Principles-based versus rules-based auditing standards: The effect of the transition from AS2 to AS5

Fang Yun Sin, Robyn Ann Moroney, Maria Strydom

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1 Citation (Scopus)


The transition from a rules-based auditing standard (AS2) to a principles-based auditing standard (AS5) provides a context to assess how such a change impacts audit outcomes. Under a rules-based auditing standard, audit processes are relatively uniform, unscaleable and include significant redundancy. Under a principles-based auditing standard, audit effort can be directed to where risk is greatest; audits are scalable and can be customized. We find that the post-SOX shedding of risky clients by the Big 4 meant that non-Big 4 clients were more likely than Big 4 clients to disclose material internal control weaknesses (MICWs) when assured under AS2. This gap narrowed significantly following the transition to AS5, when risk-based customized audits were possible which benefited Big 4 firms to a greater extent than non-Big 4 firms.
Original languageEnglish
Pages (from-to)282 - 294
Number of pages13
JournalInternational Journal of Auditing
Issue number3
Publication statusPublished - 2015

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