IDEAS home Printed from https://ideas.repec.org/a/eee/crpeac/v83y2022ics1045235420300332.html
   My bibliography  Save this article

Auditing in the public interest: Reforming the profession by building on the strengths of the existing accounting firms

Author

Listed:
  • van Brenk, Herman
  • Renes, Remko
  • Trompeter, Gregory M.

Abstract

Due to audit quality concerns on the part of regulators and investors, accounting firms may need to re-evaluate their business model. Rethinking the current structure is important because it is difficult to observe audit quality and to differentiate between functional and dysfunctional commercial incentives of accounting firms. Consequently, it is hard for regulators to determine, and for auditors to demonstrate, whether the profession is acting in the public interest. In this essay, we argue why the current model may be suboptimal and offer thoughts on what may be a more sustainable alternative – from a public interest perspective – to the status quo: An Audit Board. This Audit Board is conceived as a quasi-governmental organization that would conduct financial statement audits for public interest entities. We envision an organization consisting of a core permanent staff of experienced audit experts that is complemented by fellows drawn from the existing accounting firms who take a job at the Board for a certain time period. We presented our proposal to various stakeholders (19 sessions with 108 attendees) to promote debate and to refine our thinking. Our proposal is relevant for regulators in their efforts of motivating auditors to act in the public interest. It would create an entity that is expert in auditing but avoids many of the independence problems faced by for-profit accounting firms. While this proposal certainly deviates from the current model, we hope that it will spark good conversations that may lead to rethinking of the status quo.

