commercialization of auditing services offered by professionals

SIMON PIERRE DERMARKAR
COMMERCIALIZATION OF AUDITING
SERVICES OFFERED BY PROFESSIONALS
WITHIN ACCOUNTING FIRMS
Mémoire présenté
à la Faculté des études supérieures de l‘Université Laval
dans le cadre du programme de maîtrise en Sciences de l'administration
pour l‘obtention du grade de Maître ès sciences (M.Sc.)
ÉCOLE DE COMPTABILITÉ
FACULTÉ DES SCIENCES DE L'ADMINISTRATION
UNIVERSITÉ LAVAL
QUÉBEC
2011
© Simon Pierre Dermarkar, 2011
Résumé
Le cœur de l'étude mettra en évidence la présence d‘importantes pressions
découlant du mercantilisme au sein de la pratique de vérification professionnelle
dans l'ère post-Enron. L'analyse sera distinguée en deux segments: les pressions
découlant du désir de l'auditeur à être perçu comme financièrement efficace, et
d'une autre part, les pressions découlant de l'objectif de l'auditeur cherchant à
privilégier les clients et à rester compétitif dans le marché.
Les aspects commerciaux généralement reconnus de la vérification (c.-à-d.,
rapidité, efficacité, profitabilité) qui sont mesurés par des indicateurs financiers
(taux de récupération et taux horaire récupéré) qui eux sont contrôlés et encouragés
par certains processus formalisés (par exemple, de budgétisation et d'évaluation de
la performance) au sein des organisations comptables, expliquent précisément
pourquoi les praticiens de la vérification ont le désir d'être perçu comme
économiquement efficace. De plus, les résultats empiriques montrent une certaine
évolution (parfois agressive) de la présence de tels mécanismes qui pourraient
mener à des effets négatifs tels que la détérioration de l'environnement de travail et
à des mutations insoucieuses des méthodes de vérification.
Aussi, afin de freiner les pressions croissantes liées à la concurrence et accroître
leur part de marché, les cabinets comptables déploient une stratégie à faible prix
(« low balling ») pour leurs services de vérification; cette approche aide à conserver
(ou à séduire) les entités auditées. Contrairement à ce que plusieurs peuvent penser,
la règlementation Sarbanes-Oxley ainsi que son adaptation canadienne n‘éliminent
pas entièrement une telle tactique dans l'industrie de la vérification. En fait, la
stratégie a évoluée au point où certains cabinets plus petits doivent, contre leur gré,
adopter ces méthodes afin de lutter contre les comportements marketing agressifs
des «Big Four». Cette approche crée une certaine controverse entre le niveau de
risque du mandat et l'objectif de rentabilité qui semble souvent rester à un niveau
standard, peu importe la variation de l‘honoraire. Je présente des extraits
d‘entrevues indiquant que les mandats de vérification à faible prix peuvent amener
à réduire au minimum les questionnements à travers le travail de vérification ou
littéralement chercher à trouver l'endroit où le travail de vérification peut être
coupé.
ii
Abstract
The core of the study will highlight the presence of important pressures ensuing
from commercialism throughout the professional auditing practice in the postEnron era. The analysis of these features will be distinguished into two segments;
first the pressures ensuing from the auditor‘s desire of being perceived as
commercially effective, and second, the pressures ensuing from the auditor‘s aim of
privileging the clients and remaining competitive in the market.
The general business aspects of auditing (i.e., rapidity, efficiency, profitability)
monitored by some financial indicators (i.e., recuperation rate and hourly
recuperated fee) which are controlled and promoted through certain formalized
processes (i.e., budgeting and performance assessment) within accounting
organizations explain specifically why audit practitioners have a desire to be
perceived as economically effective. Moreover, empirical findings indicate a certain
evolution and ongoing – sometimes aggressive – presence of such mechanisms
which potentially lead to negative effects such as deterioration of the working
environment and neglectful alteration of audit approaches.
Also, in order to counter increasing pressures related to rivalry and to increase
market share, accounting firms deploy an evolving low pricing audit engagement
strategy aiming to retain (or seduce) the auditees. Conversely to what many would
think, the Sarbanes-Oxley Act and its Canadian adaptation did not get rid of such
tactic in the audit industry. In fact, the strategy has evolved to the point where some
smaller firms have to keep up by reluctantly adopting such method in order to
counter Big Four‘s aggressive marketing behaviours. In turn, that approach creates
a certain controversy between the risk level of the engagement and the profitability
aim which often remains at a standard level no matter the variation of the fee. I
present excerpts indicating that the low balling auditor might aim at minimizing
questionings through the audit work or literally seek to find where the audit work
can be cut.
Remerciements
Je dédie ce mémoire à la douce mémoire de ma maman.
Je remercie mon père pour le support exceptionnel qu‘il m‘a accordé à travers la poursuite de mes
buts professionnels, académiques et personnels. Je remercie aussi mes sœurs et mon beau-frère pour
les précieux encouragements à l‘égard de mes divers projets.
Je tiens à mentionner l‘inestimable apport que mon directeur de recherche a su me partager; je
n‘étais pas un chercheur en commençant ce mémoire, mais j‘ose espérer tendre à en devenir un
maintenant, grâce à Yves Gendron.
Je tiens aussi à souligner la confiance et la motivation que la direction du département des sciences
comptables de HEC Montréal ainsi que plusieurs de ses membres m‘ont apportées à travers la
complétion de mon projet de recherche.
Finalement, je voudrais très cordialement remercier chacun des sujets de mon étude qui ont
gracieusement accepté de participer aux entrevues qui m‘ont permis de procéder à cette recherche.
Sans eux, ce projet n‘aurait pas été possible.
Mon parcours
Dès mes débuts en tant que stagiaire auditeur, je remarquais cet humble, et parfois sous-estimé, rôle
que les vérificateurs pouvaient jouer en tant que protecteur du public. J‘ai vite appris qu‘il y avait
un champ beaucoup plus large à cette pratique professionnelle. Mes constats m‘amenèrent à
certaines déceptions, mais ils m‘amenèrent surtout à apprécier une étincelle qui est celle de
découvrir et de réaliser que ces découvertes sont infimes par rapport à tout ce qu‘il reste à
découvrir.
Les enjeux tels que le mercantilisme au sein des professions, les conflits d‘intérêts, la corruption, la
protection du public, la gouvernance des marchés des capitaux, etc., sont tous des champs qui
désormais me passionnent et pour lesquels j‘ai l‘intention d‘entreprendre davantage de recherches
qui me permettront de faire de nouvelles découvertes et de les partager.
iv
Table of Contents
Résumé .............................................................................................................................. i
Abstract ............................................................................................................................ ii
Remerciements ................................................................................................................ iii
Table of Contents ............................................................................................................ iv
GOAL AND CONTEXTUALIZATION OF THE RESEARCH .................................... 6
LITERATURE REVIEW ............................................................................................... 10
Protection of the public to profit motives .......................................................... 11
Auditors‘ mistakes ............................................................................................. 14
Commercialism vs. professionalism .................................................................. 18
Commercialism‘s takeover................................................................................. 24
Aftermath ........................................................................................................... 32
Corrective measures ........................................................................................... 34
METHODOLOGY AND ASSUMPTION ..................................................................... 37
Assumption and approach .................................................................................. 37
Method ............................................................................................................... 39
Recruitment and data collection............................................................. 41
Method of analysis ................................................................................. 44
DATA ANALYSIS ........................................................................................................ 47
1- General aspects .......................................................................................................... 47
1.1- Existence of commercial pressures? ........................................................ 48
1.2- What is pressure? ..................................................................................... 49
1.3- Commercial pressures and its effects ...................................................... 50
1.4- Regulation and issue cycle....................................................................... 56
2- Perceived as profitable ............................................................................................... 61
2.1- Business aspects.......................................................................................... 61
2.2- Financial indicators ..................................................................................... 64
2.3- Organizational processes ............................................................................ 66
2.4- Strengthening commercialism through subtle influence............................. 70
2.5- Effects on working environment and audit approaches .............................. 73
2.5.1- Working environment .................................................................. 74
2.5.2- Audit approaches ......................................................................... 75
2.6- Conclusion .................................................................................................. 77
3- Privileging the clients................................................................................................. 78
3.1- Serving the client as a priority .................................................................... 79
3.2- Commodifying the audit ............................................................................. 83
3.3- Low balling ................................................................................................. 85
3.3.1- Strongly competitive auditing markets ........................................ 86
3.3.2- Low balling .................................................................................. 87
3.4- Conclusion .................................................................................................. 94
FINAL REMARK .......................................................................................................... 95
REFERENCES............................................................................................................... 97
APPENDIX & TABLES.............................................................................................. 103
Appendix 1 – Form of consent......................................................................... 104
Appendix 2 – List of questions........................................................................ 109
Table 1 – Interviewee details........................................................................... 111
v
6
GOAL AND CONTEXTUALIZATION OF THE RESEARCH
In the wide economical sphere, financial auditing seeks to represent a
credibility enhancer towards stakeholders having interest in financial
information. Through this role of enhancing financial information‘s
credibility, protecting the public‘s interest as ―watchdogs‖ remains the
primary rhetorical reason of being of professionals performing financial
auditing. When serious failures emerge in financial markets, the public
systematically suffers; we hear of retirement funds crashing, lifetime
savings disappearing in the rush of the events, office shutdowns
increasing unemployment, and more. These matters are serious for the
world economy, for each of the nations around the world, for each
society built in these nations, for each community included in these
societies, and ultimately, for each family of these communities around
our planet. The negative effects can become very vicious and generalized
especially in today‘s globalized and sometimes hyper complex financial
markets. This memoire will study a particular facet of the previously
identified ―watchdogs‖ of financial information, whose work has been
criticized by many in the aftermath of significant corporate debacles such
as that of Enron (Guénin-Paracini and Gendron, 2010). These criticisms
reflect not only on the ―watchdog‘s‖ reputation, but also on the standing
of the companies involved and on the perceived performance of
legislators and regulators aiming to normalize the financial information‘s
enhancing process, and to oversee the achievement of financial auditors‘
reason of being.
From an organizational point of view, we normally expect that those who
are called to protect the public‘s interest, the auditors, would successfully
manage their own firms by effectively raising the flag when major
corporations occupying these public markets hold significant flaws in
their broad financial disclosure processes. Many could consider that
management
in
such
professional
firms
represents
models
to
organizational control and governance systems. In fact, these accounting
7
firms are often brought to advise and provide logical insights to enrich
their audit clients‘ control systems. Unfortunately, the present paper
might in some way discourage ones‘ anticipation of such an idealistic
belief through the results obtained that consider the auditors as social
actors who are at the end of the day normal human beings living complex
relations.
In this study I seek to analyze the extent to which commercialism comes
to influence financial audit work. Generally speaking, auditing studies
carried out before the regulatory reforms of 2002 (e.g., Sarbanes-Oxley
Act) indicate commercialism as a dysfunctional factor to the achievement
of financial auditing goals. Regulatory initiatives were enacted in the
hope of reining in mercantilism in the profession. More precisely I seek
to concentrate my research on the commercialism facet of the auditing
profession in the post-Enron era. Through the analysis of interviews held
with auditing practitioners, I will appreciate these professionals‘
perceptions towards mercantile features as of the actual auditing practice.
As argued by Gendron & Spira (2010, p. 298):
[O]ne may wonder whether the rhetorical appeal of
commercialism can ever be constrained in public accounting.
The ongoing rivalry between professionalism and
commercialism in public accounting, which has been
examined by several researchers prior to the collapse of
Enron (e.g., Covaleski et al., 1998; Gendron, 2002; Hanlon,
1994; Humphrey & Moizer, 1990; Radcliffe, Cooper, &
Robson, 1994), remains a highly relevant object of study in
the ―post-Enron‖ era.
The present study therefore fulfills relevant advancements in the field of
accounting research on financial auditing (―watchdog‖) practice. As it
will extensively be demonstrated throughout this paper, the empirical
findings will not only show that mercantile factors have not disappeared
from the professional auditing arena in the post-Enron era, but also how
8
they have aggressively evolved in strengthening their positions within
professional accounting firms‘ audit functions.
Firstly, in the literature review chapter, I will recollect and present in a
synthesized manner what has been previously alleged by authors with
regard to mercantilism versus professionalism within the auditing
profession. This will allow general understanding as to why this issue is
capital, not only in regard to the accounting profession, but towards the
general public‘s interest in the economical sphere. Then, I will show how
according
to
researchers,
professionalism‘s
vain
battle
against
commercialism represents one of the major factors with regard to the
Enron-Andersen 2001 debacle. Afterwards, it will be discussed that
corrective measures, although questioned by a number of observers, were
added by regulators in order to rein in the problematic mercantilismlinked issues at stake towards such brutal financial failures. In sum, this
literature review will in the end demonstrate in what way the present
research effectively fits in the ongoing study process of professional
auditing and how previous literature explicitly reflects the significance of
commercialism within accounting firms‘ audit functions.
Following the literature review will be presented the methodology design
put in place in order to pursue the present research analysis that
appreciates practitioners‘ perceptions towards commercialistic factor
within auditing functions of accounting firms in the post-Enron era. I will
at that point present the data collection process that was done through
interviews with audit practitioners from various size-type professional
accounting firms. Then, the general qualitative-based analysis process
will be presented before development of the main chapters of the
memoire.
9
The core of the study will then highlight the presence of important
pressures ensuing from commercialism throughout the professional
auditing practice. These pressures will be analyzed from a practitioner‘s
point of view by suggesting how the promotion of such commercialistic
features comes to affect auditors‘ behaviours. The analysis of these
features will be distinguished into two (somewhat overlapping)
segments; first the pressures ensuing from the auditor‘s desire of being
perceived as commercially effective will be analyzed, and second, the
pressures ensuing from the auditor‘s aim of privileging the clients and
remaining competitive in the market will be discussed.
10
LITERATURE REVIEW
This section will serve to present many authors‘ sayings towards the
studied matter which is commercialism within accounting firms. To
introduce the literature review, I will firstly present the auditors‘ claim
regarding the protection of the public in order to situate the element that
has been identified as the raison d‘être of such profession. This reason of
being is relevant to the study in the sense that if commercialism, which is
the main axis of research through this memoire, comes to impact
professionalism (and therefore the quality) of the auditors‘ work, the
protection of the public may ultimately suffer and this directly supports
the significance of carrying out such studies. My review of literature
mainly indicates the following drama (although literature is characterized
by a number of discordant views). Professional accountants have made
mistakes in the past, audit related or not; these professionals have in
some ways failed to achieve a certain number of their goals. This
eliminates any assumption for which sole reliance on a professional
virtue or affiliation can resolve any problematic issue within professional
environments. Literature also points to commercialism having gained in
influence within accounting firms. Moreover, the ascension of
commercialism is greatly characterized as a confrontation between
commercialism and professionalism. The confrontation implies that the
increase of commercialism is in some way manifested to the detriment of
professionalism within the accounting profession. Ultimately, a number
of studies qualify the increase of commercialism as a literal ―takeover‖
against professionalism, which ultimately led to the Enron-Andersen
scandalous debacle. Finally, I will swiftly present and appreciate from
the authors‘ perspectives the corrective measures seeking to resolve the
accounting profession‘s commercially related failures. As for the
Commercialism‘s Takeover, the Aftermath, and the Corrective Measures
sections, I will mainly rely on researches analyzing Enron-Anderson‘s
financial debacle. In fact, my study aims to specifically appreciate the
auditing profession‘s commercialism stance in the post-Enron era.
11
Therefore, by essentially concentrating my review on the EnronAnderson debacle I surely expose the most relevant literature regarding
the theme of my study.
Protection of the public to profit motives
My review of literature fundamentally aims to assess the extent to which
the protection of the public is actually a key priority within accounting
firms. One of the key indications of previous studies is the growth of
mercantile features having come to ―overshadow‖ the claim of protecting
the public. The claim was already deemed paramount many decades ago,
as Gaa (2007, p. 29) indicated:
Arthur Levitt, then-Chairman of the Securities and Exchange
Commission (SEC), observed that the need to protect
investors was recognized in the late 17th Century, when
formal stock exchanges first appeared in England (Levitt,
1996).
Problematic issues strongly support Levitt‘s saying, indeed Gaa (2007,
pp. 29 & 30-31) adds:
Only a few years later, the South Seas Bubble, which was an
enormous financial fraud in the 1710s, proved the point. The
scandal was so massive and traumatic that it caused the end
of the joint-stock form of business organization (which was
the forerunner of the modern corporation) for over a hundred
years. Eventually, the need to obtain large amounts of capital
for transportation companies caused the corporate form of
organization to re-emerge in England, with the Companies
Acts of 1844 and 1845. But these laws required audits of
balance sheets, in order to limit the ability of management to
commit fraud (which was regarded as inevitable otherwise)
(Littleton, 1933). […]
12
Levitt [(1996)] also pointed out the central importance of
protecting investors‘ interests by noting that the phrases ―for
the protection of investors‖ and ―in the public interest‖ occur
separately or together in the Securities Act of 1933 and the
Securities Exchange Act of 1934 at least 225 times. Similar
language is found at many points in the Sarbanes-Oxley Act
of 2002, the official title of which (―An Act to protect
investors by improving the accuracy and reliability of
corporate disclosures made pursuant to the Securities Laws
and for other purposes‖, U.S. Congress, 2002) reinforces the
point.
These previous excerpts fairly confirm that the protection of the public
represents a significant signifier with regard to the capital markets
functioning. More precisely, it is indicated that in order to allow capital
markets‘ accesses for major industries it was necessary to ensure the
protection of the public through the prevention of frauds. We can also
observe that the matter is ongoing in the sense that recent legislation such
as the Sarbanes-Oxley Act of 2002 (directly affecting the auditor‘s work)
includes several mentions regarding the protection of the public.
However, auditors‘ commitment towards the protection of the public may
be overshadowed by other reasons, such as financial achievements. In
their review of auditing literature, Cooper & Robson (2006, p. 416)
mention that the profit motives require special attention in the context of
professional service firms:
While questions of how ―public interest‖ and professional
vision as defined and understood by accountants are indeed
important (Fogarty, Radcliffe, & Campbell, 2006; Willmott,
Cooper, & Puxty, 1993), recognition of the profit motive in
firms enables an analysis that is not preoccupied with issues
of professional legitimacy and self-understanding.
Quite provocatively, they add (pp. 422-423):
13
[I]nternal dynamic of multi-national accounting firms
explains how the ―feudal‖ values of accountants
(gentlemanly attitudes and aristocratic and paternalistic
values) are transformed into commercial values of the large
corporation, in which profitability and contribution to the
growth of capital are dominant.
In this last passage the authors speculate on how long-known core values
of accountants are transformed into explicit mercantile features. In the
following segment (p. 433), they express how commercialistic features‘
emphasis potentially brings auditors to jeopardize their public interest
concern in favour of client service and cross-selling opportunities:
In literally hundreds of interviews in the 1990s, in many
countries and large accounting firms, we never heard an
accountant refer to the public interest and when issues of
client management are discussed, the concern expressed in
accounting firms is usually in terms of providing client
service and finding opportunities for cross-selling. At least in
law firms, client management systems seem to be focussed
on avoiding conflicts of interest!
