The Ontario Securities Commission on Accounting and Auditing from the 1960s to 2008 – Part 1: 1960s to 1985*

We present Part 1 of a historical review and analysis of the role played by the Ontario Securities Commission (OSC) in accounting and auditing from the 1960s onwards. Part 1 deals with the period from the 1960s to 1985. Parts 2 and 3 will treat the roles played by the first five Chief Accountants, from 1986 to 2008. As the principal Canadian stock exchange in recent times has been the Toronto Stock Exchange, the OSC has been the most important securities market regulator in Canada. Prior to this article, the academic and professional accounting literature has been largely barren on the OSC’s evolving role on accounting and auditing issues.     

Knowing efficiency: the enactment of efficiency in efficiency auditing

This paper reports an ethnographic study of the activities of auditors in the field as they work to fulfil an efficiency auditing mandate; it analyses how auditors report on efficiency in practice. Miller and Rose's work on governmentality (Miller & Rose (1990). Governing economic Life. Economy and Society, 1–31; Rose & Miller (1992). Political power beyond the state: problematics of government. British Journal of Sociology, 173–205) is developed as it applies to the technologies that Miller and Rose identify as providing the means to realise programmes such as efficiency auditing. The study explores the operationalisation of efficiency auditing through analysis of three audits as they were conducted in the field. It is argued that in the absence of detailed rules or standards practitioners themselves developed an agreed upon knowledge and sensibility that allowed them to make efficiency auditing tractable. The paper explicates these normative guides and discusses the consequences of an apparently socially constructed form of efficiency in guiding auditing practice.     

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.     

The Ontario Securities Commission on Accounting and Auditing from the 1960s to 2008–Part 2: The First Four Chief Accountants, 1986–1996*

This article, Part 2 of a historical review and analysis of the Ontario Securities Commission (OSC), describes the role played by the first four Chief Accountants in the regulation of accounting and auditing from 1986 to 1996. Part 1 dealt with the period from the 1960s to 1985. Part 3 will treat the role played by the fifth Chief Accountant, from 1996 to 2008. As the principal Canadian stock exchange in recent times has been the Toronto Stock Exchange, the OSC has been the most important securities market regulator in Canada. Prior to this article, the academic and professional accounting literature has been largely barren on the OSC’s evolving role on accounting and auditing issues.     

Dirty work and the construction of identity. An ethnographic study of management accounting practices

This paper examines the processes by which identity work influences accounting and organisational practices. Analysing ethnographic material, we study how accountants engage in a struggle for recognition in a context where tensions emerge from the confrontation between idealised occupational aspirations and situated possibilities. To theorise this struggle we draw on Everett Hughes’s conceptualisation of a moral division of labour. Building on his concept of “dirty work”, we differentiate between the “unclean” and the “polluted”. Accountants have to perform tasks that are incompatible with the aspirational identities they claim; more than “boring”, these tasks become symbols of misrecognition. We call these unclean tasks. Yet even tasks that, in a more favourable context, would be associated with prestigious aspects of the job, can become degrading in specific situations. We call them polluted work. We highlight how trying to comply with a positively-anticipated role transition can help avoid unclean work yet generate more polluted work. Our analysis suggests that paying greater attention to symbolic differentiations between prestigious and shameful aspects of work can improve our understanding of accounting, identity work and organisational practices.     

Efficiency audit: An assembly of rationalities and programmes

This paper focuses on the insertion of accounting and auditing knowledge into wider areas of practice, and examines the processes of auditing change through studying the development of “efficiency auditing” using events in one jurisdiction, the Province of Alberta, Canada, as an exemplar. These developments are interpreted through use of Miller and Rose's (1990; Rose & Miller, 1992) theoretical concerns with governmentality, and especially the links between generally stated political rationalities and more specific programmes for action. In studying the association of ideas of efficiency with auditing, and the developing belief that efficiency could be investigated or procured through audit scrutiny, it is argued that these events can be understood in terms of an intersection between wider discourse (concerning, for example, best management practice, appropriate auditing roles, etc.) and local circumstance. The specific interpretations that result are understood as providing one set of conditions by which auditing (and accounting are linked to the social (Burchell et al., 1985). Further research (Radcliffe, 1995) attends to the logistics of how one might audit for efficiency, using fieldwork to trace the technologies which provide practitioners with particular mechanisms for action (Miller & Rose, 1990). © 1998 Elsevier Science Ltd. All rights reserved.     

