From techniques to ideologies: An alternative perspective on the audit function

Critical Perspectives on Accounting (1990) 1, 217-238

FROM TECHNIQUES TO IDEOLOGIES: AN ALTERNATIVE PERSPECTIVE ON THE

A U D I T FUNCTION

CHRISTOPHER HUMPHREY AND PETER MOIZER*

University o f Manchester and *Universi ty o f Leeds

A significant body of accounting research has highlighted the socially constituted nature of accounting and the diversity of roles and functions that accounting performs~ To date, however, there has been little attempt to apply this literature to a consideration of the nature of audit work and the processes of audit judgement. In contrast, much of the audit judgement research tends to adopt a unitary perspective, seeking to explore the comparative technical advantage of "expert" auditors or to develop rationalistic models of audit judgement. Such audit research sits rather uneasily with the growing concern about the potential erosion of standards of professional audit conduct and the ability of auditors to serve a "public watch-dog" function in the face of severe commercial pressures.

This paper views auditing as a socially-constituted activity. Using a series of interviews with audit managers focusing on the planning of audit work, the paper illustrates the differing functions that audit activities can serve. As well as a techno-rational function designed to enhance audit quality, the activity of audit planning also serves both significant ideological and marketing functions (the former designed to legitimize the choice and extent of audit work, and the latter designed to maintain and if possible increase the fee income from the client). As such, the paper's findings serve to cast doubt on the ability of the auditing profession to deliver the audit service traditionally demanded by society.

"Audit is a social phenomenon. It has no purpose or value except in its practical usefulness. It is wholly utilitarian. The function has evolved in response to a perceived need of individuals or groups in society who seek information or reassurance about the conduct or performance of others in which they have an acknowledged or legitimate interest" (Flint, 1988, p. 14).

"Price Waterhouse is continually refining its audit approach, adding efficiencies and maximising the use of new and emerging technologies in order to meet clients' auditing and other professional service needs. . . Our approach has universal applicability and results in a tailored, effective audit of each entity's financial statements" (Walker & Pierce, 1988, p. 1)

In recent years, a s igni f icant body of account ing research has chal lenged the tradit ional v iew of account ing as a neutral, scientif ic phenomenon; a technical-rat ional craft serving to enable organizat ional effectiveness. Instead, accounting has been port rayed as social ly constructed, as a contextual ly dependent activity which is both social and polit ical in itself and capable of serving a diversi ty of roles and funct ions (see, for example, Burchell et aL,

This paper was presented at the Critical Perspectives on Auditing SYmposium, New York, April 29-30, 1990. Address for correspondence: Professor Chris Humphrey, University of Manchester, bept, of Accounting and Finance, Oxford Road, Manchester M13 9PL, U.K. Received 15 April 1990; accepted 5 June 1990.

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1045-2354/90/030217 + 22 $03.00/0 (~ 1990 Academic Press Limited

218 C. Humphrey and P. Moizer

1980; 1985; Hopwood, 1985, 1987; Loft, 1986; Nahapiet, 1988; Ansari & Euske, 1987; Cooper & Sherer, 1984; Rosenberg et al., 1982). In particular, such research has sought to examine processes of accounting change. Rather than viewing accounting change as a process of technical elaboration and im- provement, historical analyses have started to examine the way accounting becomes implicated in, and in turn is shaped, by wider organizational, social and political processes (see Hopwood, 1987; Armstrong, 1985, 1987; Miller & O'Leary, 1987; Loft, 1986; Merino & Neimark, 1982). Underlying much of this research has been a desire to challenge, and expose, any claims that accounting may have had to a "natural," objective status. Instead, accounting has been portrayed as an inter-subjective meaning system, competing with other such systems for recognition in a problematic, socially dependent reality (Hopwood, 1985). In so doing, notions of neutrality have been rejected, with accounting being seen as an interested activity, serving certain interests through its construction of particular forms of reality (Tinker et al., 1982; Cooper & Sherer, 1984). As such, unintended consequences of accounting functioning have been examined not from the perspective of factors to be changed in the rational pursuit of any accounting "potential," but rather treated as evidence of the tensions and conflicts created by the increasing encroachment of the accounting craft on other aspects of organizational life (Hopwood, 1987, p. 293).

Implicit in such critical perspectives on accounting is a model of society that is conflict based. As Cooper & Sherer (1984) argued, the study of accounting benefits from an approach that recognizes power and conflict in society "instead of assuming a basic harmony of interests in society which permits an unproblematic view of the social value of accounting reports" (p. 218). It is through the pursuit of specific sectional interests that accounting has been seen to serve other than a purely technical-rational function aiding decision making. Thus, accounting systems and reports have been regarded not just as "answer machines" but also as ammunition and rationalization machines (Burchell et aL, 1980) to be used in an ideological fashion to legitimize particular activities or to rationalize or mystify past behaviour in ways which can protect and bolster certain interests (also see Meyer & Rowan, 1977; Wildavsky, 1978; Cooper & Sherer, 1984).

In the light of such a challenging, de-mystifying research agenda, it is appropriate to ask where stands associated research on the nature of audit practices and technologies? At a time when the audit profession is frequently regarded as in a state of crisis or metaphorically at the "crossroads" (Hines, 1989b; Zeff, 1987; Armstrong & Vincent, 1988), and where a major debating notion of an expectations gap continually illuminates conflicting perspectives on the nature and purpose of the audit function (Kaplan, 1987; Humphrey, 1990), it would be reasonable to expect such a research philosophy to provide fruitful insights into the reflective and constitutive properties of audit practices. However, critical theory has rarely been applied to audit practice. Most studies have tended to examine such practices from a rather one-dimensional perspective, using many of the assumptions that critical accounting research has sought to attack. Audit approaches are treated as sets of techniques designed to satisfy unitary client needs and to be changed in ways which

From techniques to ideologies 219

enhance the effectiveness of the audit function in serving such needs. Auditors are frequently portrayed as expert decision makers, who either as disinterested, respected professionals or rational economic individuals, seek to act unquestioningly in the public interest. With many studies seeking to improve and enhance audit techniques, by rectifying the errors of the past with better "answer machines," the relevance of Hopwood's (1987) criticisms of conventional accounting research cannot be understated. He argued that such research has provided a "history of inadequacy, ignorance and obsoles- cence when accounting was not what it should be, peppered with only occasional moments of enlightenment when accounting moved nearer to realising its potential" (p. 291)..Hopwood saw such an inadequate depiction of accounting history as resulting from a predominant resort to bodies of knowledge external to accounting itself and the consequent failure to engage in studies of accounting in action and the developments that have emerged from the contextual practice of the craft.