It therefore appears that accountants practically never refer to the
public‘s interest when discussing issues of client management. We may
then assume that a number of auditors do not necessarily consider
primordial their service towards the public‘s interest. What type of
commitment should be expected? As stated by Gendron (2002, p. 664):
The essence of the professional logic of action may be
inferred from Hall (1968), who describes the set of attributes
that generally are considered in the sociology of professions
as being representative of ―ideal‖ professionals. According to
this literature, ideal professionals strongly identify with their
14
profession, and consider the main objective of their work to
be that of serving the public.
All of the above leads to believe that a number of auditors (or
accountants in general) do not value their professional stance as much as
one could hope or expect. Could it be that they tend to favour their
commercial stance? Consequences may be dramatic, as suggested by
McNair (1991, p. 635):
What would happen to a profession if the realities of the
economic imperative were to overshadow the less tangible
demands of society?
My review addresses the conflict between commercialism and
professionalism in the following sections. It will be shown that in the
eyes of a proportion of auditors, protecting the public is less tangible than
increasing profitability within accounting firms‘ audit functions.
Auditors’ mistakes
Before discussing how the accounting literature has extensively analyzed
the commercialistic features of the profession being confronted to the
professional features and how this confrontation can lead to failures (e.g.,
Enron-Andersen), I first wish to plainly demonstrate how auditors have
had their share of failures. Without scientifically demonstrating that
auditors‘ failures exposed in this section relate to the battle between
commercialism and professionalism, my initial aim is simply to argue
that the profession is not without flaws. Subsequently, I will analyze how
literature has constructed linkages between failures and the rise of
mercantilism in the profession.
15
The literature indicates that auditors have made significant mistakes and
these mistakes have acutely shaken the perception of the public towards
the integrity and ethical value of certain actions executed by auditors.
―[A]cting with integrity goes beyond the rules, and requires auditors to
act autonomously in making judgments about how far above the moral
minimum they should act on a given occasion‖ (Gaa, 2007, p. 38). To
demonstrate the auditors‘ failures, I present several examples explicitly
showing accounting firms‘ malfunctions. To do this I draw extensively
on Gaa (2007, pp. 34, 40, 41, & 42):
An example of this [failure] is the case of the creation of
KPMG Baymark, in the mid-1990s (SEC, 2001). KPMG
decided to start an investment bank that would provide
various services to its audit clients, including taking over the
operation of KPMG‘s audit clients that were in financial
difficulty. If KPMG had created Baymark legally as a
subsidiary operation of KPMG, it would have clearly violated
the independence standards in place at the time. Thus,
KPMG‘s attempted creation of Baymark disregarded its
obligation to protect investors.
A second case is the now-familiar pattern of behavior that
Andersen engaged in for a number of years (Toffler, 2003). A
short summary of this is that Andersen engaged in practices
that (in the short run) earned large profits, at the expense of
investors. The list of faulty audits is long, and includes most
notably Waste Management and Enron.
In a third case, Ernst & Young was found by the SEC (2004)
to be not independent from one of its audit clients,
PeopleSoft, in virtue of their ongoing business relationships
(in the provision of information technology consulting).
Furthermore, even though EY had sold the relevant part of its
consulting practice before the SEC action, EY‘s attitude and
pattern of past behaviour caused the issuance of a cease and
desist order.
A fourth example of integrity problems is the practice of
Pricewaterhouse- Coopers in billing for air travel of its
16
employees on consulting engagements [...]. During the 1990s,
PwC negotiated ―back-end‖ rebates on tickets. These rebates
were paid to PwC at the end of the year, rather than as ―frontend‖ discounts on the ticket price itself. Rather than passing
the rebate on to its clients (who had been billed for the gross
travel costs of PwC consultants), PwC kept the rebate. That
meant that PwC effectively charged its clients more than the
actual (net) cost of travel.
A fifth example is the […] promotion of illegal tax shelters in
the U.S. by KPMG to benefit wealthy clients (U.S.
Department of Justice, 2005). 17 employees of KPMG were
indicted, including a former Deputy Chairman, a former
CFO, a former Associate Chief Counsel, and several former
Heads of its tax practice.
In all five cases stated above, we note that mercantile features are
mentioned as being at stake; whether they are features promoting the
accounting firm‘s own profitability enhancement or features seeking to
preserve the quality of the relationships with the client in order to protect
the commercial liaison. We cannot confirm that these features represent
the main originating causes of the failures in question, but it is reasonable
to assume that they nevertheless had a certain influence on the
accounting firms‘ actions. Finally I present one last example that is rather
recent with regard to the Lehman Brothers‘ financial debacle that led to
its bankruptcy:
In March 2010, a 2,200-page document laid out in new and
startling detail how Lehman used accounting sleight of hand
to conceal the bad investments that led to its undoing. The
report, compiled by an examiner for the bank, concluded that,
among other things, the firm‘s demise was the result of bad
mortgage holdings and, less directly, demands by rivals like
JPMorgan Chase and Citigroup, that the foundering bank
post collateral against loans it desperately needed. (New
York Times, May 28 2010).
It‘s not clear that there was a crime committed in the fall of
Lehman Brothers. But the court-appointed examiner‘s report
17
makes it clear that there was financial massaging going on.
The examiner, Anton R. Valukas, refers repeatedly to ―Repo
105,‖ a name for a set of accounting tactics originated by
Lehman that temporarily shuffled about $50 billion off the
firm‘s balance sheet for the two fiscal quarters before it
collapsed. Lehman‘s use of Repo 105 — hidden from the
firm‘s board but not its auditors at Ernst & Young — helped
the investment bank look less indebted than it really was
(New York Times, March 11th 2010).
Even if not clear whether a crime was committed in the sense of the law,
I decided to present this last recent example to show how, with regard to
a bank‘s collapse, an auditor was explicitly mentioned as holding
significant information that the board of directors of the bank was not
even aware of and that ended up being intimately related to the bank‘s
collapse. More recently, in December 2010, the Financial Post published
an article indicating that:
New York prosecutors sued Ernst & Young, accusing the
accounting firm of helping to hide Lehman Brothers
Holdings Inc‘s financial problems, the first major
government legal action stemming from the Wall Street
bank‘s 2008 downfall. [...] The civil fraud case seeks more
than US$150-million in fees that Ernst & Young received
from 2001 to 2008 as Lehman‘s outside auditor, plus other
unspecified damages. [...] The case, filed in New York state
Supreme Court, is one of the biggest legal cases involving an
accounting firm since Arthur Andersen was criminally
indicted in 2002 over the Enron scandal. (Financial Post,
Tuesday December 21st 2010)
As stated by Watkins (2010) in his article ―Will Lehman Brothers and
Repo 105 allegations bring down Ernst & Young?‖:
Within hours of the damning report into the collapse of
investment bank Lehman Brothers and its finding that auditor
Ernst & Young failed to raise the alarm about the bank‘s
accounting practices, the ominous historical comparison was
18
being drawn. Even the most senior regulators in Britain were
contemplating the worst. E&Y kept to a short statement
insisting it did its job properly. But one defender of the group
felt the need to be more blunt: ―This is not Ernst & Young‘s
Enron.‖
We will wait for the outcome of the court‘s ruling with regard to that
matter. Overall however, we can say that failures of professional
accounting firms are not infrequent. Further, mercantile features such as
the firms‘ profits and the preservation of the accountant-client
relationship appear to be significant factors along the failures‘ contexts.
Having shown that accountants, commonly known to have the role of
protecting the public‘s interest, are not without flaws, my review will
now specifically analyze the spread of commercialism within the
accounting profession.
Commercialism vs. professionalism
At this point, I find it relevant to specify that the accounting profession
deals with numerous features (e.g., internationalization of reporting
standards) from which emerge diverse types of tensions or issues; the
reason why I add such comment is simply to point out how, through the
course of my study, I specifically and consciously aimed one particular
aspect of the profession – commercialism of auditing in the post-Enron
era.
In this section the goal is to expose from academic authors‘ perspectives,
how the accounting profession has always had tensions between
commercialism and professionalism. Moreover, I will show how the
authors consider that there has been a considerable shift in the ascension
process
of
commercialism
within
accounting
firms.
Indeed,
commercialism has not always been a significant problematic-conflicting
19
factor
within
accounting
firms.
According
to
some
authors
commercialism has always been present in the profession but it did not
necessarily create problematic concerns until it rose to the point of
overshadowing professionalism. As mentioned by Gendron (2002, pp.
660, 664):
It is widely recognized in professional and academic
literature that audit decisions are subject to conflicting
influences, in particular between professionalism and
commercialism [...]. For many years, perhaps indeed since
the beginning of the profession, tensions between the
professional and commercial logics of action have been
present within audit practice (Kirkham, 1992, p. 301;
Radcliffe, Cooper, & Robson, 1994, p. 602).
Commercialism may therefore have been an influential force within the
confines of accounting firms since their very beginnings. According to
the golden age thesis, to which several authors adhere, commercialism
was under control until the 1970s, when professional codes of ethics
were relaxed in various jurisdictions in order to promote the free-market
spirit within professions. During this golden age, professionalism
apparently was seriously taken into consideration by accounting firms‘
leaders. Commercialism was to some extent influential – but
professionalism then prevailed. Wyatt (2004, p.46) indeed states:
The firm leaders used articles and speeches to articulate the
nature of the profession and its importance to our business
and commercial system. They spoke out forcefully on the
issues of the day, often without regard to whether one or
more clients might find their remarks objectionable. The
leaders included Leonard Spacek [...].
In fact as Toffler (2003, pp. 18-19) mentioned:
20
It was under Spacek‘s leadership that the firm [Arthur
Andersen] grew into the most respected – and feared –
accounting firm in the world. Revenues nearly tripled
between 1947 and 1956 [...]. Starting in the 1950‘s, Spacek
became the nagging conscience of an industry that
desperately needed reform. [...] Spacek had a solution: the
establishment of what he called a U.S. Court of Accounting
Appeals, a higher, independent court that would enforce a
uniform code of accounting principles. [...] Spacek – to the
frustration of his Big 8 counterparts – continued the crusade
[...], taking on first the oil industry and then the railroads and
the savings-and-loan industry. [...] The Firm bolstered its
reputation as a company that took a stand, even at the
expense of losing clients.
These previous excerpts seem to describe accounting from another
planet! First, Wyatt mentions how the former firms‘ leaders used to
affirm loudly the importance of the profession despite commercialistic
influences (indirectly promoting the protection of the public). Moreover,
Wyatt adds how these leaders would openly and loudly speak of issues
relating to the profession, even to the cost of displeasing their own
clients. Even more surprisingly, we find Toffler‘s comment relating
Arthur Andersen‘s commercial success (tripling of revenues) to attitudes
of rigorousness regarding audit engagements. To Toffler, Arthur
Andersen grew as a top accounting firm by taking controversial stands
against some of the biggest industries in the economy in order to enhance
their reporting processes. Interestingly, according to Toffler (2003) and
Wyatt (2004), what would be considered as destructive measures in
today‘s commercialistic environment seems to be the cause of financial
growth in the 1950s‘ accounting firms. Thus, according to these authors,
in the 1950s professionalism constituted a powerful force in the
profession; commercialism was then potentially present but under
control. Yet a considerable shift occurred afterwards. According to Wyatt
(2004, p. 47):
21
In the early 1960s, Andersen leaders saw a potential in
providing what came to be integrated computer system
services to clients. This led to an expansion in the range of
services provided and a need to attract new personnel with
different skill sets from those embodied in the accounting
majors Andersen had historically recruited. […] The relative
success of the consultants created enormous pressure on the
auditing and tax practice, both to grow revenues and increase
margins. The successes in the consulting practice
increasingly influenced behavior by auditing and tax leaders,
and the impact of these behavioral changes gradually affected
the behavior patterns of audit and tax personnel as well.
Improved profitability became a key focus.
This previous segment illustrates, through the advent of consulting
services, two major emerging factors in the transition from a
professionalism approach to a commercialism approach within
accounting organizations. First, Wyatt states the new type of personnel
that increasingly was hired within the organizations; as it will be
presented subsequently, according to Wyatt, this is a primordial step in
shifting the general culture of the organization from a professional
culture to a commercial one. Second, we realize that the influence of
commercialism consolidates from inside the accounting firm, as a
competitive battle between consulting service and other services such as
auditing and tax. In this memoire, the shift from professionalism to
commercialism in the daily functioning of accounting firms is mainly
characterized by the Arthur Andersen experience up until the EnronAndersen turmoil. However, it has to be stressed that other studies such
as Suddaby, Cooper & Greenwood‘s (2007) and Covaleski, Dirsmith,
Heian & Samuel‘s (1998) specifically indicate this shifting process as a
reality in the professional accountancy sphere in general.
The change apparently was gradual, according to Wyatt (2004, p. 48):
22
I want to emphasize that the changes associated with the
growth of consulting practices really evolved relatively
slowly over a period of about 30 years. There were no
dramatic turning points […].
Of course, as a result of this change the meaning of the word
―professional‖ shifted in the mind of a number of practitioners – although
from an analytical perspective it is often relevant to differentiate
professionalism from commercialism in terms of ideals. According to
Gendron (2002, p. 666):
[C]ommercial auditors conceive of their activities as being
―professional‖, arguing that in today‘s competitive world the
essence of professional work is to be businesslike and
responsive to auditees‘ needs. In contrast, in the present
paper the term ―professional‖ refers to a logic based on an
idealized, coherent and organized set of values and ideas
centred on the notion of serving the public—and not
practitioners‘ financial self-interests.
As we can realize professionalism seemed to have experienced a serious
shift in definitions. On one hand, the former 1950‘s ―professionally‖
qualified firms‘ leaders as described by Wyatt and Toffler (with the
Spacek example), are strongly consistent with the definition identified by
Gendron (2002) with the central notion of serving the public. However,
actual ―commercial‖ auditors seem to conceive a professional auditor as
a good businessperson who seeks to provide a variety of useful services
to the firm‘s clients as described by Hanlon (1996).
Gendron (2001; 2002) illustrates interesting aspects of the tension
between
commercialism
and
professionalism
within
accounting
organizations. Gendron (2002) explains how in some way the
coexistence of this professional/commercial duality can benefit the
accounting organizations since it provides ―decision-makers with a
23
legitimizing space to influence the decision process differently‖
(Gendron, 2002, p. 661) and it offers an ―additional opportunity to
challenge decisions‖ (Gendron, 2002, p. 681). Having both logics as
coexisting pressures allows a certain suppleness and room for
justification when having to support a decision, which can benefit the
firm in certain ways. Gendron (2002, pp. 660, 665, 681) indeed argues:
Adapted from a current of research in organizational analysis,
[...] the firm sets the stage for auditors‘ decision-making by
configuring its organizational components (e.g., the firm‘s
partner-compensation scheme and client-acceptance policies)
in such a way that the professional and commercial logics are
under a moderate level of tension. That is, to sustain internal
cohesiveness and avoid anarchy in decision making, the firm
makes its organizational components more reflective of one
of the logics. In so doing, the firm sends auditors the signal
that it expects the logic to be significantly influential during
decision-making. However, to prevent the favoured logic
from having a disproportionately large impact on decisions
(which may, at times, not be beneficial to the firm), the firm‘s
organizational components are also to some extent reflective
of the other logic of action, whose role is to mitigate and
constrain the favoured logic.
Several means are used in the profession to initiate auditors
to the professional logic, and remind them of its dictates. For
example, auditors‘ codes of ethics generally emphasize the
chief notions upon which the legitimacy of the auditing
profession is predicated, namely, public service and
independence [...]. Concurrently, auditors are exposed to the
commercial logic through several sources, such as the
business literature that constantly stresses the importance of
the ―bottom line‖, as well as the firms‘ performance
evaluation reports that typically are based on indicators such
as ―profits per partner‖ (Covaleski et al., 1998). Auditors
therefore have to operate and make decisions in the midst of
the two logics of action, each of them carrying its own
representation of decision-making. These representations
oftentimes result in points of tension in day-to-day decision
processes. (Gendron 2002)
In an Accounting, Organizations and Society‘s special issue
devoted to auditing, Hopwood (1996, p. 217) wonders why
24
the rhetorics of commercialism and professionalism are still
promoted side by side in many parts of the world. In this
paper, I argue that it is to the advantage of the firm to
perpetuate such contradictory rhetorics via its organizational
components, which are precisely aimed at (loosely)
regulating the coexistence of the rhetorics. The principle of
complementarity within contradiction is in accordance with a
theme that has begun to appear in the professional and
academic literature, that is to say, that conflicting logics are
probably unavoidable in any human organization, and are not
necessarily unhealthy since, when properly played out, they
provide an additional opportunity to challenge decisions [...].
In sum, the author argues that encouraging the simultaneous existence of
professionalism and commercialism can benefit accounting firms‘ audit
functions. Practically speaking, the idea is to constitute an organizational
climate which maintains the option towards both logics within its
processes in order to adapt its approach according to case-specific
interests. Yet dramatic consequences may ensue when one of the logics
prevails to the point of rendering the other logic almost non-influential.
In sum, the relationship between professionalism and commercialism is
not
necessarily detrimental;
the
above
literature
suggests
the
unavoidability and the beneficial outcome from a ―healthy‖ relationship
between the two. Yet auditing literature indicates that commercialism
increased its ascendancy within accounting firms – to the point that it
jeopardizes the ―healthy‖ equilibrium. Which consequences are
understood to ensue from the predominance of commercialism in
accounting firms?
Commercialism’s takeover
I here argue that professionalism is in the process of being overshadowed
by commercialism in the accounting profession and to do so, I principally
intend to expose how a major (perhaps the biggest) financial debacle was
25
potentially caused by commercialism‘s ―takeover‖. However, it needs to
be stressed that even though in this study my discourse tends to
generalize the accounting profession as deeply mercantile-driven, I do
not consider as universal, or exclusive, this facet of the profession – but
plainly significant. Additionally, I aim to emphasize that previous studies
supporting the potential linkage of accounting profession to financial
debacles do not propose absolute causality effects – but simply suggest a
potential (though persuasive and plausible) linkage.
Up to this point, through the literature review, we have noticed that the
auditors‘ role of protecting the public is a significant one, and that in
certain cases these professionals have failed to respond to society‘s
expectations on the matter. Literature also indicates that professionalism
and commercialism often conflict in the decision-making arena within
accounting firms. It is also highlighted that the definition of a
professional auditor seems to have drastically shifted from a serious
watchdog perspective to a business oriented client-pleasing perspective.
Up to this point, however, we did not specifically link audit failures to
the increasing influence of commercialism.
In this section, I rely on the academic literature to relate the progressive
tumbling of professional auditing to the crusade of mercantilism. Wyatt
(2004, p. 45) indicates:
The accounting profession has been beaten up badly in the
media over the last few years, and with some justification.
The Forces at work were numerous and complex and
different investigators place emphasis on a variety of
phenomena that created the environment in which Athur
Andersen disappeared and the reputation of the entire
profession was tarnished. Some of these forces were not new
such as: corporate and individual greed, delivering services
that acted to impair independence, becoming too cozy with
26
clients, and participating actively in finding ways to avoid the
provisions of accounting standards.
