Debating the 'Power' of Audit

International Journal of AuditingInt. J. Audit. 4: 29-50 (2000)

Received March 1998ISSN 1090–6738 Revised May 1999Copyright © 2000 Management Audit Ltd. Accepted May 1999

Debating the ‘Power’ of AuditChristopher Humphrey and David OwenSheffield University Management School, Sheffield, UK

This paper provides a critical but constructive review ofMichael Power’s recent text entitled The Audit Society: Ritualsof Verification (1997). The paper first summarises the essentialideas put forward by Power with regard to the scale and sig-nificance of the Audit Society. It then debates some of Power’scentral arguments and claims, focusing, among other things,on the causes underlying the rise of the audit society, the defi-nition of audit, the meaning of auditability and therelationship between audit and performance measurment. Thepaper concludes by considering the possibilities for auditingto serve a more positive role in society than that generallyportrayed by Power.

Key words: Accountability, Auditing, Audit Expectations, AuditSociety, Corporate Governance, Performance Measurement,Social Auditing, Social Responsibility, Social Values andStakeholders.

SUMMARY

Michael Power’s book on the audit society(Power, 1997) is a cleverly-written, provocativetext, which should be read very carefully by allthose with a serious interest in the way in whichcontemporary organisations and societies seekto monitor and control their actitivities andbehaviour. Power readily acknowledges that hisbook is deliberately selective and argumentativeand it is in this spirit of encouraging debate thatthis review has been written. The questionsraised by our review are quite varied, from basicmatters regarding the definition of auditing, toothers demanding more empirical evidence con-cerning the forces pushing audit growth and theprecise practical scope and extent of ‘audits’.Analysis of such issues leads us, in the final part

of the paper, to explore a developing form ofauditing activity, ‘the social audit’- which isgiven somewhat limited attention in Power’sthesis on the audit society. We try to show thataudit need not necessarily be viewed from anessentially negative perspective, although thegrowing signs of professional capture and theprivileging of formal procedure over transpar-ent communication in this arena indicate thatPower’s concerns about auditing cannot bedismissed too readily. In reaching such a conclu-sion, we suggest that it is vitally important in theaudit arena to focus particular attention on thesecond word in the title of Power’s book -namely, society. We should not only be askingwhat is being achieved in the name of audit, butalso addressing some very basic mattersregarding the type of values that society wishesto prevail. If discussions on audit proceed inisolation of such issues, it is unlikely that we willever get the ‘audits’, let alone the society, that wereally want.

Correspondence to: Sheffield University ManagementSchool, 9 Mappin Street, Sheffield, S1 4DT, UK

30 C. Humphrey and D. Owen

Copyright © 2000 Management Audit Ltd. Int. J. Audit. 4: 29-50 (2000)

INTRODUCTION

In many respects there is something ratherstrange about writing a review of a book whosecentral message is that there is too muchemphasis in contemporary UK society onchecking and verifying rather than on ‘doing’.Following this line of thought, our message toreaders should be very straightforward - don’trely on any third party ‘audit’ or ‘inspection’ ofMichael Power’s latest book, The Audit Society:Rituals of Verification (Power, 1997), go and readthe original and find out for yourself what hethinks and whether you agree with hisarguments.

‘So what after all this, is the ‘relevance’ or‘use-value’ of this book? Notwithstanding afew remarks on policy at the end of Chapter6, the answer is that I really do not know.And yet, I believe that this gives the book thebest chance of actually being useful.’(Power,1997, p. 24)

But then on starting to read Power’s book, youwill come across the above, rather unassuring,quote on the third page of the preface. Can abook (let alone a review of it) really be worthreading if the author does not know whether ithas any ‘use-value’? Again, we would answer inthe affirmative. Power’s apparent bashfulness isdriven by a wariness with ‘quick fix’ promises ofsome audit research and a belief that demandsfor ‘useful’ audit research are demands forexcuses which rationalize and support existingaudit practice. Effectively, for Power, the book’susefulness rests in its capacity to generatedebate. As he concludes in his final chapter:‘(T)his book is not intended as the final wordand I shall be content if others find it useful,interesting and provocative’(p. 143).

It is in response to such an invitation to enterinto debate that this review has been puttogether. Power’s book is certainly well worthreading. Its contribution goes well beyond theself-defacing claim that it may amount to littlemore than satisfying the author’s stated ‘need toescape from the truth that auditing really isboring’(p. xii). While a number of the ideas arecontained in different parts of Power’s earlierpublished work (for example, see Power, 1991;1993; 1994a; 1994b; 1996), ‘The Audit Society’ isa coherent and challenging book on a very sig-nificant subject. It rightly seeks ‘to create someunderstanding and a little discomfort’ (p. 147)

about the increasing organisational and socialsignificance of auditing, or what is labelled as a‘growing industry of comfort production’(p. 147). But as Power also openly recognises, thebook inevitably reflects his own personal viewand is selective in the evidence used to supporthis arguments. This review accordingly high-lights what we see as the particular strengths ofPower’s claims and analysis but also adds anumber of other arguments based on our ownexperiences and evidence sources.

The review is structured into three main parts.The first provides an overview of Power’s thesisregarding the notion of an Audit Society, thesecond offers a critique of the main foundationsand claims of Power’s work and the thirdconsiders the possibilities for a more positiveconception of the social role of audit. Some ofthe questions generated by our review are sur-prisingly basic (such as, What is an audit?; Isself-audit a contradiction in terms?; What givesaudit its strength?; What are its fundamentalcharacteristics?; Does it’s practice have to beessentially opaque?; Is it that opaque?). Othersdemand detailed consideration of the forcespushing audit growth (e.g., Is the audit societyan accident or a conspiracy?) and the precisescope and extent of ‘audits’ (e.g., Is it an auditsociety or a performance measurement society?;How much performance data is published andused in an unaudited fashion?). Some challengethe raison d’êatre of audit (e.g., Can audit beviewed positively?; Can audit be helpful?; Can itempower or must it always be controlling?).Others challenge the significance of Power’sthesis (e.g., Is Power obsessed with audit?; Is hestrong on argument but weak on policy?; Doeshe offer a convincing way out of the auditsociety?; Is he helping to make audit moreimportant?; Shouldn’t we be encouraging anemphasis on society and social well-being ratherthan ‘audit’ and ‘auditability’?; Is the auditsociety an appealing, but largely meaninglessterm which contains so many different thingsbeing done in so many different ways that itdoesn’t really describe anything at all?).

The latter part of our review draws on some ofthese questions in an attempt to present an alter-native face of the social role of auditing byfocusing on a developing form of auditingactivity, ‘the social audit’, which is givensomewhat limited attention in Power’s thesis onthe ‘audit society’. By considering both the

Debating the ‘Power’ of Audit 31


history of social audit and a number of currentinitiatives in its practice, we try to show thataudit need not necessarily be viewed from a‘doomsday’scenario and that ‘checkers’ canbecome ‘doers’ and thereby offer a sociallyuseful function. However, even here there aretensions in the pursuit of an emancipatory auditfunction - with signs of professional capture andthe privileging of formal procedure over trans-parent communication. Both serve to cautionagainst any knee-jerk dismissal of Power’sconcerns about contemporary auditing practice.They also emphasise the importance of discus-sions on audit being firmly rooted in anawareness of the values that society desires andthe complementary mechanisms of corporategovernance which can help to ensure thatsociety’s demands for auditing are pursued totheir fullest.

UNDERSTANDING POWER

Exploding on Society: The Makings of an‘Exciting’ Audit Idea

Explosions are not meant to be ignored! MichaelPower certainly has a knack of selectingemotive, powerful titles to ensure that hereaches as wide as possible an audience. Termslike the ‘Audit Explosion’ (Power, 1994a) and the‘Audit Society’ (1994b) have proved veryeffective in drawing attention to his argumentsand warnings - as testified by the many refer-ences made to his work in the popular,professional and academic press. Ideas ofauditors coming out of every imaginable, organ-isational and social nook and cranny in largelyunnoticed ways work on a number of differentlevels. They deliberately play on the long estab-lished caricature of auditors as tedious,insensitive people, necessary irritants but withlittle respect for values beyond the financialnumbers that they are so concerned withchecking. Power cleverly uses such images as away of stimulating the (non-auditor) reader’slikely sense of indignation at such a develop-ment - and, thereby, gets them to take notice ofwhat he is saying. Similarly, if you keep sayingthat audit may well be boring and that youmight be in danger of making it too interesting,you don’t create too high a level of expectationamongst readers - helping the ‘mildly interest-ing’ to seem that much more exciting. At another

level, Power’s thesis invites a sense of conspira-cy, even though he chooses ultimately to deny it,of plots by auditors to take over the world, ofservice providers ‘changing sides’ (p. 3) insearch of new career opportunities - and there isnothing like the image of conspiracy andmystery to arouse human inquisitiveness, par-ticularly if the conspirators are regarded aseconomically successful.

Alternatively, there is always the danger thattalk of the boring qualities of a subject merelyreinforces such images, causing people toquickly turn away from the book and leavingthe author tainted with the ‘doomed’ image ofsomeone who sadly happens to find a tedioussubject exciting. Likewise going for whatauditing practitioners feel are the easy targets(‘not that Monty Python stuff again aboutboring, unimaginative accountants’ or the ‘oldchestnut about too many checkers and notenough doers’) can serve to alienate a vitalaudience with the power to change the way inwhich auditing is practised.

