Background

In 2008 a global financial crisis erupted. Even though auditors were not to blame for the financial crisis the public questioned how auditors could issue a clean bill of health despite the serious weaknesses. This made the Commission release the 2010 Green Paper on audit policy: Lessons from the Crisis. The Green Paper is a consultation paper which received around 700 replies from various stakeholders. In 2011, the Commission presented their proposal on reform of the audit market, in which many of the key elements had been discussed in the Green Paper. The 2011 proposal seeks to enhance auditor independence and introduce a more dynamic audit market. The proposed reforms are very strict and if the proposal is passed in its current form it would imply a major change of the audit market. This thesis has studied the replies made by investors to the Green Paper; investors are the primary stakeholders and those who should be most concerned with auditor independence. It is therefore important and interesting to study their viewpoints to the Green Paper.

Purpose

The purpose of this study is to understand and explain investors’ standpoints on the proposals mentioned in the Green Paper to enhance auditor independence, and to examine whether the European Commission, as indicted by the 2011 proposal, require more independence than investors as indicted by the replies made to the Green Paper.

Method

This study has taken a qualitative approach where the data has been analyzed in-depth. The Green Paper consists of 38 questions; four of these have been studied as they strongly relate to auditor independence. Furthermore this thesis has studied the replies made by investors; investors are the primary stakeholders and those who should be most concerned with auditor independence. It is therefore important and interesting to study their viewpoints to the Green Paper.

Conclusion

The majority of the respondents’ are negative to the ideas presented in the Green Paper but that does not imply that the Commission requires more independence than investors. Both the Commission and investors argue that status quo is not an option and that auditor independence must be strengthened. What separates their views is how to strengthen auditor independence. The Commission seeks to impose strict regulations while investors prefer good corporate governance as an alternative approach to strengthen auditor independence.