In general, this previous citation suggests that the newly adopted
definition of ―commercial‖ auditors characterized as client-pleasing
businesspersons is significantly influential within audit practice. Wyatt
relates this to cases of audit failures as reported in the media and popular
press. As added by Gendron (2002, p. 664):
Commercial auditors are described in auditing literature as
striving to make audit activities profitable within a short to
middle term horizon, their driving motivator in the workplace
being remuneration (Humphrey & Moizer, 1990, p. 232;
Willmott, 1986, p. 576). As a result, commercial auditors are
concerned about their ability to satisfy the needs of company
managers, who are viewed as those who largely influence
audit renewals (Hanlon, 1996). Commercial auditors
therefore tend to favour auditees‘ interests, striving to be
considered in the eyes of management as business advisors in
order to obtain audit renewal and consulting engagements
(Kaplan, 1987, pp. 6–7).
This description of the latest version of a ―commercial‖ auditor is
radically distinct from the Spacek‘s professional model. Continuously
pleasing the clients in order to ―make audit activities profitable‖ is now
often emphasized. A common technique used to make audit activities
profitable is the cross-selling of various consulting services to audit
clients. As rapidly introduced above, the rise of consulting brought
auditing to become more and more a commodity. As mentioned by Wyatt
(2004, p. 49):
As we moved into the 1990s, the Securities and Exchange
Commission expressed increasing concern about both the
range of services rendered and the increasingly large billings
related to consulting services. The SEC challenged several
firms, alleging that certain services impaired the
27
independence of auditors, but the Commission was not able
to demonstrate any direct tie-in between consulting fees and
granting of an inappropriate opinion on financial statements
by auditors.
In accordance with the SEC‘s viewpoint, several studies relate the rise of
commercialism and consulting services to the Enron-Andersen debacle.
Wyatt (2004, p. 50) explains the downfall by stating that:
In essence, the culture of the leading firms in the profession
had changed. New personnel who lacked a background that
placed prominence on accounting professionalism gradually
gained increasing influence in accounting firms. The
consulting arms were rapidly growing and were gaining
higher compensation levels than the audit and tax partners.
The leaders of the audit and tax practices felt increasing
pressure to grow revenues rapidly and, more importantly, to
grow profit margins in their service areas. Those with a
facility to sell new work advanced more rapidly. Crossselling a range of consulting services to audit clients became
one of the important criteria in the evaluation of audit
partners. Those with the technical skills previously
considered so vital to internal firm advancement found
themselves with relatively less important roles. […] The
focus on delivering quality professional service did not
disappear, of course. No one rang the bell in a firm and
announced, ―Quality professionalism is out!‖ On the other
hand, keeping the client happy and doing what was necessary
to retain the client achieved a prominence that did not exist
prior to the advent of the consulting arms.
It is worth stressing that Wyatt worked many years as partner in Arthur
Andersen. He also adds (p. 50):
Primarily commercial interest had undermined the core
values of the professional firm. The issue was not how the
delivery of a particular consulting service might affect the
auditors‘ judgment. The issue was not how the existence of
consulting fees that were greater than the annual audit fees
might affect the auditors‘ judgment. The issue was how the
28
increasing infusion of personnel not conversant with, or even
appreciative of, the vital importance of delivering quality
accounting and audit service affected the internal firm
culture, its top-level decisions, and the behavior patterns of
impressionable staff personnel. It wasn‘t that consulting
personnel were unprofessional in performing their work, it
was that their actions and behavior were far more
commercially driven than would be acceptable for audit
personnel.
Wyatt illustrates a perspective through which the over-emphasized focus
on cross-selling consulting services to audit clients increased the infusion
of ―[n]ew personnel who lacked a background that placed prominence on
accounting professionalism‖ and these employees gradually gained
significant influence within accounting firms. As expressed by Wyatt, the
shift was progressive, ―[n]o one rang the bell in a firm and announced,
―Quality professionalism is out!‖‖ and therefore it might have been
manifested subtly through the auditing functions of the firms. Toffler‘s
following example provides insight into how the manifestation of the
commercialism‘s takeover occurred in the backstage of daily life.
Through the publication of her book, Toffler (2003) expressed her
personal experience at Arthur Andersen before the firm collapsed. At one
point she explicitly explains how, due to commercialism‘s triumph
within the firm, she found herself in a delicate situation for which her
ethical behavior characterized her as a ―consultant from hell‖. Indeed,
Toffler (2003, pp. 65-66) explains:
At that point I did what I thought was the only ethical thing
to do – but something that from Arthur Andersen‘s
perspective was the equivalent of pulling the pin on a
grenade. I wrote a note to the CFO saying that the problems
([concerning issues towards the CFO‘s organization which
was an audit client of the firm)] originally raised had not
been addressed. ―As far as I am concerned,‖ I wrote, ―you are
still sitting with the same vulnerabilities now that you had
29
when we started this project.‖ I cc‘ed [the engagement
partner] on the note, but I didn‘t show it to him first, knowing
that he would go ballistic. But I thought it was my obligation.
Needless to say, [the engagement partner] did indeed go
ballistic. For him, I was the consultant from hell. As soon as
he received the note, he called, spitting venom. My
recollection of the conversation goes like this: ―How could
you have sent something like that without showing it to me
first? This is a ten-million-dollar audit client! How dare you
put anything like this in writing? We never put anything like
this in writing! How dare you tell the client there is a
problem? If there is something to be told to the client, you
tell me and I will talk to the client.‖ I apologized, but
honestly, I wasn‘t that sorry. I simply thought the client
should know, and I didn‘t have any reason to believe that he
would ever hear this from anyone else. I did get a nice note
back from the CFO, but the partner and I never spoke again. I
had made him look bad and I had committed the cardinal sin
of displeasing his prize client and threatening his livelihood.
This example describes the general perception of Arthur Andersen‘s
unethical and doubtful culture fostered within the firm before its collapse.
It characterizes an ethical act as ―pulling the pin on a grenade‖ and it
describes the practitioner aiming to pull that ethical act as ―the consultant
from hell‖. It expressly favours reassuring a ―ten-million-dollar audit
client‖ rather than voicing problematic issues. The excerpt illustrates how
the culture of consulting services‘ personnel as described by Wyatt
(2004) spreads onto the auditing personnel.
Gendron & Spira (2010, p. 285) present the fairly overconfident attitude
of the Arthur Andersen‘s (AA) leaders that characterized aggressive
business development methods as the primary focus of the firm‘s audit
function in the late 1980‘s:
[A] key discursive feature of AA is the gradual ascendancy of
commercialism, which allegedly undermined auditor
professionalism. [...] Squires et al. (2003, p. 97) refer to the
imagery of the tiger as a telling indication of an
organizational climate that emphasized mercantilism:
30
Worried that increased business competition was
eroding profits, some partners argued that Arthur
Andersen had to adopt aggressive marketing
strategies, like those used by Andersen
Consulting, to stay viable, and at the 1989 partner
meeting, the themes were profit and sales. The
rock song ‗‗Eye of the Tiger‖ boomed from
speakers, and a live tiger was brought on stage.
The new head of the US audit division, Richard
Measelle, declared that raising profit would
‗‗require the eyes of a tiger, eyes that seize
opportunities, eyes that are focused on the kill.
It‘s the eye of the tiger, it‘s the thrill of the fight‖.
We can note that the perspective within Arthur Andersen had at that
point considerably changed since Spacek‘s reign of the 1950‘s. ―[A] live
tiger was brought on stage‖! This clearly reflects the fierceness that a
once known to be professional and respectable firm had adopted and the
reason of such aggressiveness was remedying to eroding profits. Gendron
& Spira (2010, p. 285) add:
The tiger metaphor contradicts the profession‘s historical
ideals of auditor independence and public service, and is
quite revealing about what is increasingly seen in the
literature as the entrepreneurial mindset characterizing the
firm‘s leadership. The divorce of Andersen Consulting from
AA at the turn of year 2000 is also viewed as having
increased the level of commercial pressure on AA partners,
who suddenly lost an important source of revenue. In sum,
commercialism was a significant part of the organizational
environment in which individual identities evolved at AA
and, [...] it often intervenes in interviewees‘ efforts at making
sense of the firm‘s collapse.
Up to this point, I have broadly described the ―takeover‖ by referring to
the Arthur Andersen‘s demise which is certainly the most powerful
example in hand to illustrate accounting firms‘ overwhelming desire for
31
commercial success and the types of issues which could emerge from
such desire.
However, Suddaby et al. (2007) somewhat extrapolate this overemphasized focus on commercialism as being present in all, once known,
Big Five1 accounting firms. In fact, through their study on regulationand governance-related processes throughout accountancy profession,
they observe that:
Another important characteristic of professional governance
is the myth of separating professional practice from
commercial interest. (p. 337)
As the large accounting firms grew in size, so too did they
expand the range of services provided. Once the market for
traditional audit services became saturated, firms became
increasingly reliant on new services to maintain revenue (and
profit) growth. (p. 340)
More directly, however, representatives of Big Five firms
adopted the economic rhetoric of their corporate clients,
justifying their expansion to new business services as being
in the best interests of the consumer, which ultimately is in
the public interest (Suddaby & Greenwood, 2005; Willmott,
Cooper, & Puxty, 1993). Conflating public interest with
consumer interest is, perhaps, the clearest indication of the
degree to which the social norms of professional governance
had become displaced within the Big Five. (p. 344)
In summary, a number of studies indicate that commercialism did at
some point prevail in accounting firms, thereby reducing the influence of
1
―In 1970 there were eight [...] firms but mergers in 1989 created the ―Big Six‖. The
1997 merger of Price Waterhouse and Coopers Lybrand reduces this to the ―Big Five‖
and the demise of Arthur Andersen has left the ―Big Four‖. The ―Big Four‖ refers to the
four largest international accounting firms in the world and consist of Deloitte Touche
Tohmatsu, Ernst & Young, PricewaterhouseCoopers and KPMG.‖ (Suddaby et al.,
2007, p. 338)
32
professionalism. Profit was a key driver; and the emphasis was to please
clients in order to ensure a continuous flow of profits.
Aftermath
In 2010, Gendron and Spira published a field-study research on the
collapse of Arthur Andersen. A majority of their interviewees (i.e.,
former partners and employees of the firm) present commercialism as
one of the main reasons of the firm‘s scandalous downfall.
As
the
importance
of
commercialism
(to
the
detriment
of
professionalism) only progressively gained influence within accounting
organizations, the reality of its actual effects may not have been obvious
within the firms. I insist on this gradual progression since it might have,
through its process of application, attenuated the concerns and therefore
eliminated part of the attention that it deserved to attract. As Wyatt
mentioned, ―no one rang the bell‖! Gendron & Spira (2010, p. 296)
further specify:
[T]hrough the collapse of Enron the link between
commercialism and audit failure gained significantly in
reality in the eyes of a majority of our interviewees.
It is as if an obvious scandal was required for auditors (but not all of
them) to realize the shadowing power and reality-shocking presence of
commercialism within accounting firms. As if the puzzle could only at
the time of the collapse actually be completed. Was the auditing staff
blinded or was the takeover too complex to identify its effects through
the professional weaknesses created by commercialism?
33
Indications of blindness are found in literature, especially in auditors‘
endless desire of pleasing clients by developing imaginative justifications
to support the clients‘ sometimes weak standpoint. Gendron & Spira
(2010, p. 285) mention:
Consistent with the view that commercialism exerted
significant influence in the firm, [...] a number of AA
auditors (including the interviewee) were imaginative in
trying to find reasons for supporting their clients‘ standpoint
on accounting matters, therefore casting doubt on the claim
of auditor independence.
Some interviewees view commercialism as having exerted a subtle (but
significant) influence on the behaviour of Enron‘s auditors. Gendron &
Spira (2010, p. 294) indeed state:
[Some interviewees considered] that commercialism
contributed significantly to the firm‘s debacle, believing that
partners involved on Enron‘s account were influenced, more
or less consciously, by the fear of losing the audit
engagement. Again, the rivalry between AA‘s accounting and
consulting areas is seen as a key factor in having engendered
client fearfulness.
Losing the client could reflect a weak performance for the leading
partners in charge, and, through AA‘s aggressive commercialistic-driven
culture, weak-performing leaders represent the prey for the Tiger!
Extreme measures, such as exclusion from AA‘s partnership, and thus
potentially ending one‘s professional career, were part of the treatment
reserved for weak-performing preys to the eye of AA‘s Tiger. As
explained by Gendron & Spira (2010, p. 296):
Several of the partners that we interviewed highlight that
underperforming partners in AA faced the very concrete
34
possibility of being banished from the partnership.
Participants also mentioned that in the last few years
preceding AA‘s downfall, partners were feeling literally
―squeezed out‖ by the firm‘s intense efforts to generate an
increasing and unrealistic level of fee per partner. All of this
suggests that individual partners in large accounting firms are
not considered as owners, but instead as managers in charge
of individual profit centres (i.e., their ―client portfolio‖).
This representation of daily life within large accounting firms is far
remote from the golden age representation discussed above. At the very
least, commercialism is a serious concern, not only for academics as
object of study but also for practitioners given the detrimental
consequences it can generate. One obvious question is the extent to
which post-Enron regulation was successful in reining in the ascendancy
of commercialism within accounting firms.
Corrective measures
Several studies agree to say that the new sets of rules swiftly adopted in
the aftermath of the Enron debacle are nothing but a start towards
concrete salvation of the problematic issues at stake within the
accounting profession. As Toffler (2003, p. 249) states:
Arthur Levitt‘s [(from the SEC)] challenge to the accounting
industry to separate most audit and consulting services is now
largely a fait accompli, thanks to the Sarbanes-Oxley Act.
Yet it hasn‘t gone far enough. Still not included in the new
rules is a restriction on much of the kind of consulting that
Arthur Andersen fell under the heading of risk management
and litigation support services. Having experienced it
firsthand, I believe that the pressure to sell consulting
services may have been the single most powerful factor in
creating this culture of greed. Make the audit work for the
client so it will stick with you and then buy more consulting
services; put your consultants against one another so they
will do anything to get the engagement; create needs in the
client that don‘t exist, then provide services to meet those
35
needs; turn your partners into salespeople instead of careful
analysts, and pray the God of revenue. The new regulations
are a good start, but we have a long way to go.
Indeed as presented by Toffler‘s previous excerpt, separating audit and
consulting services is just a good start because modifying the culture and
the greed built-in accounting professionals is a very difficult challenge.
Wyatt (2004, p. 51) supports this by logically indicating that ―behavioral
changes that have evolved within firms over the past 30 years‖ will
obviously not be solved with one simple addition to the set of rules that
govern accounting practice. Wyatt (2004, p. 51) mentions:
The passage in 2002 of the Sarbarnes-Oxley legislation will
help establish boundaries on the scope of nonauditing
services, and it should improve the qualification for audit
committee members (among other provisions); however, the
underlying causes of the decline in accounting
professionalism remain in place. The leaders of the various
firms need to understand that the firm‘s internal culture
requires a substantial amount of attention if the reputation of
the firm is to be restored. No piece of legislation is likely to
solve the behavioral changes that have evolved within firms
over the past 30 years.
Finally, Gaa (2007, p. 34) argues that the regulatory process is probably
not the exclusive type of solution necessary for three reasons that he
explains as follows:
There are several reasons why this legalistic compliance
approach, even if it specifies necessary conditions, is not
sufficient for guaranteeing that an auditor will protect the
interests of investors […]. First, no set of rules is complete
[…]. Second, the world changes over time, and rules
generally change only in response to problems. That means
that they are nearly always out of date, at least to some extent
[…]. Third, even though the independence rules are intended
to work for the benefit of investors, compliance with
36
independence rules does not guarantee that auditors (acting in
accordance with them) will in fact protect investors‘ interests.
The role of protecting the interest of investors cannot be regulated
through a ―legalistic compliance approach‖, according to Gaa.
Drawing on my literature review, it is reasonable to maintain that the role
of auditors in our present economy is questionable due to the detrimental
effects of commercialism within accounting firms. The Enron-Andersen
case has been interpreted as ensuing from the excessive embracement of
mercantilism within accounting firms. Further, doubts are raised
regarding the effectiveness of post-Enron regulation in reducing the
powers of commercialism in the profession. Assessing the extent to
which commercialism exerts influence today undeniably constitutes a
relevant research endeavour.
37
METHODOLOGY AND ASSUMPTION
The purpose of the section is to present the study‘s assumption and the
type of approach utilized in order to investigate it. In particular, I expose
the different methodological steps followed to carry out the research: the
recruitment and description of the subjects, the data collection done
through the interviewing process, the analysis of the data gathered and
finally the limitations associated with the study.
Assumption and approach
The aim of this research is to assess, in a post-Enron context, the extent
to which commercialism exerts influence on accountants‘ professional
practice. As presented through previous academic literature, the presence
of commercialism within accounting firms‘ environment is often
understood as having provoked serious issues throughout the accounting
profession (e.g., the Enron-Andersen debacle). Drawing on doubts
expressed by some researchers regarding the effectiveness of post-Enron
regulation, my personal assumption is that the commercial features
within accounting firms have not disappeared. Moreover, I assume that
mercantilism has considerably evolved in a way of maintaining its often
subtle influence over the profession. Having demonstrated that certain
risks are likely to emerge from an overemphasized commercialism within
the accounting profession, we can easily justify the relevance of the
present study.
As it will be shown in the subsequent chapters of the memoire, my
assumptions are fairly consistent with the empirical findings. Regarding
the approach utilized, my goal was to specifically concentrate my efforts
in collecting fresh ideas and perceptions of professional auditors towards
38
the dynamic of the market in which they practice. Gendron & Spira
(2010) expressly indicated the lack of knowledge with regard to the
tensions between commercial logic and the professional logic within
accounting firms in the post-Enron era. The analysis technique I chose to
retain in order to lead the present research is a qualitative based
approach. As Gendron (2009, p. 124) indicates:
I […] stress the relevance of conducting qualitative research
on accounting and corporate governance phenomena, in spite
of the publication pattern of several dominant accounting
journals, which indicates resistance toward deviation from
quantitative orthodoxy. [...] The relevance of studying
accounting in action — typically using qualitative methods
— has been underlined by a number of accounting
researchers since the 1980s. [...] In sum, qualitative research
constitutes a relevant research method in the development of
better understandings of complex accounting realities and
processes.
The commercialism issue at stake in the present research specifically
refers to a relatively complex reality of the accounting profession. The
interview process was explicitly aimed to be adaptable to the particular
avenues of discussions. The ambiguity and flexibility surrounding the
tension between commercialism and professionalism, and the ways used
to resolve emerging dilemmas, obviously call for methodological
―openness‖. Moreover, Gendron (2009, p. 130) adds:
[Q]ualitative research is a relevant and legitimate mode of
inquiry. It can provide thick descriptions of new phenomena;
it can develop or refine theories about accounting and
governance in action; and it can sensitize academics to the
realities of practitioners and allow meaningful case studies to
be developed for teaching purposes.
In the following sections I develop more specifically the methodology
used to deploy this qualitative research.
39
Method
A main feature of the present study is to identify and analyze the possible
ways that auditors and their firms employ to control the commercial
aspects of their auditing services. Through my personal practice as an
auditor I realized that questioning directly auditors on the influence of
commercialism may not be productive, commercialism and impairment
to independence being often considered taboos. Hence I thought that a
focus on control mechanisms, along with meeting individually with these
professionals, would be more likely to generate interesting discussions.