So what has made Power’s work so signifi-cant? Why has it been noticed across so manydisciplinary and subject boundaries and not leftto grow dusty on the well populated libraryshelves of redundant academic audit studies?Ultimately, its appeal goes beyond a convenientcatch-phrase or an effective marketing ploy, tothe strength of the idea that Power explores. Hehas captured a widespread, but rather latent,sense of unease with the rise of monitoring andregulation and a resulting decline in trust. Hetalks of the audit society as a fin de sièclesymptom of the times and in many respectswhat he has done with his book is to say theright thing in the right place at the right time.For all their cleverness, terms like the auditsociety wouldn’t have counted for as much asthey have done, if they hadn’t reflected somesignificant and widely held sentiments. In the1990s, we are all that much closer to processes ofaudit, if not all being an audit practitioner in oneform or another. Audits are clearly not just beingperformed by qualified chartered accountants,nor are they confined (with the rise of environ-mental and quality audits) to the traditionalareas of finance and financial accounting. Withsuch a widening of the notion of both auditorand auditee, Power has been able to speak to areceptive audience. Indeed, in defence of criti-cisms that he has unfairly lampooned the



auditing profession, Power argues that his workhas been significantly influenced by the criti-cisms of audit reported to him by auditpractitioners. As he says, ask any small auditingpractitioner about the effectiveness and impactof Joint Monitoring Unit (JMU) ‘audit’ visits (seePower, 1997, p. 7-9).

Talking of the strength of ideas is a convenientway of commencing a review of the centraltenets of Power’s thesis because for him themost significant issue is not the spread of thepractice of audit but the spread of the ‘idea ofaudit’. He illustrates the audit explosionthrough the increasing use of the word audit ina wide variety of contexts in the 1980s and 1990s(encompassing financial, environmental, value-for-money, management, forensic, medical,teaching and technology audits) and thegrowing population of people (‘auditees’)subject to the formalised checking of their work.However, for Power, the most significant aspectof the audit explosion is the acceptance of theidea of audit - ‘an idea which has become centralto a certain style of controlling individuals’ (p.4). For him, audit is as much an idea as it is atechnical practice and there is no communalinvestment in the practice without a commit-ment to the idea of audit and the social normsand expectations which it embodies.

Power uses this line of argument to claim thatthe provision of audit definitions is not adesirable starting point because there is noprecise agreement about what auditing is andthat many existing definitions are largelyattempts to say what auditing could be ratherthan a description of actual audit practice orcapability. Auditing is ambiguous and Powerargues that it is this ‘essential obscurity’ whichhas allowed the idea of audit to spread readilyfrom a financial, limited company, context tonew policy arenas and situations.

Power draws on Rose and Miller’s (1992) dis-tinction between the programmatic (normative)and technological (operational) elements ofpractice to suggest that it is at the programmaticlevel that auditing has been demanded by regu-latory systems. At this level, auditing connectswith other policy objectives in the political arenaand is referred to in essentially idealistic ways.This abstraction or decoupling (Meyer andRowan, 1977) from audit practice is worrying forPower, as his practical and academic auditingexperiences have made him highly sceptical of

the technical capacities of, and claims made for,audit technologies.

He notes how many technical routines areloosely coupled to the purposes they areintended to serve or rarely function according toofficial blueprints and shows how accountingand auditing techniques are no different in thisrespect. As such, what can matter more is notwhat is done or achieved in the name ofauditing, but what is perceived to be done - that‘audited’ organisations or individuals canemerge from the audit process as legitimate,reliable, efficient and effective even though theaudit practices employed could be shown to behighly questionable in terms of their technicalreliability or systematic effectiveness. However,just as there are presumptions at a programmat-ic level which presuppose the effectiveness ofthe auditing function, there are mechanisms atthe technological level (such as guarantees of theprovision of ‘best professional practice’) whichbuttress it from the external shock of accusationsof failure. Intriguingly, Power claims, in thecontext of financial auditing practice, that it is‘paradoxically but necessarily both a successand a failure story’ (p. 9). Rather than hoping forthe day when financial audit practice at leastmeets public expectations and there is no ‘auditexpectations gap’, he suggests that the expecta-tions gap is both endemic to auditing and also avaluable resource for the auditing profession.Through debates on auditing expectations, theprofession has managed to preserve ‘the discre-tionary space of the community of auditingpractitioners’(p. 39) and has, thereby, managedto maintain belief in the idea of audit:

‘Without an expectations gap there would befull transparency of the audit process, bothin terms of its objectives and its productionof assurance in relation to those objectives.The market for audit services would be dan-gerously ‘scrutable’. This is the greatinstitutional strength of financial auditingand the idea of audit which it promotes.Auditing responds to pressures for reform ina manner which constitutes a legitimateresponse but at the same time also preservesits essential obscurity, an obscurity which isovercome by trust in auditor judgement. Asa result the success or failure of auditing isnever a public fact but is always an object ofpersistent dispute, an adversarial process inwhich questions of blame are at stake.’(p. 31)



Power uses the example of the financialservices industry to show the paradoxical wayin which the role of auditing has extendedfollowing corporate collapses which had calledinto question the very effectiveness of audit1.Influential in such growth has been the ‘essentialobscurity’ of auditing, which has made itdifficult to disentangle audit failure from otherfailures in the regulatory system, and the contin-uing ability of the audit profession to preservebehind the label of ‘professional judgement’ asense of elusiveness over the scope, objectivesand operational practice of auditing. He empha-sises that auditing, as such, remains a ‘craft’, nota precisely codified technique, and sees it as noaccident that practitioners talk of providing‘comfort’ (Pentland, 1993) rather than ‘proof’:

‘There is no robust conception of ‘good’auditing independent either of auditorjudgements or of the system of knowledgein which those judgements are embeddedand against which particular audits can bejudged. Good auditing ends up as conform-ity to agreed procedures which have stoodthe test of time.’(p. 29)

Power recognises that such craft-like statusand obscurity over the operational capability ofauditing make it little different from many other,‘professional’, practices (such as social work,policing and teaching) in which a societychooses to invest, although he does emphasisethe particular strengths of the structures whichsupport and reproduce the knowledge basis offinancial auditing practice. But we are not allbeing subject to the dictates of social workers orforced to act like police officers and Power isclearly concerned that the audit explosion ischanging long held and valued organisationaland social functions and traditions, withoutadequate debate as to why and in what waysthey are/should be changing.

Auditing - the Essential Control (ofControl)

‘Despite crisis and scandal the lid stays onthe black box of auditing practice because ithas become essential to programmes forcontrol and public accountability’(p. 40)

In seeking to explain the rise of auditing,Power identifies a number of contributoryfactors including a growth of interest incorporate governance and an increasingly

prominent organisational role for internalcontrol systems. He considers three overlappingprogrammes which have sought ‘enhancements’in governance and control, namely the change inmodes of public sector administration broughtabout by the ‘New Public Management’ (NPM)movement; a more vaguely specified, generalshift towards indirect, regulatory styles of gov-ernance and the rise of quality assurance/management initiatives (p. 42). These program-matic developments are all held to assume, apriori, the efficacy of different forms of auditingand the promotion of audit, as in the case offinancial audit, is seen to be aided by a certaingap between the expectations and capabilities ofemerging types (e.g. environmental or quality)of audit.

The explanatory strength of such programmesis rather limited - not least in the case of the riseof quality assurance, with Power’s basicargument amounting to an assertion that theaudit explosion is due, in part, to the rise ofquality audits. The tendency for the pro-grammes to be more illustrative, thanexplanatory, of the audit explosion is somewhatreduced as Power discusses each of them inmore detail. In doing so, he argues that eachprogramme has created favourable conditionsfor the extension of audit activity. Thus, in thecase of NPM, its disaggregation and devolutionof public service provision has required ‘thespecific technologies of reaggregation and recen-tralization which accounting and auditingoffer’(p. 44). Likewise, the shift to a regulatory(from a ‘provider’) state, the promotion ofsystems of self-regulation and the resultant reg-ulatory ‘layering’ across many economic sectorshas seen greater demand for mechanisms suchas auditing which allow for ‘control at adistance’, allowing central, governing bodies tomaintain strategic control but withdraw from‘murky plain of overwhelming detail’ (Neave,1988, p. 12).

Within such developing programmes,auditing has not remained static and has takenon different forms and functions. Power showshow audit has moved in some instances from anexternal to an internal focus or switched from atraditional, ‘credibility-assessment’ function toone more concerned with the efficiency andeffectiveness of performance. In terms of qualityassurance initiatives, Power argues that theobject of audit has shifted from a focus on the



quality of operations to the quality of systems ofcontrol over operations. With environmentalauditing, he claims that an older tradition of‘potentially critical’ (p. 62) social auditingconducted by people external to the organisa-tion was displaced by a ‘managerial turn’,wherein the ‘very management processes whichwere (once) perceived as responsible for the pro-duction of environmental damage have beenre-fashioned as its guardians’(p. 63).

