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    On the Operational Reality of Auditors' Independence:...
    research summary posted September 16, 2015 by Jennifer M Mueller-Phillips, tagged 04.0 Independence and Ethics, 04.04 Moral Development and Individual Ethics Decisions 
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    Title:
    On the Operational Reality of Auditors' Independence: Lessons from the Field.
    Practical Implications:

    The in-depth study of real-life situations between auditors and auditees is crucial to be able to account for the micro-relational strategies deployed by auditors to navigate between capability and willingness, and to better understand the wide tactical repertoire used by auditees to interfere in the audit process, while formally complying with regulatory and legal constraints. The observations and analyses also have significant implications for accounting educators. Future public accountants should be taught to recognize the relational complexity of their work and the absence of clear boundaries between that which is internal and external to the audit process.

    Citation:

    Guénin-Paracini, H., B. Malsch, and M. Tremblay. 2015. On the Operational Reality of Auditors' Independence: Lessons from the Field. Auditing: A Journal of Practice & Theory 34 (2): 201-236.

    Keywords:
    audit negotiations, auditees, auditor competence, auditors, balancing acts, operational independence, organizational independence
    Purpose of the Study:

    Auditor independence, which has certainly been one of the most addressed topics in auditing literature, is a complex and ambiguous construct that can be analyzed along two dimensions. The first dimension, organizational independence, relates to auditors’ willingness to act in accordance with professional standards and to report errors found during the audit. The second dimension, operational independence, relates to auditors’ capability to work diligently and effectively in order to detect material anomalies. Surprisingly, “much of the debate has focused on the former, while the latter has remained largely under-discussed, if not ignored. In this paper, based on ethnographic data and semi-structured interviews, the authors examine the realities of auditors’ operational independence and discuss the practical and theoretical implications of their findings.

    Design/Method/ Approach:

    The authors monitored seven audit teams in real time in June and July 2002 and between November 2003 and July 2004. These teams included 44 auditors (nine partners, five managers, eleven supervisors [seniors], and nineteen assistants). The authors conducted semi-structured interviews with 31 auditors (four partners, three managers, eight supervisors, and sixteen assistants). Apart from two supervisors and three partners, all of these auditors worked for the teams observed. Interviews always occurred outside of the audited companies at the end of audit tasks and lasted about one hour each.

    Findings:

    The evidence suggests that auditors’ operational independence is both unsettled in practice and impossible to achieve through institutional measures alone. This view may challenge orthodox and regulatory conceptions of audit, but the smooth conduct of an audit engagement largely depends on the auditees’ desire to cooperate. Audit team members strive to cajole their hosts personally (through good manners and friendliness) and professionally (through discretion and services). At both levels (personal and professional), they try not to irritate but rather to satisfy their clients, whose interests seemingly have to be taken into account. When the moment comes to report and negotiate the correction of detected errors, integrative negotiation strategies are favored, the recourse to brutal enforcement options being avoided as much as possible. Here, the objective is to maintain the cooperation of auditees in the future.

    Audit, therefore, appears to be a complex balancing act between capability and willingness. The risk of lacking capability, however, seems to appear more frequently than the first one (risk of lacking willingness). Ultimately, it is shown that because official arrangements designed to guarantee operational independence are unlikely to be effective, the reality of auditor independence remains highly uncertain and needs to be constantly negotiated and renegotiated in the field.

    Category:
    Independence & Ethics
    Sub-category:
    Moral Development and Individual Ethics Decisions