Suggested Citation

  • van Brenk, Herman & Renes, Remko & Trompeter, Gregory M., 2022. "Auditing in the public interest: Reforming the profession by building on the strengths of the existing accounting firms," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:crpeac:v:83:y:2022:i:c:s1045235420300332
    DOI: 10.1016/j.cpa.2020.102184
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1045235420300332
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.cpa.2020.102184?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bertrand Malsch & Yves Gendron, 2013. "Re-Theorizing Change: Institutional Experimentation and the Struggle for Domination in the Field of Public Accounting," Journal of Management Studies, Wiley Blackwell, vol. 50(5), pages 870-899, July.
    2. Esther Duflo & Michael Greenstone & Nicholas Ryan, 2013. "Truth-telling by Third-party Auditors and the Response of Polluting Firms: Experimental Evidence from India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(4), pages 1499-1545.
    3. Michele D. Meckfessel & Drew Sellers, 2017. "The impact of Big 4 consulting on audit reporting lag and restatements," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 32(1), pages 19-49, January.
    4. Sikka, Prem, 2009. "Commentary on Roy Suddaby, Yves Gendron and Helen Lam "the organizational context of professionalism in accounting"," Accounting, Organizations and Society, Elsevier, vol. 34(3-4), pages 428-432, April.
    5. Gendron, Yves, 2018. "Beyond conventional boundaries: Corporate governance as inspiration for critical accounting research," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 55(C), pages 1-11.
    6. Holm, Claus & Zaman, Mahbub, 2012. "Regulating audit quality: Restoring trust and legitimacy," Accounting forum, Elsevier, vol. 36(1), pages 51-61.
    7. Zachary T. Kowaleski & Brian W. Mayhew & Amy C. Tegeler, 2018. "The Impact of Consulting Services on Audit Quality: An Experimental Approach," Journal of Accounting Research, Wiley Blackwell, vol. 56(2), pages 673-711, May.
    8. Claus Holm & Mahbub Zaman, 2012. "Regulating audit quality: Restoring trust and legitimacy," Accounting Forum, Taylor & Francis Journals, vol. 36(1), pages 51-61, March.
    9. Gendron, Yves, 2002. "On the role of the organization in auditors' client-acceptance decisions," Accounting, Organizations and Society, Elsevier, vol. 27(7), pages 659-684, October.
    10. Rick Delbridge & Roy Suddaby & Bill Harley, 2016. "Introducing JMSSays," Journal of Management Studies, Wiley Blackwell, vol. 53(2), pages 238-243, March.
    11. Yi Fu & Elizabeth Carson & Roger Simnett, 2015. "Transparency report disclosure by Australian audit firms and opportunities for research," Managerial Auditing Journal, Emerald Group Publishing, vol. 30(8/9), pages 870-910, October.
    12. Dellaportas, Steven & Davenport, Laura, 2008. "Reflections on the public interest in accounting," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 19(7), pages 1080-1098.
    13. Aobdia, Daniel, 2019. "Do practitioner assessments agree with academic proxies for audit quality? Evidence from PCAOB and internal inspections," Journal of Accounting and Economics, Elsevier, vol. 67(1), pages 144-174.
    14. W. Robert Knechel & Lasse Niemi & Mikko Zerni, 2013. "Empirical Evidence on the Implicit Determinants of Compensation in Big 4 Audit Partnerships," Journal of Accounting Research, Wiley Blackwell, vol. 51(2), pages 349-387, May.
    15. Yves Gendron & Laura F. Spira, 2009. "What Went Wrong? The Downfall of Arthur Andersen and the Construction of Controllability Boundaries Surrounding Financial Auditing," Contemporary Accounting Research, John Wiley & Sons, vol. 26(4), pages 987-1027, December.
    16. Yiannis Gabriel, 2016. "The Essay as an Endangered Species: Should We Care?," Journal of Management Studies, Wiley Blackwell, vol. 53(2), pages 244-249, March.
    17. Lindsay M. Johnson & Marsha B. Keune & Jennifer Winchel, 2019. "U.S. Auditors' Perceptions of the PCAOB Inspection Process: A Behavioral Examination†," Contemporary Accounting Research, John Wiley & Sons, vol. 36(3), pages 1540-1574, September.
    18. Ling Lei Lisic & Linda A. Myers & Robert Pawlewicz & Timothy A. Seidel, 2019. "Do Accounting Firm Consulting Revenues Affect Audit Quality? Evidence from the Pre‐ and Post‐SOX Eras," Contemporary Accounting Research, John Wiley & Sons, vol. 36(2), pages 1028-1054, June.
    19. Knechel, W. Robert & Thomas, Edward & Driskill, Matthew, 2020. "Understanding financial auditing from a service perspective," Accounting, Organizations and Society, Elsevier, vol. 81(C).
    20. Edgley, Carla & Sharma, Nina & Anderson-Gough, Fiona, 2016. "Diversity and professionalism in the Big Four firms: Expectation, celebration and weapon in the battle for talent," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 35(C), pages 13-34.
    21. Gendron, Yves & Spira, Laura F., 2010. "Identity narratives under threat: A study of former members of Arthur Andersen," Accounting, Organizations and Society, Elsevier, vol. 35(3), pages 275-300, April.
    22. Malsch, Bertrand & Gendron, Yves, 2011. "Reining in auditors: On the dynamics of power surrounding an “innovation” in the regulatory space," Accounting, Organizations and Society, Elsevier, vol. 36(7), pages 456-476.
    23. Sikka, Prem, 2009. "Financial crisis and the silence of the auditors," Accounting, Organizations and Society, Elsevier, vol. 34(6-7), pages 868-873, August.
    24. Gendron, Yves, 2018. "On the elusive nature of critical (accounting) research," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 50(C), pages 1-12.
    25. Prem Sikka & Steven Filling & Pik Liew, 2009. "The audit crunch: reforming auditing," Managerial Auditing Journal, Emerald Group Publishing, vol. 24(2), pages 135-155, January.
    26. Burrows, Geoff & Black, Christopher, 1998. "Profit sharing in Australian Big 6 accounting firms: An exploratory study," Accounting, Organizations and Society, Elsevier, vol. 23(5-6), pages 517-530.
    27. Suddaby, Roy & Gendron, Yves & Lam, Helen, 2009. "The organizational context of professionalism in accounting," Accounting, Organizations and Society, Elsevier, vol. 34(3-4), pages 409-427, April.
    28. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