Such discussion highlights three crucial, butrelated, arguments in Power’s book, concerning(a) the indeterminacy of the audit function, (b)the status of audit as a second-order, ‘control ofcontrol’ and (c) the scale of transformationtaking place in the process of making audits‘work’. The first is discussed in some depth inthe first two chapters of the book but is nicelyillustrated in the case of environmental auditingwhen Power observes that the practice hadbecome an article of regulatory faith well beforeany clear conceptions of its precise role andscope had been established.

The notion of audit as a ‘control of control’ isdisturbing for Power as it seems to suggest anever-ending, ever-deepening cycle of monitor-ing and checking. Internal control systems havebecome the essential focus of audit activity,shifting organisational attention away from thedirect actions of individuals. Thus, the talk is notof quality, but of quality assurance, quality man-agement and ultimately quality audit. Evenaudit itself is not immune to such distancingfrom productive activity, with processes of auditregulation requiring the establishment of ‘audit’quality control systems whose contribution interms of enhancing the efficacy of auditing indetecting material corporate fraud is questionedby significant numbers within the auditing pro-fession.

Power sees auditing’s ambiguity as being par-ticularly helpful in portraying it as capable ofserving a multiple range of functions and yetalways offering the publicly visible, and verifi-able, self-inspecting capacity demanded oftoday’s ‘legitimate’ organisations. As he says, ‘toaccount and to be audited is, almost tautologi-cally, to be accountable’ (p. 67). He supportssuch claims by suggesting that auditing haseffectively buttressed itself from criticism sur-rounding audit failure by preserving thecredibility of its own operational knowledgebase and persistently ensuring that things are

made to be auditable. It is these two argumentsthat comprises a substantial part of the latterhalf of the book.

Making Audits Possible

In examining the construction of audits, Powerviews them both from the ‘inside’ (the determi-nation of professionally accepted auditingtechniques) and the ‘outside’ (the way suchaudit techniques are made to work in organisa-tions by securing transformations in theenvironment subject to audit).

For audit practitioners, Power stresses that‘making things auditable’ is a deeply practicalissue, involving the, often ingenious, applicationof various techniques and routines to thoseorganisational processes subject to audit. Fromsuch a ‘diverse and humble assemblage ofroutines, practice and economic constraints’(p.89), Power argues that a ‘system’ of auditingknowledge has come to reproduce itself andsustain its institutional role. He explores this‘constant and precarious project’ through illus-trations from the historical development oftechniques and procedures concerning auditsampling and risk analysis, reliance on otherforms of expertise and the evaluation of internalcontrol systems.

Power goes on to examine how variouspractices have become institutionally acceptableways of conducting audits, even though clearquestion marks can be placed over their claimedobjectivity and functional capacity. The aim ofthis ‘disturbing’ process of reflection is to exposethe roots of auditing knowledge and toemphasise that much of what is taken forgranted as accepted audit practice depends onprocesses of negotiation, or ‘turf battles’, bothwithin and between specialist communities ofverifiers and valuers. Thus, Power’s (1992)alternative history of the development of statis-tical audit sampling is used to show howstatistical science was drawn on to legitimateand rationalise already instituted selectivetesting. The issue of brand valuation is used toshow how ‘reliable’ valuation techniques are afunction of the social credibility of the valuersand not the techniques per se. Consideration ofauditors’ evaluations of internal control systemsis used to show how auditing has been ‘made towork’ in complex situations largely by ignoringor side-stepping such complexity. This brings



Power back to one of his central themes con-cerning the role of audit as a second level,‘control of controls’ and he expresses concernthat service quality or environmental perform-ance, through the need for external verification,has come to be more closely linked to an‘auditable’ control system rather than first orderstandards. This can mean that rather thansecuring (desired) organisational change, theauditing function remains very much distancedfrom fundamental organisational activity - a‘surface’ function, with quite possibly question-able ethical roots. As Power notes, ‘one can bevery good, in a quality assurance sense, at doingmorally questionable things’(p. 84).

This abstraction of auditing from the specificoutputs of organisations, however, remains oneof the fundamental reasons why auditing hasbeen able to expand in the way that Powerclaims. Management control systems have cometo provide a ‘reality’ on which auditing can actwithout having to worry about the complexitiesof what individual organisations do. Quality,environmental friendliness or efficiency, forexample, are judged in terms of compliance withthe control system.

‘Not only can audits work, but they can beexported to a wide variety of organizationalcontexts which can be sold the institutionalbenefits of system certification. In this waythe management system is not only a tech-nological construct; its elements have anessential public face which is offered for thepurpose of accreditation and which makes acertain style of audit process possible.’(p. 88)

Power briefly notes (p. 85) the existence of acounter argument, that systems-based (compli-ance) auditing is beneficial as it enhancesprocesses of organizational learning, quotingFriedman (1991, p. 132): ‘The environmentalaudits are designed to ensure that qualityprograms are in place and working. The primaryconcern, for example, is not that a drum hasbeen mislabelled, but determining why the drumwas mislabelled’. Nevertheless, the clear impli-cation of Power’s analytical emphasis is that heremains unconvinced by such arguments and hedevotes the fifth chapter of his book toexamining the organisational consequences ofattempts to apply audits and make them ‘work’.He frames this empirical analysis around twoextreme analytical possibilities - decoupling and

colonization - both of which represent differentkinds of audit ‘failure’.

‘The first type of failure is that the auditprocess becomes a world to itself, self-refer-entially creating auditable images ofperformance. The audit process is decoupledor compartmentalized in such a way that itis remote from the very organizationalprocesses which give it its point. The secondtype of failure is that, regardless of intendedchanges to the audited organization, theaudit world spills over and provides adominant reference point for organizationalactivity. Organizations are in effect colonizedby an audit process which disseminates andimplants the values which underlie andsupport its information demands. The auditprocess can be said to fail because itsside-effects may actually undermine per-formance.’ (p. 95)

Power acknowledges that decoupling andcolonisation are unlikely to appear in their pureform, with it being very difficult for the externalaudit to be permanently buffered from allaspects of organisational life and highly unusualfor it to be met with no degree of resistance.However, he sees these constructs as a usefulvehicle for conceptualising the effects of auditand, through an analysis of three differentcontexts (higher education, medicine andfinancial services), identifies varying degrees ofaudit decoupling and colonisation.

Through such analysis he assesses whetherauditing, empirically, is a ‘fatal remedy’ (Sieber,1981) - whether elements of decoupling orcolonisation produce ‘reverse effects’ which ulti-mately end up frustrating and undermining ‘theoriginal goals of financial control and effective-ness’ (p. 120). Power suggests a number ofreverse effects of the growth of auditingincluding: information and inspection overload;damage to cultures of trust; an overcommitmentto creating politically acceptable images ofcontrol; declining performance; and increasingorganisational cost-functions (pp. 120-121). Fordue recognition to be given to such ‘regulatoryparadoxes’ (p. 121), Power calls for audit to beevaluated.

In this latter regard, Power carefully distin-guishes between audit and evaluation. Indeed,he sees the audit explosion as representing ‘asystematic shift from the logic of evaluation tothat of auditing, a shift which puts auditing



itself beyond evaluation’(p. 115). For Power,evaluation is a much more intricate, sensitive,almost messy, process in that it focuses onoutcomes not outputs; it generates conflict andambiguity by exploring the complexities ofcause and effect relationships rather thanglossing over such complexities as audit does inthe pursuit of ‘auditable’ performance measuresand an appearance of objectivity. The power ofauditing rests in the construction of concepts ofperformance in its own image. One consistenteffect of this across all three organisationalcontexts has been the harnessing to broader,external regulatory initiatives of existing bandsof local, ad hoc, practical structures of self-reflec-tion (or ‘self-audit’) structures under the controlof practitioners rather than external auditors.This is particularly evident in the case of medicalaudit which Power argues is moving ‘inex-orably’ away from its local roots, to a morestandardised, national framework, where themedical quality assurance system (rather thanthe quality of clinical care per se) is the primaryauditable object. Likewise, with the develop-ment of value-for-money auditing:

‘There are tendencies to favour the adminis-trative objectivity of auditable measures ofperformance which are replicable and con-sistent even if they are essentially arbitrary.This is preferred to the nuances, ambiguitiesand qualifications which surround evalua-tion in all its guises. In the end, the problemhas much to do with the nature, extent andimpact of management intervention in theoperational judgements of service providerssuch as teachers and doctors. In the auditsociety the power to define and institution-alize auditable performance reducesevaluation to auditing.’(p. 119)

A most significant irony noted by Power arisesin the regulation of financial audits. Attempts bybodies such as the Joint Monitoring Unit (JMU)to make financial auditing ‘auditable’ are clearlypremised on the view that the production ofaudit assurance is obscure and defies measure-ment. This has left the audit regulatory processto focus on process - examining ‘qualityassurance’ controls at a number of stagesremoved from the exercise of audit judgementwhich, for the price of some ritualistic JMU com-pliance costs, remains the preserve of auditprofessionals.

Questioning the Possibilities of Audit:Breaking out of the Audit Society

‘In essence this is the message of the book:audit has put itself beyond empiricalknowledge about its effects in favour of aconstant programmatic affirmation of itspotential. Can anything be done to correctthis?’(p. 142)

In his concluding chapter, Power admits thatthe evidence on which his thesis is based is opento a certain degree of criticism concerning itssufficiency and selectivity, and that there is stillmuch empirical work to be done, both national-ly and internationally. He stresses that his bookis in no way the final word on the subject andinvites others to provide alternative views andevidence. Acknowledging a possible tendencyto err on the side of polemic, Power justifies thisby his stated desire to provide an adequatecounterweight to the more prevalent ‘official’stories about audit.

