LITIGATION RISK FOR AUDITORS AND THE RISK SOCIETY

The auditing industry has mounted a global campaign to reduce its liability. In Canada, it is attempting to change from a doctrine of joint and several liability to proportionate liability, to have the Federal government legislate a statutory cap on liability, or to have the Provincial governments approve the establishment of Limited Liability Partnerships. These initiatives are consistent with the proposals of the CPA firms in the US and the CA firms in the UK. This cross-national trend suggests that a global theory of society is needed to analyze the consequences of audit risk. This paper uses the “risk society” model proposed by Beck to understand why the audit industry focuses on reducing exposure to liability, rather than on improving the quality of audits. Beck's theory of “reflexive modernization” provides an analysis of the so-called “liability crisis” that attempts to overcome the institutional construction offered by the auditing industry. The paper recognizes that it is very difficult for observers outside of the large auditing firms to judge the real risks of audits and to develop alternative public policy options. Ideally, we should be able to evaluate litigation in a modern audit environment. However, the audit firms are not required to disclose sufficient information about their costs to determine the real impact. Meanwhile, professional groups are lobbying hard for changes that will reduce auditors risk without addressing the root causes of audit failures.     

INTERNATIONAL ACCOUNTING FIRMS VERSUS INDIGENOUS AUDITORS: INTRA-PROFESSIONAL CONFLICT IN THE GREEK AUDITING PROFESSION, 1990-1993

Jurisdictional claims over statutory audits in Greece have prompted a sustained and bitter intraprofessional conflict spanning the last 30 years. This paper examines a major episode during the climax of the struggle in the early 1990s. The main rival camps were a group of indigenous auditors—who had the legal monopoly of practice—and local branches of international accounting firms—who were excluded from the market for statutory audits. The latter fought for reform. The conflict took place against the backdrop of advancing neoliberal discourses within government stimulated by a desire for greater political and economic integration within the European Union and world-wide. The struggle ended victoriously for the international accounting firms, culminating in the “liberalisation” of the Greek auditing profession in 1992. The paper analyses the state-profession axis to expose the allegiances of conflicting professional groups to major political parties, as they strove to win vital political support to attack or defend contested territories. Of particular interest is the complex political manoeuvring employed by the government in order to grant international accountants easy access to the market for statutory audits. A secondary objective is to offer insights into the factors and conditions that precipitated and enabled a radical reform of the institution of Greek auditing. For example, the quest for the “liberalisation” was eagerly supported by the Confederation of Greek Industries. In addition, representative organisations of the international accountancy profession showed unreserved allegiance to international accounting firms and became actively involved in the conflict. Overall, the analysis shows that the structure of the auditing profession in Greece is the outcome of a dynamic interplay of economic, social, and political forces at both the national and the international level. Within these various interests, state agencies and professional groups play a prominent role.     

CONNECTING ACCOUNTING AND EDUCATION IN THE UK: DISCOURSES AND RATIONALITIES OF EDUCATION REFORM

In this paper we analyze the processes which have structured the emphasis upon budgeting and accounting in the Local Management of Schools initiative by outlining the inter-relations between the discourses of neo-liberal government and economics, and the apparent “need” for the expansion of accounting and budgeting systems in the public sector and particularly education in the UK during the past six years.At the heart of our analysis is the contention that accounting and budgeting systems have been promoted throughout the UK public sector by connections to a discourse of managerial enterprise and economic rationality. The intersections between accounting techniques, and economic and managerial notions of decision making, responsibility and market organization have provided the complex discursive formation within which the accounting and budgeting innovations introduced under LMS have been presented and represented as “necessary” elements of proper public sector organization. The colonization of accounting into the education sector has been made possible by a series of seemingly unquestioned linkages, associations and reductions, upon which we offer a commentary, between the discourse of economic rationality and the techniques of accounting.     