To carry out the investigation I proceeded via semi-structured interviews
with professional auditors. According to Power (2003), there is very little
of what is now called ―fieldwork‖ in auditing and one reason for this is
that professional service firms are hesitant ―to provide research access to
client data and live audit assignments, although this is more often
assumed than demonstrated‖. ―Because the largest accounting firms
operate as private partnerships, relatively little is known about their
governance structures‖ (Jenkins, Deis, Bedard, and Curtis, 2008, p. 58).
Through my personal professional networking, I had the privilege of
obtaining interviews with professional auditors from diverse firms.
Therefore we can say that a number of auditors ―agreed to participate in
the field research, thereby allowing me to look beneath the surface of
audit practice into the ―blackbox‖‖ (Power, 1994, p. 304). In order to
manage the interviews properly and ensure preservation of my
relationships with the interviewees, there had to be a certain level of trust
exchanged between the interviewer and the interviewee. As Gendron
(2002, p. 661) states:
The field study was chosen as the preferred mode of
investigation since this method allows the investigator to
examine the conditions in which a phenomenon of interest
occurs […]. The field study method is also likely to enhance
40
the researcher‘s ability to build relationships based on trust
with interviewees, thereby making them more willing to
freely respond to questions […]. Building trustworthy
relationships with interviewees was critical to the present
research since auditors may be reluctant to discuss sensitive
issues such as the firm‘s practice development strategy and
partner-compensation scheme, as well as the clientacceptance decision per se [...].
Studying the conditions in which a social phenomenon occurs is a
complex and challenging goal. With regard to this study, analyzing how
commercialism (social force/phenomenon) is to be manifested according
to human subjects (practitioners within accounting firms‘ audit functions)
is not something that can rigidly be approached. A dynamic and flexible
process therefore needs to be deployed: in my case interviews centred on
auditors‘ perceptions, opinions and personal experiences regarding the
control of commercialistic forces. Also, if we wish to eventually enhance
the processes and controls relating to commercialism within accounting
firms, it is relevant to obtain views of people involved in these important
organizational processes, as the present study aims to do by interviewing
practitioners. Further, this way of representing the pragmatic purpose of
my research may have helped in establishing trustworthiness in the eyes
of interviewees.
I nevertheless concede that group interviews and general anonymous
surveys could have been pertinent data collection methods. Nonetheless,
I personally believe that highly relevant data would unlikely have been
gathered through a survey, given the inherent lack of flexibility in
capturing rich and unpredictable data. Survey questionnaires are
inescapably directed in ways which favour certain angles to the detriment
of others. Group discussions were also not to be privileged since the
presence of other professionals in the same room would, in all likelihood,
have considerably limited the openness level of each participant.
41
Recruitment and data collection
I approached (through e-mail and/or telephone) approximately 15
professional accountants with auditing experience (mostly in the
province of Québec) to participate in the research. A number of these
individuals were persons of my personal and professional acquaintance. I
ended up interviewing 13 subjects from which three were not at the time
external audit practitioners (see Table 1); the latter however respectively
had significant previous auditing experience at two different Big Four
firms and one medium size firm. According to Cooper & Robson (2006,
p. 416), ―[a]ccountants working in industry have a different sense of their
responsibilities than those working in large firms, who again have
different values than those who work in smaller public offices or those in
the public, voluntary or community sectors (Hastings & Hinings, 1970)‖.
Encouraging the participation of some former auditors was relevant,
given that they may be able to benefit from temporal distance in
reflecting on their audit firm experiences. Life experiences in smaller
firms may also be significantly different from those in larger firms.
I had the privilege to interview men and women of different experience
levels in auditing. From the 13 subjects, eight had their audit experience
within three of the Big Four firms and five from four different medium
size and small audit firms. Seven of the interviewees were at partner
level. With regard to the three subjects who were not practitioners within
audit firms at the time of the interviews, they respectively have 3, 12, and
14 years of auditing experience. The audit experience level of the other
ten interviewees is high, varying from eight to 31 years. As we can
realize the subjects with whom I had the opportunity of exchanging
through these 13 interviews are very well experienced professionals who
had a lot to say on auditing, business and the relationship between the
two. In fact the average number of years of experience accumulated by
the subjects who participated to the research, for general business
42
experience and for specific auditing experience, is respectively 20.9 years
and 16.8 years.
I began each interview by describing the objective of the research and by
introducing an informed consent form (see Appendix 1, in French),
which both the interviewer and interviewee needed to sign. The academic
institution through which I proceed for the current study has established
rules that I have to respect when approaching human subjects through my
research project. These rules imply that before approaching any human
subjects, I previously needed to obtain the approval of an ethics
committee to which I had to submit in-depth documentation of my
research method and goals. Through this documentation, one of the
things I had to explain was specifically how the data was going to be
cautiously manipulated throughout the project and after. I obtained the
approval from the ethics committee on June 29th 2009. I could only then
start approaching potential interviewees for the data collection process
that went on until the beginning of December 2009.
I asked interviewees for permission to tape the interview, while
emphasizing that complete anonymity would be provided to them and
their current employing organization. Full transcripts were made for each
of the interviews. Participants were told that they would have the
opportunity to subsequently verify the accuracy of the transcript and add
changes that they feel might be needed to make them comfortable with
what they said during the interview. Only three out of the thirteen
subjects brought changes to the transcripts; all of these changes were
minor and had no significant effect on the analysis of the collected data.
Several steps were taken to protect the identity of interviewees. First, I do
not disclose office identification. Second, in the text I do not link
interview excerpts with the corresponding individuals. Instead I use the
following categories when defining sources of quotes: active/former,
43
partner/senior
manager/manager.
These
categories
refer
to
the
interviewee‘s status at the time of the interview.
The interviews were held in semi-structured mode and in most cases at
the working premises of the interviewees. As mentioned by Gendron
(2002, p. 668):
[I]nterviews, […] are recognized as particularly effective
when the researcher is interested in in-depth responses from a
relatively small number of interviewees (Palys, 1992, p. 166).
The interviews were semi-structured to allow interviewees to
express themselves according to their own systems of
meaning (Deslauriers, 1991, p. 36).
The length of verbal interviews ranges from 45 to 100 minutes through
which diverse themes related to commercialization and control were
discussed. After having settled the administrative part of the interviews, I
presented to the individuals a list of questions that would help guide the
discussion (see Appendix 2, in French); I did not necessarily follow the
sequence in which the questions are listed.
Specifically, the interviewee was first questioned on her/his professional
experiences. Afterwards, I was interested in knowing their general
perception of the market dynamic for auditing services, and if their
perception had changed in the post-Enron era. I also asked about their
general perception of the competition level between firms with regard to
business proposals for audit engagements, and if they thought
competitive rivalry is a good thing in the financial audit domain. In
particular, I wanted to hear the subjects express themselves towards their
audit firms‘ governance and control system (including promotion
mechanisms), especially their views on the extent to which
commercialism is adequately controlled within their firm. Participants
44
were also questioned on sources of commercialism (whether the
pressures engendered by competitive rivalry are stronger than the internal
pressures within the firms in trying to attain good financial results on the
audit engagements), the low-balling approach, and regulation which
seeks to control commercialism.
Method of analysis
I used a flexible analysis method and started by a general categorization
of the statements gathered. As mentioned by Miles and Huberman (1984,
p. 22):
From the beginning of data collection, the qualitative analyst
is beginning to decide what things mean, is noting
regularities, patterns, explanations, possible configurations,
causal flows, and propositions. The competent researcher
holds these conclusions lightly, maintaining openness and
skepticism, but the conclusions are still there, inchoate and
vague at first, then increasingly explicit and grounded.
Patton (1990, p. 372) added:
The problem is that […] there are no absolute rules except to
do the very best with your full intellect to fairly represent the
data and communicate what the data reveal given the purpose
of the study. [...] However analysis is done, analysts have an
obligation to monitor and report their own analytical
procedures and processes as fully and truthfully as possible.
I did not use any particular program or tool to proceed with the
categorization of the comments read through the transcripts. In fact, I
first proceeded in identifying general themes of discussion that were
emerging from the interviews. I identified 13 different themes:
45
Competition between audit firms
Business development in auditing
Making audit engagements profitable
Pressures from the clients
Distinguishing the Big Four from the other firms
Distinguishing publicly owned clients from the other clients
Distinguishing professional auditors from the other professions
Low balling approach
Necessary evil
Mysterious role of auditing
Auditing standards
Ascension in the audit firm
Possible solutions
I utilized an iterative process to identify these 13 themes through multiple
and extensive reading of the transcripts. Practically speaking, I created a
file for each theme identified and I proceeded to in-depth readings of the
transcripts for each interviewee from which I copy-pasted each relevant
passage relating to the selected themes in the created corresponding file. I
was aiming to gather opinions that went in the same direction to advance
identification of general patterns on the issue by the interviewed
practitioners. I was keeping in mind through all this analysis process my
ultimate goal. My goal is to appreciate, from the subjects‘ points of view,
the extent of commercialistic influence in the post-Enron era.
Through advancement of the analysis, I ended up narrowing down the 13
themes into two main topics: pressures ensuing from the auditors‘ desire
of being perceived as commercially effective and pressures ensuing from
46
the auditor‘s desire of privileging the clients and remaining competitive
in the market.
While the gist of my analysis aims to identify indications of
commercialistic influence, I nonetheless sought to take into account ideas
expressed which opposed my working assumption – and the analysis
chapters below will present some evidence on the matter. Right from the
start, I was also aware of a potential bias on the part of interviewees. As
mentioned earlier, most of the participants were auditors at the time of
their interview. Oftentimes they presented confident views of the
profession and a profound belief that commercialism is currently under
control in accounting firms. Importantly, I interpreted such statements as
frontstage representations – unless some convincing evidence or
anecdote is provided by the interviewee. I often recognized through the
course of the interviews that many participants actually stated the
common behaviours of auditors as the ones promoted by the codes of
ethics or audit regulators. These statements were communicated in a very
idealistic manner while, on the other hand, when some of these
interviewees
were
exposing
genuine
examples,
they
explicitly
demonstrated how commercialism generated significant risks. It can be
added that three of the subjects were not auditors at the time of the
interviews and thus, their comments were probably free of bias since they
had nothing to lose and were not under the ascendancy of their
accounting firm indoctrinating mechanisms (Gendron and Spira, 2010).
Indeed, I could recognize that former auditors seemed keener in
disclosing some relevant risks emerging from commercialism within
accounting firms‘ audit functions while current auditors were
significantly more reluctant regarding such openness.
47
DATA ANALYSIS
This section is designed to offer a straightforward examination of the
empirical results ensuing from the data regarding the present study. I
would like to remind that my general approach through this research was
to openly discuss the ―business facets‖ of auditing with professional audit
practitioners in order to establish their appreciation towards these facets
in the post-Enron era. The collected data suggests that these ―business
facets‖ currently play an ongoing significant role in the audit setting
within professional accounting firms and, at this point, my goal is to
expose the ground of discussions through which I could reveal such
suggestion. As mentioned earlier, there are mainly two axes of analysis,
the first one principally relates to the pressures ensuing from the auditors‘
desire of being perceived as commercially effective (section 2 below)
while the second axe of analysis will concentrate on the pressures
ensuing from the auditor‘s desire of privileging the clients and remaining
competitive in the market (section 3 below).
1- General aspects
Before developing the core sections of the empirical analysis according
to the two axes identified above, I will briefly introduce how the subjects
of the study very generally appreciated the existence of commercially
driven pressures throughout the profession; at that point I will also define
―pressure‖ in the sense of the present paper. Moreover, I will briefly
show how subjects perceived the importance of commercialism and its
negative effects on the profession and on the protection of the public. I
will then present how regulators have sought to contain these
commercialistic forces; doubt can nonetheless be cast on the extent to
which regulatory mechanisms can indeed fully reach their objectives.
48
Through these topics, I seek to set the stage for the core part of my
analysis.
1.1- Existence of commercial pressures?
―Audit has always been a business‖ (Power, 2003, p. 382) and ―during
the 1980s and 1990s the audit approaches of the large firms changed and
evolved as economics of auditing became more sensitive‖ (Power, 2003,
p. 382). According to Power‘s comments, it would be consistent to
expect that the subjects of the study will corroborate the existence of a
certain commercial pressure throughout the auditing practice. Along this
line of thought, I will present the outcome of a general question that was
asked through the interviews and that helps introduce the empirical
findings. That question was: ―do you find that there is a commercial
pressure evolving around auditing services?‖ Several excerpts expressly
relate to the existence of such mercantile pressures:
Effectively, yes. As I always say, we are in business and we
are in business to make money. (ACTIVE PARTNER,
OCTOBER 2009) 2
[…] Of course in auditing there is an important pressure
linked to the recurrence of the service. […] Of course there is
a pressure on the profitability performance, but it is a
pressure to say like any other [business], that we have to do
better, but never to say not to do what needs to be done.
(ACTIVE PARTNER, OCTOBER 2009)
Absolutely! [...] It‘s always going to be like that [...] it‘s
about the performance rate of the engagement. (ACTIVE
SENIOR MANAGER, OCTOBER 2009)
2
For the data collection of this study, the interviews were held in French, and
therefore, all relevant interviews’ excerpts were translated in English for the purpose
of this memoire.
49
It is obvious! […] The process starts from a time budget for
each engagement. […] [E]ffectively it puts a pressure.
(ACTIVE PARTNER, OCTOBER 2009)
There is a pressure to increase the rates [of profitability], it‘s
a structured pressure intended to be pushed down to the staff.
(ACTIVE PARTNER, OCTOBER 2009)
These previous extracts indicate that the logic of commercialism is often
recognized as being matter of fact by professional auditors within
accounting firms. Many statements include expressions such as ―of
course‖, ―absolutely‖, ―it is obvious‖, ―always‖ to characterize the
presence of commercial pressures; these expressions fairly substantiate
how impregnated these pressures are within the audit practitioners.
Furthermore, these expressions potentially reflect the absence of doubt
towards the being of such pressures in the ―business‖ of auditing. These
pressures will furthermore be analyzed throughout the following sections.
Indeed, a major purpose of this study is to evaluate to what extent these
pressures influence auditors‘ behaviours and how do these pressures
manifest themselves through the audit practice in our post-Enron era.
1.2- What is pressure?
What is pressure in the context of professional auditing practice? How is
it manifested, encouraged and controlled? Does it impact the quality or
the profitability of the services? The present study is designed to shed
some light with regard to these questions. Ordinarily, pressure is the
effect of a force applied on something or someone. In our case, pressure
can be understood as a social force applied on the organizations, or a
social or self-generated force applied on the individuals.
50
Very generally speaking, I suggest that a common factor associated to
pressures in profit oriented organization (including accounting firms) is
the aim of getting the job done with the least amount of time; this usually
means using less resources, incurring less costs and therefore, generating
more profits. In fact, ―[e]ver since scientific management guru Frederick
Winslow Taylor started timing assembly-line workers with a stop-watch
in the 1800s, there‘s been a push to work faster‖ (Penttila, 2003 p. 1).
Penttila (2003 p. 1) adds that ―[f]or small companies, the pace of keeping
up with the competition "is pushing very hard on everybody, from
management all the way down," [...] seeing employee complaints over
retention and job satisfaction as a result. [...] [Also,] focusing too much
on pace increases error and turnover rates.‖ At this point, without
explicitly linking the ―pressure‖ topic to auditing practice, Penttila‘s
comments suggest a certain setback regarding the application of
pressures within the working environment in general.
Through this study the aim is to appreciate, from a practitioner‘s point of
view, the description and effects of pressures ensuing from
commercialistic features in the post-Enron audit scene. More specifically
the aim is to investigate, in our post-Enron era, the significance of these
pressures, as well as their evolution towards audit practitioners wanting
to be perceived as profitable within professional accounting firms and
wanting to privilege clients and maintain a decent positioning in the
financial audit market.
1.3- Commercial pressures and its effects
In this section, I will briefly discuss interviewees‘ appreciations of risks
and dysfunctional behaviours possibly emerging from commercialism in
order to set the relevance of the studied topic. I will also suggest that the
general reduction of audit quality articulated through dysfunctional
behaviours in response to mercantile forces is not constrained to the past
51
but remains valid in our post-Enron era. Today‘s auditors are often
confronted to dilemmas and sociological ambivalence situations, in
which trade-offs between cost and quality are centerpiece.
As indicated by a former partner from a small firm:
My worry is that […] as soon as the issue is more financial
than professional, whether we like it or not, there is a risk.
(FORMER PARTNER, NOVEMBER 2009)
I asked how the risk could manifest itself and he replied:
Through the decrease of [work] quality, through the risk that
the auditor lacks of pure independence, and the risk that the
engagement does not undergo the required quality control
stages […]. It is a risk that could exist, and that could not
exist. However, unfortunately, as soon as you try to unite
profitability and internal [quality] control, it is two things that
do not bond together. (FORMER PARTNER, NOVEMBER
2009)
According to the interviewee it is clear that commercialism incurs
potential hazards in the auditing practice. S/he suggests commercial
pressures translating into important risks within the context of audit
engagements. Another former Big Four auditor explained that in the dayto-day operations pressures often ensue from views imposed by partners:
Well it is like having a 60-hour engagement that has to be
finished in 20 hours without lessening the quality [of the
work]. (FORMER MANAGER, OCTOBER 2009)
52
Interestingly enough, the interviewee substantiates this general comment
through reference to a specific situation he went through, in which he had
to devote an enormous amount of hours in a short period of time to
resolve a problem in an audit engagement:
[I]t took a lot of time and my mood wasn‘t good, because
whether you like it or not, it is your fault. But every
employee is different and that is why I had to come in
starting at 3:00am, because it stressed me, I did not want
anyone to criticize my work. [...] I wanted to reach my targets
and deliver the merchandise without cutting the corners short.
That was me. Others could have said ―ah it‘s ok‖ [...] and
that‘s it. It‘s a tricky situation because at the end you can
look bad [because of all the hours spent] but if you cut the
work short, maybe no one will notice and that‘s it.
(FORMER MANAGER, OCTOBER 2009)
This excerpt is a remarkable example of pressure, which is powerful
enough to motivate the individual to go in at 3:00am. It also indicates
that pressures are sustained differently by each individual; others do not
bother as much with quality in concluding ―ah it‘s ok‖. These previous
interview excerpts suggest that pressures to perform financially can lead
to dysfunctional/neglectful behaviour jeopardizing the protection of the
public. We can therefore observe that ―economic survival, from a shortterm horizon, may push the firm to reduce the time (i.e. cost) spent in
completing an audit‖ (DeAngelo, 1981a, b). Yet quality concerns push in
the opposite direction, driving firms to invest greater amounts of time
(Mautz & Sharaf, 1961; Holmstrom, 1984; McNair 1991).