What is most clear from all of this is Power’sconcern with the social consequences of the riseof the ‘audit society’. In particular, he questionsthe contribution that contemporary auditingmakes in terms of accountability and enhancingpublic dialogue:

‘Although the audit explosion has occurredin the name of improved accountability, thisis largely in a form of ‘downward’ accounta-bility which ‘is invoked in order to resistupward accountability: giving an account isseen to be a way of avoiding an account’ ...In short more accounting and auditing doesnot necessarily mean more and betteraccountability’(p. 127)

For Power, the users of audits are often just ‘amythical reference point within expert discours-es’and he argues that audit is in many respects ‘asubstitute for democracy rather than its aid’(p.127). He is clearly worried about the shiftingbases of social trust and the way trust is increas-ingly vested not in individuals and individualrelationships but in abstract, institutionalizedfunctions such as auditing. In Power’s terms,society, in trusting (almost ritualistically) inaudit, appears to have forgotten how to trust‘trust’. There is increasingly less discretionexercised over when to demand formal,auditable, accounts and an associated reducedreadiness to conduct ‘intuitive auditing’.



Power is reluctant to dismiss the efficacy ofaudit out of hand: ‘if account giving andauditing in a general sense are a deep part of thesocial fabric, it makes no sense to be againstthem on a priori grounds alone’ (p. 142). He alsostates that it would be wrong, even with hisreservations, ‘to conclude simply that lessauditing is desirable’ (p. 144). However, he isalso concerned that calls to evaluate the contri-bution of audit could provide an ironicextension in auditing and a further institutional-isation of the audit society.

With such riders expressed, Power plumps foran approach which favours the pursuit of formsof control and communication which are low oninstitutionalization and high on environmentalresponsiveness;

‘There can be no guarantees of success inrelying on such ad hoc sources of intelligenceand accounting but they can be distin-guished from auditing in terms of a primaryorientation to discomfort. Rather than beingcaught up in rituals of certification they areoriented towards ‘dirtier’ data processing.’(p. 145)

He is supportive of Day and Klein’s (1987)calls for more ‘civic dialogue’ and face to faceaccountability, wanting more questions to beasked of the audit process and for more to beknown of the consequences of audit practice.Audit should become part of a ‘broader organi-zational learning process rather than an emptyritual of verification for merely disciplinarypurposes’ (p. 145); to be something that is morefocused on the substantive conduct of theauditee rather than the management system.Such organisational reflexivity will require ‘aconstant preparedness to redesign the auditprocess’and the ‘institutionalized confidence todismantle as well as construct audit arrange-ments’(p. 145).

To do all this, Power emphasises that oneneeds a confident society - one which knowswhen to trust ‘trust’, when to rely on audits, andis willing to face discomfort. He acknowledgesthat the rise of the ‘audit society’ has much towith a changing constellation of social attitudesto risk, trust and accountability and thedeclining influence of other sources of legitima-cy such as community and the state. However,there is a need for society to exhibit a fair degreeof honesty with respect to the prospects forsocial order and the mechanisms used in its

pursuit. Audit should be understood for what itis and not what it might become. This would bea considerable contrast to the present situationwhere regulators and politicians continue toavoid consideration of systemic doubts aboutaudit and merely seek reassurance that it worksor can be made to work better. If Power’s ‘dis-comforting’ book can help to at least change thissituation, one suspects he will be happy.

DEBATING THE AUDIT SOCIETY

It is not an easy task to critique a book whosesympathies and intentions you support. Manyreaders of this article will have come acrossMichael Power’s prior work in the area ofauditing and will be aware of the significantcontribution he has made to existing knowledge.With his thesis on the Audit Society he hasclearly struck some chords among thoseconcerned with processes of corporate accounta-bility and the rising influence of accounting andaudit techniques. Essentially in critiquing hiswork we are not in disagreement with Power’schosen chords but would simply ask whether hecould play a more convincing tune. As such, weare not wanting to play the role of high theoristand challenge Power because of his tendency toavoid explicit reliance on one chosen theory orbecause we believe in the explanatory power ofa competing theory. Rather, we have sought totry to keep the debate going with respect to theaudit society by re-analysing and reflecting onsome of the theoretical claims - effectively to un-pick the nuts and bolts of his analysis, toexamine the linkages and ‘leaps’ he makes indeveloping his argument and to see where suchquestions and challenges lead us.

In this respect, we focus our initial critique ontwo key areas. First, the factors, causes andmotives underlying or driving the rise of theaudit society and, secondly, the definition ofaudit, what it means to be made auditable andthe relation between audit and performancemeasurement. In the final substantive section ofthe paper, we consider the possibilities forthinking more positively about the social role ofthe audit function.

An Audit Society or Conspiracy?

Power is very careful to deny that he has a con-spiratorial view of the rise of audit. In offering



an alternative viewpoint his argument derivesfrom observing the programmatic shifts thatNew Public Management and relatedmovements have had on styles of governmentand modes of corporate governance:

‘While accounting practitioners and othersmay be opportunistic there is no grandsupply side conspiracy which drives the riseof audit. There is rather a series of interrelat-ed programmatic shifts in styles ofgovernment which commonly presupposethe necessity and benefits of auditing in itsvarious forms’(p. 143)

Power backs up this argument by emphasisingthat auditors themselves are subject to similaraudit processes, which hardly seems the idealposition for conspirators! However, despite suchclaims, one is still left with some suspicion ofconspiracy or at least a feeling that the factorsunderlying the rise of the audit society have notbeen fully explained.

The reliance on programmatic shifts in modesof governance appears a convenient way ofaddressing a situation where causal relations arefelt to be complex. However, pinning the reasonsfor an audit society on such shifts can almostboil down to saying that ‘we have an auditsociety because we want one’. The use of pro-grammes and technologies to explain the rise ofaudit depends for its explanatory power on adistinction being established between these twocomponents. Audit techniques are used becauseprogrammes of governance demand their use.But in Power’s analysis he repeatedly makesclear that audit is more than technique and thatits power rests very much in the ‘idea of audit’.This raises the question as to when somethingstops being a technique and becomes aprogramme (of ideas)? More fundamentally,why does ‘audit’ stand as such an attractiveidea?

One explanation that Power provides for theattraction of audits is that they ‘work’, or moreaccurately are ‘made to work’:

‘Yet, like other audits, the value of medicalauditing becomes harder to demonstrate themore it is disengaged from local learningprocesses. It is rather a practice that must bemade to work.’ (p. 109)‘It is not that self-auditing is giving way toexternal auditing but that both are beingreshaped to ‘fit’ each other, audits mustalways work.’(p. 114)

‘These adverse effects are constantlyeclipsed by the programmatic imperativethat audits must work’(p. 121)

Yet, in all these assertions that audits work ormust be made to work, Power invites the verysentiments of conspiracy that he has denied.Why must it be made to work? Who isdemanding that audits must be made to work?Who is denying or preventing the possibility ofa change to other modes of governance? Moresignificantly, why if audit must be made towork, is it always ‘failing’? Why is there a per-sistent audit expectations gap? Searching forsuch answers to these questions in Power’sanalysis only leads to more mystery:

‘Audit cannot be permitted to fail systemati-cally and must be immunized from radicaldoubt; if audit is to function credibly in theprocessing of risk then trust in audit must beconstantly affirmed and supported’(p. 139)

Who is persistently seeking to protect auditfrom such doubt? Who is in charge of this‘constant and precarious project of protection’(p. 89)? If it is critical that auditing cannot fail,why is it so often suspected of failing? Why isthe apparent strategy one of defending accusa-tions of failure rather than avoiding thesituations that give rise to such accusations inthe first place? Someone, somewhere apparentlyisn’t being convinced by the audit image strate-gists. Would those responsible for such astrategy last long as ‘image consultants’ in otherfields of business if the relevant service orproduct kept getting linked with suspicions offailure? Is the option of making audits workreally that inferior to one of making it seem thataudits work?

Power effectively rules out the formerapproach, somewhat strangely given hisemphasis on the importance of audit working,by focusing on the management of perceptionsand his belief that an audit expectation gap isnot only endemic to auditing but also ‘a resourcefor ... the auditing profession’ (p. 39). Thisreference to the auditing profession is significanton a number of counts. First, it comes relativelyearly in the book (chapter two) and is thenlargely lost in Power’s attempts to promote thebroader, ‘programmatic’ social significance ofthe idea of audit. Secondly, it offers a potentiallyimportant insight into the way in which Power’sperceptions of the audit function are framed. Allhis assertions regarding the need to make audit



appear to work are rooted in the view thatauditing is ‘essentially obscure’ (p. 31). Suchobscurity can be traced directly back to the factthat it is a professionally controlled function - itexists because the profession has managed topreserve its ‘discretionary space’ (p. 39). Powerclaims that ‘without an expectations gap therewould be full transparency of the audit process’(p. 31) and thereby sees the gap as a resource forthe profession. However, we would argue thatthis considerably misstates the significance ofthe expectations gap. For us, its maintenance,especially in light of repeated verifications of thereasonableness of public expectations of audit, ismore a reflection of the power of the auditingprofession and the relative weakness of externalregulation rather than its source. As such wewould argue that Power’s case would be moreaccurate if it read that ‘without a powerful, self-regulated, audit profession, there would befuller transparency of the audit process’. Thisleads directly to a questioning of the inevitabili-ty of audit’s ‘obscurity’. Is it not possible to havean audit process whose intricate practicalroutines are not publicly visible but whoseresponsibilities are openly agreed (e.g., thatauditors are seeking to detect fraud and thatauditors have a responsibility to third partieswho choose to rely on the audit report in makinginvestment decisions)?