Intersections of law and accountancy: Unlimited auditor liability in the United Kingdom

In recent years, considerable pressure has grown within the British auditing industry for limitation of liability arising from negligent mis-statements in audit reports. Under British company law, auditors are forbidden from contracting with companies for their liability to be restricted. This legal provision was introduced in the Companies Act 1929 as a byproduct of legislation relating to directors' liability. The paper explores the background to this legal provision, observing that auditor liability cannot be viewed as a self-contained matter of interest only to a limited community. Attitudes to auditor liability have been shaped against a background of changes in the law of negligence, some, but by no means all, arising from cases involving auditors. Moreover, changing concepts of the position of the auditor within corporate governance structures have at different times encouraged and discouraged the assimilation of the legal treatments of auditors and directors. These concepts themselves reflect differing notions of what actually constitutes the “company”: a collectivity of shareholders or a separate entity controlled by directors. These notions emerged against a background of corporate failure and the need to allocate losses among various parties with different degrees of culpability for failure. However, legal developments do not account by themselves for changing attitudes within the auditing industry towards unlimited liability; acceptance of full responsibility for one's statements, adopted as a badge of professional status, has more recently been seen as inhibiting the commercial development of British auditing.     

THE SUBJECTIVITY OF THE FASB'S CONCEPTUAL FRAMEWORK: A COMMENTARY ON BRYER

Bryer argues that the FASB's conceptual framework is inherently subjective because it is based on the concept of “economic value”, or the anticipated net cash inflows attributable to presently owned assets. By contrast, Marxist economics is based on objective facts that can be measured to a “socially required level of accuracy”. The objective facts of a Marxist conceptual framework rest on the theory that capital circulates in three forms: money, commodities to be sold, and commodities to be used in production. Capital, and, therefore assets, are essentially physical (or technical) in nature rather than monetary in nature. Measurement of assets is objective because Marxist theory emphasizes management stewardship and requires historical cost and a strict realization criterion for recognition of revenue. Bryer's argument that the FASB's conceptual framework is “unacceptably subjective” because it is based on “economic value” is misplaced. A careful reading of the FASB's concepts statements suggests that assets represent service-potential, or “use-value” in Marxist terms, and that economic-value is never advocated as a conceptual basis for the measurement of assets. The reason the FASB's conceptual framework is “subjective and vague” is that the FASB lacked the political will to advocate a conceptual preference for any particular measurement method.     

Reining in auditors: On the dynamics of power surrounding an “innovation” in the regulatory space

In the aftermath of Enron and the collapse of Arthur Andersen, new “independent” institutions were created to oversee financial auditing. Based on a modified version of Lukes’ multidimensional model of power, we first investigate how the creation of the Canadian Public Accountability Board (CPAB) has affected the dynamics of power among the main players enlisted in Canada’s regulation of public accounting. Our findings strengthen the view that a “form of allegiance” was, at the time of data collection, developing between CPAB and the largest Canadian accounting firms. Through a second analytical movement, we extend the boundaries of our argument, showing that patterns of resistance against the logic of arm’s length regulation operate in a variety of audit regulatory sites. Our conclusion points, in particular, to the spatial gap - and incidentally the limitations - of any attempt to control and supervise a globalized industry from a national or regional perspective.     

EXPLORING AN ACCOUNTING PARADIGM: THE CASH ACCOUNT

This paper explores the possibility that practitioners' standards of accounting rationality are partly determined by a “cash account” paradigm, of which the method for preparing accounts from incomplete records is a major exemplar (an important part of the Kuhnian concept). Preparation of accounts from incomplete records forms part of many accountants' early practical experience, and often provides the setting in which elementary bookkeeping and accounting concepts start to become “second nature”. In addition to this, and partly as a result of it, accountants may tend to refer (perhaps not always explicitly) to the so-called “single entry method” when addressing much more complex and intractable problems. Practitioner paradigms get less attention in the literature than research paradigms, and one purpose of this paper is to redress this balance, and to show how articulation of a practitioner paradigm might suggest ways out of some conceptual difficulties     

Regulatory networks for accounting and auditing standards: A social network analysis of Canadian and international standard-setting

