact on the
procedures performed by practitioners during their engagement decisions to such an extent that they
may be exposed to significant risk during many of their engagement decisions.
This study continues to criticaly analyse those procedures pertaining to risk assessment, risk
mitigation, the use of third party information during engagement decisions and other audit procedures
performed by practitioners during their engagement decisions. From these findings, risks are identified
and commented on with specific consideration to their impact on the auditing profession at large.
In conclusion, this study recommends actions to practitioners, regulators and professional institutions
pertaining to engagement decisions by practitioners in medium audit practice, in order to mitigate the
impact of those risks identified from the findings of this study.
Max, Ben, Prof.; Voogt, Theo, Prof.