Independent Audit and Economic Effects of Auditing

Even though independent auditing is a process that contribute to accuracy and reliability of companies’ financial information, in respect to its results auditing has a power to create macro-economic effects. Companies may consider auditing as an obligatory process. However, some research suggest that the firms having quality audits benefits from these audits. Besides, it can be argued that economies with robust and quality audits also benefits from the auditing process. In this paper, initially independent auditing is described on the grounds of its historical development. Economic origins of the demand for independent auditing is debated and the theories explaining the independent auditing function are examined. Economic consequences of auditing are debated on the basis of effectiveness of financial markets, cost of capital and frauds