Audit judgement research has frequently noted its failure to explain adequately the nature of auditors' decision precesses and the functioning of audit techniques (see Johnson et al., 1989; Wright, 1988; Abdolmohammadi and Wright, 1987; B6dard, 1989). With such techniques continuing to be applied in a conflict-ridden environment (typified by the disturbing stubborn- ness of the audit expectations gap to disappear), it is our view that more fruitful progress in understanding the nature and operation of the audit process can be achieved by studying auditing as a socially constructed, contextually dependent phenomenon, capable of serving a variety of roles and functions. This paper uses a series of interviews with 18 audit managers in large and medium sized audit firms in Manchester and London, England to illustrate the socially constructed nature of auditing practices. The interviews focused on the audit planning process, an activity which was known to be of increasing importance to the audit methodologies of the 1980s (a fact reflected in a number of studies--see Ganz, 1987; Walker & Pierce, 1988; Turley, 1989; Houle & Plamondon, 1986) but which also offered a conveniently accessible way of studying the processes by which auditors determined the nature and sufficiency of audit work. As Peters et al. (1989) note, the audit planning process can be regarded as an ex -an te rehearsal of the entire audit process (p. 360). Apart from a technical-rational function designed to enhance audit quality, the interviews revealed audit planning activities to be serving both significant ideological and marketing functions (the former designed to legitimize the choice and extent of audit work, and the latter designed to maintain and if possible increase fee income from the client). By exploring these functions, and the changing role of the audit planning process, this paper seeks to facilitate a greater integration of critical perspectives on the nature of the audit/accountancy profession and the specific functioning of audit practices, in particular, the paper's findings serve to add support to those who have increasingly questioned the audit profession's ability, as presently structured, to serve the "public watch-dog" function traditionally demanded by society (see Zeff, 1987; Kaplan, 1987; Tinker, 1985).

The paper is divided into three main sections. The first part of the paper examines the present state of relevant audit research, considering the limited


application of critical perspectives to analyses of audit practice but also identifying a number of indicators in such research pointing to the merit of adopting a conflict-based perspective. Treating auditing as a socially constructed phenomenon, the paper then provides an alternative perspective on the nature of the audit function through its study of the audit planning process. The paper concludes by considering the implication of its f indings in the light of the growing literature on the audit expectations gap and the resultant questioning of auditor independence.

The Profession of Auditing and Audit Practice--An Uneasy Relationship?

In reviewing recent critiques of the audit profession, it is possible to distinguish two main strands of analysis: first, those who have expressed concern with an apparent de-professionalization of the audit function and second, those who have challenged the very nature and meaning of the term "professional."

Auditing--a Profession or a Business?

A growing number of studies have drawn attention to the undesirable consequences of recent developments concerning the audit profession and its reactions and responses to the phenomenon of an "audit expectation gap" (see Zeff, 1987; Kaplan, 1987; Stevens, 1988; CACA, 1988). A predominant focus of these analyses has been the issue of audit independence and the extent to which auditors serve corporate management rather than wider societal interests. At one level, the provision of management advisory services has been pin-pointed as a threat to audit independence. As Tinker (1985) noted "despite the economic benefits of audit and attestation work, revenue from management advisory services now rivals that from auditing for some of the Big Eight firms, thereby weakening the motivational basis to resolve social conflicts in the favour of public interests, rather than corporate client interests" (p. 204). Other arguments have questioned the very nature of the auditor-client relationship. As Zeff (1987) commented:

"a symptom of the times is the very fact that auditors refer to companies as the 'client.' The real client is not the reporting entity but the investors and creditors on whose behalf the audit is conducted . . . . Yet, when is the last time that partners in an audit firm with which you are familiar actually consulted users, or read magazines to which users or their advisers contribute articles, in order to gain a better appreciation of the uses to which financial reports are put?" (p. 68).

Kaplan (1987) felt that auditors had shunned the unglamorous role of sceptical guardian of the .public for the more charismatic posture of the business advisor and confidante. "How much more exciting to be thought of as management's 'creative' confidante, thinking up 'aggressive' interpretations of those confining rules of accounting, rather than some nit-picking bean counter" (p. 7). He coupled this movement with increased desires for economic growth-- to boost audit firm revenues by expanding and broaden- ing the client base. As Kaplan noted, the auditor who loses clients is not rewarded, regardless of the circumstances surrounding such loss. Likewise,

From techniques to ideologies ~2~

Zeff (1987) recollected a senior practit ioner noting that the "wors t thing a senior partner can do these days is to lose a client over a matter of pr inciple." With perceived downward pressures on audit fees, f i rms were seen as maintaining growth rates through the provision of other services. As Stevens (1988) noted,

"Salesmanship, once a dirty word to accountants, is no.~v critical to the management process and, in many cases, has become the fastest route to promotion and partnership. When Arthur Young or Touche Ross or Price Waterhouse wins a new audit client (more than likely on a loss-leader fee), it uses that opening to bombard the client with sales pitches designed to develop business for the firm's full inventory of services" (p. 41).

Such an emphasis on growth has also been seen as having a negative effect, not just on the appearance, but also on actual levels of audit quality, by forcing audit staff to cut corners to ensure that profit targets are reached (Stevens, 1986; Zeff, 1987; Armstrong & Vincent, 1988; Brannigan, 1987)--a process made possible because of the diff iculty of making an ex-post evaluation of audit qual i ty (Moizer, 1988).