We would also question the status that Powerassigns to the audit expectations gap as a profes-sional resource. We accept that a continuingexpectations gap can be useful to the professionin allowing it to give an appearance of respond-ing to criticism in a positive light (‘we are tryingto close the gap’). However, disputing oravoiding the threats and questions whichregularly emanate from the expectations gap is acostly process. Fogarty et al (1991) usefullycoined the phrase that in terms of managing theexpectations gap it takes a lot of time and effortto do nothing - as a way of emphasising thecircular and static nature of much debate overaudit expectations and the resources that theprofession devotes to such a task. The results ofa cost-benefit study of the audit expectationsgap are not as easy to predict as Power’sanalysis would imply. Its questionable power iswell illustrated by considering the case of theJapanese auditing profession. Studies haverevealed a significant gap in Japan (see Moizer etal, 1996) yet the profession continues to play a

relatively insignificant role in processes ofcorporate governance. A long series of Japanesecorporate scandals, whose details raise consider-able doubts over the role of the external auditfunction, have seldom generated the type ofpublic questions as to ‘where were the auditors?’which are so routinely asked in the Britishgeneral and business media. The simple reasonbeing that the audit profession has not tradition-ally been seen as a valuable function, beingsomething imposed on Japan by the Americansafter the Second World War.

Power’s discussion of the way in which theaudit profession manages debates on auditexpectations is also somewhat misplaced: ‘..... audit is a practice which in every sphere

where it operates must necessarily talk upexpectations at the very same time as it maysuffer from doing so.’(p. 144);

‘..... being trusted involves noticing that we aretrusted and ensuring we do not generateexcessive expectations which may lead toloss. So should a society really trust apractice which does not take steps to ensurethat it does not create excessive expecta-tions?’(p. 137).

Evidence from the expectations gap literatureclearly contradicts the above views that the pro-fession routinely builds up excessiveexpectations of the audit function (seeHumphrey et al, 1992). One only has to glancequickly at documents such as the APC’s classiccounter to the attempts by banks to get roundthe infamous Caparo judgement (see APC 1991)to see unequivocal public statements by theaudit profession as to what auditing cannot do.Likewise, the current, highly polemical debateover auditor liability is set very much in terms ofwhat auditors should not be held responsiblefor, or what responsibilities should be made lessonerous. Again there is nothing mystical orobscure about this. It is very much up front thatthe profession wants to reduce audit responsi-bilities2. A more accurate depiction of theprofession’s actions in controlling the debate onaudit expectations could perhaps have high-lighted the way that they have responded tocriticisms by re-shaping the audit function - byseeking to provide ‘added-value’ services; toportray the audit as something useful tocorporate managers; to stress the ability ofauditors to understand their clients’ businessesand processes of risk management; to highlight



the benefits that they can pass on through theirinformed business advice and to redefinenotions of auditor independence and acceptablelevels of detailed audit testing (see Humphrey,1997; Klarskov Jeppesen, 1998).

The process of seeking to adapt the auditfunction, not in a reactive fashion but in apositive one, led by the profession rather thansocietal demands, could be classed as a way ofmaintaining the ‘essential obscurity’ of auditing,in the sense that people are never really quitesure what it is. However, such a classification isnot well encapsulated in the principal thrust ofPower’s analysis, which has a rather more tradi-tional view of the financial audit. Despitediscussion of shifts in the focus of the financialaudit, and specific developments in the field offinancial services auditing (see pages 31-36), it ismainly portrayed as an information credibilityassessment function, hiding behind massiveformal specifications of audit practice/tech-niques, professional codes of ethics and rules onindependence (p. 30) rather than somethingwhich is being actively shaped and sold by theprofession. Concern with the definition andscope of audit is something that we will returnto later in discussing the demands of an auditsociety for things to be made ‘auditable’. This isan essential element of Power’s thesis but onewhich is difficult to sustain without a cleardepiction of what is meant by the terms auditand auditability.

While feeling that Power could make muchmore of the influence of the audit profession onthe rise of the audit society, we ourselves also donot see the audit society as simply a profession-al conspiracy. However, in making such ajudgement, we are not relying on Power’s rela-tively weak explanation that auditors cannot beviewed as conspirators because they arelikewise subject to the dictates of the auditregime. It is after all a small price to pay for asignificant process of global expansion if youhave to submit to a bit of self-regulated inspec-tion3. Rather, what we are saying is that there areother underlying factors which are not ade-quately captured by Power’s analysis andexplanations. We have something here which issignificantly more complex than the rise of an‘essentially obscure’ function. Something isbeing missed. This is made very clear when onenotes that the revenues generated from auditingby the large multi-national firms have been

declining as a percentage of total earnings formany years. A funny audit era, especially giventhat such firms have not been losing audit clientsto smaller audit firms! An audit society whereaudit revenues and audit margins are continual-ly listed in the professional accounting press asbeing under pressure, where rumours of lowballing are rife. An audit society where leadingpractitioners and corporate web sites increasing-ly prefer to talk of ‘business assurance services’rather than ‘audit’. A valued function? Yet at thesame time a function not so obscure thatdirectors, many of whom were ex-auditors, canchip away at what they perceive to be excessiveaudit-profit margins? An easy retort to such crit-icisms of the audit society thesis is to highlightthe other (non-financial) audits that are growingin numbers and significance and the potentialmarkets available for those promoting businessassurance services. This may well be true but thequestionable status of the financial auditfunction is a very significant issue in relation toPower’s arguments as one of his basic claims isthat it is the financial audit model which isacting as the centre of gravity in the drivetowards an audit society.

In analysing what Power labels as an auditsociety, there is much which could be held to benot-audit or not financial-audit inspired. This isan issue which we will return to below in con-sidering the definition of audit. The point thatwill suffice at this stage is that the auditexplosion is not really a case of financialauditors expanding their remit and applyingtheir professional skills in whole different typesof contexts. There has to be a range of doubtover such claimed connections, both in terms ofwhat audits are being undertaken and who isperforming them. Again one is left with theimpression that Power is leaving somethingunexplained or under-analysed. The causal con-nection between the financial audit/auditor andthe audit society is not as clear cut or direct as hemakes out. In some respects, Power does nothelp his cause by again leaning towards a con-spiratorial tendency in his arguments. Onseveral occasions he talks about auditors asbeing on the ‘other side’ - effectively construct-ing barriers between those who provide servicesand those who audit - the ‘doers’ and the‘checkers’. In claiming that there is somethingmore going on than that contained withinPower’s analysis, this distinction is critical. We



would argue that the rise of the audit society isnot just about a power battle between doers andcheckers; of service providers against managers.In some organisations, like the NHS, such dis-tinctions may have been maintained - but inmany others we would argue that serviceproviders are increasingly having to be checkersas well. Thus, if you work in an organisationwith a commitment to quality audit, you mayfind yourself having to conduct a quality auditof another division within the firm. If you are themanager of a corporate division, you may findyourself with the responsibility of conductingthe necessary (internal) environmental audit. Ineducation, you may find yourself heavilyinvolved with the pre-inspection teachingquality audit/review.

The implication of all this is that really Powercannot have it both ways. He cannot argue thatthe audit is essentially obscure and that the auditsociety is heavily influenced by the financialauditing process and then effectively deny thatthe audit profession has had any interest andactive involvement in pushing and promotingsuch audit processes. The former largely comeswith the latter. Our viewpoint is more contextu-ally oriented and less reliant on a traditionalistview of audit. The audit profession has beenactive in promoting audit but it is not somethingwhich is extensively within their control andaudit procedures are not being generated solelyfrom their knowledge bases. Audit is not ‘essen-tially’ obscure and is being developed indifferent circles by different groups - becausethey want it rather than because they have beendeceived in to wanting by a financial audit salesperson. This type of conclusion is more inkeeping with the multi-disciplinary status of theaudit society. Perhaps the best way of emphasis-ing the significance of context is to consider thecontrasting situations which face a clinicianeager to undertake a clinical audit (in order tosee where and with what patients his/heroperating activities seem to be most effective)with that faced by Power when he was anauditor. Would the clinician be able to comeaway ten years after practising clinical auditswhich he/she wanted to do, and claim thathe/she was never really sure why they werebeing done and to what purpose? That Power isable to say this after his experience as workingas a professional financial auditor says a lotabout the way that professional audit firms

control the financial audit process - audit is notso much essentially obscure - rather it is made tobe obscure in particular circumstances.4

Audits Changing Organisations orOrganisations Changing Audit:Questioning the Meaning of Being MadeAuditable

As we have noted earlier, Power baulks atproviding a clearly specified definition of audit.However, for us the issue of definition is crucialif one is going to make claims as to the rise of an‘audit’ society or the effects of being made‘auditable’. Further, it is also open to dispute asto whether audit is the driving force behindPower’s observed processes of organisationalchange. We would argue that audit is part of abroader move towards a ‘performance measure-ment society’ and that rather than stimulatingchange, auditing itself is subject to change as aresult of pressures and movements emanatingfrom inside organisations and their manage-ment teams.

