Continuing on the theme of promoting an international focus for the Auditing Section, this paper explores the audit research environment and opportunities in Australia. Australia has for many years been a country which has produced a greater amount of quality research and researchers than would be expected for a country of its size, in auditing as well as in the areas of financial accounting, management accounting and auditing research.

Just a little bit of background on the accounting and auditing environment in Australia. Australia is a relatively small country, with approximately 1,500 companies listed on the Australian Stock Exchange (ASX). Of these, approximately 100 companies have a market capitalisation of over A$1,000 million. The regulation of reporting entities (including most large companies) is undertaken by the Australian Securities Commission (ASC), with additional disclosure requirements being imposed by the ASX for listed companies. Approved Accounting Standards have legislative backing, although these standards are not always compatible with International Accounting Standards (IAS). This incompatibility has caused much debate in Australia, and it appears that our accounting standards will be reviewed to bring them in line with international standards.

The structure of the auditing profession is very similar to the United States. We are dominated by the Big 6 (Arthur Andersen, Coopers & Lybrand, Deloitte Touche Tohmatsu, Ernst & Young, KPMG Peat Marwick, Price Waterhouse), who audit approximately 70 percent of listed companies and 90 percent of the top 100 companies. Members of the auditing profession are usually members of one of two accounting bodies (The Institute of Chartered Accountants in Australia (ICAA) and the Australian Society of CPAs (ASCPA). Auditing standards are the responsibility of the Auditing Standards Board (AuSB) which draws its membership from these two accounting bodies. The AuSB currently consists of a member from each of the Big 6 accounting firms, three smaller firm representatives, one auditor-general (government auditor) and one academic. The auditing standards have recently been codified to ensure that they at least meet International Auditing Standards (IAS). Any departures from IAS are documented at the back of the relevant auditing standard.

Auditing research opportunities in Australia can be categorised under the areas of economics of auditing, behavioral auditing, and other. In the economics of auditing area, Australia has produced a disproportionate number of papers due primarily to its disclosure requirements for listed companies. For the last 15 years, companies in Australia have been required to disclose audit fees and other services fees paid to the incumbent auditor, and to other auditors for group accounts. This has resulted in many papers which have looked at audit pricing, the relationship of audit fees to other service fees, and other demand and supply considerations. This information is contained in notes to the accounts, but unfortunately there is no central database which captures this information. A number of academics have developed their own, with the most comprehensive database being maintained by the Accounting Research Centre at the University of Sydney, which covers nearly all listed companies and produces a yearly "Who Audits Australia" which contains this information. This publication is available in both hardcopy and diskcopy form. (For further information, contact: Professor Allen Craswell at the University of Sydney, Email: allen@abacus.econ.su.oz.au).

Other differences in regulation or disclosure requirements also give rise to other potential topics. For example, audit committees are not mandatory for listed companies in Australia. However, if a listed company has an audit committee, it has to disclose specific information about the activities of the committee, while a company which does not have such a committee must disclose their reasons as to why such a committee has not been formed. Such a disclosure requirement provides the information for the examination of the economic incentives for voluntarily forming audit committees.

In considering the regulatory environment, auditors in Australia are much less likely to be sued than they are in the U.S. (the ability to undertake class actions is now available in limited circumstances, but is not very common), but when they are sued, they are sued for comparatively large amounts. There are currently over $4,000 million of legal claims against auditors, a figure that does not include a number of very large claims which have just been settled (one claim over A$1,000 million). The auditing profession sees itself at risk as a result of these large claims outstanding, with the response being that the courts have only recently started to consider the concept of proportionate liability, while the auditing profession is still pushing for the concept of limited liability, based on a multiple of the audit fee for a particular audit. These differences to the U.S. also give rise to a number of research opportunities.

Australia has also been active in producing quality behavioral research. The reasons for this are less clear, but let me explore a few possibilities. The first is the training Australian academics receive, which, while similar in content to that received by U.S. academics, is different in method. Australian academics have traditionally completed a four-year undergraduate honours degree, left the University system for a number of years (more are now going straight on) and come back and complete a Masters course of approximately two years, which includes a thesis component. Such a qualification would normally allow them to obtain a lower level academic position (lecturer). The staff members learn the publication process on lower level journals, and work on their Ph.D., their major project, which is usually a major thesis undertaken in the U.K. tradition, part-time over the next four to five years. Thus, for more junior staff, the ability to learn the publication process, plus the increased length of time spent on research issues, increases the thoroughness of the research output.

A second impetus to behavioral accounting research in Australia is that researchers in this area are usually well known to the audit firms through previous employment and continuous contact time spent on professional accounting committees. There is a large amount of interaction between the professions and certain academic researchers. Because the number of behavioral auditing researchers in Australia is very small, there are fewer demands placed on the firms for access to subjects. Third, as a result of the size of the stock exchange, it is often difficult for Australians to publish market studies which are based only on Australian data in the leading U.S. journals. As a result, researchers may have tended to concentrate in the behavioral audit or economics of auditing areas, where the opportunities to publish internationally are greater.

The fact that Australia is similar in professional structure and culture to the U.S. also aids the research opportunities in behavioral auditing. While this may mean that there are fewer reasons to include both Australia and the U.S. in cross-cultural studies (where the aim of the research is to examine the impact of culture), the similarity in culture between the U.S. and Australia means that behavioral work undertaken in Australia has greater implication for the U.S.

The audit environment in Australia is one which is evolving. Such evolution opens up numerous research opportunities, while differences in the regulatory and disclosure environment and similarities in culture provide researchers with the ability to examine many questions of interest within a live audit setting.

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