The value of audit independence and concern about threats to it have also repeatedly been emphasized in professional and governmental studies of the audit expectations gap (see AICPA, 1977; Metcalfe, 1978; AICPA, 1987; Mil ler, 1986; CACA, 1988; ICAEW, 1986). As John Dingell noted at the opening of his committee's investigation,

"The system begins with the corporate managers and directors, whose actions are to be audited, going out and choosing the auditor. They hire the independent audit firm, determine the fees to be paid and have the power to fire the auditor for any reason. The independent audit firm often provides tax and management consulting services to the same corporation it audits. Can we really expect an audit firm to remain independent when its audit fees, and perhaps substantial consulting fees, are directly related to pleasing the corporate managers being audited?"

Other expressed concerns have related to the degree of professional scepticism applied by auditors, part icularly in relation to assumptions of management integrity (AICPA, 1987) and the disarming practice whereby auditors have supported contradictory client management interests when petit ioning the SEC to al low certain accounting treatments (Metcalfe, 19781. Some studies have, in response, emphasized the lack of empirical evidence underlying such concerns (see Benston, 1985) and the powerful market mechanisms deterring poor qual i ty audit work (Hall, 1988). However, oi~hers have sought to negate such claims by stressing the unobservabi l i ty of audit quality. Kaplan (1987) argued that, wi th audit failures usual ly involv ing bankrupt companies, many audit failures may be camouflaged by a company's cont inuing solvency. The Dingell Committee also stressed the private nature of audit practice.

"it is impossible to understand the operations of the auditors themselves since all we know is the little they choose to tell us. Likewise, when auditors make mistakes, we do not know the causes of those mistakes because the investigation results are sealed from public view as a condition of an out-of-court settlement" (J. Dingell,.quoted in Miller, 1986).

222 C. Hnmphrey and P. Moizer

Kaplan felt that the decentralized multi-office organization of the large audit firms (also see Briloff, 1981) was serving to negate any reputation effects ("Just because the Boston office, say, had some trouble does not mean that the Houston office should be affected")--forcing audit quality to the level of the lowest common denominator. On a similar theme, Moizer (1988) argued that the stronger economic incentive for auditors was not to improve audit quality but to improve their image with company management and users through public relations exercises and the provision of more observable "non-audit" services.

Implicit in some of these studies drawing attention to independence threats is a concern with an apparent de-professionalization of the audit profession--whose behaviour contemporari ly is more befitting of a business or an industry than that of the traditional, selfless disinterested professional, the guardian of the public interest. As Zeff (1987) noted, in calling for ethical codes concerning the scope of services and adherence to professionalism, "we can, and we must, play a role in restoring professional values. We are, after all, members of a profession. Not a trade. And not a union" (p. 68). For Zeff and others (see Tweedie, 1987), it is possible to detect a yearning for a return to some golden age when "professional ism" and " independence" were king. In the words of Lord Benson (1984), auditors "must be wil l ing to speak their minds wi thout fear or favour. They must not allow themselves to be put under the control and dominance of any person or organization which could impair this independence" (p. 18).

Challenging the Nature of Professionalism

Some researchers, however, have sought to challenge this resort to "professionalism." Adopting a deeper critical perspective, several studies have started to question the whole nature of concepts such as "professional ism," " independence" and "public interest" (see Willmott, 1986; 1989; Tinker et al., 1982; Tinker, 1985; Robson & Cooper, 1989; Hines, 1988; 1989a, 1989b; Booth & Cocks, 1989). The intention here has been to "contr ibute to the unmasking of the [accounting/audit] profession's technical image by examining the role of its professional associations in exploiting and regulating the power invested in the accounting function" (Willmott, 1986, p. 556). By attending to the contested nature of such concepts as "the public interest" (Cooper & Sherer, 1984) and claims to the "technical," Wil lmott (1989) saw such research as serving to deconstruct the authority of accounting, thereby facilitating more democratic, publicly accountable forms of allocating society's scarce resources (p. 327). From this perspective, professions are seen primarily as political bodies, ~ls private interest governments seeking principally to defend and advance their members' interests (Willmott, 1986). Symbolic traits of independence, trustworthiness, altruism etc. are treated as socially constructed concepts (Willmott, 1986; Hines, 1989b), and exposed as professional mystiques that together with the existence of professional monopolies of labour and mutually dependent relationships with the state, serve to enhance the remuneration of members of professions. In short, it has been argued that the self-regulating monopoly privileges granted to professions are "more a


reflection of their position and role within the social division of labour than an acknowledgement of any distinctive, politically neutral technical attributes or competences they may possess" (Wiilmott, 1986, p. 564; Johnson, 1980).

What this particular approach has highlighted is the power of the profession's claims to a body of knowledge, and the maintenance of the validity of claims even where no coherent body of knowledge exists (Cooper & Robson, 1989; Boland, 1982). As Hines (1989b) commented, accountants compete for work not on the basis of a body of accounting knowledge, but on claims to an accounting knowledge, or the appearance and image of accounting knowledge (p. 85). In support of such a view, Hines referred to the continual undertaking of conceptual framework projects by the accounting profession. Whilst apparent failures from a functional or technical perspective, such projects could be regarded as having served important legitimising and strategic roles by promoting appearances of, and aspirations to, accounting knowledge (also see Hopwood, 1988; Booth & Cocks, 1989). Such practices were seen as facilitating the profession's maintenance of the status quo and staving off competition or government intervention through increased regulation (Hines, 1989b, p. 89).

In a similar vein, Willmott (1990) argued that the accounting profession had successfully defended its self-regulating monopoly by "maintaining the idea that it serves the public interest" (p. 322). He saw the strength of this claim reflected in, and enhanced by, the frequent lack of illumination of what comprises the "public interest," and the unquestioning assumption that it is best served by an accounting profession "capable of voluntarily and impar- tially generating, applying and enforcing reliable principles and standards" (Willmott, 1989, p. 322). Willmott suggested that the apparent neutrality of accounting is underpinned by a prior naturalization of the value of capitalism as a provider and allocator of capital: "Because business interests are unproblematically equated with national interests, the form and content of accounting and auditing is regarded as non-partisan or apolitical" (p. 323). This lack of questioning as to whether the prevailing economic system, and accounting's role within it, is in the "public interest" has placed the accounting profession in a reactionary role, defending and preserving a naturalized status quo~which in turn, paradoxically, serves to strengthen the profession's independent and selfless image (Willmott, p. 327).