Power acknowledges the significance ofaccountability to any conceptualisation of audit,noting that:

‘Of course, not just any practice can be calledan audit. Many of the examples of checkinggiven above, such as hiring a privatedetective, would not ordinarily merit thetitle because a relation of accountability ofsome kind is lacking. But equally, the limitsof the term are not always clear. And thereason that they are not always clear is thatthe word is not used simply descriptively torefer to particular practices, but normativelyin the context of demands and aspirationsfor accountability.’(p. 6)

However, Power chooses to side-step issues ofdefinition by going on to claim that audit hasspread significantly because of the power of theword or idea:

‘The power of auditing is the vagueness ofthe idea and to comprehend the auditexplosion it matters less what different auditpractices ‘really are’, the endless agony ofdefinitions, than how the idea of audit hasassumed such a central role in both publicand private sector policy....The idea of auditshapes public conceptions of the problemsfor which it is the solution; it is constitutiveof a certain regulatory or control style which



reflects deeply held commitments tochecking and trust.’ (p. 7)

We fundamentally disagree with Power on theissue of definition. For any thesis on the ‘audit’society, it has to matter what you mean by audit.It is also surely not adequate to hide behindclaims that the importance of audit is in the idea,especially if you then go on to say that audit isan idea which is having real, practical effects inmaking organisations auditable. If you don’tknow what audit is or is not, the ‘idea’ of auditmakes little sense.

Power’s prime motive for not worrying aboutdefinitions and concentrating on why the idea ofaudit has assumed such prominence is that he iskeen to establish that there is something moresignificant to the rise of audit than a greater useof the word itself. That conceptually somethingsignificant has happened over the last few yearsin UK organisations and society. The strength ofthe idea of audit is such that, for him, it makesredundant any concerns regarding a lack ofspecificity in his arguments:

‘It could be said that this so-called ‘auditexplosion’ is in fact a myth and that thewidespread use of the word ‘audit’ is atrivial and accidental feature of the situation.Sceptics could point to the historical, con-ceptual, and technical diversity ofmonitoring practices mentioned above;many so-called ‘audits’ are really research,evaluation, or data gathering. However, theproblem for such a sceptical view is toexplain the power of the word.’ (p. 6)

We would have to side with the scepticsbecause throughout Power’s book there is con-siderable confusion over what is meant by theterms audit and auditability. True there iscopious use of the word, but it is very difficult tolink all the various practices given the label‘audit’. Many of them (a good example beingclinical audit) amount to little more than datagathering activities, often without any elementof checking of the accuracy or significance of thedata, whether independently done or not. Thereis also much going on in organisations which isnot labelled as audit. Power includes Universityresearch assessment exercises in his examples ofcontemporary audit but, significantly, this is notcalled an academic audit - but an assessment orperformance measurement exercise. Thefindings of the assessors are not subject to anyexternal, independent verification - their modes

of assessment and judgements are final. Equally,much of the performance data which isproduced by public sector organisations underthe NPM era is not audited or independentlyverified. Further, many audits which are done inthe supposed name of enhancing accountabilityare seldom placed in an accessible, publicdomain. In cases where audit and inspectionreports are made public, the organisation subjectto the process may have an opportunity to getthe report amended before it is published.

Anyone well acquainted with Power’sarguments could claim that the above isimplying a very narrow view of audit - onerooted in independent verification or assess-ment and notions of accountability involvingreporting from one party to another. But if this iswhat audit has been traditionally associatedwith, then it seems fair to assess Power’s claimsas to the rise of an ‘audit society’ in terms ofwhat is traditionally understood to be theessential qualities of audit. It is another issue ifthose qualities have something of a normative,almost mythical status. What is crucial is howwe understand the term audit. Interestingly,throughout the book, Power can be seen to fallback on traditional conceptions of audit as someform of external check, of being held account-able or subject to control, even though heeffectively downplays such motives for audit inhis earlier comments. His dismissal of the workof a private detective as not being an audit is butone example of a conservative view of audit. Hiswhole notion of organisations being madeauditable is another - being rooted essentially inthe notion that the organisation is going to besubject to some form of check or review...oraudit. His distinctions between audit andinspection, claiming that inspection is less of a‘control of control’ than audit, shows that Poweris not averse to defining audit in ways that hefinds suitable. There is nothing to say that auditcannot be a direct inspection of activity - it is justthat Power has defined this as inspection andthereby makes it all the harder to claim thataudit can provide a useful, service relatedfunction.

The more one considers issues of audit defini-tion, the more one begins to feel that Power’sthesis is not capturing all that is going on. Thereis something missed by traditional conceptionsof audit, there is something avoided or side-



stepped by claiming that the significance ofaudit is the idea rather than the definition. Forus, the solution to such conceptual dilemmas isvery simple - we don’t have an audit society.Rather it is a performance measurement society.We don’t just have a rise of auditors but a rise ofmanagement - it is not called ‘new public man-agement’ (rather than ‘new public audit’) fornothing. The suitability of the term ‘perform-ance measurement society’ can easily be seen ifone considers the University research assess-ment exercises. These are essentiallyperformance measurement exercises predicatedon very narrow managerialist concepts ofcontrol (Puxty et al, 1994). So why not call themthat rather than linking them artificially withsome vague or ill-specified idea of audit? If tra-ditional definitions of audit are not working andif observed practice does not fit regular concep-tions of audit, then why rely on audit? Why notfind something that better describes what isgoing on in terms that everyone accepts?

The result of such analysis suggests that therise of audit is one part of a wider and morecomplex movement by which individuals arerequired to measure and demonstrate the natureof their performance - and depending on the cir-cumstances some of these measures will beindependently checked and monitored. Thelabel of a performance measurement society alsoeases Power’s problems of cause and effect -notably, his claims that organisations areproducing performance measures because theyare ‘being made auditable’. Such claimsbreakdown to some degree if performancemeasures are either used directly to inform oper-ational decision-making or are seldomexternally checked/verified or not even utilisedin any external monitoring evaluation (all threecircumstances being well capable of arising). Ifaudit is brought under the banner of perform-ance measurement, then the task is the morestraightforward one of explaining why organisa-tions are so measurement oriented rather thanwhy organisations are making themselvesauditable but are not audited in any traditionalsense of the word.

One weakness with such an alternative con-ception of Power’s thesis is a tendency to allowthe word audit to be defined by long-standing,but what may be seen by some as unacceptable,traditions. Fine, but all words have traditionsand associated meanings, and appreciation of

the very real issues that Power is addressing canonly be helped by using words which are easy tounderstand and accurate in their description.Additionally, criticism of the term ‘audit society’sits uncomfortably with our earlier acknowl-edgement that Power’s phraseology hascaptured a clear sentiment of modern day life.The term audit society means something topeople. If Power’s arguments are so misplaced,why then is the notion of an audit society soappealing? We would suspect that the idea isappealing because it is something that peoplecan relate to in general terms, ironically bydrawing off traditional conceptions of audit as anecessary evil, as a boring, uncreative function.Mention the term audit society, and very fewpeople are going to be praiseworthy of itsexistence.

All this being said, the phrase loses attractionas one starts to move beyond generalities; whenquestions start to be asked about whether theconcept of an audit society accurately reflects allof what is going on. This can be well illustratedby considering some of the competing ways inwhich audit is changing in terms of its organisa-tional role. In cases where audit is being utilisedas a new initiative, whether it be an academic,quality or a value-for-money audit, the valuesthat tend to cluster around the audit function arethose which have been traditionally associatedwith audit such as verification, checking, inde-pendence, assurance etc. For example,value-for-money audits are justified on thegrounds that we need some verification thatpublic services are being run efficiently andeffectively. Audit is very much about issues ofcontrol and accountability, although whether itsatisfies such issues is another matter. In the tra-ditional statutory audit, however, audit istending not to be appealed to by companies forsuch traditional values. Audit is representedvery much as an irritant, a necessary evil byclient company management. Audits, according-ly, are being redesigned (at least rhetorically) toprovide ‘added value’, business advisoryservices and make the routine financial auditmore pertinent and attractive. Is such re-shapingreally a case of an expanding audit society? Is itadequate to class it as an example of auditcapture? We would suggest that such develop-ments are more closely related to the risingpower of corporate management or the commer-cial desires of accounting firms to appeal to the



interests of corporate management. Above all, itis difficult to accept that the idea of audit is sostrong if there are such competing ideas inexistence as to what counts as audit.

THINKING POSITIVELY ABOUT AUDIT?

