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Sustainability assurance services are carried out in a competitive market where a wide range of assurance providers operate without the need for any specific professional qualifications, competencies or skills. Assurance providers have heterogeneous professional backgrounds and experiences that lead to substantial diversity in sustainability assurance quality levels. This paper aims to provide an understanding of sustainability assurance quality. From a legitimacy perspective, the authors focus on the choice of assurance providers by exploring why a company voluntarily chooses an incumbent financial auditor to jointly provide audit and sustainability assurance services. The authors argue that to avoid the legitimacy threats undermining stakeholders’ confidence in the sustainability information disclosed, companies should only choose their incumbent financial auditors to provide sustainability assurance services when these auditors possess the professional attributes associated with sustainability assurance quality.

This study develops regression models for an international sample for 2007–2016, where the authors analyze why a company voluntarily chooses an incumbent auditor to jointly provide audit and sustainability assurance services from a legitimacy theory perspective.

Evidence confirms that the choice of incumbent auditors as assurance providers is more likely when these providers are more specialized in the industry. The authors also find that independence does not play a significant role in this decision. Therefore, an assurance provider’s industry specialization can be understood as an attribute that is associated with sustainability assurance quality and one which limits the legitimacy threats caused by a lack of sufficient sustainability knowledge.

Given that companies have complete freedom when choosing their assurance providers, the selection of a high-quality incumbent auditor is an indirect measure of social commitment and a mechanism to improve public trust. The results confirm that it is fundamental for firms to understand the situations when choosing an incumbent financial auditor to provide sustainability assurance services is the best way to ensure firm legitimacy while obtaining higher sustainability assurance quality due to the spillover effect. This paper provides useful evidence for firms and managers who can become aware that the legitimacy threat associated with the auditing profession’s questionable competence to conduct efficient sustainability assurance engagements can be reduced if they hire an incumbent financial auditor with greater industry specialization. For assurance providers, the results are especially useful, as they should know that companies will be more likely to choose their incumbent financial auditor when that auditor possesses certain professional attributes, like industry specialization. The ability to assimilate and exploit the knowledge gained through auditing activities can be improved even more by specialization, which enhances sustainability assurance quality.

From a social perspective, stakeholders perceive industry specialization as an indicator of the professional skills necessary to increase both the real and perceived quality of sustainability assurance services, thereby limiting the legitimacy threat arising from a lack of sustainability knowledge. The evidence also provides valuable results for regulatory bodies, as it shows that firms are not able to address the legitimacy gap caused by stakeholders’ perceptions that incumbent financial auditors can easily be controlled by companies. Thus, doubts arise as to whether this joint provision undermines auditor independence. Precisely, these doubts about assurance provider independence can erode public confidence in assurance and devalue the quality of the service. The results of this paper highlight the need to strengthen regulation on sustainability reporting and assurance. The advances and relevance of sustainable development in recent years and in future agendas require a firm commitment to sustainability reporting and assurance of quality, reliability, integrity and confidence.

First, this study contributes to recent empirical studies that focus on the role of sustainability assurance services in the legitimation process of corporate sustainability reporting. However, while that research analyzes how the legitimacy theory explains the voluntary adoption of sustainability assurance, this paper adds to the literature by presenting evidence about why certain incumbent auditors are appointed to carry out sustainability assurance services. Second, this paper contributes to the sustainability assurance quality literature. Third, unlike previous studies that have regressed various client-specific and institutional factors that influence firms’ decisions to choose assurance providers, this study contributes to the research by providing knowledge about a set of professional features that may explain the decision model of assurance providers selection from a legitimacy perspective.

This paper aims to examine the communicative value of assurance reports by investigating whether the impact on information asymmetries is contingent on the length of the contractual relationship between clients and assurance providers, which can compromise the provider’s independence.

Using a firm-level data set of publicly listed international firms from 2007 to 2016, the authors estimate several regression models for panel data by using the generalized method of moments estimator to address the endogeneity issue.

Results find that the greater the communicative value in assurance statements, the lower the information asymmetries. However, this effect is constrained when the assurance provider’s independence is compromised due to an excessively long-term contractual relationship. In other words, assurance statements with more informative value enhance the firm’s transparency and increase users’ confidence in the sustainability information provided. However, the loss of independence linked to longer tenure jeopardizes the communicative value of the assurance report and contributes to reducing information asymmetries.

