Joint audit series, Part 3: Why the four-eyes principle increases audit quality

Since the Wirecard case, the confidence of the capital markets and the public in the quality of audit has once again plummeted. Joint audit can be an effective instrument to restore this lost trust: joint audit increases the quality of audit through the four-eyes principle and the joint responsibility of the auditors.

Read what a joint audit is in Part 1 of our joint audit series.

Part 2 of the Joint Audit series is dedicated to diversity in the audit market.

In Part 3, we shed light on the topic of audit quality. We explain why the four-eyes principle is equivalent to a permanent quality control of auditors by a professional colleague, and why joint audit increases the incentive to uncover irregularities in accounting.  

How is audit quality actually defined and objectively assessed?

In the relevant literature, there are very different, and partly contradictory, definitions of audit quality. In an article published in the journal KoR (Kapitalmarktorientierte Rechnungslegung) in 2014, Pott/Schröder/Weckelmann provide a good overview of the different definitions of audit quality. Probably the most frequently cited definition comes from DeAngelo from 1981: according to this, audit quality is defined as the market-assessed probability that a particular audit firm will both detect an irregularity in the client's accounts and report this irregularity accordingly.

Of course, the assessment of audit quality is always subjective: the audit firm itself, the clients and third-party market participants such as investors may have different opinions. Furthermore, a distinction must be made between actual and perceived audit quality. In simple terms, audit quality can be defined as the likelihood that a company's financial statements comply with the applicable accounting and auditing standards.

Increase in audit quality through the four-eyes principle

In a joint audit, companies benefit from the broad professional expertise of different auditors, especially when complex issues are involved or expertise in certain business segments and/or a specific geographical area is required. Different perspectives can be very helpful, particularly on matters of judgement. These discussions always take place with both auditors at the same table. A joint audit also strengthens the independence of the auditor's professional judgement in the event of disagreements with the audited company.

A joint audit ensures from the outset that there is no excessive closeness between companies and auditors. In a single audit, the danger of too strong a bond between companies and auditors is greater, particularly in the case of long-term mandate relationships, since both sides are very attuned to each other after many years. A certain "operational blindness" could develop as a result. With a joint audit, the independence and objectivity of the auditors are much more likely to be preserved. The risk of too much familiarity between the client and auditor is also reduced, particularly when the audit areas are divided amongst the joint auditors and rotate after a certain number of years.

 As a reminder, a joint audit is an audit in which both auditors review each other's work at the end of a cross-review, and both are jointly liable as joint and several debtors. Through this process, the quality of the audit can be increased through the four-eye principle, without having to audit the same facts twice. Joint audit also fully complies with the International Auditing Standards, in particular ISA 600.

Critics of joint audit speculate that possible communication and coordination problems in the context of joint audits could lead to an impairment of audit quality. This is not the case because, due to the four-eye principle, there is ongoing and effective quality control by the mutually supervising joint auditors in good time before the audit opinion is signed. The four-eye-principle therefore provides a permanent quality control of the auditor by a professional colleague.

Joint audit successfully improves fraud detection

A joint audit can create an additional incentive on the part of the auditors to detect irregularities. This can reduce the risk of fraud. This is because a joint audit promotes dialogue between the two appointed audit firms, which in turn enables a critical look at the work of each auditor.

For example, in the early 2000s in France, the Vivendi Universal case showed that the joint responsibility of the audit firms involved in a joint audit was a strong incentive to uncover accounting fraud and irregularities. While the (then) Big Five audit firm involved concealed the incorrect accounting treatment of the BSkyB acquisition, the medium-sized auditor uncovered the accounting irregularities with the help of the tax authority.

 What do the empirical studies say with regards to audit quality?

Joint audit has been the subject of numerous empirical studies for some time, including the question of whether an increase in audit quality can be achieved through a joint audit. The individual studies come to different opinions on this. In this context, it should be noted that such studies are only of limited significance, as often only individual effects of joint audit are considered and compared in isolation. Despite limited general validity, interesting conclusions can be drawn from some studies.

For example, a study conducted in Sweden by Zerni et al. and published in 2012, "Do joint audits improve audit quality? Evidence from voluntary joint audits" concludes that joint audits on a voluntary basis have a positive impact on actual and perceived audit quality. The study results indicate that companies that opt for joint audit have better credit ratings and lower risk forecasts for insolvency than other companies, both of which are proxies for perceived audit quality.

 A study conducted in France between 2005 and 2010 by Chihi/Mhirsi, of 891 companies listed in the SBF--Index250 (Société des Bourses Françaises 250 is a French stock index that includes all sectors of the French economy) concludes that joint audits consisting of one Big Four and one non-Big Four audit firm ensure a higher audit quality than joint audits consisting of two Big Four firms. Another study of 177 listed companies conducted in France by Marmousez in 2008 and published in 2012, confirmed that joint audits involving both a Big Four firm and a non-Big Four firm demonstrated higher audit quality than audits involving two Big Four firms.

Finally, a study on audit quality in the context of joint audits by Marnet was published in August 2021. This study looked at the potential of joint audit as a suitable means of mitigating auditor bias during the audit, with a view to improving audit quality. The susceptibility to bias in the judgement of individual auditors and audit teams strongly supports the use of the four-eyes principle. The study concludes that appropriately designed joint audit arrangements improve professional skepticism and contribute positively to audit quality.


The many years of experience that we have gained with joint audit within the Mazars Group leads us to believe that there is an increase in audit quality associated with joint audit. In addition, there are other significant practical advantages of joint audit for companies and players in the audit market. More on this in the coming articles on the subject of joint audit.

Read what a joint audit is in Part 1 of our joint audit series in German.

Part 2 of the Joint Audit series in German is dedicated to diversity in the audit market.