2

Review of Relevant Literature

2.1 OVERVIEW

The overall quality of financial reporting represents the outcome from a highly complex, interdependent set of structures and processes operating at the supranational, national, company and individual levels. The quality of the applicable accounting and auditing standards, together with the quality of enforcement, provides the broad regulatory setting for all companies. National regulatory bodies are increasingly interconnected with supranational private sector regulatory bodies at the global level (i.e. the IASB, IFAC and the International Forum of Independent Audit Regulators (IFIAR)) and governmental regulatory bodies at the European level (i.e. the EU and EFRAG) (Cooper and Robson, 2006, p. 430). The context of individual companies, in particular the quality of their corporate governance, provides the organizational setting for interactions. The audit firm and the quality of audit provided also influences financial reporting quality. Finally, the personal characteristics of the key individuals involved will affect financial reporting outcomes.

In this chapter, we look at relevant literature on each of these aspects in turn. Section 2.2 examines regulation, covering regulation theory, regulation policy and structures, ISAs and ethical standards for auditors. Section 2.3 considers, in broad terms, the accounting standards applicable to the case companies — IFRS — and the various debates associated with the introduction of the standards ...

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