Speaking of quality, more recently, Coram et al. (2008) have studied the
moral intensity of reduced audit quality (RAQ) acts and they have
concluded that these RAQ acts are deemed unacceptable practices as they
diminish the quality of audit work and increase the likelihood of an
inappropriate audit opinion. These authors maintain that anecdotal and
53
empirical evidence indicates that RAQ behavior does occur, and the audit
profession faces a significant challenge to identify ways to reduce or
eliminate this behavior. As shown below, my analysis suggests the
ongoing continuance of ―dysfunctional behaviour‖ in audit settings –
despite regulatory initiatives and the reputational concerns that large
firms are alleged to have subsequently to the collapse of Arthur
Andersen. These behaviours can, according to some authors, manifest as
under-reporting of chargeable time, shifting of time between clients and
within budget categories, and premature signoff (Kelley & Margheim,
1990; Choo, 1986; Margheim & Pany, 1986; Alderman & Dietrich,
1982; Lightner et al., 1982a, b; Gaertner & Ruhe, 1981). These
dysfunctions, often linked to RAQ acts, are assumed to ensue, at least
partially, from commercial pressures that are often inconsistent with a
professional focus on quality.
As stated by McNair (1991), providing a service for which quality,
except in times of extreme failure, is difficult to measure can create a
dilemma for the professional executing the work (Wilson & Grimlund,
1990; Holstrom, 1984; Allen, 1984b; Mautz & Sharaf, 1961). Indeed as
stated in McNair (1991, p. 637):
Holstrom (1982, 1984) formulates his model in a setting
where there are defined cost and quality tradeoffs [...].
Descriptive of the context of auditing, this cost/quality
tradeoff appears to create an inherent dilemma for the public
accounting firm (Chow et al, 1988).
It seems like a compromise between commercialism (cost reduction) and
professionalism (quality of the work) is required to take action. ―The
question that remains, though, is how this area of compromise, or
judgement, is defined within the organizational boundaries of the audit
firm, and subsequently conveyed to the individual audit staff member‖
54
(McNair, 1991, p. 637). Are they proper compromises (McNair, 1991)?
Through the present empirical analysis, the appreciation of the
professional auditors will try to provide some light on the matter, in
assessing the extent to which individual audit staff is influenced by
commercialism in the post-Enron era, and how. One interviewee stated:
[A]t one point you take a turn, you realize that quality costs
money and that you are no more competitive in comparison
to your environment. Quality is always important but it
cannot be the most important. It has to be considered as a
whole. There has to be cost-benefit analysis according to
your evaluation of the risk. (FORMER SENIOR
MANAGER, OCTOBER 2009)
His statement stresses that professional auditors inevitably are confronted
in making certain compromises related to commercial (or mercantile; or
economic) aspects even in this post-Enron era. Indeed, the excerpt
implies that commercialism can genuinely take over professionalism in
the auditing domain through certain compromises.
As Power (2003, p. 382) specifically stated:
[T]his makes auditing profoundly ambivalent because the
acute compromises that the auditor is forced to make as an
individual are rendered invisible.
Without suggesting any further empirical findings relating to the
sociological ambivalence, it might be relevant to remind the general
concept that underlies the present topic of discussion. If we consider
Power‘s statement and look back at the preceding interview excerpt, we
can picture an invisible compromise internalized by auditors which
55
potentially leads to cost/quality tradeoffs according to their risk
assessment. McNair (1991, p. 644) also said:
Sociological ambivalence [...] denotes the situation where an
individual appears to be pulled in psychologically opposite
directions.
Specifically, ambivalence occurs whenever conflicting signals about
desired behaviour are generated by the organization‘s management
control system (McNair, 1991), such as budgeting or promoting
processes. These two control mechanisms will be presented below as
playing a key role in promoting commercially-driven processes within
accounting firms. McNair also added:
Sociological ambivalence appears to be in an inherent part of
the audit setting, yet, given the fact that this embedded
dilemma is only communicated through informal
mechanisms (e.g. norms of performance and evaluation), the
problem passes from the firm to the individual auditor for
resolution (McNair, 1991, p. 645) [and ultimately, individual
auditors are forced to internalize and resolve this dilemma
through time budgeting and reporting process (Power, 2003,
p. 382)].
An ―ah it is ok‖ attitude can specifically reflect this kind of
internalization. In fact, auditors facing simultaneous professional and
commercial challenges might experience such ambivalences and
conflicting dilemmas that plausibly incur unwanted elements such as
RAQ acts (dysfunctional behaviours) or budget overruns‘ absorptions.
On the one hand, these RAQ acts may not be caught and therefore the
protection of the public is at stake. On the other hand, the budget overrun
may considerably undervalue the important efforts deployed by the
auditor and jeopardize how s/he will be judged in the performance
measurement process. These statements amplify the relevance of
56
studying professional auditors‘ appreciation towards commercial facets
related to the audit practice.
1.4- Regulation and issue cycle
Many regulatory initiatives have been established, in the aftermath of the
collapse of Arthur Andersen, to control and eliminate dysfunctional
behaviour jeopardizing the protection of the public through the audit
practice. Have they improved the situation? Regulatory agencies work to
ensure adequate governance of audit practitioners; in the past decade,
their regulating activities were severely triggered by the financial
debacles. As stated by Charles et al. (2010, p. 18):
In the wake of Enron, WorldCom, and other perceived audit
failures, the Sarbanes-Oxley Act of 2002 and the Public
Company Accounting Oversight Board imposed additional
restrictions on nonaudit services that audit firms can provide
to their public company audit clients. Three of the Big 4
firms sold off their consulting practices between 2000 and
2002. [...] In the years leading up to and during the crisis, the
accounting profession faced a long list of criticisms
including: focusing too much on nonaudit services provided
to audit clients; rewarding partners more for new business
and increased revenues than for quality audits [...].
This excerpt is presented not only to expose some of the regulators‘
work, but also because it shows how the measures adopted by regulators
in order to remedy the problematic situation are intimately linked to some
commercial aspects of accounting firms. In fact, when referring to
regulation restraining the scope of nonaudit services that auditors can
offer to their audit clients, or to add regulation attempting to attenuate the
effects of audit partners‘ new business development on their respective
retribution and performance measurement, the regulator seeks to rein in
the ascendancy of commercialism within accounting firms. When adding
57
new rules regulators and accounting bodies often claim that they seek to
protect the public interest. Commitment to the public interest is
rhetorically paramount, as indicated in the following regulatory
organizations‘ missions and visions:
Canadian Institute of Chartered Accountants: ―Adhering
to high professional and ethical standards is the way the CA
[(Chartered Accountants)] profession fulfills its mandate to
act in the public interest. It is a mandate that has defined us
for over 100 years and one that we take very seriously‖
(CICA, 2010).
The American Institute of Certified Public Accountants
(AICPA) and its predecessors have been the voice of the
accounting profession since 1887. The AICPA prides itself
on its serving the CPA profession and the public interest to
which it is profoundly committed. AICPA members work in
all sectors of the business and financial services profession,
including Public Accounting, Financial Planning, Tax,
Business & Industry, Law, Consulting, Education and
Government. (AICPA, 2010)
Institute of Chartered Accountants of England and
Wales: The Institute is responsible for protecting the public
by ensuring that members maintain the highest standards of
professional conduct and competence. (ICAEW, 2010)
These are the accounting bodies in charge of governing financial auditing
practice in Canada, in the United States and in the United Kingdom. All
three explicitly refer to the public‘s interest or the protection of the public
in their respective visions. The claim of protecting the public also
permeates the discourse of accountancy‘s regulatory overseers. For
instance, the following is found on the website of the Canadian Public
Accountability Board (CPAB):
―CPAB‘s mission is: To contribute to public confidence in
the integrity of financial reporting of public companies in
58
Canada by promoting high quality, independent auditing‖
(CPAB, 2010a).
―During its first six years of existence, CPAB has made a
significant contribution to the audit sector in Canada. From a
standing start, it moved quickly to staff up with subject
matter experts and implemented an inspection methodology
which added considerable value to the audit firms of public
reporting issuers. Driven by a culture of integrity,
commitment and collaboration, CPAB has demonstrated an
ability to perform on a major stage and has much to be proud
of‖ (CPAB, 2010b).
We can generally observe that the accounting and regulatory bodies
expose very rigorous and extensive aims in preserving the public‘s
protection in the financial sphere. Moreover, we can also denote that
some of these organizations, as exemplified by CPAB, are proud of their
alleged achievements in strengthening the governance of financial
auditing in the post-Enron era. Are these rhetorical claims well-founded?
Is commercialism actually under control in the field?
In the aftermath of the Enron‘s collapse, accounting bodies and
regulatory organizations have renewed their commitment to protecting
the public through a diversity of claims, new regulation and policy. As
discussed earlier, some of the regulators‘ important changes aimed at
restraining commercial facets in the audit practice. Therefore, the degree
of commercialistic influence in the post-Enron audit practice will, to
some extent, allow the assessment of the regulatory bodies‘ effectiveness
with regard to the changes they wanted to implement in the profession.
Can we consider, in the same way that tax experts find legitimate
loopholes to increase the value of their work, that auditors will be pushed
to find further ways to construct opinions or facades of opinions – which
commonly seek to protect the public – by executing the least work
possible (or the least billable hours possible; or by affecting the less
experienced professionals to the task) in trying to increase the
59
profitability of their auditing services? Again at stake is the dilemma
leading to cost/quality tradeoffs and potentially to weakening of public
protection…
Many interviewees stated an interesting point regarding the goals of Big
Four accounting firms: in the first few years following the collapse of
Enron the firms were very interested, at the very least on paper, in
improving the quality of the audit work. That is, they were trying to
enhance the audit procedures and its documentation; they were trying to
increase the quality of the audit opinions. The emphasis on quality
probably ensued from the Enron effect of upsetting the auditor‘s
reputations. Today, these firms have reportedly taken a very different
trajectory that aims to improve efficiency and the economics of audit
engagements. This alteration apparently took place when the economy
was not going well and clients were looking to reduce all costs including
auditing costs. This general appreciation illustrates a significant change
between the Enron event and today. While just after the Enron‘s scandal
the pressures seemed to be directed towards quality (professionalism) of
the work, it tended afterwards to shift towards efficiency and cost
reduction (commercialism). Can we identify a cycle of professional
auditing diligence, in that immediately after scandals professionalism
tends to take the lead and after an uninterrupted unruffled period,
commercialism subtly takes over? This is consistent with ―issue-cycle‖
theory as elaborated by Moore et al. (2006, p. 20):
Accountants did not declare that they wanted to be free to
make as much money as possible by offering as wide a range
of profitable services as possible. Rather, they cloaked their
claims in the ideology of the free market and economic
efficiency, as in a now-famous letter from Kenneth Lay, then
chairman of Enron, to Arthur Levitt, then chairman of the
SEC, explaining why Andersen should be allowed to
continue offering both auditing and consulting services to
Enron. [...] Thus, issue-cycle theory suggests a definition of
prudent long-term political advocacy for interest groups:
60
good advocates know where they are in the issue cycle.
These advocates capitalize on opportunities to push hard for
regulatory advantages in benign environments where they
can fly below the radar screens of potential adversaries. Good
advocates also know when it will be difficult to hide under
rhetorical smokescreens and when to back off before
triggering scandal and backlash. Finally, when thinking about
the dynamics of issue cycles, it is critical to consider the
political psychological nature of the most common target of
special interest influence: our legislative system.
This quote indicates how auditors and their regulators might in fact react
at length immediately after a critical pass but that the lessons emerging
from these times of crisis seem to fade away overtime (Architzel, 2009).
Thus, auditors over time ―get back at their business‖ – or should I say,
find the legitimate loopholes – and put aside the critical aspects and the
ongoing enhancements necessary to ensure the satisfactory professional
accomplishment (protection of the public) of their practice. Once again
the suggested pattern of the issue-cycle illustrates the unceasing force of
commercialism that obstinately craves to takeover professionalism.
Up to this point I have discussed that, according to the subjects of this
study, commercialism generally shows a significant influence, and often
a negative one (e.g.: RAQ, etc.), towards the professional audit setting.
Moreover, I have discussed that this influence may have an effect on the
protection of the public which is the regulators‘ main focus and which,
according to my present analysis, remains a current issue that persistently
and dynamically deserves meticulous attention. In the remaining part of
this memoire, I will expose two major mechanisms through which
commercial features exert influence on the audit setting: practitioners‘
desire of being perceived as profitable and practitioners‘ desire of
privileging the clients.
61
2- Perceived as profitable
In this section my goal is to expose what the study‘s interviewees
recognize as pressures which act on and stimulate one‘s desire to be
perceived as economically effective. I will first present some features,
identified as ―business aspects‖ as revealed through data analysis, that
illustrate how mercantilism can impact the audit setting. The illustrations
involve certain commercialistic tensions in the field: rapidity vs. risk
management in completing audit engagements, growth of the business
volume vs. profitability of the business, and pricing vs. budget overruns
of audit engagements. I will then examine how firms, according to
interviewees, monitor the profitability level of practitioners through a
few financial indicators: the recuperation rate and the hourly recuperated
fee. I will then expose how interviewees describe the organizational
processes (budgeting, performance measurement) through which these
financial indicators are monitored and therefore, how the articulation of
the pressures is driven within accounting firms. Finally, I will discuss
certain effects, as revealed through the interviews, ensuing from the
firms‘ stimulation of profitability pressures that threaten audit quality.
2.1- Business aspects
How is commercialism experienced in day-to-day audits? As mentioned
by one partner:
The goal is to complete the engagements as rapidly as
possible while respecting our auditing standards and
managing our risk; that is our game. […] So there is like a
balancing effect to manage between these factors. (ACTIVE
PARTNER, OCTOBER 2009)
62
In this excerpt the partner underlines two major aspects related to
commercialism in the audit setting: rapidity and risk management. With
regard to rapidity, and as generally argued above by Penttila (2003),
Stettler (1970, p. 430) stated:
[T]he pressures to complete a job within the time estimate
[…] is a significant aspect of public accounting […]. The
pressure is always present and is often severe. Even to the
extent that promotion or professional success will usually
hinge on whether the accountant can work fast enough to
keep within the time estimate.
If an auditor had to invest eight additional hours of work in order to
considerably diminish the audit risk, one can expect that the additional
work will probably get done. On the other hand, if an auditor had to
invest 80 additional hours of work in order to diminish (by a little or by a
lot) the audit risk associated with the engagement, one can potentially
doubt the execution of the additional work, or at least expect the
emergence of a dilemma in executing or not executing the additional
work. Should rapidity or risk containment be favoured?
Another interviewee expressed a tension between growing revenue
versus securing profitability:
[I]f I only operate weakly profitable engagements, surely
there is a problem. Thus, that is the equation to manage
between the growth of business and its profitability. We can
easily triple our revenues; with a weak profitability it does
not mean much. (ACTIVE PARTNER, OCTOBER 2009)
Commercialism is translated as a tension between growth and
profitability. The tension is even apparent upfront, before auditors begin
63
to work on audit engagements since the latter are usually offered at fix
prices without previously knowing how much time precisely will have to
be invested in order to complete the job. As specified by another
participant:
It is always difficult to give an exact price [to the client].
Sometimes we have to absorb the costs [...]. It creates a
pressure. (FORMER MANAGER, OCTOBER 2009)
Another subject also explained:
When we […] close the WIP3, the goal is to have a profitable
engagement […]. I often compare [auditing business] to an
auto repair shop where you bring in your car, the mechanics
does the job, it costs $110-120 per hour and when you leave,
the job cost you $120 per hour. Sometimes we are not able to
bill this kind of fee, so we encounter an enormous and
important risk. (ACTIVE PARTNER, OCTOBER 2009)
The analogy of auditing being similar to an auto repair shop is especially
of interest, given that it associates auditing with a business which is
driven by the objective of making money through a mechanistic and
procedural job. The interviewee highlights a distinction between the two,
though, in that audit firms support an additional risk due to the fact that
they are not systematically in a position to bill the totality of their hours
to their clients. Why is that? Are auditing services not as valuable as auto
repairs? At first, the audit proposal contains an estimate of how the firm
plans to complete the engagement. Moreover, in some cases, marketing
strategies such as loss-leading or low-balling may well be deployed by
the firms in order to forcefully gain the audit engagement; these
3
In the accounting jargon the expression ―work in progress‖ (WIP) relates to the
amount of hours (and/or the amount of hours multiplied by the hourly cost (in $))
incurred to complete an engagement. As the WIP increases, in the context of fix audit
contract fee, the profitability decreases.
64
strategies come to influence the pricing of the audit and thus, plausibly
represent additional sources of profitability pressure. Marketing
strategies are discussed in the next section. At this point, it is important
to note that auditors commonly aim to complete audit engagements as
quickly as possible no matter the structure of the contract with the client.
Also, it is pertinent to observe that in the above excerpts interviewees do
not juxtapose commercialism to professionalism; some commercialist
feature is opposed to some other commercialistic feature in illustrating
key tensions which underlie day-to-day auditing. This is a significant
indication of the extent to which commercialism is ingrained in the
mindset of practitioners; commercialism is autonomously supported
through a constellation of binary oppositions in which professional
referents are not significantly involved.
2.2- Financial indicators
Firstly, it is important to note that the indicators presented in this paper
do not represent an exhaustive set of measures, but are rather the most
important ones which emerged from the collected data. The goal is to
present financial indicators which, according to interviewees, play a
significant role in the firms‘ monitoring of performance. A subject
explained:
The partners are principally evaluated on 2 or 3 criteria
[based] on the performance rate of the engagement. [...]
[First] the recuperation rate [...] [and] the hourly recuperated
fee [...]. (ACTIVE SENIOR MANAGER, OCTOBER 2009)
These indicators are not new to the audit setting but are relevant to the
present study in order to situate the subjects‘ appreciation of mercantile
features (their significance, their evolution...) in the post-Enron era of
65
audit services. Here is my summarized version of the interviewee‘s
description of the two measures:
RECUPERATION RATE
A staff member works one hour for a client and that staff
member‘s standard billing rate is set at 100$/hour. How much
can I bill the client? If I bill 60$, it would give a 60%
recuperation rate.
HOURLY RECUPERATED FEE
A member of the staff works two hours on an engagement
and that staff member‘s standard billing rate is set at
150$/hour (total revenue should then be 300$ = 2 hours x
150$/hour). However, according to our arrangement with the
client we can only bill 100$ in total and therefore our hourly
recuperated fee is 50$ (100$ of billing / 2 hours billable).
It is important to note that the hourly rate established for an individual
(e.g., staff accountant – 100$, secretary – 90$, senior – 200$, manager –
280$, quality control person – 320$, partner – 375$) implicated in an
audit engagement is an estimate established by each firm‘s budgeting
policies. The estimate usually takes in consideration the remuneration
level, the overhead cost, the experience level, the general qualifications
of the employee and more. Obviously as the employee holds a superior
position in the firm, her/his corresponding hourly rate gains in
importance.
The interviewee who offered these two indicators‘ descriptions, senior
manager in a Big Four, specified that the firm usually aims for a 60-75%
recuperation rate for small businesses. S/he also mentioned that the target
depended on the clients‘ category; for instance, for important publicly
owned companies the firm would accept a lower recuperation rate
because of the significant billing volume or the emerging exposure of the
66
firm simply by having their name on the auditor‘s report attached to
intensively-viewed financial statements. On the other hand, regarding the
hourly recuperated fee, the firm would usually aim at 110-115$/hour for
auditing services.
The subject went on explaining how the measures are considered
distinctively in the field through an example:
If my hourly cost is 375$/hour, I work one hour for a client
and […] I bill 115$, my [recuperation] rate in percentage is
very weak [(115$/375$ = 31%)], but in terms of auditing
services, I still billed 115$. (ACTIVE SENIOR MANAGER,
OCTOBER 2009)
In order to strengthen the economics of this engagement, the senior
manager should have affected an employee whose hourly billing rate is
lower.
