Kim Klarskov Jeppesen

Strategies for dealing with standard‐setting resistance

Purpose - The purpose of this paper is to contribute to an understanding of how auditing standard setting is adapted to changing patterns of resistance at various stages of its development. Design/methodology/approach - The research is conducted as a longitudinal single case study of the auditing standard-setting activities of the Danish professional body 1970-1978. The case is based on extensive interviews with members of the standard-setting board at that time, supplemented with documentary studies. Findings - The paper identifies and discusses five general measures to deal with the immanent resistance to auditing standard setting: alignment of interests, representation, due process, soft texts, and reference to ideology. It concludes by analyzing how these strategies are adapted to changing patterns of standard-setting resistance at various stages. Research limitations/implications - The paper discusses auditing standard setting only. Although resistance to accounting standard setting may be dealt with in the same way, the patterns of resistance are most likely different and the adaptation strategies may therefore also be different. Practical implications - Presenting insight into the processes of auditing standard setting, the paper is of interest to anyone involved in the process, either as developers or as users. Originality/value - The paper supplements previous studies of standard setting by applying the Actor-Network Theory approach to auditing standard setting, thereby outlining a new general framework for the study of standard setting.

Organizational risk in large audit firms

Purpose – The main purpose of the paper is to analyze and discuss organizational risk in large‐audit firms. A secondary purpose is to contribute to auditing theory on how organizational risk may be analyzed.Design/methodology/approach – The study is conducted as a review of literature on audit‐firm organization, risk management, professions and organization theory.Findings – Large‐audit firms are commonly organized as partnerships relying on hierarchy and standardization of work processes to control work. The paper argues that this may be an effective way of organizing audit work in a stable environment. In a volatile environment, however, the strategy becomes highly risky.Research limitations/implications – The focus of the paper is on the organization of large‐audit firms and its findings do, therefore, not necessarily apply to small audit firms. The paper presents a general view of the way large‐audit firms are organized and controlled. Local variations may occur but these are not analyzed in the paper...

Regulating Audit in Europe: The Case of the Implementation of the EU Eighth Directive in Denmark 1984–2006

This paper analyses the consequences, in Denmark between 1984 and 2006, of the implementation of the European EU Eighth Directive on the qualification of statutory auditors. Although the Eighth Directive envisaged one group of statutory auditors in each Member State, there were two groups of auditors in Denmark, and the implementation of the Directive triggered a long conflict between the two groups about the education of the second-tier auditors. The analysis is based on the work of Abbott ((1988)) on professional jurisdictional disputes and shows how the local implementation of the Eighth Directive on auditor qualifications disturbed the balance of the ‘system of professions’ in Denmark and gave rise to an intra-professional conflict over the statutory audit jurisdiction. The jurisdictional dispute dragged on for two decades because of the complexity of the Danish regulatory system, where audit regulation takes place in overlapping committees between the profession, the state and the educational institutions. It was finally settled by educational differentiation of the two groups, and we discuss the implications of this settlement for the process of audit harmonisation in Europe.

Practice Variation in Public Sector Internal Auditing: An Institutional Analysis

Abstract This article aims to analyze the rise of practice variations in public sector internal auditing (IA), giving special attention to the role of agents’ embeddedness in multiple institutional arrangements. IAs trends of development and the characteristics of the public sector context, in fact, make IA inherently subject to multiple institutional forces that interact with the system of values and beliefs of individual internal auditors. The empirical analysis, which relies on case study methodology, highlights the inherent tensions associated with the changing role of IA and shows how different types of IA developed in three case settings, shaped by the agents’ embeddedness in different institutional fields. This article provides a more comprehensive approach to the study of IA adoption and development in public sector organizations than previous literature, and it highlights the relevance of the interplay between actors’ contemporary embeddedness in professional systems and the focal social system as a relevant source of practice variation. In this respect, the case of IA can contribute to previous studies of practice variation in the field of management accounting, shedding some light on the types of tensions that emerge when persons with mixed professional identities are involved in a field.

Jurisdictional Competition between Private and Public Sector Auditors: The Case of the Danish Certified Public Sector Auditor Qualification

This paper explores the apparent paradox, that while public sector auditors have become more powerful by claiming performance auditing expertise and linking this to New Public Management reforms, the same reforms have opened for competition between private and public sector auditors. In Denmark, such competition has led to a major jurisdictional dispute between public and private sector auditors in which the former have developed a distinct qualification for public sector auditors. The paper analyses the development of this qualification using Abbott’s (1988) theory of the system of professions, thus focusing on how the involved groups have attempted to build networks of support for their competing jurisdictional claims of expertise. The general implications of the case is that to succeed in professionalising, public sector auditors needs to convince the actors in the market, the standard setting bodies, and the universities that a public sector auditing qualifications is a solution to some of their problems too.