Rose and Miller [Rose, N., & Miller, P. (1992). Political power beyond the state: Problematics of government. British Journal of Sociology, 43(2), 173–205] note that governmentality is exercised through “centers of calculation” embedded in “networks of rule;” we focus on the “networks of rule” and use social network analysis to document the linked organizations, both domestic and international, that affect the creation of accounting and auditing standards in Canada. The network is defined as the set of regulatory bodies and other organizations that have the right to appoint (or approve the appointment of) members of another organization’s standard-setting body. The network consists of 61 organizations, sharing 131 interlocks. These organizations are clustered into four groups centered on, respectively, the Canadian Institute of Chartered Accountants, the Canadian Securities Administrators, International Federation of Accountants and the IOSCO/World Bank. The analysis identifies the boundaries of these clusters and the key organizations that maintain the cohesion of the network. The conclusion identifies research opportunities opened by this perspective on accounting and auditing regulation.     

From inspection to auditing: Audit and markets as linked ecologies

This paper studies the roles that images and ideas of market creation played in the re-articulation of relations between government, audit expertise and professional organisation in post-Soviet Russia. It examines the change from state-led inspection to market-oriented auditing between 1985 and 2005, and analyses this in terms of the notion of “linked ecologies”. The paper queries the relationship between audit and neoliberal modes of governing. It argues that we should be careful not to see audit as an unproblematic expression of neoliberalism. Investigating the dynamics and conflicts accompanying attempts to establish auditing as a site for governmental reform, this paper examines the manifold ways in which the meaning of markets and the roles of auditing in them can be unsettled, reinvented and transformed. The paper analyses how auditing was made marketable, and investigates how projects of post-Soviet audit development came to be carried forward, shifted and changed through new “enterprising selves” and their newly founded audit and consulting firms. The paper concludes with a more general discussion of the implication of these findings for our understanding of the dynamics of professionalisation, and the changing of relations between politics and expertise.     

International Professional Labour Markets and the Narratives of Accountants

This paper analyses the emergence of an international labour market in accountancy and the role it plays in the careers of Big Six Irish accountants. It suggests that within Irish accountancy an international hierarchy has arisen which places sites such as London above areas like Bermuda. The justifications for this hierarchy are often technical, i.e. one learns new accounting techniques in London but not in Bermuda. However, although technical justifications play a role in this hierarchy, the paper argues that its emergence has more to do with narrative than with technical factors. That is, it is argued that Irish accountants perceive core sites as being more “progressive” than peripheral areas and in order to display their ambition and adherence to “progressive” accounting values they migrate to the core and not the periphery. This narrative coincides with a wider narrative in Ireland, which claims professional migration is a good thing because it means Irish professionals learn new skills in the core and bring these back thus enabling the state, and the firms they work for, become competitive in an increasingly global economy. This narrative rejects the concept that professional migration is a reflection of Ireland's economic dependence in favour of viewing it as a sign of progress.     

Accounting for organizational performance: The construction of the customer in the privatized water industry

The concept of the customer exercising market power to obtain the desired combination of attributes in terms of price and quality of the product to be purchased has been integral to the Conservative Government's justification of privatization. However the practical import of giving effect to customer sovereignty was problematic if it was not accompanied by an increase in competition and choice for customers. This is particularly true of the recently privatized Water industry, where the monopoly character of the industry has remained unaltered. To give effect to its claims that customers would benefit, and to prevent overcharging and to protect standards of service, the Government had to introduce a new regulatory system operated by the Office of Water Services (Ofwat). In pursuing these objectives the Director General of Ofwat has stated that his aim is to secure for the customer a place that he/she would have were the companies operating in a competitive market. This paper, drawing on Miller and Rose's analysis of Governing economic life, examines the attempts that have been made to give effect to this “place for customers”. In doing so much of the analysis focuses on exploring how notions of “the customer”, and “customer service”, have been constructed through new forms of accounting and accountability, and how this new accounting for customer service has enabled the concept of “the customer” to be made operational within the newly privatized Water plcs, even though their monopoly status has remained unaltered. Central to this has been Ofwat's determination of performance indicators on levels of service to customers, its measurement of company performance against these indicators, and assessments based on these measures of companies' success in “serving customers”. The paper seeks to demonstrate how these new accounts of organizational performance required of the Water plcs by Ofwat have only been made possible by rendering “customer service” a calculable and comparable entity. The paper also looks at some of the ways in which this accounting for customer service has been incorporated into other accounts of managerial and organizational performance.     

