Stuart Turley

The Audit Expectations Gap in Britain: An Empirical Investigation

Abstract This paper reports the results of a postal questionnaire survey to ascertain the perceptions of individuals about audit expectations issues in Britain, including: what the role of the auditor is and should be; what prohibitions and regulations should be placed on audit firms; and what decisions auditors could be expected to make in a series of mini-cases. The questionnaire also included a semantic differential testing instrument which, through factor analysis, provides evidence about what different groups of individuals perceive to be the key attributes of auditing activity. The survey included chartered accountants in public practice, corporate finance directors, investment analysts, bank lending officers and financial journalists.

The audit expectations gap—plus ca change, plus c'est la meme chose?

Abstract This paper explores the response of the accounting profession to the audit expectations gap, with primary reference to the professions behaviour in the United Kingdom during the period of the last 20 years. Starting from a brief examination of the history of expectation concerns over a somewhat longer period, it is argued that both the existence of a gap and the specific aspects of audit performance it comprises have shown considerable continuity and resilience against solution. The professions response to the expectations gap are then discussed, considering them as interrelated with, rather than independent of, the nature of professional interests. Two main strategies of response are identified: a defensive approach focusing on education and reassurance of the public; and a constructive approach, seeking to convey a willingness to change audit activities to meet public concern. The paper evaluates these responses, and their likelihood of success in reducing expectations problems, in the context of the inherent conflicts in the structure of auditing as a self-regulated activity,

Audit Committee Effectiveness: Informal Processes and Behavioural Effects

Purpose This paper seeks to investigate the conditions and processes affecting the operation and potential effectiveness of audit committees (ACs), with particular focus on the interaction between the AC, individuals from financial reporting and internal audit functions and the external auditors. Design/methodology/approach A case study approach is employed, based on direct engagement with participants in AC activities, including the AC chair, external auditors, internal auditors, and senior management. Findings The authors find that informal networks between AC participants condition the impact of the AC and that the most significant effects of the AC on governance outcomes occur outside the formal structures and processes. An AC has pervasive behavioural effects within the organization and may be used as a threat, an ally and an arbiter in bringing solutions to issues and conflicts. ACs are used in organizational politics, communication processes and power plays and also affect interpretations of events and cultural values. Research limitations/implications Further research on AC and governance processes is needed to develop better understanding of effectiveness. Longitudinal studies, focusing on the organizational and institutional context of AC operations, can examine how historical events in an organization and significant changes in the regulatory environment affect current structures and processes. Originality/value The case analysis highlights a number of significant factors which are not fully recognised either in theorizing the governance role of ACs or in the development of policy and regulations concerning ACs but which impinge on their governance contribution. They include the importance of informal processes around the AC; its influence on power relations between organizational participants; the relevance of the historical development of governance in an organization; and the possibility that the AC’s impact on governance may be greatest in non-routine situations.

In pursuit of global regulation: Changing governance and accountability structures at the International Federation of Accountants (IFAC)

Purpose – IFAC, a Swiss-registered non-governmental organization, is emerging as an important international (auditing) standard setter amongst a powerful group of regulators, including the World Bank, the International Organisation of Securities Commissions (IOSCO) and the European Commission (EC). The purpose of this paper is to focus on the changing governance and accountability structures within IFAC, the way such changes are shaping, or re-shaping, its “public interest” commitments and the resulting strategic implications for processes of auditor regulation and public oversight in the global financial arena. Design/methodology/approach – The material and analysis presented in the paper derives from an extensive review of official reports, consultation documents and related responses, a range of other information available on IFACs web site (www.ifac.org) or those of other key regulatory players in the global financial arena. Findings – The paper analyzes how IFAC is succeeding as an international standard setter with an established place in the global financial infrastructure. From analysis of the recent establishment of a Public Interest Oversight Board (PIOB) and the changing nature of representation on IFACs Public Interest Activity Committees (PIACs), the paper reveals a growing reliance on governance by experts together with a growth in influence of the large, multinational accounting firms. Governance of auditors has become a matter of global importance and governance structures are being reconfigured. Practical implications – By highlighting the changes that have taken place within IFACs governance system, the paper establishes the importance for public policy of further study and debate concerning the nature and practical operation of such a system, particularly given IFACs position within a complex but developing global governance arena. Originality/value – IFAC is becoming an integral player in global financial governance processes and yet has not been subject to any substantial academic accounting research. This paper seeks to rectify this by focusing on the structures and processes underpinning both the development of IFACs International Standards on Auditing (ISAs) and its own global strategy for advancement.

Protecting against Detection: The Case of Auditors and Fraud?