Auditors’ experience with corporate psychopaths

Purpose The purpose of this paper is to analyse auditors’ experience with corporate psychopaths in their client management. Design/methodology/approach The research was conducted as a survey among Danish state-authorized auditors, to which 179 auditors responded, representing 9 per cent of the total population. Findings Of the participating auditors, 69 per cent had experienced corporate psychopaths in their client management and 70 per cent of these had experienced more than one case. In addition, 43 per cent of the auditors who had experienced psychopathic managers reported that they had committed fraud. The vast majority of cases were detected in the execution and completion phases of the audit and resulted in increased professional scepticism, the use of more experienced auditors and the requirement for more and better audit evidence. Research limitations/implications The findings confirm that corporate psychopaths actually exist and are a phenomenon worthy of research attention in areas such as accounting, auditing, internal control, fraud investigation, performance management and human resource management. Practical implications As auditors are likely to come across corporate psychopaths from time to time in their careers, awareness of this type of risk needs to be increased and better integrated into the risk assessment in audit planning. Auditing standards relating to fraud also need to be updated according to the latest developments in fraud theory. Originality/value This is the first research to address auditors’ experience with corporate psychopaths. It adds value by confirming the relevance of the topic for practice and research.

Asset Stripping in a Mature Market Economy

The purpose of this paper is to document a Danish fraud scheme, in which a large number of limited companies were stripped of their assets leaving them with nothing but tax debt, eventually causing the Danish Tax and Customs Administration to lose large sums. Furthermore, the purpose is to analyse why the asset stripping schemes occurred in a mature market economy with a strong corporate governance system and a low level of corruption.

A New Organisation of Public Administration: From Internal to External Control

Abstract Since the 1970s the Supreme Audit Institutions (SAI) have gradually expanded their role as external controllers of the public administration. Instead of merely controlling whether accounts are according to standards they have taken on a role as evaluators with a mandate to assess whether the public administration works economically, efficiently and effectively. With this new regime of external control, the question arises whether the SAIs’ control, in practice, contributes to a more efficient and effective public sector. Whether this external control will be effective depends, in the end, on the extent to which the organisations learn from the control they are subjected to and make actual changes. The chapter uses theories of cultural differences and theories on control within public administration to understand civil servant perceptions of SAI results. Data on civil servants’ reactions to the SAIs’ performance audit in four countries are analysed to see whether performance audits have any impact on the audited entities. The research is based on 696 responses to questionnaires sent out to civil servants in three different Nordic countries plus one new democracy in northern Europe, Estonia.

Practice variation in Big-4 transparency reports

Purpose - The purpose of this paper is to examine the transparency reports published by the Big-4 public accounting firms in the UK, Germany and Denmark to understand the determinants of their content within the networks of big accounting firms. Design/methodology/approach - The study draws on a qualitative research approach, in which the content of transparency reports is analyzed and semi-structured interviews are conducted with key people from the Big-4 firms who are responsible for developing the transparency reports. Findings - The findings show that the content of transparency reports is inconsistent and the transparency reporting practice is not uniform within the Big-4 networks. Differences were found in the way in which the transparency reporting practices are coordinated globally by the respective central governing bodies of the Big-4. The content of the transparency reports is particularly influenced by the national institutional environment in which the Big-4 member firms operate, thus leading them to introduce practice variation and resulting in cross-national differences. Practical implications - The study results have important implications for standard setters, regulators and practitioners, as the research provides insights into the variation taking place within the common regulatory frame. Originality/value - This is the first study to analyze how transparency reporting practices are developed within the networks of Big-4 firms, thereby influencing the content of transparency reports.

El valor razonable y la conexión perdida entre contabilidad y auditoría

We claim that the missing correspondence between accounting and auditing has come about because auditing’s basic philosophical assumptions has not been developed as much as its counterparts in the field of accounting. While fair value accounting represents a socially constructed reality, auditing still seems to be founded in the positivist tradition of evidence theory (e.g. Mautz & Sharaf, 1961; AAA, 1973; Flint, 1988). The remainder of the paper will analyze the missing correspondence between accounting and auditing, problem which has been raised in section one (status quaestionis). Firstly, the next section will shortly describe the methodology used for the analysis. Section three will give a brief overview of the historical change in the main accounting paradigm from reporting the truth to reporting in accordance with GAAP and the corresponding changes in the main auditing paradigm from ancient times until modern auditing in the nineteenth century, culminating in ASOBAC. In section four, the developments of the last decade or two are analyzed, more specifically the change in accounting’s focus from correspondence with criteria to the social construction of consensus, which can be seen in the change in accounting from the 1990s onwards to the fair value paradigm. It will be argued that auditing has not changed accordingly, and that this missing link between accounting and auditing’s ontological focus can cause problems for academics, standard-setters and practitioners. The paper will conclude with these implications and the need for future research.