By recognizing the strength of the profession's power base, it becomes easier to understand why the numerous debates over independence and concerns about the provision of management advisory services have had so little impact on the nature of audit regulation. Frequently arising after a major corporate scandal (Tricker, 1982), the profession has successfully managed to dampen down debate until the next scandalhprincipally because the nature of the debate has never served to challenge seriously the notion of "independence" and the linkage between an "independent" audit function and the public interest. Indeed, some in the profession have suggested that its own reaction to "corporate scandals," implicating the operation of a particular audit function, has sometimes been rather immature. As Olson (1973) noted, such scandals should be regarded as a natural way of life. The profession's usual response to repeated questioning of the effects of the increasing

224 C, H e m p h r e y and P o Moizer

proportion of revenues received from management and other non-audit services has been to restate its traditional position that independence is a state of mind; that an auditor can be trusted to serve the publ ic interest; and that any restrictions would merely add to the costs of regulation without producing any noticeable benefit (Willmott, 1986; Turley et al., 1990). Hence, the technical, conservative image of the profession, combined with a lack of public accountability for its actions, appears so far to have disarmed or suspended the critical faculties of clients, politicians and academics alike (Sikka, Willmott & Lowe, 1989; Willmott, 1989).

Audit Piannhtg Activities: A Plurality of Functions

This section of the paper reports the findings of 18 interviews with audit managers in nine large and medium sized accounting firms. The interviews were semi-structured and involved discussing with the audit manager the processes by which she or he had planned a specific audit that they were responsible for (selected in advance of the interview). The audit planning process was selected for the focus of study because it was known to be an activity receiving increased emphasis in the methodologies of audit f irms and because it also offered a convenient way of analysing the processes by which auditors determine the sufficiency of audit work (see Peters et al., 1989). From such discussions, it was possible to identify a number of roles served by audit activities, ranging from the technical to the ideological and the entrepreneurial,

Audit Planning: A Valuable Technique

The interviews with audit managers provided some confirmation of the technical functioning of audit planning activities (in accordance with the perspective traditionally adopted in studies of auditors' planning judgements--see Kaplan & Reckers, 1984, 1988; Wright, 1988; Boritz, 1986; Peters et aL, 1989). The following quotes reflect the importance that managers placed on the planning process as an ex-ante control function:

"Good planning removes the potential for cock-ups.., identifies problems, focuses resources on them, gets the right resources in and stops people wasting time on areas we are not bothered with."

"Planning makes the most effective use of time spent on a client's premises during the audit. All the objectives are clearly defined at the start, so we don't have people charging up blind alleys, checking stuff that we don't particularly want checking anyway."

"By preparing your plan, you are proposing and resolving questions that would otherwise be left and create big problems. Planning avoids changing things piecemeal, which results in inefficiency and increases risk as well."

The first part of the interview basically consisted of the audit managers describing in relatively general terms the processes they went through in planning the particular audit and the factors they brought into consideration in undertaking such work. In presenting and explaining such activities, the managers put forward a view of audit planning similar in most respects to that contained in any audit manual or practical auditing textbook. Such

From techniques to ideologies 2,25

literature has identif ied four main elements to audit planning---strategic planning, audit work planning, t ime schedul ing and personnel planning (see Ganz, 1987). Interviewees generally referred to activities that could be classified under these headings, although several referred to an addit ional classif icat ion--the planning of non-audit services (see below). The major task delegated in the planning process was the preparation of the audit planning memorandum, which was nearly always done by the audit senior, unless it was a new audit assignment in which case the manager took a more active role. The degree of delegation, and in turn the power of the planning process as an ex -an te control funct ion al lowing control at a distance (Roberts & Scapens, 1989), was highly dependent on the manager's perceptions of the skill and abil i ty of the senior and the audit team. As one manager commented:

" I f I got a senior i hadn't requested, or I was not too confident with the team, t would inevitably have to delegate a lot less to him or pay a lot more review (sic) to what he is doing. I would be out at the client's fairly regularly, popping in for an hour on the way home and, therefore, I would be on top of him all the time and not waiting for him to call me. I would be stopping him going up areas that are immaterial or not relevant and get him going down the route I want him to go to avoid wasting time."

An important purpose of the interviews was to attempt to get behind these broad and quite rationalistic overviews of the audit planning process, to study the factors and forces underly ing the choices and actions that auditors were undertaking in planning their audits. Accordingly, the audit managers were asked to describe and explain the planning processes they went through on one specific audit, the procedures that they adopted in determining what was a sufficient amount of audit work and the extent to which, and reasons why, the planning processes for the period under consideration were any different than in previous years. The audit planning activities of the managers were less scientific and rationalistic than the views commonly expressed in tradit ional audit ing texts, audit manuals (see, for example, Walker & Pierce, 1988) and the vast majori ty of audit judgement research. In particular, they il lustrated the ideological nature of audit practices; the legit imating roles that certain activities serve both internal and external to the audit f irm; and the falsity of any claims that have been made regarding the 'natural ' status of audit ing knowledge and practices. The remainder of the paper documents such i l lustrations.

How

As the first determination detailed rules

Much Audit Work is Enough A Matter of Judgement?

"The audit manual provides certain rules which enable good judgement to be made."

"It is very hard to say how much work is enough. You always have a materiality figure built into your thinking ... but there is no set figure for materiality. It is just a gut feeling .. . it is quite a judgemental approach."

of the above quotes suggests, a signif icant influence on the of levels of audit work was the f irm's audit manual. The and principles it laid down were seen as facil i tating "good


judgement." In determining the extent of audit work, all interviewees stated that the Auditing Standards and Guidelines (published regularly by the Auditing Practices Committee--a joint committee of the major accountancy bodies) had little influence on their actions. Many saw them as having merely codified existing practice, or as setting a minimum standard for smaller audit firms (with some interviewees stating that by the time any such guidelines were published, their own (large) firms audit procedures had further de- veloped). Their generality was also seen as hindering their use within the firm, with the more detailed audit manual being noted as a regular source for the settlement of internal disputes on the extent of audit work. Some interviewees, however, did discuss one way that they had found the standards and guidelines useful--as a legitimating device, used to justify the need for a particular audit test to be performed in any external dispute with client management. As one audit manager commented, "'1 will throw them at the client."

