Independent monitoring and review functions in a financial reporting context

Abstract

Purpose Independent monitoring and review bodies have become a defining feature of the professional accounting and auditing space. Exactly how these institutions function to improve the quality of the corporate reporting or audit function is, however, poorly understood. Consequently, the purpose of this study is to provide empirical evidence on how the activities of an independent review process functions on individual preparers, auditors and those charged with an organisation’s governance. Design/methodology/approach The study is an interpretive one. Data are collected using semi-structured interviews and analysed by the researchers. Findings The review function performed by an independent body results in companies being more aware of the need for compliance with the applicable financial reporting standards. Independent reviews also act as a process of examination which functions at the level of the individual accountant, auditor or director. These subjects of regulation report an added sense of accountability to their respective employer and profession and a heightened awareness of the need for high-quality corporate reporting. Research limitations/implications Independent monitoring and review bodies are not just symbolic displays which reassure uninformed users that the quality of financial statements are sound. Examination of financial statements and identification of non-compliance with the applicable financial reporting standards drive actual changes in reporting practices. Originality/value This study complements the predominantly positivist financial reporting research which does not deal with precisely how the work of regulatory bodies operates on the subjects of regulation. The research makes an important practical contribution by providing empirical evidence in support of laws and regulations which promote independent review of the accounting profession.