Through the expression of certain financial measures of auditors‘
performance, commercialism remains a significant force in the postEnron era. These measures will tend to translate into pressures to
minimize the time spent to complete an engagement while affecting the
lowest hourly rated employees to the task. Of course, we may be
concerned about the impact of such pressures on audit quality.
2.3- Organizational processes
67
Having identified certain key measures of auditor performance which are
used in the field, the goal is now to analyze the organizational processes
through which these indicators are put in place, communicated and
evaluated within accounting firms in the post-Enron era. Two
organizational parameters emerge from the interviews in this respect. In
accordance with Hanlon‘s (1996) study, the present memoire reveals
budgeting and performance measurement as significant mechanisms
deployed by accounting firms in order to communicate relevant
information aiming to encourage employees in attaining the firms‘ goals.
Hanlon (1996, p. 360) states:
As argued, at the centre of these new control mechanisms
within accountancy is profitability. In order to improve one‘s
career one needs to convince one‘s superiors of one‘s
profitability potential. This involves skills which are
increasingly commercial [...].
As described by interviewees:
The process is established from a budget of hours for each
engagement. Then, [we analyze] the work [having to be
done] regarding that budget of hours, we monitor the
overruns according to our estimates and at the end,
necessarily, we compare the final number of hours with the
billing. (ACTIVE PARTNER, OCTOBER 2009)
Yes, of course everybody knows that the more we bill our
time, the better it is. [...] We establish a budget, [...] we look
at our hourly rate, we estimate the time having to be allocated
to the engagement and we try to fit this within the budget.
(ACTIVE PARTNER, NOVEMBER 2009)
These excerpts indicate how the budgeting process is methodically
amalgamated to the auditing process up until the final comparison
68
between the initially budgeted and the final figures of the engagement.
We can denote that the budgeting process commonly deployed at the
planning stage of the audit serves to monitor the commercial
effectiveness all through the course of the engagement. Hanlon (1996,
pp. 353-354) also states:
The strongest commercial feature of how accountancy work
is tightly controlled is to be found in the budgeting process.
[...] There is a strong pressure to do the audit with less
resources every year and to come in under budget and make
more profit. [...] Budgets also have an impact upon the
quality of the work and many would say it makes the work
more ‗unprofessional‘.
Hanlon (1996, p. 354) interestingly mentions:
Much of the assessment to become a partner is based upon
commercial issues e.g. ability to relate to clients‘ needs (and
presumably recommend services the firm has to offer which
the client ―should‖ buy); client comments also allow a direct
commercial influence in the sense that the senior‘s
recommendations were based upon sound financial
judgement.
How are these processes articulated in day to day activities within
accounting firms? The following excerpts illustrate how these processes
actually take place:
We always want to do better. We have a lot of information to
establish where we position ourselves with regard to the
recovery [rate] and the chargeable hours in order to compare
to other partners. There is this competitive pressure [...] for
the performance. (ACTIVE PARTNER, NOVEMBER 2009)
69
The staff certainly bears a pressure to perform and to be
efficient. Therefore, obviously, when we have meetings [...]
we show them the budget and the fees. [...] We are always
seeking to be more successful and efficient. Naturally, when
we see the hours adding up, there is a pressure [...]. (ACTIVE
PARTNER, NOVEMBER 2009)
[The managers] see the WIP, [they] see the bills, [they] have
to prepare the analysis of the WIP [...]. [W]e work jointly [...]
to figure out how to proceed [...] in order to get more
interesting recuperation rates. (ACTIVE PARTNER,
OCTOBER 2009)
[O]f course when comes the time to prepare the billing for an
engagement, you will feel it if you‘re not profitable. That is
the goal of reducing costs […], just by taking a day to plan
the engagement; it‘s already a pressure to make sure you fit
in your budget. (ACTIVE SENIOR MANAGER, OCTOBER
2009)
The goal is to reduce the costs [...] there is a pressure to be
profitable, [and] to fit in the budget. Regarding the
[individual] profitability it means respecting the forecasted
amount of hours. (ACTIVE SENIOR MANAGER,
OCTOBER 2009)
Most of these excerpts explicitly characterize these organizational
processes as a significant source of pressure within the audit setting. We
can also notice that a considerable attention seems to be oriented towards
the
firm‘s
control
mechanisms
aiming
to
promote
financial
accomplishments. All in all, the previous excerpts illustrate how team
members on audit engagements are collectively involved in the
monitoring process of the economics surrounding auditing engagements.
Partners, in particular, seem to experience a ―competitive pressure‖
arising from the comparison of one another measurements – in partner
meetings or otherwise.
70
2.4- Strengthening commercialism through subtle influence
Not all interviewees straightforwardly acknowledged the significance of
the mercantile pressures emerging from organizational processes. In fact,
certain subjects even adopted a defensive discourse in trying to preserve
the validity and the benefits of such performance measurement processes
– claiming that the measurement of audit engagements‘ performance did
not solely depend on financial indicators but that quality oriented features
are also taken into consideration through these processes. Interestingly,
though, these interviewees‘ comments systematically drifted towards the
economics of auditing.
Through the interviews, a question was: does a practitioner within an
accounting firm wish to be considered as a profitable employee? One
interviewee confidently answered:
No, not for me. I don‘t care. Really, I never questioned
myself how much my time generates for the firm. (ACTIVE
SENIOR MANAGER, OCTOBER 2009)
The answer seems to imply that the senior manager is rather impermeable
to commercial pressures identified by most of the other interviewees. Yet
as the discussion continued the same interviewee added:
[O]f course, when things are not going well, I always try to
identify the opportunities to bill as much as possible. It‘s like
at the auto repair shop, the bolts used to do the job have to be
billed [to the customers]; if they give them away to everyone,
at some point, they are going to have to close the shop. It‘s
like a statutory audit mandate, if the [client] is not ready and
the [―overrun‖] is too big to be absorbed at the end, we will
have to [bill the additional hours]. (ACTIVE SENIOR
MANAGER, OCTOBER 2009)
71
That same subject also stated:
I do follow-ups with the senior, together we discuss how to
execute the work and finally what I want is a commitment.
Do you think you can finish this by Friday 5:00 pm, by
executing a reasonable amount of hours each day? (ACTIVE
SENIOR MANAGER, OCTOBER 2009)
According to these excerpts, ―optimal‖ profitability arises not only from
maximizing the basic efficiencies in performing the audit tasks, but in
learning which budget overruns are billable, and which are not (McNair,
1991), and also by controlling the amount of hours spent by the staff to
complete an engagement. These are all very-mercantile oriented features!
It can therefore be surmised that the subject‘s sensitivity towards
commercial pressures is not consciously perceived at first, but it shows
up through the instinctive practice of seeking to identify the additional
billing possibilities in order to maximize profitability or the way of
obtaining
the
senior‘s
commitment
towards
the
deadline
in
accomplishing the audit work.
Another interviewee is strongly confident that the regulatory bodies are
sufficiently well spanned through the reviewing processes of audit
opinions‘ quality executed by licensed auditors to ensure adequately the
protection of the public. Nevertheless, as it will be presented, the same
interviewee went on describing how mercantile features are also, and
even predominantly, considered through the performance measurement
process. Firstly, the interviewee specifically stated:
[L]et me tell you that every office undergoes [many internal
and external rigorous auditing of their audits] […], it is
obvious that we are monitored. Certainly, when [I] went to
execute that type of work [(auditing of audits)] for [naming
another office of the firm], we could evaluate how the [audit]
72
approach was applied; if the office, the partners, the
managers, were taking any risks through the execution of
their work. At the quality level and the [appropriateness] of
the fee […] it is serious because, as I was told, if a partner is
being audited and his account gets a dreadful score in terms
of quality, it would directly influence his career and his
financial retribution as well. I heard that some audit partners
who received bad scores were forced to stop practicing audit
engagements. (ACTIVE SENIOR MANAGER, OCTOBER
2009)
This quote indicates that the organizational performance measurement
process is not exclusively centered on financial and commercial success,
but it also seeks to promote the technical quality of the audits, the
appropriate application of the auditing approach, and the minimization of
the professional risks. As such, the quote does not directly support the
commercial facet of auditing – showing that professionalism is seriously
considered and monitored. The excerpt is relevant to this study since it
shows how the interviewee presented her/his thoughts not only on a
commercialism based speech but also on a professionalism based
approach. I obviously expected such speeches through the interviews; in
fact, I expected that the interviewees would tend to equilibrate their
statements revealing strong mercantile features with some softening
comments like the ones that professional regulators would wish to hear.
To continue with the last excerpt, through the interview, the same
manager also gave a description of commercial aspects considered in the
performance measurement process within her/his employing Big Four
firm.
[…] [T]he seniors [and] the managers will evidently have
profitability factors towards their engagements. They will
have factors related to the development of new clientele that
are [...] very important factors in their evaluation [process].
(ACTIVE SENIOR MANAGER, OCTOBER 2009)
73
I then asked:
And definitely there are also factors related to the technical
quality of the work?
The interviewee replied:
Yes, absolutely, but I would say [...] that the financial factors
are quite important; that is what I understand out of it. That is
the pressure that the partners get a lot. (ACTIVE SENIOR
MANAGER, OCTOBER 2009)
In this paper I aim to provide evidence that commercialism is a
significant influential force in auditing practice, even in the post-Eron
era. Accordingly, the preceding interviewee suggests that financial
aspects of the engagements, while coexisting with quality aspects, are
primordial through the evaluation process of the firm‘s partners.
2.5- Effects on working environment and audit approaches
As generally discussed, the ―business aspects‖ promoted within the audit
setting can lead to dysfunctional behaviours which may translate into a
weakening of the audit opinions‘ quality and perhaps jeopardize the
protection of the public. In this section, I discuss two specific effects that
might emerge from these commercialistic pressures within accounting
firms: deterioration of the working environment and altering of the audit
approaches.
74
2.5.1- Working environment
With regard to the working environment, the following participant insists
that auditors are generally dedicated to perform quality work in order to
ensure protection of the public. Yet the interviewee is significantly
concerned about the human relations context under which auditing
engagements are carried out:
For public companies, at least at [naming the firm in which
the interviewee practices], forget profitability and quality,
they are two notions that are totally distinguished. […] [I]t
will not impact on the quality of the audit work. It will rather
probably impact on the [working] relationships, the mood;
the atmosphere will be depressing within the audit team,
within the office […] (ACTIVE PARTNER, OCTOBER
2009)
According to this quote, the working environment seems to absorb the
negative
effects
of
the
tension
between
commercialism
and
professionalism. Does this necessarily mean, as one may hope, that
professionalism is the leading feature in the field? If we consider that the
financial outcome of an engagement is poor while quality requirements
are attained, and that in turn, the repressed commercialism generates an
after-effect jeopardizing the human relations atmosphere within the firm,
can this still reflect a form of commercialistic ―takeover‖?
In fact, by being pushed to perform financially, the auditors might find
themselves underrated towards the general value of their work if they end
up not attaining the desired financial profitability levels. Quality-oriented
auditors may not feel appreciated and ultimately, they may seek to leave
the accounting firm‘s environment. One interviewee (from McNair‘s
(1991) study) indicated that the practitioners leaving the accounting firms
get ―higher salaries, fewer hours, [...] less stress‖ and so they end up
getting better working conditions. In a more recent context, I questioned
75
a senior manager on the effects of commercial pressures put on the audit
staff and the interviewee explained that it translated into:
[F]atigue, [...] frustration, staff leaving the firm. (SENIOR
MANAGER, OCTOBER 2009)
I then asked: does this mean that the firm might lose some skilled staff?
The interviewee swiftly answered:
[Y]es, absolutely, this is actually critical. (SENIOR
MANAGER, OCTOBER 2009)
On the one hand, as indicated by the previous excerpts, the declining
quality of the audit environment might repel qualified auditors from the
audit-practice. On the other hand, I argue that such deterioration might
retain those practitioners who fit best with the commercially-led culture
within today‘s accounting organizations.
2.5.2- Audit approaches
I now suggest, on a more technical basis, beyond the working
environment, that many accounting firms continuously explore how to
amend their audit approaches in responding to commercialism. As
explained by an interviewee:
[T]here are different ways to meet the requirements. Each
firm has its own audit approach. You have all these facets
that need to be fulfilled, but you have one [(firm)] that will
put an hour and say that it is fulfilled while another firm will
put a week to say that it takes a week to meet the
requirement. You have differences in judgements and
76
perceptions [...]. I am relatively convinced that it is not all the
firms that put the same efforts and time to bolster quality,
given the impact on profitability [...]. According to what I
heard, at [naming a Big Four firm], some changes were
undertaken recently in order to give more flexibility to the
professional judgement of the auditors. (FORMER SENIOR
MANAGER, OCTOBER 2009)
I then asked:
What was, according to you, the issue that triggered such a
change?
The subject quickly replied:
Profitability. (FORMER SENIOR MANAGER, OCTOBER
2009)
Interestingly, profitability is mentioned as a key motivator in
reinvigorating the extent of individual judgment in the audit process –
which is typically associated with professionalism. Commercialism and
professionalism do not oppose in every respect; sometimes they can push
towards the same direction.
At some point during an interview, one participant was asked: how does
rivalry between firms reflect itself in the auditing business? His first
comment relates to the use of a low balling strategy which will be
discussed in the next section of the analysis. The interviewee also said:
There is also the auditing approach; I find that during the past
years [Name of the partner‘s firm] has focused a lot on the
77
internal execution of the engagements and their
documentation fearing the CPAB4. Now we are focussing
more on the market and we improved, or rather revised, our
auditing approach [...]; we target the risks and apply
procedures, I would not say narrowed, but modified, while
respecting our auditing standards and concepts. It‘s not
complicated, I find that [Name of the partner‘s firm]
standards are heavier than the other firms and now we have
to adjust ourselves to the market because otherwise we are
going to ―get out‖. (ACTIVE PARTNER, OCTOBER 2009)
Interestingly the partner insists on shifts in audit methodologies being
made specifically to address market and business issues rather than
professionalism and quality oriented issues. It is as if the professional
logic is subjugated by the commercial logic; subjugation being seen as
the ―natural‖ aspect through which practically every significant facet of
auditing that has been presented in this memoire has been linked to
commercialism. Are accounting firms today keen on identifying
loopholes that justify less work (or less procedures; or less time invested
in the audit) in order to maximize profitability of audit engagements?
2.6- Conclusion
At this point I have indicated how, in the post-Enron era, practitioners in
audit functions of accounting firms wish to be perceived as economically
effective employees. The general business aspects of auditing (i.e.,
rapidity, efficiency, profitability) monitored by some financial indicators
(i.e., recuperation rate and hourly recuperated fee) which are controlled
and promoted through certain organizational processes (i.e., budgeting
and performance assessment) within accounting organizations contribute
to consolidate the pressures on audit practitioners for being perceived as
economically effective. However, the pressures are not necessarily easy
to deal with; they may engender negative effects, such as deterioration of
the
4
working
Canadian Public Accountability Board (CIPAB)
environment.
78
3- Privileging the clients
The second facet of the empirical analysis reveals that, beyond
practitioner‘s desire of being perceived as economically effective, audit
clients (auditees) represent another considerable source of pressures in
the post-Enron audit setting. Previous authors have already related the
importance of client care and marketing techniques to the business of
auditing. Humphrey & Moizer (1990) provide evidence that through the
audit planning process the logic of professionalism is re-fashioning as
one of client service. Also according to Power (2003), audit planning
serves (technical), ideological (legitimating) and marketing (selling) roles
simultaneously. My study contributes to the literature in showing that the
client care imperative is still a significant driving source of influence in
the post-Enron era.
With regard to the present study, the interviewed practitioners
systematically signified the importance of pleasing the clients in the audit
process. In this section I specifically aim to present evidence on the
matter. I also aim to show that client retention is not an easy task in the
current financial audit environment. That is due to the perception that
audit services rendered by accountants are negatively seen from the
public‘s point of view and even more deceivingly from practitioners‘
point of view. Finally, the low balling strategy, revealed as one of the
economic tactics deployed in the audit market in order to retain/please
the clients, will be described as an offensive measure from which
dysfunctional behaviour may emerge. I will show that, in contrast to what
many consider, low balling is, regardless of Sarbanes-Oxley Act, in an
evolutionary mode in our post-Enron era.
79
3.1- Serving the client as a priority
Firstly I will present how pleasing the auditees is a predominant concern
for auditors – sometimes even above quality of audit work. Accordingly,
many interviewees explicitly describe the importance of making clientele
development and clientele retention a priority through the audit process.
Eisenstaedt (2010, p. 31) recently stated that:
Client retention is the No. 1 issue facing accounting firms
today. Firms are trying to protect their most profitable clients
from the pressures of new business challenges and various
threats that weren‘t even on their radar screens just two years
ago. [...] At the same time, clients continue to become more
sophisticated and demanding. They can easily find lower-cost
providers who promise better service without having to
sacrifice quality or take on more risk. In today‘s business
environment, these are compelling reasons for even the most
loyal or smallest clients to review their relationships with
their accounting, tax and business consulting firms.
The previously quoted author indicates how nowadays client retention
constitutes a significant issue within accounting firms. My findings
corroborate this statement.
It even seems that the client service mantra benefits from the
involvement of certain academics. In particular, Beattie (2009, p. 6)
claims the following:
Ground-breaking research that will reveal what clients really
think about the quality and types of services provided by their
accountants is being undertaken by CCH, publisher of
Accountancy. [...] ―For accountants to grow and prosper in
the current economic climate, it‘s really vital for us to
understand what clients‘ needs and wants are,‖ [...] ―If you
look at other industries... they focus so much time and
attention on client needs, but in accountancy I don‘t think we
do enough of that. We need to understand what it is they are
80
buying from us.‖ [... T]he research will help give an insight
into how a client chooses an accountant in the first place.
―We retain clients for quite a long time in the industry but
how much of that is lethargy and how much is loyalty is an
interesting question that we could know more about‖.
On the one hand Cooper & Robson (2006, p. 423), ―claim that the
commercialization of the Big Four went too far [...]‖ and on the other
hand we have Beattie‘s (2009) excerpt arguing that the accounting
industry does not focus enough time and attention on client‘s needs. The
excerpt below shows how quality concerns are ―nice concepts‖ but if you
―want to make money […] you have to serve the client‖ first.
It‘s the same way to sell audit engagements everywhere. For
some years, [the firm] pushed towards quality, quality, and
quality. [They were saying that clients] are not clients, they
are entities; it is not the management, it is the audit
committee; risk management, quality control… All very nice
concepts communicated, but in the long run it does not work.
[…] Today, if you want to make money you have to manage
your limits, but you have to serve the client. [The firm] lost
many clients because of its fussiness towards regulation
while other firms would have more liberal interpretations.
(FORMER SENIOR MANAGER, OCTOBER 2009)
This quote clearly emphasizes the prioritizing of pleasing the auditees
(i.e., protecting the firms‘ commercial interests), and also illustrates one
potential dysfunctional behaviour (i.e., weakening of professionalism by
reducing
―fussiness
towards
regulation‖)
emerging
from
such
prioritisation. As mentioned by Hanlon (1996, p. 339) more than a
decade ago:
[I]n accountancy the client for auditing services is
increasingly viewed as the company managers rather than the
shareholders, the public, or the state.