The auditor′s responsibility with respect to fraud has been one of the issues which has been associated most persistently with questions about the adequacy of audit performance. Examines the way in which the position of the accountancy profession in Britain on this subject developed during the 1980s – a period of considerable professional activity with respect to the issue of the auditor and fraud. While the profession has been persuaded to accept additional responsibilities concerning the reporting of detected fraud, it is argued that no such development has occurred with respect to the auditor′s responsibilities concerning fraud detection. The current nature of the auditor′s duties regarding fraud detection is seen as contestable. While further government action may force the profession to assume additional responsibilities in this respect, any such developments are seen as needing more detailed investigation of the precise capacities of audit practice in detecting (particularly management) fraud.

Auditing, Trust and Governance. Developing regulation in Europe

Auditing, Trust andGovernancewas published under the auspices of the European Auditing Research Network (EARNet). EARNet was formed in 2000 to ‘foster research and exchange ideas among auditing scholars and researchers at a European level’. This book represents a milestone towards accomplishing this objective. Motivation for the book evolved from the major corporate failures in the USA (e.g. Enron and Worldcom) and Europe (e.g. Ahold and Parmalat), and the resulting loss of trust and confidence in financial reporting and the auditing profession. The response by regulators to these events was the passage of the Sarbanes– Oxley Act in the USA and the revised Eighth Directive on Statutory Audit in the European Union. Auditing, Trust and Governance provides a detailed account of how a number of European countries responded to this crisis in confidence. The book contains 13 chapters written by leading auditing scholars. The first chapter sets up the book by presenting a general discussion of the main issues of trust, audit quality, regulation and corporate governance. This chapter was particularly helpful to me in understanding the extent of research on audit quality in Europe. The authors conclude ‘the evidence on audit quality differentiation in Europe is mixed and highly country specific’ (p. 8). The chapter provides a number of areas for future research studies in Europe on audit quality. The next 11 chapters are written from the perspective of each of the following countries:

The Views of Management on Accounting for Leases

(1985). The Views of Management on Accounting for Leases. Accounting and Business Research: Vol. 16, No. 61, pp. 59-67.

Independence and Competence? A Critical Questioning of Auditing

This paper reviews key aspects of the regulatory response in the UK and the USA to the apparent crisis of confidence in auditing stimulated by Enron and other recent corporate scandals. Drawing on a consideration of the nature of the market for auditing services and the regulatory and corporate governance structures in which auditing is embedded, the paper argues that the bulk of recent regulatory attention appears to have been on matters of auditor independence rather than auditor competence. Such a focus is seen to have parallels with former ‘crisis’ eras in the auditing arena, while the analysis presented also raises questions about the status of the auditing function within accounting firms and the capacity of regulatory reform to deliver a fundamentally enhanced auditing function. The paper concludes by stressing the importance of making more transparent what is being done in the name of auditing and audit regulation.

A Commentary on 'Professionalizing Claims and the State of UK Professional Accounting Education: Some Evidence'

Sikka et al. (this issue) examine potential inconsistency between what the accounting professional bodies say is important and what they do when it comes to influencing the education of aspiring members. It cites the failure of the texts and readings included in professional courses to provide exposure to fundamental debates about the role of accounting and professional services as evidence that the professional bodies are failing to live up to their own claims regarding the nature of the professionals they are trying to educate and that ‘accountants have sound theoretical and practical education, ethical conduct and that they serve the public interest’. A broad range of ideas (including, for example, theorization of notions of society and social responsibility, ethics, culture and history, capitalism and globalization) are called upon to judge the adequacy of how the bodies execute their aspirations in education. One point from this argument is to question whether the professional accountancy bodies’ statements are simply presentational, to lay claim to certain professional values without following them through. For this Commentary, it seems appropriate to consider also whether the analysis offers any guide or prospectus for improving accounting education (the focus of this journal) and even for avoiding future scandals. From this latter perspective, underlying the critique of professional education for accountants there is a rationale that appears to be linked to a possible preventative role for education. Thus, more theoretically informed, principled and ethically motivated judgements by accountants would prevent, or at least reduce, the incidence of scandals and corporate failures in which accounting is implicated and more exposure to such matters in the educational process would prevent, or reduce, the likelihood that inappropriate judgements and decisions by accountants might lead to the scandals. By extension, the argument is that it is appropriate to look for evidence of the extent to which professional accounting Accounting Education: an international journal Vol. 16, No. 1, 51–54, March 2007

Research and Public Practice Accounting

Publisher Summary The chapter contains personal reflections on conducting research on public practice accounting, communicating with practitioners, and encouraging them to become more informed about the research process. The chapter discusses the value of contribution a research can make. It is a perception that accounting is a practical and technical discipline, an activity defined by established conventions and rules of practice. The chapter discusses some aspects of links between research and practice in accounting. It focuses on public practice in accounting services, and based on the experience of research in this field over several years, highlights the issues researchers should expect to confront in developing projects and in communicating with practitioners about research. There are fundamental reasons a research on public practice is of interest, primarily because of the way in which accounting affects economic activity and society.