SOCIAL ANALYSES OF ACCOUNTING INSTITUTIONS: ECONOMIC VALUE,ACCOUNTING REPRESENTATION AND THE CONCEPTUAL FRAMEWORK

The paper is a commentary on Bryer's article “A Marxist Critique of the FASB's Conceptual Framework”; the commentary is divided into three main sections. The first section begins by addressing the changing relationships between accounting and economics and, more specifically, the ideas of economic value and accounting representation (often called “representational faithfulness”, see Bryer, p. 582) that underlie Bryer's concerns with the FASB project. The second section considers the role of the FASB conceptual framework project in order to address the different ways that the “impact” of the FASB's Conceptual Framework project upon accounting practices can be considered. Several of the existing studies of this project that consider its purpose in social and political terms are reviewed. This is not to suggest that the FASB's work has had @9pno@2p effects, but rather that its consequences might be thought of in institutional and political terms. In the final section some of the specifics of Bryer's Marxist analysis are addressed. In particular the relationship between Marxian analysis and accounting change is considered.     

Audit litigation research: Do the merits matter? An assessment and directions for future research

This article reviews audit litigation research and discusses suggestions for future research. Recent reforms in federal and state laws related to accounting and auditing services increase the opportunities for research. An overarching issue in the public policy debate over legal reforms is the role of merits in bringing and resolving lawsuits against auditors; this issue frames the discussion of audit litigation research.     

索赔特征对保险理赔(诉讼)额影响的实证分析——基于交强险人身伤害判决数据

面对日益增多的保险理赔(诉讼),亟需加强索赔原因及索赔特征对法院判决结果的影响研究.本文通过对北京市大兴区人民法院2007年1月至2010年8月涉及人身伤害的交强险判决案例进行回归分析,发现:索赔原因与索赔人损失大小、就业状况、法律规定的赔偿上限有关;索赔人在交通事故中承担的过错责任与其性别、医疗费支出状况、是否死亡有...     

审计报告的不同解读

对审计职业来说,审计报告的标准化可减少审计成本和避免审计法律诉讼,还可约束恣意和为理性选择提供合理保障;而对社会公众来说,审计报告留下了太多职业保护的痕迹。审计报告如何权衡设计职业保护与社会公众利益间的关系,本文提出了三种建议。     

CAPITAL AND FINANCIAL ACCOUNTING: A COMMENTARY ON BRYER'S “A MARXIST CRITIQUE OF THE FASB'S CONCEPTUAL FRAMEWORK”1

Bryer (1999) reiterates criticisms of the “balance-sheet” approach underlying the FASB's conceptual framework as failing either to explain or guide the development of financial accounting practice, and aims to demonstrate how operational and objective principles of financial accounting can be derived from Marx's labour theory of “surplus-value”. However, the potentially conflicting objectives of “Marxist” accountings remain unresolved, and Bryer's attempted derivation of accounting rules for individual business enterprises appears to misunderstand the rationale of Marx's detailed examination of the circuits of capital in Parts One and Two of Volume II of @9pCapital@2p and to offer no critical foundation for Praxis. It is argued here that the focus of a critical Marxist accounting would more appropriately shift to recognising the extraction of surplus-value from labour and its addition to the value of inventory during the process of production (rather than reporting profit as the result of sale). However, the practical application of such a principle would still require the use of convention-based allocations at least as arbitrary as those of conventional financial accounting and, more fundamentally, such a change of accounting principle could not in itself be sufficient to “force the secret of profit making” under the capitalist mode of production. The accounting would still be consistent with both Marxist and neoclassical economic theories of the nature of capitalism. Bryer's approach to deriving Marxist accounting rules cannot help us to understand the problematic nature of the power of modern financial accounting.     

