Towards a Theory of Licensing Audits: Purpose, Practice and Conceptual Foundations

In the knowledge-driven economy, licensing agreements have become critical for monetising intellectual property (IP). While these agreements enable the exploitation of intangibles, they also intensify agency problems arising from self-reported royalties, opaque revenue bases and complex allocation rules. In practice, specialised licensing audits have emerged as contractual assurance mechanisms to monitor licensees’ reporting behaviour. Yet, despite their managerial relevance, licensing audits remain largely absent from the auditing literature and from formal assurance standards. Through the scope of agency theory, this paper situates licensing audit as a distinct form of private, contract-focused assurance, signified by a comparison with statutory auditing. Drawing on prior work in auditing, IP, and contractual governance, as well as illustrative industry evidence, the paper develops a conceptual causal framework linking contextual drivers to audit design, execution, and outcomes. The model also includes a feedback loop, making it dynamic. On this basis, five testable propositions are developed to explain how these conditions shape audit initiation, scope, effectiveness, outcomes, and future agency risks. The study also contributes to the auditing literature by extending the domain of enquiry beyond statutory financial statement audits and to the literature on licensing and intellectual property