In explaining the usefulness of the audit manual, a frequently mentioned attribute was its ability to narrow differences in the approaches and judgements of audit teams within the firm. This was usually illustrated by reference to the firm's sampling plan, where again an external legitimation function was noted. As one manager stated, such a plan,

"should narrow down differences of old where sample sizes were purely judgemental. It should be particularly helpful in defence to a court action. It is a way of unifying the whole approach of what the firm sees as a fair audit."

Meyer & Rowan (1977) argued that institutionalized activities have legitimacy based on the supposition that they are rationally effective. From this perspective, it is possible to see documents such as profession-wide auditing standards and guidelines, audit manuals and audit planning memorandums as potentially serving ideological functions, helping to define what is responsible and rational actions and opinions, thereby legitimating certain audit practices and also imposing a particular construction of reality on the conduct and discourse of auditors. Meyer & Rowan saw potential conflicts between ceremonial rules and practices and efficiency as being resolved by two interrelated devicesmdecoupling and the logic of confidence (p. 356). To- gether the decoupling of work practices and their effects and the confidence and faith of "internal participants and external constituents" in such practices were seen as buffering the organization from "the inconsistencies and anomalies involved in technical activities" (p. 357).

The audit managers were also asked to explain the relationship between the sampling plan and the overall level of confidence to which they worked when arriving at their 'audit opinion. Their replies revealed that for most of them it was an act of faith.

" W e work to 95% confidence. We are given figures (from sampling tables) that are supposedly statistically correct but to be honest I have not got a clue whether they are or not but we are told they are. So if you follow the audit manual, you come out at 95% confidence." "Sample sizes are set using a pre-set standard. If you are testing a key control, the sample is 72 invoices or documents. Why it is 72, I don't know---it is a statistical programme that we use."


"Don't ask me how we arrive at 3% of turnover as an overall materiality figure. It is a statistical figure provided in the audit manual."

For some, any doubts that they had regarding the sufficiency of sample sizes were dispelled by a belief in their compatibi l i ty wi th what other major audit ing f irms were doing. As one manager noted,

"We have a manual which lays down the minimum acceptable levels of sample sizes that the firm will accept. Frankly, I don't know where we get these from. I imagine they are devised statistically, for they ought to be, but I am not sure. They are roughly in line with our competitors. We are all doing, I think, a similar amount of w o r k . . , if we are going to say accounts give a true and fair view, 95% confidence seems to be the figure banded around in the market place. It is not actually a figure that appears in our documentation, but it is 95% for everybody."

Another important source of assurance regarding the appropriateness of audit work planned was provided by making reference to the previous years audit, which i l lustrated the incremental nature of audit planning. As one manager commented:

"The initial stage is probably dictated to a large extent by what we did last year. There is no point in throwing everything out of the window and starting completely afresh. It makes things a lot easier to ask how was this audit area looked at last year and perhaps refine it a bit more. All working papers from last year are there on file and I wouldn't anticipate someone writing a new sales audit programme off the top of his head. You look to last year's file."

Waller & Felix (1984) in discussing the notion of learning from experience, suggested that the auditor 's tendency to search for confirmatory, rather than disconfirmatory, evidence, and a lack of complete feedback were likely to make auditors over confident in their judgement abil i ty and the adequacy of planned audit ing procedures. Some evidence in support of Such assertions was provided by the interviews when managers noted that it was satisfactory to fo l low closely last years audit plan, so long as nothing had gone wrong on that audit. As one manager noted, 'The starting point is always last years audit planning memorandum (APM) and de-briefing m e m o . . . The senior wi l l probably use last years APM too much. It may often turn out to be identical, but that doesn't necessarily matter if last year's went alright'.

That there is nothing inherently "natura l " and "unchal lengeable" in what auditors do was also i l lustrated by Dirsmith & Covaleski (1985) when point ing to the legit imating funct ions served by certain audit practices and the de-coupling between what gets audited and what gets documented. In particular, some partners stressed the value of a "free form impressions audi t" (in which they would spend a week at the cl ient 's premises informal ly trying to get a deep understanding of the business). As such, the construct ion of a more formal audit approach was seen as serving a legit imating function, documenting and corroborating the partners' impressions and facil i tating the client's acceptance of any adjustments that the auditors wished to be made to the financial statements. Turley (1988) stressed the general lack of any clearly defined framework in audit manuals for l inking the specified practices for collecting audit evidence. Sections entit led "audi t ph i losophy" usual ly contained statements of procedures rather than an explication of underly ing

~ 8 C. Humphrey and P. Moizer

concepts. In this respect, Turley had much sympathy with Mautz & Sharaf's (1961) view that auditors saw auditing as a "series of practices and procedures, methods and techniques, a way of doing with little need for the explanations, descriptions, reconciliations and arguments so frequently lumped together as theory" (p. 1).

One manager attempted to explain the logic underlying the sampling plans in his firm's audit manual. In his view, the audit manual had been written on the assumption that staff would not fol low the sampling plans. Hence, he believed that all the recommended sample sizes had been artificially increased to accommodate the reductions that staff would make when opera- tionalizing the plans:

"What they (the authors of the manual) did was that they knewwe wouldn't use MUS [Monetary Unit Sampling] techniques (it's not cost-effective) so to play safe they just doubled the sample sizes. It's as scientific as that" (emphasis added).

Another manager cast doubt on the comfort value of consensus. In discussing his knowledge of other firms' procedures, he noted that in "most of the audit files that I have seen, there is no evidence of why they have picked the number of items (to test)." However, for the vast majority of interviewees, any problems that they experienced in explaining the determination of audit work levels were accommodated by reiterating the nature of professional judgement. For some interviewees, the audit manual was consistently portrayed as merely establishing a loose framework in which expert audit judgement could be exercised. As one manager noted, " w e regard the audit as a thinking process. All we do is lay out a f ramework . . , each client is different," whilst another manager noted in respect of materiality decisions, " w e do not set materiality levels for errors--i t is judgement at the end of the day, looking at things as a whole." However, several managers having started out explaining the extent of audit work in terms of the audit manual's sampling plans, then retreated behind the mystical qualities of audit judgement when experiencing difficulty explaining the logic behind the numbers coming out of such plans. Thus, when one act of faith was seen as questionable another was invoked to replace it and justify action.

