The article provides a broad summary of prior audit firm culture and governance research with an additional focus on areas for future research.  This literature review is important for accounting firms considering or expanding quality-oriented tone at the top initiatives.  In addition, this review of accounting firm governance structures includes methods for accounting firms to mold, mentor, manage, train and reward employees to improve firm performance and audit quality. 

Jenkins, J.G., D.R. Deis, J.C. Bedard, and M.B. Curtis. 2008. Accounting Firm Culture and Governance: A Research Synthesis Behavioral Research in Accounting 20 (1): 45-74.

This paper summarizes the academic literature related to accounting firm culture and governance.  The authors motivate the study as a response to the PCAOB’s intent to revise the standards on accounting firm quality control.  The authors argue that recent audit failures demonstrate the potential consequences of the cultural tension in audit firms between revenue generation and quality service.  Regulators stress that the “tone at the top” can establish the role of the audit as for the public good rather than as a mere commodity by encouraging objectivity, independence, professional skepticism and accountability to the public.  This paper addresses the concern that greed can change accounting firm’s emphasis on delivering professional services to an emphasis on profitability.  The authors addressed the following topics: 

• the role of audit firm culture and how it impacts audit quality.
• various governance and control mechanisms within accounting firms, including consultation policies, ethics training, and independent monitoring boards.  

This paper is based on a literature synthesis prepared by the auditing section of the American Accounting Association (AAA) for the Public Company Accounting Oversight Board (PCAOB).

The authors presented a research overview of several topics based on a review of recent accounting literature.  The results of the review were summarized in topical areas relating to culture and governance.  The authors also presented a research agenda for each topical area in which they suggested a variety of research issues to stimulate future research.  Topical areas include: The Roles of Culture, Conflicts between Organizational and Individual Goals, The Roles of Subcultures within Organizations, Social Influence, Mentoring, Communicating Culture to the Outside, Measuring Culture, Control Mechanisms within Firms, Policies Related to Consultation, Ethics Training, Independent Monitoring Boards.

• Firm employees undergo a socialization process in which they are molded to the organizational culture (the firm’s set of beliefs and values).  Regulators encourage firms to use this acculturation process to stress the importance of high quality audits and taking difficult stands on issues involving earnings management, fraud or illegal acts, or contentious accounting issues.  The authors offer suggestions for future research to improve understanding in this area.
• Subcultures may develop in firms based on functional areas (tax, audit, and consulting), individual offices in large firms (particularly foreign firm offices or firms acquired in a merger), or the influence of non-accounting professionals.  Cultural complexities may arise from power imbalances or from national political, public policy and legislative differences.
• Social influence pressures and power from accounting firm superiors manifest in areas such as engagement time budgets and performance reviews.  Using their power, superiors positively or negatively affect the work efforts of subordinate auditors.  Firm culture can moderate or exacerbate the influence of social influence pressure and power and affect audit quality, client relationships, and employee retention.
• The goal of accounting firm governance is to achieve goal congruence among the individuals and the organization and to foster consistency and firm-wide policies through authority structures, rules, procedures, and incentive systems.  Research suggests that partner compensation schemes should be based on more than revenue generation alone.  Partners should be focused on limiting firm risks through using a larger pool of revenue for partner compensation schemes, focusing on technical expertise among audit teams, and recognizing the importance of audit quality in the face of budgetary pressures. 
• Ethics training may direct and alter employee behavior.  However, firms appear to rely primarily on colleges to educate their members.  Since the effects of ethics training may deteriorate over time, firms should consider supplementing this exposure with periodic reinforcement.    

The authors suggest that their literature review reveals that accounting firm governance is a largely unexplored research topic and that accounting firms have unique ownership structures and operating characteristics in comparison to other large organizations.