81
In the same line of thought, other interviewees mentioned the following:
[It] is clear that we are a service provider […]. [G]enerally,
they [the clients] obviously want to reduce their costs. We do
not want our current clients to call for proposals, we
appreciate serving them. [...] But yes, it is clear that the
clients put a pressure, because they can go look in the market
and ask for proposals. (ACTIVE SENIOR MANAGER,
OCTOBER 2009)
[As an auditor] you are a supplier, never forget that, an
auditor is a supplier. Yes, we sell professional services but
we are not alone, we are not an oligopoly, we are not a
monopoly, we swim with other auditors and the clients know
other partners from other firms [...]. (ACTIVE PARTNER,
OCTOBER 2009)
The client has the last word. [...] For sure the client always
wants the cheapest. […] What is your limit? After you can
discuss with the client […]. (FORMER MANAGER,
OCTOBER 2009)
The portrayal of auditors‘ as simple suppliers or service providers, the
―obvious‖ statement that auditees systematically seek to reduce audit
costs, auditees openly calling for proposals in order to change auditors,
the existence of open audit-markets fought between competitors, and
finally, the perception that the ―client has the last word‖ are all
significant indicators of commercialism in today‘s auditing environment.
Besides, another interviewee explained:
[As] an auditor you want to sell your services. [As] an
auditor, most of all, you want to please your client. You do
not always want to be there with your calculator and saying
you will charge that extra. First and foremost, you want to
please! [...] Coming in-between to discuss the billing […] is a
bit taboo. The day that the profession will be able to do that,
we would have enormously progressed. That is why presently
82
in our trainings we include an aspect related to all of that. [...]
It makes a significant difference. (ACTIVE PARTNER,
OCTOBER 2009)
Interestingly enough, the quote indicates that the partner‘s medium sized
firm is in the process of adapting the employees‘ training programmes in
order to include clientele retention and business development issues.
Again, pleasing the auditees, and so maintaining interesting financial
results throughout the auditor/auditee relationship, constitutes a major
social referent in the post-Enron era.
Finally, a participant points out how auditors, in trying to please clients,
adopt particularly keen behaviours towards auditees:
[W]hat do you do when the client disagrees with you? [...]
For sure, from one year to another we are all in a seductive
mode to preserve the clients. […] The relationship has to be
rock-solid [...]. (ACTIVE PARTNER, NOVEMBER 2009)
All the statements presented in this section describe the auditor/auditee
business-oriented relationship for which perpetuation is seemingly
revealed by interviewees through this study as a major issue for auditors.
Ultimately, all the commercial pressures described put auditors in a
constant seductive mode towards their auditees in order to keep them
away from the influence of competitors. Is this commercially-oriented
context conducive to protecting the public?
With the eminent concern as to client retention within accounting firms
and with the over-emphasized desire to please the client, and even seduce
it in times of need, it can confidently be argued that the clientele
83
management process is a dominant source of influence in the post-Enron
period.
3.2- Commodifying the audit
In their desire to please the clients and to ensure their loyalty, auditors
participate to the commodification of the audit – which tends to be
perceived by a number of auditors and auditees as a ―product‖ which
needs to be valuable in some respects from a managerial perspective. As
mentioned by Hanlon (1996, p. 347):
[S]pecialisms within accountancy have different types of
relationships with clients. The auditors appear as an
expensive ―policing‖ nuisance to the client whereas those in
other areas such as tax are seen as experts bought in by
management to increase profitability. The auditors have tried
to move down this commercial road by presenting the
management with a management letter indicating possible
improvements to the accounting and accountability systems.
This recent phenomenon is carried out at the end of the audit
to make it appear more ―worthwhile‖.
―. . . it (the audit) is very much an
after the event situation. You‘re
constantly hassling people to do
something. An audit is not something
that anybody (not even shareholders
nor the public!) wants but they have
no choice in the matter. They have to
have it [...]‖ (Jane O‘Driscoll, Big Six
Senior).
Furthermore, with regard to the general climate characterizing the audit
as a commodity, a Panel observed that audit senior and manager focus
group participants frequently indicated that ―engagement partners and
84
firm leaders treat the audit negatively – as a commodity‖ (POB5, 2000,
99 in Jenkins, Deis, Bedard, and Curtis 2008, p. 46). Accordingly, one of
my interviewees mentioned:
Firstly, we should stop saying [that auditing is a commodity]
inside the firms! […] Yes [the perception] nevertheless
remains [...]. [T]hey [(the clients)] are in the present and the
future while we come in sometimes three months after the
end of the financial period and we analyze the past year.
(ACTIVE PARTNER, NOVEMBER 2009)
This excerpt interestingly suggests that a number of auditors do
participate in the commodification of their services. Along the same
lines, the following excerpt provides a striking illustration of an auditor
who seems to be naturally inclined to unquestioningly accept the view
that auditing is a commodity – whose ―value‖ in the eyes of the clients is
far from being obvious. Interestingly, the value of auditing from a public
interest perspective is not mentioned at all, as if it is not a significant
referent in the interviewee‘s interpretive schemes:
Lawyers might have an advantage because [...] it is an added
value for the client while auditing is a bureaucratic
unnecessary requirement because it is an expense and it
brings no value to society. [...] Being an unnecessary
requirement, the client does not look for a Cadillac; the client
rather looks for something that works, that will not cost too
much in maintenance. (FORMER SENIOR MANAGER,
OCTOBER 2009)
Finally, current partners added the following:
5
Public Oversight Board www.publicoversightboard.org/about.htm
85
So we have to try selling our product, referring to the
auditor‘s report, a commodity, which is exactly the same than
all the other firms regardless of the size. Often what we see
[...] is that for the client there is no added value from that
document. (ACTIVE PARTNER, NOVEMBER 2009)
The market would say: perfect, we have the same [auditor‘s]
report for cheaper. We have the same report, the same
signature, but no one, or almost no one, understands what
auditing actually is. (ACTIVE PARTNER, OCTOBER 2009)
In sum, my analysis reveals that a number of accountants tend to
participate in the commodification of auditing, believing that it ―makes
sense‖ for auditees not to see any ―value‖ in the auditors‘ work and
report. Serving the client is a priority, and many auditors are not likely to
question this priority, accepting the ―validity‖ of the client‘s rhetoric
regarding the commodification of the audit function.
3.3- Low balling
Having discussed accountants‘ aspiration of privileging clientele in order
to preserve financial interests through the auditor/auditee business
relationship in the post-Enron era, I now intend to present some of the
aggressive marketing tactics deployed by auditors who seek to achieve
the challenging goal of retaining and pleasing their auditees. Firstly,
according to my data analysis, the current post-Enron audit market is
highly competitive. Secondly, I will present how competition encourages
a highly aggressive marketing method which seems to be increasingly
popular: the low balling technique.
86
3.3.1- Strongly competitive auditing markets
Many interviewees clearly pointed out the fierce degree of competition
existing in the post-Enron audit scene. More specifically, the data of my
research reveals that accounting firms aim to fortify their respective
position in the audit market by soliciting clients which they previously
did not necessarily target. A recent study supports my statement;
Esentaedt (2010, p. 31) mentioned:
Now, larger competitors are going "down market" to find
work, firms are opening new offices outside of their
established geographies, and industry concentration through
mergers and acquisitions is making retaining clients even
more difficult.
Eisenstaedt‘s remark about the larger firms‘ approach was confirmed by
a medium-size firm partner through my study‘s interview process:
[The audit market is] very competitive, very competitive! I
would say that lately what we see is an all around
competition from the Big Four. Usually, we were each a little
bit in our respective markets and so, the Big Four had the
―big‖ companies and our goal was not to become the Big
―Fifth‖, we are very comfortable where we are. [...] [T]he
competition was not primarily between the Big Four and us,
because it was the ―Big Four‖ and they were evidently
always a lot more expensive than us. Lately, we can observe
that even them attempt to penetrate our entrepreneurial nonpublic [market] with prices which can really surprise us.
(ACTIVE PARTNER, NOVEMBER 2009)
The partner explicitly points out the aggressiveness of the competition
which is manifested through low prices in call for tenders. The alleged
alteration in the Big Four marketing strategy is seen as a threat for
smaller firms. Interestingly, one Big Four partner claims the opposite, in
that smaller firms were trying to aggressively compete with the Big Four:
87
I do not want to denigrate certain firms, but there are the Big
Four firms and there are the other smaller firms that try to
penetrate certain interesting [Big Four] clients. (ACTIVE
PARTNER, OCTOBER 2009)
These quotes lead us to believe that in the current post-Enron auditing
markets, firms seek quite aggressively, through price competition, to gain
as much market share as possible.
In sum, at this point we can say that competition among accounting firms
is, according to the data of this study, strong and dynamic. I next aim to
show how the growing rivalry leads to the adoption of evolved marketing
strategies.
3.3.2- Low balling
In this study, low balling is defined as the strategy by which an
organization offers its services at prices which are inferior to the usual
market level or simply lower than competitors, in order to guarantee
establishment or continuance of a business relationship and thus,
potentially increase the business growth and business value of the
organization. As stated by McNair (1991, p. 637):
Planning to raise these [auditing] fees over time, as well as
capture more lucrative aspects of the client‘s business (e.g.
consulting and tax work), the firms entered into bidding wars
for clients that, today, appear to be making audit services a
―loss leader‖.
88
Low balling is also in line with the commodification phenomenon
described above, in which a number of auditors come to perceive that the
utility of the audit function is quite limited – hence justifying fee
reduction. The issues related to the low balling strategy in the audit world
are not new; in fact, DeAngelo (1981a, b) was one of the first accounting
researchers to point out that competitive pressures were causing large
public accounting firms to ―lowball‖ their initial fee structures to obtain
audit clients. The common goal was to subsequently ―capture more
lucrative aspects of the client‘s business‖ but the Sarbanes-Oxley Act of
2002 (section 201) specifically restrains considerably the scope of
services which auditors can render to their auditees when the latter are
publicly owned companies. The Act‘s list of ―prohibited activities‖
includes general consulting services and therefore, seemingly eliminates
the common visible usefulness of deploying such a low balling strategy.
Nevertheless, this issue remains of interest since low balling is, as the
memoire‘s findings show, an ongoing and evolving scheme deployed by
firms in the current post-Enron auditing context. In fact, many
interviewees have broadly discussed the issue and gave genuine
examples of the deployed strategy. I will present a few of these examples
in order to clarify their respective perception of the low balling concept:
#1 - [W]e were billing $1 000 000 and [naming another
competitor – Big Four firm] decided to bill $500 000.
(ACTIVE SENIOR MANAGER, OCTOBER 2009)
#2 - [I]t is funny just yesterday we were talking about this, it
was an audit that we proposed for $40 000 and [...] [the
competitor] came in with $28 000. Moreover, our $40 000
was already cut. (ACTIVE PARTNER, NOVEMBER 2009)
#3 - We prepared an offer and we learned that there were four
firms participating in the proposal [...]. We were the highest
[bidders], [naming a small firm] I don‘t know their price [...],
89
but [naming a medium size firm] were 10% lower than us
and [another Big Four] were 30% lower than [the medium
size firm]. [The latter Big Four] was aiming to gain a client
operating within a [specific industry]. When you prepare a
service proposal you need to have the background and the
experience, and I think they were willing to cut the price in
order to build a reputation and a team of people [able to
answer the needs of such clients...]. [T]hey want to position
the firm in order to gain a maximum of competence for
similar clients in the same industry. (ACTIVE PARTNER,
OCTOBER 2009)
#4 - [The] word going around is that [naming a Big Four
competitor] is cutting the prices on the market, something
that was not done in the past few years. [...] I had to review a
service proposal which we were preparing, and I was
surprised by the [low] price which we were offering [in
response to the other Big Four low balling competitor].
(ACTIVE SENIOR MANAGER, OCTOBER 2009)
#5 - [W]e were asked to prepare a time budget for a certain
client in regard to an audit engagement. [...] We concluded
that it could not be done under $200 000 considering the size
and the complexity. The partner at that time wanted to win
the client and said it was fine to make it for $100 000. The
business was not necessarily going well. Hence you find
yourself with an engagement that has an enormous risk and
an awful profitability rate. [We] were going to recuperate
20% or something like that. That was a bad assessment made
just to win the client. You have big ―egos‖ that will bypass
the system.‖ (FORMER SENIOR MANAGER, OCTOBER
2009)
In revealing these cases the subjects were answering a general question
asking about their common appreciation towards low balling. The first
two cases illustrate the degree of fee reduction involved in low balling.
The third example shows that strategic concerns are thought to relate to
low balling – as some firms seek to establish their presence in certain
niches. The fourth excerpt indicates the dissemination of low balling as
accounting firms get increasingly involved, through isomorphism or
otherwise, in the game. Finally, the fifth example reveals the ability of
90
certain players in allegedly bypassing certain formal controls surrounding
the pricing of the audit fees in call for tenders.
The interviewees also present certain reasons as to why the low balling
strategy is favoured. In particular:
[B]y penetrating with a rebate, we say: go in now and make it
profitable later. I exaggerate, but this is what actually
happens in the market. […] [Y]ou get in with a loss
percentage [...], you accept it and tell yourself that overall, on
the long run, you will gain back. […] [I]t is common practice.
(ACTIVE PARTNER, OCTOBER 2009)
[I]f we think there is potential for specialized services [...]
and the other firm cannot offer it [...] then our firm can accept
the idea of giving up a bit of the audit fee in order to gain
other fees recovered at higher rates. This is a business
strategy. It is similar as being at the drugstore, the ―Chips
Lays‖ are always on sale, [...] that is to get the customer in
and then ―oups‖, on her/his way [to get the chips] the
customer finds the sun lotion, picks up her/his medication.
(ACTIVE SENIOR MANAGER, OCTOBER 2009)
[W]e have a certain leeway. [...] There are strategic audit
engagements which we want to obtain in order to enhance
our [market] positioning [...]. Yet, these are exceptional cases
which we still have to manage intelligently. [...]
Nevertheless, it is obvious that for auditing there is an
important pressure [put by the client] on the invoicing
because of the recurrence of the service, every year you come
back and have an opportunity, so it‘s a bit like a ―loss
leader‖. (ACTIVE PARTNER, OCTOBER 2009)
These previous excerpts indicate the potential of long term profitability,
cross-selling opportunities and strategic marketing positioning as
noteworthy grounds on which accounting firms rely on when adopting
91
low balling approaches. Interestingly enough, the third interviewee
paradoxically mentioned the following:
We do not want auditing to be like the bridges, contracts
going to the cheapest bidders. [...] [T]hese bridges collapsed
and they killed people even if engineering standards were
used in building them. [...] Would you [(asking me)] embark
on a rocket that was [...] [built by] the cheapest
subcontractor? Auditing is the people‘s money; it is the
shareholders‘ money. Look at what happened with [naming a
few of the financial scandals] [...]. Hundreds of thousands of
investors have lost their savings of a lifetime, it will ruin their
health and some will die morally because they were
financially ruined. (ACTIVE PARTNER, OCTOBER, 2009)
This certainly seems contradictory. The partner initially stated that the
low balling strategy is acceptable, within a given ―leeway‖, as it serves a
marketing positioning purpose for the firm. Yet on the other hand, the
same interviewee indicates that engagements should not be given to the
lowest bidder since the quality of the work might suffer in such cases
(i.e., bridges collapsing). The partner refers to bridges that had collapsed
in a Canadian province a few years earlier; the construction contracts
regarding these bridges were supposedly given out to the cheapest
bidders. In so doing, the fixing of audit fees appears as a very delicate
endeavour. In the course of an interview with another participant, I asked
about the consequences of low balling strategies:
I think we might get the type of auditor who will arrange to
have no questioning [to the client]. (ACTIVE SENIOR
MANAGER, OCTOBER 2009)
This implies a façade auditor, who seeks to minimize inquiring towards
the auditee‘s business in order to minimize the time spent to complete the
audit and perhaps reduce the degree of audit quality. Another interviewee
92
describes in the following excerpt the pressures possibly emerging from
the deployment of low balling tactics:
[O]k, we want to bill a lower fee, how to do it? We had
planned this much time to execute that part of the
engagement; we go ahead and we cut [the hours]. Are there
some audit firms that overlook the quality, I am not ready to
say no, but I know that they are ready to consent lower prices
in order to obtain the client. To execute a publicly owned
company‘s audit engagement brings an open visibility, like
advertising. It is enjoyable to say that we audit this
[important company] [...]. It shows the other smaller clients
that we are well capable of serving these important
companies [...]. (ACTIVE SENIOR MANAGER, OCTOBRE
2009)
Again, audit endeavours are reduced, thereby impacting (potentially) on
audit effectiveness. Audit quality does not weigh very high as compared
to the economic rationales which are invoked in justifying audit firms to
compete on price. Moreover, this last interviewee interestingly indicates
the ongoing potential usefulness of deploying a low balling tactic
towards publicly owned auditees notwithstanding the Sarbanes Oxley
Act. I consider this suggestion as an evolutionary marketing tactic
deployed by certain firms and depreciating the regulatory Act.
My interviews indicate that in response to the aggressive competitiveness
characterizing the auditing market, auditors feel pushed towards the
adoption of a low balling strategy, which may ultimately translate into
some dysfunctional behaviour threatening audit quality. Once again
commercialism seems to exert a dominant influence in post-Enron audit
settings, in stimulating auditors‘ desire of privileging the clients
(auditees).
93
Finally, to complete the analysis of the low pricing business development
strategy, I offer the following excerpt reflecting the viewpoint of a
medium size firm partner. S/he mentions:
If we propose an audit engagement to a client which we do
not think, according to its size and goals, will ask for
additional services, I would say that in that case we will not
low ball. It is just not worth it. [...] As a firm, we are
presently in evolution with regard to the low balling strategy.
It was never our approach to deploy low balling. Presently
we are reacting because we realize that we are losing a lot of
potential clients. We know that when we find a Big Four
coming in 30% lower than us [...]; that is considerable. We
would expect that from smaller firms. But now when we see
the Big Four coming in lower, it‘s like nonsense because they
have higher hourly rates and this is considering the fact that
our proposals are already discounted. [...] So obviously they
are ready to make money with other services. [...] The whole
firm has to approve the strategy. That‘s presently our
challenge; all partners, including consulting [and] tax, [have
to agree] because we share all the profits. Consulting will be
doing very good and then we look at auditing business, which
is not going very well, with low recovery rates. We
[currently] have this whole debate. We are just back from a
convention and we were discussing if the clients were the
audit function‘s clients or if they were the firm‘s clients. [...]
