Some critical perspectives on auditing

Financial reporting and accounting are a form of social communication. While most accounting research focuses on specific forms of communication such as audit reports or the contents of financial statements, social theory takes a broader approach to analyzing reports by looking at the wider social context of the reports and their impact. There has been increasing interest in how auditors actually practice auditing using sociology-based field study approaches. For example, there has been increasing interest in how auditors practice auditing which can take many forms, e.g., preparing budgets, selecting samples, and interacting with client employees. There is also an increasing literature on the many roles auditors and accountants play in society, and the many techniques they use.

A good example of this social theorizing type of research is Pentland’s (1993) field study of auditor activities “in the field” on audit engagements. Pentland refers to the various audit activities as “rituals,” where this refers to “any collective activity that has the effect of maintaining social order” (ibid., 606). These audit rituals provide “comfort" by “cleaning up” client data to various degrees from senior to partner. Pentland views this as a purification ritual in which “emotion not rational calculation is the fundamental way social order is constructed” (ibid., 607), not the rational purpose of auditing standards, which he views as part of an ideology.

Ritual is a way to develop social cohesion in a group and this is done in part through impression management, which is to behave in ways that create predictability to others so as to foster social cohesion. A prime example of impression management is appropriate behavior such as acting like an audit professional. Examples of this that Pentland documents in his fieldwork include “signing off, cross referencing, footing, ticking, lunch with the team, no breaks, and being an audit machine (putting in long hours)” (ibid., 608). Essentially Pentland is focusing on auditors as a type of subculture with its own norms and practices distinct from the wider culture.

To summarize Pentland, audit rituals, performed by the right people, are what create comfort as symbolized by the signature of the professional. What seems to be missing from this account is the reason behind the rituals and to what degree the reasons help shape support for the auditor’s conclusions. The real issue in our view is whether the stated objectives have been met by the evidence and reasoning in the audit file and that is not what is studied in this type of social theorizing research.

Implicit in the many types of audits, not just financial statement audits as in Pentland, is that objectives are met. In the critical-thinking accounting literature this is what is questioned: that if certain rituals or behaviors are performed then certain objectives are met. Proliferation of this kind of thinking, without considering what is actually achieved or whose interests are served, creates an environment where empty audit rituals provide comfort on a variety of issues including quality certifications, evaluation of research programs, and accounting for intangibles such as brands (Power 1997). Unjustified expansion of such “audits” can create a sham audit society consisting of empty rituals with audits proliferating and not providing any valid increase in trust or assurance (Power 1997). The issue is when the rituals are truly empty or superficial. After all, this research does not directly observe what is in the auditor’s mind and what is being accomplished. This illustrates the importance of documentation in the audit file to provide evidence of what is being accomplished. If there were a logical audit argument then it could be evaluated as to the persuasiveness of the evidence presented to support the audit objective. There is surprisingly little, if any, evidence from audit files in this type of research. In the last two decades specialist regulators have taken on this monitoring role.

The next section provides an overview of critical research based on sociology'.