    29. Kimberly D. Westermann & Jeffrey Cohen & Greg Trompeter, 2019. "PCAOB Inspections: Public Accounting Firms on “Trial”," Contemporary Accounting Research, John Wiley & Sons, vol. 36(2), pages 694-731, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Friedrich, Christian & Quick, Reiner, 2024. "Do non-audit service failures impair auditor reputation? An analysis of KPMG advisory service scandals in Germany," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 98(C).
    2. Tomo, Andrea, 2023. "‘Angry accountants’: Making sense of professional identity crisis on online communities," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 95(C).
    3. Bottausci, Chiara & Robson, Keith, 2023. "“He Hears”: An essay celebrating the 25 year anniversary of The Audit Society," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 97(C).
    4. Dunne, Neil J. & Brennan, Niamh M. & Kirwan, Collette E., 2023. "How the Big Four maintain and defend logic equilibrium at concurrent performances," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 94(C).
    5. Grégory Jemine & François-Régis Puyou & Florence Bouvet, 2024. "Technological innovation and the co-production of accounting services in small accounting firms," Post-Print hal-04325739, HAL.
    6. Harber, Michael & Maroun, Warren & de Ricquebourg, Alan Duboisée, 2023. "Audit firm executives under pressure: A discursive analysis of legitimisation and resistance to reform," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 97(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dunne, Neil J. & Brennan, Niamh M. & Kirwan, Collette E., 2023. "How the Big Four maintain and defend logic equilibrium at concurrent performances," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 94(C).
    2. Dermarkar, Simon & Hazgui, Mouna, 2022. "How auditors legitimize commercialism: A micro-discursive analysis," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 83(C).
    3. Claire France Picard & Sylvain Durocher & Yves Gendron, 2013. "From Meticulous Professionals To Superheroes Of The Business World: A Historical Portrait Of A Cultural Change In The Field Of Accountancy," Post-Print hal-00993019, HAL.
    4. Jeff Everett & Constance Friesen & Dean Neu & Abu Shiraz Rahaman, 2018. "We Have Never Been Secular: Religious Identities, Duties, and Ethics in Audit Practice," Journal of Business Ethics, Springer, vol. 153(4), pages 1121-1142, December.
    5. Anderson-Gough, Fiona & Edgley, Carla & Robson, Keith & Sharma, Nina, 2022. "Organizational responses to multiple logics: Diversity, identity and the professional service firm," Accounting, Organizations and Society, Elsevier, vol. 103(C).
    6. Jorien L. Pruijssers & Pursey P. M. A. R. Heugens & J. Oosterhout, 2020. "Winning at a Losing Game? Side-Effects of Perceived Tournament Promotion Incentives in Audit Firms," Journal of Business Ethics, Springer, vol. 162(1), pages 149-167, February.
    7. Harber, Michael & Maroun, Warren & de Ricquebourg, Alan Duboisée, 2023. "Audit firm executives under pressure: A discursive analysis of legitimisation and resistance to reform," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 97(C).
    8. Mowchan, Michael J., 2023. "Do accounting firms change strategy through office managing partner appointments? Evidence from the U.S," Accounting, Organizations and Society, Elsevier, vol. 108(C).
    9. Guénin-Paracini, Henri & Malsch, Bertrand & Paillé, Anne Marché, 2014. "Fear and risk in the audit process," Accounting, Organizations and Society, Elsevier, vol. 39(4), pages 264-288.
    10. Sarah B. Stuber & Chris E. Hogan, 2021. "Do PCAOB Inspections Improve the Accuracy of Accounting Estimates?," Journal of Accounting Research, Wiley Blackwell, vol. 59(1), pages 331-370, March.
    11. Dunne, Neil J. & Brennan, Niamh M. & Kirwan, Collette E., 2021. "Impression management and Big Four auditors: Scrutiny at a public inquiry," Accounting, Organizations and Society, Elsevier, vol. 88(C).
    12. Donelson, Dain C. & Ege, Matthew & Imdieke, Andrew J. & Maksymov, Eldar, 2020. "The revival of large consulting practices at the Big 4 and audit quality," Accounting, Organizations and Society, Elsevier, vol. 87(C).
    13. Beau, Pauline & Jerman, Lambert, 2022. "Bonding forged in “auditing hell”: The emotional qualities of Big Four auditors," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 83(C).
    14. Matthew Bamber & Santhosh Abraham, 2020. "On the “Realities” of Investor‐Manager Interactivity: Baudrillard, Hyperreality, and Management Q&A Sessions†," Contemporary Accounting Research, John Wiley & Sons, vol. 37(2), pages 1290-1325, June.
    15. Marie Caussimont & David Carassus, 2015. "L’audit financier en contexte territorial : vers un audit de performance de la gestion locale ?," Post-Print hal-02141946, HAL.
    16. J. Gregory Jenkins & Velina Popova & Mark D. Sheldon, 2018. "In Support of Public or Private Interests? An Examination of Sanctions Imposed Under the AICPA Code of Professional Conduct," Journal of Business Ethics, Springer, vol. 152(2), pages 523-549, October.
    17. Bertrand Malsch & Yves Gendron, 2013. "Re-Theorizing Change: Institutional Experimentation and the Struggle for Domination in the Field of Public Accounting," Journal of Management Studies, Wiley Blackwell, vol. 50(5), pages 870-899, July.
    18. repec:mth:ijafr8:v:8:y:2018:i:2:p:166-178 is not listed on IDEAS
    19. Downar, Benedikt & Ernstberger, Jürgen & Koch, Christopher, 2021. "Who makes partner in Big 4 audit firms? – Evidence from Germany," Accounting, Organizations and Society, Elsevier, vol. 91(C).
    20. Brivot, Marion & Cho, Charles H. & Kuhn, John R., 2015. "Marketing or parrhesia: A longitudinal study of AICPA's shifting languages in times of turbulence," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 31(C), pages 23-43.
    21. Spenser G. Seifert & Ethan G. LaMothe & Donna Bobek Schmitt, 2023. "Perceptions of the Ethical Infrastructure, Professional Autonomy, and Ethical Judgments in Accounting Work Environments," Journal of Business Ethics, Springer, vol. 182(3), pages 821-850, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:crpeac:v:83:y:2022:i:c:s1045235420300332. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/critical-perspectives-on-accounting/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.