"At the end of the day, it is a question of judgement and however sophisticated your tables are, it comes down to judgement.., the way we do it tends to make it difficult to statistically extrapolate our results so we tend to have to use judgement always."

"'We don't follow tables in the manual blindly. We use them as a guide. At the end of the day, it is the judgement of the partner as to whether we have done enough work."

In discussing the judgemental nature of the audit process, a theme common to all interviews was that the flexibil i ty and adaptability of audit work had increased in recent years. This was seen to be as a result of the introduction of risk-based audit approaches. The use of standardized forms and question- naires was stated to have been reduced in several firms and whilst some managers spoke of a tendency to fol low what was done last year, the emphasis was much reduced.

From techniques to ideologies

"5-6 years ago, there was a tendency to take last years audit programmes, photocopy them and do them again .. . now we are forced into looking at where the risks are."

229

New Audit Approaches--Exploring the Process of Change

"There can be little doubt that the concept of audit risk has been one of the most significant influences on the development of audit methodology in the last decade. Although the degree to which audit risk is recognised in firms' approaches varies, partners of nearly all the firms interviewed in the methodology study were keen to point out that the risk concept is either already part of or being introduced into their approach. Clearly at present firms like to characterise their methodologies as risk-based approaches" (Turley, 1988, p. 111).

In stating the increased emphasis on risk analysis, Turley (p. 113) also noted that in some cases it appeared to have been picked up as a "buzz word " and pressed into service wi thout due consideration of its meaning, On the whole he concluded that just i f ications for the application of risk to the audit process were sparse and not well articulated. In identi fying the changing nature of audit activities, the interviews with audit managers sought expl ici t ly to address such an issue. What did they see as the reasons and rationales for making such changes? What had been wrong with exist ing audit approaches? In what ways were the new approaches better? In explor ing these issues, the interviews serve to highl ight the socially constructed nature of audit ing activities and the analysis of the nature of, and motivat ion for, the recent changes cast considerable doubt on tradit ional perceptions of auditors' independence and societal responsibil i t ies.

In discussing this change process, and the resultant increased importance of audit planning activities, audit managers tended to identify two main reasons for the changes. At one level, the change to a risk-based approach was viewed as a way of enhancing the effectiveness of the audit in detecting material errors. Previously heavily standardized approaches were seen as having stifled init iat ive and to have encouraged a rather abstracted and inflexible set of audit pract ices--with the resultant danger that audit work was more a procedural form f i l l ing exercise than a thinking, adaptive process actively seeking the detection of material errors. In particular, audit managers singled out the importance of understanding the business of the auditee. Without understanding the business and the way in which company management controlled the business, it was suggested that the audit work was highly likely to miss major errors.

The second reason noted by audit managers, however, provided a contextual explanation for the changing nature of audit practice, thereby reiterating its socially constructed nature. The pressure being exerted on audit fees by client company management was frequent ly seen as having st imulated the audit f irms to re-examine their audit methodologies and to become more "eff icient." As the fo l lowing quotes i l lustrate:

"As the market place becomes more competitive, we have got to do cheaper audits, do them quicker. This means continually reassessing areas where we need to put time into, where we may have commercial exposure, and reduce time in areas where we don't have commercial exposure."


"1 think the change in planning evolved from a necessity from all the big firms under fee pressure to look very closely at what they did, why they did it and if they had to do it, they refined internal ly . . , rather than doing it from a quality aspect and making the world better, they were under enormous economic pressure from clients to be more efficient."

As the latter quote indicates, the apparent t igh ten ing 1 of the audi t market, and the resul tant need to be more commerc ia l l y aware and to reduce 'over- audi t ing ' had s igni f icant impl icat ions for the status of audi t p lanning activit ies. In summary , better audi t p lann ing was the tool to del iver more efficient audits:

"Planning has become more important in that you have to identify the right sort of areas to concentrate your time on, whereas before you sort of went along and sprayed your ticks all over the place. Now time is at a minimum and you have to use that time as effectively as possible."

"The only way you are going to do this (perform more efficient audits) is by doing planning properly--if I didn't plan it properly I would spend four times as much on review. Review points are much more minor if the audit is well planned."

"the pressure on time caused by fees has forced people into sitting down at the outset and thinking about what extra things they can cut out without affecting audit quality."

In discussing the effect of such pressure on audi t procedures, some managers stressed the benefi ts of better co-ord inat ion, that the audi t plan is " on l y as good as the cl ient 's p lan" wh i l s t others spoke of e l iminat ing "non-essen t ia l " audit tasks. However, in exp la in ing the mean ing of "non-essent ia l , " audi t managers began to reveal the contex tua l ly dependent nature of audi t efficiency, and the part icular inf luence of c l ient company management in determin ing what work is performed. For instance, one manager noted, " fo r cl ients keen to cut the audi t fee, we suggest rotat ional p l a n s . . , where we don' t attend a stock-take of a branch." Other managers stated that the audi t p lanning memorandum (APM) was being given (wi thout any mater ia l i ty f igures or cost ings of audi t work) to cl ient company management in advance of the commencement of detai led audi t test ing as a way of ensur ing that the audit was constructed on a proper appreciat ion of the nature of the company 's business. As one manager commented, such an action "he lps to make sure that we have got our assumpt ions r ight and to make sure that we are doing it (the audit) in the r ight way . "

Keeping the "Client" Happy

Giving the A P M ' t o cl ient company management was also seen as a way of improv ing the v is ib i l i ty of the qual i ty of audi t work, thereby protect ing audi t fees. The lack of v is ib i l i ty of audi t qual i ty was an issue raised by several managers. As one noted when compar ing his f i rm to other bus inesses - - "we are not sel l ing anyth ing dif ferent to Marks and Spencer, except that no-one can see our services." Others laid stress on the signi f icance of input-cr i ter ia of qual i ty such as the att ire of audi t staff; how audi t staff dealt w i th company


employees, etc. (see Moizer, 1988; Harper, 1989). According to one manager,

"the way that staff portray themselves on client premises usually gives a far better indictation of how the audit has gone than the actual working papers, as the client does not see them. All he can see is whether they (the staff) were on the ball or not--were they asking the right questions? were they coming late and going early?"

