Auditing research: ideas and experiences underlying a qualitative perspective

1. By Christopher Humphrey Manchester Accounting & Finance Group (MAFG) Manchester Business School University of Manchester England Auditing research: ideas and experiences underlying a qualitative perspective

2. Ideas, context, depth and resonance • Always prioritise ideas...do not approach a research topic with ‘a method in search of an idea’.

3. Context is critical • “One evening I was coming through the Old La Guardia terminal on my way to Boston and I paused as usual to eye the window of the little bookshop on the way to the ramp. As usual there was no sign of the bright red jacket (of my book) • The lady asked me if I wanted something and I summoned all of my resources of courage and verisimilitude and said...

4. Context is critical • ...’I seem to remember a lot of recent discussion about a book – I forget the name of the author, maybe Galbraith – but I think it was called the Great Crash’. • She replied, ‘That’s certainly not a title you could sell in an airport.’”

5. Context and depth • To understand auditing practice, you have to appreciate the context(s) in which it is practised. • You also need a depth of knowledge and a sound historical awareness.

6. Historical awareness • “The accounting profession in the United States is a profession that has lost its way. This does not mean that accountants elsewhere are without problems. Nevertheless, accountants in the English speaking countries are in the most dire straits, and those in the United States have it the worst.....

7. Historical awareness • “....Their product, the financial report, is a costly mess; their generally accepted accounting principles in chaos; their signatures on audit reports suspect; and their education and training declared unacceptable. How did it get this way and what can be done about it?”

8. Historical awareness • (Kenneth Most, The Future of the Accounting Profession: A Global Perspective, Chapter 1, 1993, Florida International University, Miami)

9. Historical awareness • “I suspect we will also see continuation on the part of some national governments, appropriating some form of ‘divine right’ to reach beyond their borders to try to regulate and control the manner (including even internal accounting controls) in which businesses operate across the world...

10. Historical awareness • “...One country that has assumed this extraterritorial right and imposed such an obligation in the past is my own. In the long run, however, it is my belief, and certainly my hope, that this type of intervention will wane as more and more countries, including not least the US, recognize how presumptuous and arrogant this attitude is and how self-defeating to many other national goals..”

11. Historical awareness • “...William S. Kanaga, Chairman, Arthur Young & Company, Chairman Elect, AICPA, May 1980, The Shape of International Accounting in the Decade Ahead. • You must be sensitive to history and the absence of a ‘natural’ form of progression.

12. Resonance • “It is up to the case study author to use their scholarship to convince others as to the merits of their case in terms of its capacity to explain auditing practice” • Need to move beyond simple appeals to some external methodology or ‘accepted’ theoretical position.

13. Good (case-based) research will stand the test of time “our task is to take a ‘satisfying’ approach - to try to understand the past as best we can, realizing that knowledge will be forever imperfect. In the end the best we can do is to choose an interesting research issue; use evidence that is varied, accessible and reliable; draw on a variety of views and techniques…to interpret that evidence; seek out other explanations and examples that would confound our overall argument; and finally, to convey our findings in as clear a manner as possible, eschewing jargon and esoteric language.” (Mills, 1993, p.802)

14. The distinctive nature of qualitative audit research • Many of the above factors are common across research approaches..... • But there is a mind-set difference for qualitative research. • Can find in ‘market-based audit studies’ a recognition of: • inherent subjectivities of auditing practice, • difficulty of demonstrating cause-effect relationships • political nature of audit regulatory processes

15. The distinctive nature of qualitative audit research • But what pulls such researchers back from a more active study of the subjectivity of audit or the political nature of audit regulation is a belief that auditing research must maintain its “scientific rigour” • Tendency for research to subordinate itself to the regulatory process rather than one that seeks to study it. • Research can explore the nature of professional expertise rather than assuming/justifying it.

16. The distinctive nature of qualitative audit research • Francis (1990) wrote that attempts by the profession to portray auditing as quasi-scientific will not work in the long-run and could well be counter-productive. • Where stands auditing research in this respect?

17. The distinctive nature of qualitative audit research • The key task is one of understanding: • the political nature of audit regulatory processes, • studying practice from ‘behind the scenes’? • learning what drives processes of audit change, • what it means to be an auditing professional in different institutional sites or countries, • how auditing and audit regulations help to define or translate matters of political and social concern

18. Achievements of qualitative audit research • Drawing attention to the: • audit society/explosion/implosion; • corporate capturing of certain forms of auditing and reporting; • alternative histories of the development of auditing practices and the expectations of auditors; • Debating the democratic tendencies of (increasingly) globalised regulatory systems and initiatives;

19. The distinctive nature of qualitative audit research • Analysing impact on practice of the commercialised nature of the auditing profession/’industry’. • Understanding the relationships between rationalities and technologies of auditing. • Examples of : • audit planning • audit expectations gap. • business risk audit methodologies • Global regulation (self-regulation at the global level?)

20. ‘Innovation’ in Audit Research – thinking about qualitative research • There is quite a lot of qualitative research out there! And there are good papers in journals such as AAAJ and CPA • Go ‘international’ in outlook • Recognise that there are more than 8 journals publishing auditing research; Expand the AAA’s coverage of 33 years of auditing research

21. ‘Innovation’ in Audit Research – recognise that qualitative research exists • Analytical • Archival • BDM Experiment • Experimental Economics • Questionnaire Survey • Other!!!

22. ‘Innovation’ in Audit Research – recognise that qualitative research is enjoyable • Qualitative research has an essential subjectivity, intrigue and mystery that makes it exciting (to do and to write about) • IT IS FASCINATING TO QUESTION THE TAKEN-FOR-GRANTED OR EXPLORE THINGS ONLY TALKED ABOUT IN PRIVATE BY AUDIT PROFESSIONALS

23. ‘Innovation’ in audit research – learn from others • But if you pursue it – take care not to kill it; • Learn how others write; don’t demand that they study/write like you currently do in other research forms. • Think of yourself as an investigative journalist? Or an auditor with time to challenge and rethink practice.

24. ‘Innovation’ in audit research – learn from others • Keep your mind open (to new ideas) • Revisit/rewrite history • Ask ‘how’ questions • Start with small tasks, routines ...and work upwards • Emerse yourself in the field; don’t rely on isolated interviews • Mix with practitioners, build trust, read widely, work outside formal presentations and situations.

25. ‘Innovation’ in audit research – living on the edge • Perfect an interview style that works for you • Be smart – take care in terms of revealing what you know or don’t know • Don’t bury yourself in methodological texts – learn from ‘real life’ tips and experiences. • Remember the value of historical ‘archives’ • Be able to recognise a good story.

26. REMEMBER – PRACTICE NEEDS QUALITATIVE AUDITING RESEARCH • In its immediate aftermath of the post-2007 global financial crisis, the profession’s critics were (unusually) not that visible.. • But now right in the firing line...and on the back foot... • “if the profession did its job and we still had the crisis, what does that say about the value of such functions?” • “the status quo is no longer good enough”

27. Reforming from the ‘Outside-In’ or the ‘Inside-Out’? • Need to stimulate understanding of what is happening in practice. • Prefer reforms to be led from an informed analysis of the ‘inside’. • What and who is driving innovation in audit practice?

28. Innovation in practice • In what ways is audit quality improving under firm-led and regulator-led reforms? • Are the PCAOB and other oversight bodies delivering on their mission? • Is there a risk that the more the PCAOB does, the less we trust the profession? • In-depth studies of audit practice can help to develop trust in audit and bolster its intellectual integrity

29. Audit needs you to change! • We were told yesterday that your country needs audit • AND audit needs audit research to be more ‘qualitative’ in outlook