Power’s condemnation of audit centres, aboveall, on two key issues. Firstly, in its emphasis on‘control of control’ the focus is on systems com-pliance and not performance outcome. Henceaudit fails to promote the transparency andpublic dialogue that are essential for enhancingthe accountability of powerful economic organi-sations. Secondly, and quite crucially in Power’sanalysis, audit’s influence is essentiallynegative. At best, the audit process is‘decoupled’ and made remote from the veryorganisational processes which gave it its point.Alternatively, a much more malign outcome canensue in that audit effectively ‘colonizes’ theorganisation by disseminating and implantingvalues which underlie and support its owninformation demands. Inevitably, forms of dys-function are created for the audited service itself.In particular, fundamental damage is inflictedon any organisational culture of trust, whilst, inmaking auditable performance an end in itself,the achievement of long term goals is renderedimpossible.

The case studies of auditing within highereducation, medicine and the regulation offinancial audit itself which Power utilises toillustrate his analysis provide persuasiveevidence of the strength of his claims.Nevertheless, the question still remains as towhether audit always offers a ‘fatal remedy’ inbeing inevitably destined to provide dysfunc-tional consequences for the organisation, whilstat the same time failing to promote externaltransparency and accountability. Power appearskeen to encourage more informal, responsiveand less hierarchical forms of audit but has littleof concrete substance to offer in terms of policyprescription which points the way towards thedevelopment of an audit function that canempower rather than control, and illuminaterather than obscure, attainment of organisation-al goals and objectives. That said, a possible wayforward is at least hinted at in the suggestionthat audit could become part of the organisa-tional learning process with, amongst other

things, auditees themselves being brought intothe audit process.

Intriguingly, in his earlier writing on the ‘auditexplosion’ (Power, 1994a), Power had alreadyfleshed out these fairly vague proposals in alittle more detail, calling for audit to promote:

• local specificity;• the development of a corporate

community within which stakeholdervoices may be heard; and

• a redefinition of the boundaries of theorganisation, so as to avoid the externali-sation of outsiders, via establishing rightsof access and inquiry.

Cotton et al (2000) provide a useful explorationof the potential empowering and learning rolesof audit in their study of the possibilities forimplementing social audit within the primaryhealth care environment. In their analysis, theaudit function becomes an essential componentof democratic decision making at a local level byestablishing a role for the auditor as ‘one wholistens’ to the voices of key stakeholders (Evans,1997). At the very least, the inevitable failure ofaudit is brought into question and the scene setfor a more general exploration of the efficacy ofsocial audit as a mechanism for establishing ademocratic and transparent ‘audit’ society.

Social audit, in fact, has had a long, andsomewhat chequered, history, with the termbeing used over the years to describe a multifar-ious range of activities. In its earliest guise,social audit was very much regarded as a man-agement tool for evaluating and controllingcorporate social programs and was indeed oftenconsidered as being largely synonymous withinternal social accounting and reporting mecha-nisms (e.g., see Humble, 1973; Blake et al 1976).However, the concept rapidly acquired a moreradical, and openly confrontational, stance in theUnited Kingdom with the activities of SocialAudit Ltd. in the early to mid-1970’s. Bestknown for carrying out a small number of(generally highly critical) ‘audits’ of the socialand environmental performance of majorcompanies5 and publishing the results in theirjournal Social Audit Quarterly (1973-1976), thecampaigning nature of Social Audit Ltd’s workwas openly acknowledged by Charles Medawar,a leading figure in the organisation, who notedthat;

‘We have, in fact, a democratic bias. Webelieve that corporate power should be



exercised to the greatest possible extent withthe consent and understanding of ordinarypeople. We believe that people should beencouraged and allowed to share responsi-bility in society, but that at present, they arenot and are imposed upon instead. Thisquestion of secrecy and accountability isfundamental here’(Medawar, 1976, p. 390).

The commitment to openness and publicdebate that underpinned the work of SocialAudit Ltd. contrasts starkly with Power’sringing condemnation of modern day audit as ‘adead end in the chain of accountability’ (p. 127).Significantly, later social audit initiatives under-taken predominantly by UK Local Authorities inthe 1980’s - which sought to expose the humanand public financial cost of corporate plantclosure exercises to open debate within affectedcommunities (Harte and Owen, 1987) or tohighlight the effect of government policy onlocal living standards (Newcastle City Council,1985; Sheffield City Council, 1985) - exhibited asimilar commitment towards subjecting thosewielding large measures of (unaccountable)power to the spotlight of public accountability(Gray et al 1991). Indeed, in Geddes’ (1992)analysis, the values promoted by the social auditmovement at that time (namely, economic andsocial planning, popular involvement ineconomic decisions and social need as a primarycriterion for resource allocation) providedammunition for nothing less than a fundamentalassault on the prevailing market based economicorthodoxy. As Geddes (1992) pointed out:

‘Social audit attempts to challenge thehegemony of money over both the produc-tive economy and society, and ofaccountants - the technicians of money -over economic, social and politicaldecisions’ (p. 218).

The above, brief, analysis of the developmentof the social audit movement in the 1970’s and1980’s suggests the beginnings of an agenda foran ‘audit society’ very different from that whichinforms Power’s analysis. However, it must alsobe admitted that in terms of achieving real socialchange the movement failed. Conducted by‘outsiders’ with no pretensions to ‘neutrality’,and being largely confrontational in nature, thelegitimacy of such exercises was denied by theorganisations subject to scrutiny, and theirfindings marginalised or ignored. In Puxty’s(1991) analysis, which draws upon the work of

Habermas, the real problem with such initiativeswas that they did not represent attempts todevelop a discursive dialogue. That is, they werenot designed to reach an understanding throughworking with the organisation concerned. Thelatest wave of social audit activity, now beingwitnessed in the spheres of public provision(Cotton et al., 2000), community enterprise(Pearce, 1996) and a small, but growing numberof ‘values-based’ companies6 espousing goalsbeyond profitability (Zadek et al 1997) looks wellset to avoid such criticism, given its move froma confrontational to an ‘inclusive’ approach.However, as will be seen below, an increasinglydiscernible ambition on the part of proponentsof the ‘new’ social audits to bring the processinto the mainstream of current business thinking(e.g., see Wheeler and Sillanpäa, 1997; Elkington,1998; Gonella et al., 1998; SustainAbility, 1999;Institute of Social and Ethical Accountability,1999) is threatening to compromise the earlierdemocratic ideals of the social audit movement.

Whilst different approaches towards socialaccounting and audit are clearly discernibleamongst organisations at the cutting edge ofcurrent practice, all share the common ingredi-ent of active stakeholder involvement in theprocess together with a commitment on the partof the auditee to some form of external valida-tion and disclosure of the results of the auditexercise. Overall, the avowed aim is to promotetransparency of organisational performance byallowing stakeholder voices to be heard. Thus,fundamentally, we can see the beginnings of anaudit process seeking to privilege empower-ment rather than control. As Zadek and Evans(1993) put it:

‘The objective in promoting and applyingsocial auditing practice is to provide forthose involved in the business and affectedby its products and activities informationthat is relevant to the range of their interestsand concerns. Social auditing will enablestakeholders, consumers and the public tomake judgements about whether the organi-sation is using their money, labour,environment and community responsibili-ty’(p. 7).

Crucially, as Gray et al (1997) note, modernsocial audit practice, especially that pioneeredby the third world trading organisationTraidcraft (as auditee) and the New Economics



Foundation [NEF] (as auditor), is built aroundthe notion of stakeholder dialogue:

‘Focus groups are held with each stakehold-er group, from which key issues areidentified, and a wider constituency of thestakeholder group is consulted to collatetheir views on these and other issues. Thesocial account comprises predominantly(but not exclusively) a reporting of the voices ofthe stakeholders’ (Gray et al, 1997, p. 335,emphasis added).

In particular, such dialogue centres on evalu-ating the success, or otherwise, of theorganisation in adhering to its ‘core values’,generally enshrined in a mission statement orcorporate charter. Also noteworthy is the role ofthe auditor in overseeing the methodology ofthe whole process, which can include involve-ment in focus group discussions, questionnairedesign, collection of data and, indeed, construc-tion of the social account itself (Raynard, 1995;Gray et al, 1997). In other words, the auditor is,in this context, not a mere ‘checker’ but also a‘doer’7. Furthermore, the interactive approachadopted fulfils a vital function in encouraging anegotiation for change between the organisationand its stakeholders - a process within which theauditor plays a key facilitating role. It is this verytransparency and active dialogue (making auditcentral to the organisational learning process)which is integral to our vision of an accountableand empowering ‘audit’ society.

Whilst stakeholder empowerment andcorporate accountability seem central objectivesin the promotion of the new wave of social auditactivity, something of a ‘managerial turn’ is alsobecoming apparent in the most recent writing onthe subject (see, for example, Gonella et al., 1998;SustainAbility, 1999). Such work particularlyemphasises the efficacy of social audits instrengthening an organisation’s strategic man-agement procedures - by pinpointing high riskactivities and enabling management to copewith increasingly complex business situations.Thus the inevitable question raised is whetherstakeholder management, rather than stake-holder accountability, is increasingly drivingdevelopments8?

Suspicion that the former may indeed be thecase is aroused by Swift and Pritchard’s (1999)suggestion that stakeholder inclusion in contem-porary social accounting and audit processes isoften limited. In particular, drawing upon a

review of extant social audit reports, they claimthat stakeholders are not generally included incollaboratively designing social performancemetrics with organisations, nor regularlyapproached to provide feedback on subsequentreports. Given such comments, it is significant tosee that the first set of draft standards in socialand ethical accounting, auditing and reporting(SEAAR) published by the Institute of Social andEthical Accountability (ISEA)9 in February 1999simply state that performance indicators should:‘..... reflect, where possible, through consulta-

tion with key stakeholders, the interests andconcerns of the stakeholders and bestpractice elsewhere.’(ISEA, 1999, p. 45,emphasis added).