The benefit of giving the APM to the client management was, according to one manager, that " they can now see that we are planning the job sensibly and have something tangible to read to see why they are paying £100 000."

In discussing the need to impress client company management, however, the audit managers spoke of a problem which went deeper than just the visibi l i ty of quality audit work. In many ways, audit managers appeared to be responding to a situation where the tradit ional audit product was not valued by client management. As such, changes taking place in audit practice were not just about moving to a risk-based approach, but about altering the traditional compliance based nature of the audit function. Audit ing was no longer just concerned with credibil i ty assessment, but was also about serving a more advisory role to client management, as the fol lowing comment indicates:

"We want to relate much more to the client and his business so he will think more favourably of us as a firm and that we do understand him and feel we really are his business advisers and guardian. The real objective is to turn away from an internally excellent system of auditing which was very rigid in its application to a more flexible and creative approach to our client's problems."

Such a shift also had implications for the nature of audit planning. Apart from using the APM in a defensive marketing function, as a justi fying device to fight off attempts to reduce audit fees, audit managers spoke of using planning activities in a more proactive form:

"our planning is not just audit planning. It is planning to give the client the service he wants. Planning to provide other services has become part and parcel of audit planning."

"We are adapting much more to the market place. We are very much now planning audits to at the same time think what other services could be provided to the client."

Audit managers spoke in this respect about using the planning function to identify areas "outside the mainstream audit where you feel you can provide an additional service to the cl ient." One manager noted that as a matter of routine,

"free time will be given to the client by a treasury management consultant, who would come and spend time with the client, saying to him, look, this is how you run your business. It's good, but do you realise by doing this (e.g. entering loan swaps, currency options, etc.) you can attract big savings."

Another manager stressed that financial directors were no longer looking for just an audit report, but for people who understood the business and could come up not just with "control errors" but also with " fair ly good business


ideas." The benefit of providing such services, for some managers, was that they were more visible than the audit work and more likely to be appreciated by the client management. In some cases, audit managers also stated that the benefit of planning to try and provide other services was that they were a way of offsetting any " losses" on audit work. With the increasing frequency of audits being put out to "compet i t ive tender," earning revenues from other services offered a vital supplement to the " loss- leading" audit activity. As one manager commented, client management "'do not want a 50% increase in fees, so you have to do it (the new audit) for the same price and look to sell them other services as wel l . " The powerful inf luence that corporate management appeared to be having in shaping the nature of audit work was il lustrated by one manager when discussing the importance of providing other services (whether billed or not).

"We have to deliver a useful product to the client because if we don't they won't have us back for the audit."

A Question Of Independence

"1 see my job as having a satisfied client who at the end of the day pays his fee and always feels we are just a phone call away if he has a problem. A client who regards us as once a year visitors is a client where I am not doing a good job."

"You get introduced to them (members of the business community), go to places where they might be. so you join the right golf club, the right squash club etc. You get encouraged to live in the right area where they might live~all very subtle ways."

In documenting the changing nature of audit practice and the increasing emphasis on risk-adaptive, business-oriented approaches, one part icular issue stands out - -namely , that of auditor independence, or to be more precise the portrayal by audit managers of an audit funct ion increasingly dependent on the dictates of corporate management. In the interviews, audit managers made no reference to any wider societal interests regarding the audit function, nor to any particular responsibi l i t ies of auditors in that direction. The client was referred to unambiguously in the form of cl ient company management. Compliance-based audit techniques were increasingly being complemented by provision of what management regarded as more useful services; audit plans were submitted for management 's checking and approval - - the very group whose f ideli ty and stewardship were being " independent ly " examined; certain previously essential audit tests were apparently now deemed non- essential, even being traded to suit the fee preferences of management. With audit managers stressing the importance of maintaining close cl ient relations, and the critical nature of their abi l i ty to generate new business and greater fee income ("at the end of the day everything f lows through to the bottom line"), the overr iding impression that was given by the interviewees was a v iew of auditors far removed from that of the disinterested professional. Indeed, instead of the tradit ional postulates and concepts of independence, socially responsible etc. propounded in audit ing texts (Lee, 1986; Flint, 1988), a good case could be put forward for the construct ion of a new set of concepts based on the genre of salespersons, marketeers and hawkers.

From techniques to ideologies 2.33

Similar concerns have been raised in a few other studies of auditors and audit methodologies. Turley's (1989) study of the audit methodologies of major UK accounting firms challenged the traditional "professional" orientation of audit practices. In contrast to the views expressed by Mautz & Sharaf (1961, p. 239), that a "profession exists to compensate its members more or less handsomely, but to serve society," Turley found little mention of any societal obligations in the firms' audit manuals or any discussion of the perceived benefits f lowing from the enhancement of information credibility provided by the audit. The major benefits referred to were in terms of the audit as a commercial service to client company management. " I t frequently appears that what is important is how the client company perceives the benefits" (p. 108). These benefits not only included seeking to perform standard audit tests in a more efficient manner, but also concerned "audit by-products" such as aiming to provide "constructive advice" to company management and drawing on the findings of audit work to suggest the provision of other "chargeable" services. Dirsmith & Covaleski (1985), in examining the nature of informal communicat ions in public accounting firms, identified a number of paradoxes impacting on the nature of audit work. In particular, they concluded that the business perspective (as against the "professional" perspective) of auditing was being increasingly formally stressed at the audit manager and audit senior level. Harper (1989) in an ethnomethodological study of auditors' work environments noted the emphasis placed by audit partners on the role of salesmanship, with partners openly admitting that they were in effect "salesmen" (p. 167).