The study makes at least three clear contributions to current literature. First, the authors contribute to the limited existing research about the communicative value attributed to assurance statements by stakeholders. Second, the authors indirectly contribute to the literature that analyses whether stakeholders understand the assurance report, a complex statement in a growing market. Addressing the communicative value of assurance is certainly a difficult task, as it is a novel and complex activity. Third, the main contribution is providing initial empirical evidence about the moderating effect that assurance provider tenure has in the relationship between the informational content of the assurance report and the level of information asymmetries. To date, there is no empirical evidence regarding the moderating effect of long assuror’s tenure as an important feature of the assurance market, and beyond that, regarding its impact on the communicative value assigned by stakeholders to assurance statements.

The purpose of this paper is to analyse whether the major international audit firms reach collusive agreements in Spain, in order to exercise market power and impose higher prices than those of competitors. According to the traditional theory of oligopoly, the ability to achieve these agreements is dependent primarily on the high level of market concentration, so that multiple studies have analysed the relationship between concentration and prices. However, the concentration has serious limitations to infer collusion and therefore the exercise of market power (Dedman and Lennox, 2009).

Based on an alternative current of the theory of industrial organisation, the authors use measures of industrial mobility as a measure of collusion or rivalry of firms in oligopolistic markets.

The results reveal that international audit firms do not reach collusive agreements to limit competition between them.

According to the empirical evidence obtained, the measures taken by the regulatory bodies to avoid market concentration would not be necessary or efficient and they would have significant costs for the audit market (GAO, 2003, 2008; FRC, 2009; European Commission, 2010; Competition Commission, 2013).

To the authors’ knowledge, this is the first study to introduce mobility measures to explain market collusion and the exercise of market power in the audit market.

El objetivo de este trabajo es analizar si las Grandes Firmas Internacionales de auditoría alcanzan acuerdos colusivos en España con la finalidad de ejercer poder de mercado e imponer precios superiores a los de los competidores. Según la teoría tradicional del oligopolio, la capacidad para alcanzar estos acuerdos se hace depender fundamentalmente del alto nivel de concentración del mercado, por lo que múltiples estudios han analizado la relación entre concentración y precios. Sin embargo, la concentración presenta serias limitaciones para inferir la colusión y, por tanto, el ejercicio del poder de mercado (Dedman y Lennox, 2009).

Basándonos en una corriente alternativa de la teoría de la organización industrial, utilizamos medidas de movilidad industrial como medida de la colusión o rivalidad de las empresas en mercados oligopolistas.

Nuestros resultados revelan que las firmas internacionales de auditoría no alcanzan acuerdos colusivos para limitar la competencia entre ellas.

Según la evidencia empírica que obtenemos, las medidas adoptadas por los organismos reguladores con la finalidad de desconcentrar el mercado, las cuales presentan importantes costes para el mercado de auditoría, no resultarían ni necesarias ni eficientes (GAO, 2003, 2008; FRC, 2009; Comisión Europea, 2010; Competition Commission, 2013).

Hasta donde conocemos, éste es el primer estudio que introduce medidas de movilidad del mercado para explicar la colusión y el ejercicio del poder de mercado en el mercado de auditoría.

In recent international debates on auditing regulation, Spain has assumed a real prominence as a claimed practical example of where a policy of mandatory audit firm rotation did not work and was duly abolished. This study aims to provide an analysis of the implementation and subsequent removal of mandatory audit firm rotation in Spain in the 1990s.

This takes the form of historical analysis; the evidence in the paper derives from congressional hearings, financial newspapers and documents produced by the professional associations of auditors in Spain.

This paper demonstrates that at no stage was mandatory rotation of audit firms ever enforced on Spanish auditors. Further, the revision and subsequent removal of the Spanish law on mandatory audit firm rotation emerge as a rather politicized process, with no evident reference being made in the process of legislative reform to Spanish auditing experiences. The analysis also reveals that at the very time that Spain was being cited internationally for rejecting mandatory audit firm rotation, Spanish political parties and regulators were debating whether to “re‐introduce” such a regulation.

The clear implication of the paper is that considerable caution needs to be taken in today's international‐auditing arena, when analyzing the standpoints and claims made by professional associations and the evidence they provide to support their arguments for and against regulatory reform.