The standards are also notably silent on theissue of feedback subsequent to publication ofthe report. Furthermore, ISEA’s approach tostandardisation draws heavily from the domainof financial auditing - lending some support toPower’s claims regarding the normativeinfluence of financial audit, although it shouldbe emphasised that any such notions andconcepts are being invoked in very traditional(almost idealistic) terms which show no recogni-tion of the way in which the financial audit iscurrently being ‘re-engineered’. In place ofNEF’s interactive model, we now have a clearseparation laid down between the roles ofaccountant and auditor, with social audit princi-ples ‘derived in large part from their financialequivalents’ (ISEA, 1999, p. 43). Organisationalcontrol systems are now central to the auditexercise and the roots of SEAAR in quality man-agement processes are clearly acknowledged.With ISEA’s additional avowed aim of workingtowards the convergence of financial, social andethical accountabilities (see also, Elkington,1998) can it be that social audit, despite itsradical roots, is destined to justify Power’sessentially negative conception of an ‘auditsociety’?

On the above issues we are not at all sure. AsGray et al (1997) suggest, the ‘independent’approach now being advocated by ISEA may beuseful in testifying to the production of acomplete social image and should be viewed ascomplementary to, rather than competing with,the earlier ‘hands on’ approach. But even this isnot the most crucial factor to be considered inreaching a view as to whether social audit can beoffered as a valid, constructive counterpoint to



Power’s ‘audit society’. The real problem to befaced in realising the emancipatory and partici-patory democratic potential of social audit lies inthe fact that it is not the audit process itself thatis important, but rather the system of corporategovernance into which it feeds.

Whilst we are not offering social audit as auniversal panacea for the failings of Power’saudit society, we do see it as possessing thepotential to play a vital role in injecting somereal substance into the vague rhetoric accompa-nying debate on the possibilities andpotentialities of establishing stakeholder capital-ism (Royal Society of Arts, 1994; Kelly et al.,1997). However, for this to come about issues ofcorporate governance, or more simply, introduc-ing meaningful mechanisms for passing overreal power to stakeholder groups have to becentrally addressed. Without this, the audit iseasily made prey to organisational capture. Theessential problem with much of the current liter-ature extolling the virtues of social audit (see, forexample, Wheeler and Sillanpäa, 1997;Elkington, 1998; SustainAbility, 1999) is thatnowhere can we discern any intention to passover real power to stakeholder groups. Rather,the managerial turn we alluded to earlier is onlytoo apparent in the somewhat naïve expectationthat organisations will move themselvestowards (ill-defined) ‘inclusive’ forms of gover-nance as a voluntary response to perceivedpublic unease. In seeking the organisationalacceptance that earlier initiatives failed toachieve, proponents of the ‘new’ social auditsare in danger of fundamentally compromisingthe democratic ideals of the movements fundingfathers.

Drawing on earlier work by Power (1994c) theessential point is that administrative reform, orthe development of new forms of accountingand auditing, has to go hand in hand with insti-tutional reform which links wider constituenciesinto the decision-making process (see also Owenet al, 1997; Olson et al, 1998). The basic questionthus becomes not what we make of the auditfunction but rather which social values shouldprevail, and what sort of society we wish tocreate.

CONCLUSION

There is no disputing that the ‘audit society’ isan attractive and compelling title around which

to build a clearly thought provoking book. Thatsaid, we do not accept that the idea of audit, oreven a more broadly encompassing concept ofperformance measurement, is as powerful asPower makes out. For us, it is an idea which haslargely become powerful by default - through adecline in other values and modes of organisa-tion. Thus, what we feel needs more attention inPower’s thesis is not ‘audit’ per se but ‘society’.Rather than just calling for lower levels of auditor for more caring and socially oriented audits,we think it is vitally important to focus on whatwe mean by society, what we expect from organ-isations in the private and public sector andwhat it means for such organisations to behaveaccountably and responsibly. At one level, it isdifficult to argue against auditing and perform-ance measurement in any absolute sense as somany people are actively and willingly engagedin it. More significantly, it is difficult to argueagainst it because any such arguments areseldom based in any firm conception of what areessential public services, what truly ‘stakehold-er-led’ corporations look like and how theymake decisions and determine strategies inways which are noticeably different from anyexistent organisational sensitivity to social andenvironmental concerns. ‘Trusting to trust’, asPower classifies it, is a nice theoretical turn ofphrase but it is inoperable as a mechanism forsocial change if you are not sure what youshould be trusting in the first place; if youcannot readily depict what is an equitable, dem-ocratic, socially just alternative to contemporarycorporate governance structures.

In a sense, we feel that Power has missed theopportunity to be rather more hard hitting thanhe has been about audit. He somewhat lets theaudit profession off the hook by not challengingits inability, or unwillingness, to act in the publicinterest in the face of commercial pressures andthe (perceived) demands of private sector man-agement. He especially lets public sectormanagers off the hook by telling them to bemore sceptical about audit but not to be clearerabout the raison d’être of public service. He doesnot want to dismiss auditing out of hand butportrays essentially negative conceptions of itand ends up being fairly vague as to how to getout of the grasps of the ‘audit society’. However,such criticisms should be tempered by acknowl-edging the difficulty of the issues addressed byPower and the fundamental absence of simple,



close-at-hand solutions. Power’s work hasundoubtedly made a valuable contribution inhighlighting the questionable foundations onwhich the rise of the ‘audit society’ has beenbuilt. He has made both of us think (and thinkagain!) about the nature and possibilities ofaudit practice and the opportunities for breakingwith corporate governance and auditing tradi-tions.

Above all, his invitation to people to questionwhat is happening in the name of audit has to bean important first step in making space for othervoices - an invitation that is all the more persua-sive for being extended by an ex-auditor. If suchvoices fail to take the opportunity then that isnot really the fault of Power’s analysis ofauditing. He has put the significance of audit insociety under the public spotlight; now is thetime for others to reassert the significance ofsociety and put notions of social responsibilityback into ways of performing and, yes, of evenauditing. It is by no means an easy task, butneither is it a boring one!

ACKNOWLEDGEMENTS

The preparation of this paper was facilitated bythe financial support of the Research Board ofthe Institute of Chartered Accountants inEngland and Wales (ICAEW), which is grateful-ly acknowledged.

NOTES1. Such growth is made all the more remarkable

given that corporate failure so often invites publicquestioning of the role of audit, yet corporatesuccess will seldom, if ever, give rise to publicacclaim for the audit function (p. 27).

2. Power makes clear reference to such develop-ments (pp. 26-27) but these get set aside or lost inthe desire to explore the notion of auditing beingessentially obscure (pp. 27-31).

3. Especially if the process judges audit quality verymuch from a procedural basis and that the proce-dures used to form such a basis are your firm’sbasic, minimum, procedures - little wonder thataudit self-regulation has been most criticised bysmall audit firms where such ‘large firm’ proce-dures probably have their least relevance.

4. Power notes that he enjoyed his time as anauditor. To some extent his argument with respectto the rise of the audit society suggests that he hasnot lost this attraction to obscurity!

5. Namely, Tube Investments Ltd., Cable andWireless Ltd., Coalite and Chemical Products Ltd.and Avon Rubber Ltd.

6. Such companies are often taken to include TheBody Shop, Traidcraft, Shared Earth, NewCustomer, Shared Interest and the Centre forAlternative Technology (all UK), Ben and Jerry’s(US) and Earth Sanctuaries (Australia)

7. To counter any possible lack of objectivity on thepart of the auditor, an audit advisory group madeup of individual experts is generally given thetask of assisting the auditor in judging whether ornot to sign off the accounts and determining theappropriate audit recommendations (Raynard,1995).

8. For a fuller articulation of this argument seeOwen et al (forthcoming).

9. Founded in 1996, ISEA describes itself as an inter-national membership organisations committed tostrengthening social responsibility and the ethicalbehaviour of the business community and non-profit organisations.

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AUTHOR PROFILES

Christopher Humphrey is Professor ofAccounting and Head of the Accounting andFinance Division at Sheffield UniversityManagement School, England. His mainresearch interests are in the areas of auditing andpublic sector accounting. His current researchprojects include an examination of contempo-rary auditing developments in leading UKorganisations, sponsored by the Institute ofChartered Accountants in England and Wales.

David Owen is Professor of Accounting andChairman of Sheffield University Management

School, England. His longstanding researchinterests are in the areas of social and environ-mental accounting, with his published work inthe area going back over fifteen years. He haspublished in a wide range of leading journalsand is a joint author of the best-selling text,Accounting and Accountability: Changes andChallenges in Corporate Social andEnvironmental Reporting (Prentice HallInternational). For a number of years he hasbeen a judge on the Chartered Association ofCertified Accountants Environmental ReportingAwards Panel. His current research interestsinclude an examination of contemporaryauditing developments in leading UK organisa-tions, sponsored by the Institute of CharteredAccountants in England and Wales.

Debating the 'Power' of Audit

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