Any question that the professional, independent status of auditing was being impaired by the changing nature of audit practice was, however, f irmly dismissed by audit managers. Interviewees generally expressed surprise that such a matter should have been raised in the interview. Professional integrity and independence of mind was not something that was in doubt. A reduced audit fee would not comprise the quality of work performed on an audit. Auditors could be relied on to know when there were conflicts of interest and to act in a way which would not compromise their professional judgement. It would be naive, though, to consider such assertions and confirmations of independence in isolation of the context in which they were provided. Clearly, if audit managers are asked directly whether they are independent, it is only to be expected that they reply in the affirmative. However, when coupled with the managers' descriptions of the way that audit practices were responding to the demands of client management, such affirmations serve to illustrate the very strength of the managers' belief in their professional integrity. Indeed, any manager concerned about her/his professional independence could scarcely have described so freely the growing business and marketing orientation of their work and their inability to explain the logic behind sampling procedures and choices as to the extent of audit work. Ultimately, it is this contrast between the auditors' faith in their professional integrity and competence, and the scepticism and concern of interested observers, user groups and regulatory organizations that is central to the notion of an audit expectations gap. It is again indicative of the social and political power of the auditing profession that it has for so-long managed to waive away concerns


about the audit function by emphasizing the acclaimed status of auditors' professional standards and attributing audit failures to the unfortunate acts of certain wayward, unrepresentative individuals rather than to any inherent limitations or institutional biases in the nature of a self-regulated audit function. As Willmott (1986, p. 576) concluded,

"the historical and contemporary response of the profession to market and state pressure for reform has been to re-affirm its technical, politically- neutral role and to represent its defensiveness and disorganised responses as necessary adjustments, made in the public interest, to further improve the quality and value of 'professional' service."

Concluding Comments

The primary aim of this paper has been to illustrate the socially constructed nature of auditing and the diversity of roles that audit activities can serve. Through the example of audit planning activities, the paper has revealed a variety of technical, ideological and marketing roles served by such activities. In so doing, the socially constructed, contextually dependent nature of audit activities has been made evident. An especially notable finding to arise out of the interviews with the audit managers was the influence that client company management appeared to be having on the nature and extent of their audit work, and the lack of any distinction between company management and the real consumers of the audit service. Wider societal obligations had no apparent place or cause to enter the audit planning process. The consumer was client company management.

The preceding section of the paper closed with a consideration of the reaction of auditors to concerns as to their vulnerability to, and apparent dependence on, the demands of company management. Their reaction, with its assertive assurances as to the unquestioning status of professional integrity and competence brought the discussion back to the central theme that has occupied, even haunted, the continuing debates on the notion of an audit expectations gap. Those arguing that auditors are under-performing have periodically been subsumed by the overriding power of the profession's claim to the ethereal notions of independence and integrity; almost a scenario of "trust in us and a rosier dawn awaits." In the past, claims that auditors are becoming deprofessionalized, by not being grounded in the specifics of operational practice, have been susceptible to dismissal as the abstract meanderings of the ignorant, or the overtly conspiratorial--or as Hall (1988) classified it, the expressions of people with "an issue in search of a controversy." An important aim of this paper has been to facilitate debate on such matters by getting closer to the day-to-day work of auditors and the choices they made in determining the nature and extent of audit work. By adopting a critical perspective and treating auditing as a socially constructed phenomenon, the paper has attempted to strip away some of the mystiques associated with audit practice and to reveal the shaky ground on which certain taken-for-granted assumptions about audit work are based. In coming up ultimately against the rarefied concept of "professional audit judgement,"


the paper serves to illustrate certain limitations of the research technique it employed to study audit practice. At the same time, though, the deconstruct- ing and demystifying properties provided by the theoretical framework used to inform and make sense of the interview findings has served to emphasize the gaping hole in existing audit judgement research, and has thereby presented a challenging research agenda for the future.

Too often audit judgement research applies a narrowly one-dimensional perspective to the auditor's decision process, intent more on prediction than explanation. By concentrating on the development of decision aids and the construction of rationalistic models of auditor behaviour (Johnson et al., 1989; Peters et al., 1989), even when some researchers have concluded that auditors do not follow any well defined models (see Daniel, 1988 re risk assessment), such research has witt ingly, or unwitt ingly, served to legitimate and further mystify the nature of audit expertise. Indeed, it would seem possible to draw quite closeparallels with the way that conceptual framework projects have helped to legitimize the rationality of accounting standard setting processes (see Tinker, 1985; Hines, 1989b; Hopwood, 1988). The findings of this paper point quite clearly for the need for such research to become more contextually awarc to be grounded more in the operational activities of auditors, to recognize explicitly the conflicts and contradictions in their working environment and the processes by which such conflicts are accommodated.

Above all, audit judgement research needs to start from the premise that professional expertise is not exogenously determined but is socially constructed. It needs to recognize that experts within a profession can be deemed such because they give the appearance of having a claim to a unique body of knowledge (Hines, 1989b). We submit that this topic is deserving of a more challenging analysis than that recently proffered in a review of audit judgement research:

"The evidence accumulated from behavioural studies indicates that expert auditors do not behave differently from novice auditors. This conclusion seems counter-intuitive and will probably be very difficult to defend before an auditor who has studied for years, is still taking training courses, and is working very hard to get more experience and become a partner" (B~dard, 1989, p. 121).

Until audit judgement researchers are prepared seriously to accommodate alternative ontological perspectives on the nature of the audit function; to move away from the acontextual nature of much behavioural and cognitive research approaches; to see methodological debates as more than " n o win" situations (per Watts & Zimmerman, 1990, p. 149); it is highly likely that Tinker's (1985, p. 205) comments on the effect of the dominance of a neo-classical perspective in accounting research will retain a continuing appropriateness:

"Research has become a quest for the irrelevant and the arcane: the study of refined statistical procedures used to annihilate trivial problems and the contemplation of obtuse economic models that promise answers to real problems, but only in the always distant long run., These exercises in scholastic irrelevancy are generously supported by a profession that is relieved to have its academics running aimlessly through the woods."


Acknowledgements

The helpful comments and suggest ions of Linda Kirkham on an earl ier vers ion of this paper are gratefu l ly acknowledged.

Notes

1. The increased competitiveness of the audit market has been a source of continuing debate for a number of years (see Metcalfe, 1978; Cooper & Robson, 1989; Moizer & Turley, 1989). What is important for the purposes of this paper is that managers perceived that they were operating under increased commercial pressure, whether internally or externally generated.

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From techniques to ideologies: An alternative perspective on the audit function

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