CHANGES IN THE INTERNATIONAL REGULATION OF AUDITORS: (IN)STALLING THE EIGHTH DIRECTIVE IN THE UK

In 1984 the European Commission issued the Eighth Company Law Directive requiring each member State to ensure that its national rules met common standards for the education, training and qualification of statutory auditors (84/253/EEC; OJ 1984 L126/20). The Directive insisted that national governments take responsibility for the regulation of auditors, a requirement that clashed with the autonomy which many professional bodies believed they possessed. In this article we explore the processes through which the Eighth Directive on the regulation of auditors has been implemented in the UK. We argue that the Eighth Directive illuminates the effects of political and economic discourses on the development of accounting and auditing regulations and the protocols involved in installing such regulations into particular national contexts. The Eighth Directive represents a revealing moment in the shifts in political discourse (towards neo-liberalism) in the UK and the problems of reconciling new modes of economic and political thinking withinternationalregulatory programmes and institutions. Moreover, the implementation of the Eighth Directive in the UK cannot be comprehended outside of (i) an analysis of the problems the British Government has had in “managing” the accountancy profession in the UK and (ii), understanding the powerful image of the auditing industry as a key contributor to the UK economy.     

An Investigation of the Association between Cultural Dimensions and Variations in Perceived Use of and Compliance with Internal Auditing Standards in 19 Countries

Using a large sample of chief audit executives and internal audit managers from 19 countries, we investigate potential associations between cultural dimensions and variations in perceived use/compliance with the internal auditing standards. We find uncertainty avoidance to be inversely related to both use and compliance. We also find assertiveness and human orientation to be positively related to compliance but not to use of Standards. Among control variables, we find positive associations for the length of Institute of Internal Auditors (IIA) membership, professional certification in internal auditing, and hours of continuing professional education (CPE) training on both perceived use and compliance. Finally, we find “Cost of compliance” and “Compliance not expected in my country” to be inversely related to perceived use/compliance. Implications of these findings are discussed.     

MORE OLD W[H]INE IN A NEW BOTTLE?

This rejoinder seeks to address the criticisms expressed in Jones & Aiken's (J&A's) response to Walker (1996). It also re-iterates the limitations of employing a Diceyan-derived model of Victorian legislation in the realm of accounting and auditing. It is contended that the importation into accounting history of the debate aboutlaissez-faireand collectivism is at variance with the recent historical scholarship which J&A seem reluctant to acknowledge. The paper supports the view that the ideological influences on accounting and auditing regulation during the 19th century were often complex and are not reducible to purelylaissez-faireand collectivist explanations. It is argued that legislative outputs relating to companies should also be understood in the context of the character of public policy making in Victorian Britain, and the distribution of power among interested groups.     

Die Haftpflichtversicherung nach der VVG-Reform

The reform of the German Insurance Contract Act (Versicherungsvertragsgesetz, ?VVG“) also targets key aspects of third-party liability insurance. The changes go beyond the findings made by both the courts and legal authorities to date.Compulsory insurance aside, the law still provides that an injured third party has no standing to assert a claim directly against the tortfeasor’s liability insurer. The tortfeasor may assign its indemnity claim against the insurer solely to the injured third party and may no longer be precluded from doing so under the General Insurance Conditions (AVB). Consequently, the tortfeasor’s indemnity claim against the insurer effectively becomes a pecuniary claim. This is criticised by the insurance industry particularly with regard to eliminating the prohibition against acknowledgment and satisfaction of claims.In the future, third parties will be able to assert claims directly against the tortfeasor’s insurer and this will be the case for compulsory insurance across the board. Provisions currently in effect in the motor vehicle liability insurance industry will be carried over to the entire compulsory insurance sector. Compulsory insurance does permit agreements involving self-deductibles. However, such agreements are generally effective only as between the insurer and the tortfeasor inter se, i.e. they are not effective as against third parties — in contrast to valid disclaimers of risk.Another change in compulsory insurance is the hierarchy of claims for compensatory damages and relief in the event the insured amount is inadequate. Specifically, the hierarchy gives preference to individual claims of injured parties which are not otherwise covered, such as claims for pain and suffering.The prohibition against the retroactive loss of provisional coverage for failure to pay the first premium, which had been criticised primarily by motor vehicle liability insurers, has been omitted in the Government bill.