Everyone has to agree that when I will do my audit, my
recovery will be [low] because I have to do my audit work, I
am accountable, I may be reviewed. [...] I will not cut the
level of work in attempting to reach a goal that I know is
impossible. [...] Everybody has to agree [...]. Do not come
asking me questions afterwards. Why is it [the engagement‘s
profitability] so low? It‘s the firm‘s strategy; but we are not
yet at this level. We are still accountable, my recovery rates
are examined. I am a partner; when I have to reach 60% and I
realize I‘m getting to 50%, I then question myself: ―Are we
doing too much work?‖ (ACTIVE PARTNER, NOVEMBER
2009)
The partner explains that the medium size firm is presently in evolution
with regard to such a matter and that the firm had to embark on that
evolving path in order to respond to the other firms‘, especially the Big
Four firms‘, aggressive tactics based on low pricing. S/he adds that the
94
firm‘s partnership has not yet reached an overall agreement regarding
how to react to a low balling environment: will audit partners be
encouraged or not to reduce the level of work when the audit fee is cut
significantly? Not being at ―this level yet‖ implies that organizational
pressures currently encourage partners to reduce the level of work when
being involved in a low-balling situation. These pressures are important
since the interviewee recognizes that s/he will engage in questioning –
although earlier in the interview s/he is aware of the risks involved in
reducing audit work. The organizational climate which brings the audit
partner to question the amount of work necessary to support the opinion
(―are we doing too much work?‖) is associated to internal accountability
in terms of financial performance towards the other partners; again,
commercialism is sustained through organizational practices.
3.4- Conclusion
I have indicated in this third and last section of the empirical analysis that
in order to respond to what is generally perceived as increasing pressures
ensuing from a high degree of competition in the audit market,
accounting firms increasingly rely on a low pricing strategy in order to
retain (or seduce) auditees. In contrast to what many would assume the
Sarbanes-Oxley Act and its Canadian adaptation did not get rid of such
tactic in the audit industry. In fact, the strategy has evolved to the point
where some smaller firms have to keep up by reluctantly adopting such
method in order to counter the Big Four‘s aggressive marketing
behaviour. In turn, low balling may engender a climate encouraging
auditors to reduce the level of audit work, thereby jeopardizing audit
quality. Interview evidence is presented in this respect.
95
FINAL REMARK
Unfortunately the auditing profession does not seem to learn from its
mistakes. Concerns relating to commercialism in accountancy are
ongoing issues in the current post-Enron era. This was specifically what I
assumed at the beginning of this memoire and I have empirically found
that from practitioners‘ points of view, auditors in their daily endeavours
are now often encouraged to give more weight to ―the business of
auditing‖ while downplaying the role of professional referents. My goal
was
precisely
to
appreciate
the
practitioners‘
views
towards
commercialisation of auditing services within accounting firms. Can I
suggest that auditing practitioners are blinded to the extent of
commercialization surrounding their practice?
As indicated in my memoire the research literature does not offer any
absolute causal linkages between financial debacles (i.e., failures in
protecting the public) and ascending commercialism within accountancy
profession. Nevertheless, Gendron (2002, 2010), Wyatt (2004) and
Toffler
(2003)
provide
evidence
which
help
us
realize
that
commercialism may have played a significant role in audit collapses.
These studies allow an in-depth examination of Enron-Andersen‘s 2001
failure which certainly underlines the dark side effects of commercialism
in auditing practice. To put the matter under perspective, it is important
to recognize that auditing is not idiosyncratic in being heavily influenced
by commercialization; nonetheless auditing constitutes a field where
commercialization
seems
to
be
increasingly
developing
and
consolidating, despite the occurrence of audit failures which can, in
theory, be interpreted as ensuing from too much commercialization in the
field. The strong influence of commercialism in the field of public
accounting has been pointed out by many authors. What is new is
96
showing that commercialism dominates even in an apparently serious
regulatory context, post-Enron.
Most people normally consider that concerns relating to the protection of
the public would have considerably been resolved in the post-Enron
legislative crusade towards financial markets and auditing profession.
Unfortunately, not only do my interviews indicate otherwise, but
debacles such as that of Lehman Brothers‘ 2008 bankruptcy, just to name
one, provide persuasive evidence that issues surrounding the protection
of the public may be neglected in the profession.
I do not suggest that auditors are the weakest link throughout these
demises within the financial sphere. Nor do I suggest the wrongful doing
of auditors in each of these debacles. I rather suggest that auditors‘ key
purpose as watchdogs of financial markets has not been attained. Having
as chief objective the protection of the public interest, it is not
unreasonable to argue that auditors have in a sense failed in this respect.
Commercialism is not the only factor negatively disturbing the auditing
profession, but it remains one for which the present study sheds some
light on its significance in the post-Enron era.
Nonetheless there is now serious controversy in literature as to what is
currently accountancy‘s main problem to deal with. On the one hand, I
find Eisenstaedt (2010, p. 31) vigorously insisting on client retention as
being the ―No. 1 issue facing accounting firms today‖. He specifies (p.
31):
If a firm wants to retain its best clients, the ones who have
high financial value, are less sensitive to fees, are most likely
to buy multiple services, and are the best source of referrals,
they need to adopt new approaches to nurture client loyalty.
97
Firms only need to look as far as their clients to learn how to
retain their business.
While on the other hand, Sukhraj (2010, p. 12) argues:
Questions are being asked over why it took a whistleblower
to alert auditors at E&Y to the Repo 105 transactions, rather
than the auditors challenging the deals themselves. And if
they hadn‘t done so in this instance, how many other times
did they not do so in issuing other audit opinions? And is this
telling, of their brothers and sisters who carry out similar
functions for the capital markets across the globe? Among
these questions also lies the key concern of the value of the
audit, and indeed its future.
These diverging viewpoints compellingly remind us of the confrontation
between commercialism (i.e., in this case client retention) vs.
professionalism (i.e., in this case the raison d‘être of auditing). I believe
that professionalism has to find its way back in the leader position of the
accountancy profession. Spacek‘s once known glory has to reunite with
accountants; the tiger has to represent the aggressiveness through which
the profession defends its foundations and beliefs by ensuring the
public‘s protection.
98
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APPENDIX & TABLE
105
Appendix 1 – Form of consent
La commercialisation des services de certification offerts par des expertscomptables en cabinets
Projet approuvé par le Comité d‘éthique de la recherche avec des êtres humains
de l‘Université Laval (no d‘approbation 2009-150), le 29 juin 2009.
Formulaire de consentement
1. Présentation de l’équipe de recherche
Yves Gendron est professeur titulaire à l‘École de comptabilité de
l‘Université Laval. Plusieurs de ses travaux de recherche visent à mieux
comprendre certains aspects fondamentaux de la vie des professionnels
de la comptabilité – que ce soit la prise de décisions des vérificateurs
externes sur le terrain ou encore la façon dont les membres de la
profession comptable ont vécu la chute du cabinet Arthur Andersen. Son
travail académique a été publié dans un large éventail de revues
universitaires telles que Accounting, Organizations and Society,
Contemporary Accounting Research, et Journal of Business Ethics.
Simon Dermarkar est étudiant à la maîtrise en sciences comptables de
l‘Université Laval. Ayant récemment obtenu son titre de comptable agréé
suite à ses études en comptabilité publique à HEC Montréal et œuvrant
pour presque trois ans en tant qu‘un vérificateur au sein d‘une firme
d‘experts-comptables,
il
s‘est
intéressé au processus
de
commercialisation des services de certification et aux différents enjeux
qui s‘y rattachent. Veuillez prendre notre que la démarche est
indépendante à ses activités professionnelles et que cette recherche est
réalisée dans le cadre de sa maîtrise en comptabilité à l‘Université Laval.
Avant d’accepter de participer à ce projet de recherche, veuillez prendre
le temps de lire et de comprendre les renseignements qui suivent. Ce
document vous explique le but de ce projet de recherche, ses procédures,
avantages, risques et inconvénients. Nous vous invitons à poser toutes les
questions que vous jugerez utiles à la personne qui vous présente ce
document.
2. Nature de l’étude
La recherche a pour but premier d‘analyser à travers l‘ère post Enron, la
façon dont les professionnels offrant des services de certification
perçoivent le processus de recrutement, de commercialisation et de
rétention de la clientèle en certification. Plus particulièrement, la question
de la rentabilité au sein du cabinet et de la compétitivité entre les
cabinets, sont les idées principales du projet de recherche.
106
3. Déroulement de la participation
Votre implication dans cette recherche consiste à participer à une
entrevue d‘une durée d‘environ une heure, qui portera principalement sur
les éléments suivants :
Éléments d‘information sur votre parcours professionnel.
Votre perception générale de la dynamique du marché des
services de certification que se partagent les cabinets comptables.
Votre appréciation de la compétitivité qui peut exister entre les
vérificateurs dans le processus des offres de services.
Votre avis sur des questions comme les suivantes :
o Les effets de la compétitivité entre les cabinets et les
enjeux qui s‘y rattachent.
o Les différences entre l‘avant et l‘après Enron, en ce qui
concerne la commercialisation au sein des cabinets
comptables.
o La possibilité que certains cabinets adoptent une approche
« low-balling » - offrir des services à prix moindre afin
d‘obtenir le mandat de vérification.
 Les risques liés à l‘adoption d‘une telle approche
de recrutement de clientèle à l‘égard de la qualité
des opinions émises par les services de
certification.
o Points forts et faiblesses des normes professionnelles qui
régissent ces processus de commercialisation.
Nous aimerions enregistrer l‘entrevue. Toutefois, si vous n‘êtes pas à
l‘aise avec cette procédure, vous n‘avez qu‘à nous le signaler et nous
n‘enregistrerons pas l‘entrevue. Nous prendrons alors des notes écrites
détaillées.
4. Avantages, risques ou inconvénients possibles liés à votre
participation
Participer à cette recherche vous offre une occasion de réfléchir,
individuellement, aux processus de commercialisation au sein des
cabinets comptables et aux enjeux qui en découlent. De plus, votre
participation permettra d‘approfondir l‘appréciation de la façon dont les
normes professionnelles régissent ce processus de commercialisation en
matière des services de certification. Or, nous connaissons relativement
peu de choses de la façon dont ce processus de commercialisation est
implanté, contrôlé et « vécu » au sein des cabinets d‘expertise comptable.
Il est également possible que nous développions du matériel pédagogique
à partir de certaines facettes des données recueillies par entrevue.
Il est possible que certains extraits de votre entrevue soient intégrés à nos
manuscrits de recherche ou notre matériel pédagogique. Cependant, nous
nous engageons à ce que votre participation à cette étude comporte le
107
moins de risques possible, en protégeant au maximum de nos possibilités
votre anonymat, ainsi que celui de votre organisation.
5. Participation volontaire et droit de retrait
Vous êtes libre de participer à ce projet de recherche. Vous pouvez aussi
mettre fin à votre participation sans conséquence négative ou préjudice et
sans avoir à justifier votre décision. Si vous décidez de mettre fin à votre
participation, il est important d‘en prévenir le chercheur dont les
coordonnées sont incluses dans ce document. Tous les renseignements
personnels vous concernant seront alors détruits.
6. Confidentialité et gestion des données
Les noms des participants ne paraîtront dans aucun rapport. Des
codes alphabétiques seront utilisés en référence à vous ou à votre
organisation.
Seuls les membres de l‘équipe de recherche (c.-à-d. Yves
Gendron et Simon Dermarkar) auront accès aux enregistrements
des entretiens et à leur retranscription.
Une fois les entretiens retranscrits, une copie manuscrite vous
sera envoyée. Bien que le courrier électronique ne puisse jamais
être totalement sécuritaire, nous vous enverrons tout de même la
transcription de votre entrevue par courriel, à moins que vous
nous indiquiez une autre modalité de transmission que vous
jugerez plus sécuritaire. Une fois la transcription reçue, vous
serez libre de la modifier, de la rectifier ou d‘y ajouter des
explications, et ce, pendant les six semaines qui suivront la date
de réception de ladite transcription. Au-delà de ce délai, les
chercheurs prendront pour acquis que vous acquiescez à la teneur
de la transcription de votre entrevue.
Si vous le demandez, nous vous enverrons, avant publication, une
copie de tout manuscrit de recherche ou matériel pédagogique qui
sera produit.
Les enregistrements originaux seront détruits un an après la
réalisation des entretiens. Pendant cette période, les
enregistrements originaux seront conservés sur le microordinateur des membres de l‘équipe. Ces ordinateurs seront
toujours gardés sous clef, normalement dans le bureau respectif
de chacun des membres de l‘équipe. De plus, leur utilisation
nécessite la connaissance d‘un mot de passe connu seulement de
l‘utilisateur.
Les notes manuscrites prises pendant les entretiens seront gardées
sous clef dans le bureau d‘un des membres de l‘équipe de
recherche pendant les deux années suivant la publication du
dernier manuscrit de recherche, après quoi elles seront détruites.
Les transcriptions définitives des entretiens (copie papier) seront
gardées sous clef dans le bureau d‘un des membres de l‘équipe de
recherche pendant une période indéfinie. Une version
électronique de ces transcriptions sera conservée pendant la
108
même période sur un disque dur externe et dont l‘accès sera
soumis à un mot de passe connu des seuls membres de l‘équipe
de recherche. Nous désirons conserver ces données indéfiniment
car elles pourraient être utiles pour des recherches ultérieures,
notamment dans le cadre d‘études historiques ou longitudinales
portant sur l‘évolution des dynamiques au sein des cabinets
d‘expertise comptable. Cependant, les données conservées pour
une utilisation ultérieure seront préalablement dénonimalisées de
manière irréversible. Les données étant rendues dénominalisées, il
n‘y a pas de risque à conserver celles-ci pour un temps indéfini.
7. Renseignements supplémentaires
Si vous avez des questions sur la recherche ou sur les implications de
votre participation, veuillez communiquer avec un des membres de
l‘équipe de recherche:
Yves Gendron, au numéro de téléphone suivant : (418) 656-2131
poste
2431,
ou
l‘adresse
courriel
suivante
:
[email protected]
Simon Dermarkar, au numéro de téléphone suivant: (514) 8177287, ou l‘adresse courriel suivante: [email protected]
8. Remerciements
Votre collaboration est précieuse car elle nous permettra de réaliser cette
étude. Nous vous remercions d‘y participer.
9. Signatures
Je soussigné(e) consens librement à participer à la recherche intitulée :
« La commercialisation des services de certification offerts par des expertscomptables en cabinets ». J‘ai pris connaissance du formulaire et j‘ai
compris le but, la nature, les avantages, les risques et les inconvénients
du projet de recherche. Je suis satisfait(e) des explications, précisions et
réponses que le chercheur m‘a fournies, le cas échéant, quant à ma
participation à ce projet.
___________________________________________________________
Signature du participant, de la participante
Date
Une copie de tout manuscrit de recherche sera expédiée aux participants
qui en feront la demande en indiquant l‘adresse où ils aimeraient recevoir
le document, juste après l‘espace prévu pour leur signature. Le premier
manuscrit ne sera pas disponible avant la fin de 2009. Si cette adresse
changeait d’ici cette date, vous êtes invité(e) à informer le chercheur
de la nouvelle adresse où vous souhaitez recevoir ce document.
L‘adresse à laquelle je souhaite recevoir une copie des manuscrits de
recherche est la suivante :
109
___________________________________________________________
__________
___________________________________________________________
___________________________________________________________
__________________
J‘ai expliqué le but, la nature, les avantages, les risques et les
inconvénients du projet de recherche au participant. J‘ai répondu au
meilleur de ma connaissance aux questions posées et j‘ai vérifié la
compréhension du participant.
___________________________________________________________
Signature du chercheur
Date
10. Plaintes ou critiques
Pavillon Alphonse-Desjardins, bureau 3320
2325, rue de l‘Université
Université Laval
Québec (Québec) G1V 0A6
Renseignements – Secrétariat : 418 656 - 3081
Télécopieur : (418) 656-3846
Courriel : [email protected]
110
Projet approuvé par le Comité d‘éthique de la recherche avec des êtres humains
de l‘Université Laval (no d‘approbation 2009-150), le 29 juin 2009.
Appendix 2 – List of Questions
La commercialisation des services de certification
offerts par des experts-comptables en cabinets
Thèmes d’entretien
1. Parcours de l’interviewé et généralités
Quel est votre parcours professionnel?
o Titre professionnel?
Depuis quand faites-vous partie du cabinet X?
Quelle est votre fonction actuelle au sein du cabinet X?
o En quoi consiste-t-elle?
2. Perception et appréciation de la commercialisation des services de
certification
Votre perception générale de la dynamique du marché des
services de certification que se partagent les cabinets comptables.
o Cette dynamique a-t-elle changé depuis l‘affaire Enron?
Comment?
Votre appréciation de la compétitivité qui peut exister entre les
vérificateurs dans le processus des offres de services.
o Croyez-vous que la concurrence est une bonne chose du
point de vue de la profession comptable? Pourquoi?
Croyez-vous qu‘il est pertinent de vouloir contrôler le degré de
commercialisation au sein de la profession comptable? Pourquoi?
Le cabinet comptable peut-il avoir une emprise sur le degré de
commercialisation en son sein? Comment?
3. Opinion et pratiques concrètes
Votre avis sur des questions comme les suivantes :
o Les effets de la compétitivité entre les cabinets et les
enjeux qui s‘y rattachent.
o Est-ce que les pressions découlant de la compétition entre
les différents cabinets sont plus importantes que les
pressions internes visant à atteindre une meilleure
rentabilité?
111
o Les différences entre l‘avant et l‘après Enron, en ce qui
concerne la commercialisation au sein des cabinets
comptables.
 La commercialisation vous affecte-t-elle au jour le
jour? Comment?
o La possibilité que certains cabinets adoptent une approche
« low-balling » - offrir des services à prix moindre afin
d‘obtenir le mandat de vérification.
 Les risques liés à l‘adoption d‘une telle approche
de recrutement de clientèle à l‘égard de la qualité
des opinions émises par les services de
certification.
o Existe-il une pression qui pousse à vouloir être un
professionnel rentable pour la firme?
 Quels effets est-ce que ce type de pression peut
avoir sur les mandats de certification?
 Le régime de rémunération des associés est-il
susceptible
d‘induire
des
effets
de
commercialisation?
 Est-ce que les critères utilisés pour nommer les
nouveaux associés sont basés sur des facteurs liés
à la commercialisation?
 Quels mécanismes votre cabinet a-t-il mis en place
pour contrôler le degré de commercialisation au
sein du cabinet? Que pensez-vous de ces
mécanismes?
4. Normes professionnelles qui régissent ces processus de
commercialisation
Points forts et faiblesses des normes professionnelles qui
régissent ces processus de commercialisation.
Y a-t-il amélioration possible au niveau de la surveillance des
processus de commercialisation et rentabilisation des services de
certification ?

Est-ce que la surveillance et la divulgation des niveaux de
rentabilité des
vérificateurs pour les dossiers de
vérification des sociétés ouvertes seraient une façon
d‘assurer une transparence et un contrôle sur la qualité des
services offerts?
5. Conséquences (réelles ou perçues)
Quelles sont les conséquences, pour un associé, de ne pas se
conformer aux normes professionnelles et aux politiques
organisationnelles en matière de commercialisation?
112
Table 1: Interviewee details
Firm Size
Big
Four
Medium
Hierarchical Level
Small
Partner
Senior
manager
Manager
Former
Experience (in
years)
Business
Audit
16
14
16
16
1
Former
2
x
3
x
x
18
18
4
x
x
9
8
5
x
27
27
6
x
20
20
7
Former
11
3
8
x
25
9
x
x
x
Former
x
9
X
x
31
31
10
X
x
21
17
x
24
21
x
22
22
Former
32
12
11
12
13
x
X
Former