Incorporating real-options analysis into the accounting curriculum

In this paper, we argue that accounting curricula should be expanded to cover the topic of real options. Our argument relies on reference to the [American Institute of Certified Public Accountants (AICPA) (1999) (Core Competency Framework, New York, NY: AICPA <http://ceae.aicpa.org/Resources/Education+and+Curriculum+Development/Core+Competency+Framework+and+Educational+Competency+Assessment+Web+Site/> Accessed 21.08.08], the framework for curriculum change espoused by [Arya, A., Fellingham, J. C., & Schroeder, D. A. (2003). An academic curriculum proposal. Issues in Accounting Education, 18(1) 29–35], a global study of core competencies for management accountants [International Federation of Accountants (IFAC), (2002). Competency profiles for management accounting practice and practitioners. New York, NY: International Federation of Accountants], a global capital-budgeting “best practices statement” [International Federation of Accountants (IFAC), (2008). International good practice guidance: Project appraisal using discounted cash flow. New York, NY: International Federation of Accountants], current specifications of the CMA exam [Institute of Management Accountants (IMA), (2008). Certified management accountant (CMA) learning outcome statements (effective 07/01/04), updated 07/2008. <http://www.imanet.org/pdf/CMA%20%20LOS.pdf> Accessed 29.10.08.], and elements of the Albrecht and Sack report [Albrecht, W. S., & Sack, R. J. (2000). Accounting education: Charting the course through a perilous future. Accounting education series, Vol. 16. Sarasota, FL: American Accounting Association]. We make special reference to the linkage of the topic of real options to two broad educational goals: decision-modeling and risk analysis. Existing resources that accounting faculty can use to incorporate real options into the curriculum are limited. As a response, we provide an extended example that accounting educators can use to cover the topic of real options. This example uses a set of binomial trees (one for cash inflows and another for cash outflows). The step-by-step approach presented in this paper allows students without a technical/mathematical background to extend discounted-cash-flow (DCF) decision models (e.g., NPV) to incorporate real options that are embedded in proposed investment projects.     

The use of management control mechanisms by public organizations with a network coordination role: A case study in the port industry

Our paper addresses two gaps in the literature on management control mechanisms in the context of inter-organizational relationships. Firstly, several studies have focused on one-to-one relationships, but few take a network perspective which analyses the deployment of management control mechanisms in the context of networks involving multiple interactions between organizations. Secondly, even fewer studies have specifically tackled the use of these mechanisms in the context of mixed-type networks, where a public organization acts as the network coordinator responsible for key governance activities. This is the position in Ports, which are collectives of several related organizations and in which one organization – the “port authority” – assumes the role of network coordinator. In this paper we report the results of a case study, the aims of which were: to identify the management control mechanisms deployed, or relied upon, by the Portuguese Port Authority in the Port of Aveiro in the exercise of its coordinating role; and to discern – on the basis of theoretical reasoning and empirical evidence – the factors explaining the nature and use of these mechanisms.Several conclusions emerged from the study. A general conclusion was that our prior literature-based theorization is generally consistent with the case observations. That is, in mixed-type networks, the nature and use of management control mechanisms by the public organization acting as a network coordinator seems to be shaped by its assessment of motivations to cooperate and of the contribution to network performance of the various organizations involved in the network. Other more specific conclusions are encapsulated in a “coordination framework”, which relates those assessments to specific features of the management control mechanisms. Crucially, our results provide insights into the roles of public organizations acting as network coordinators in the context of mixed-type networks, and, in general, on the nature of the numerous such public organizations in today's economy and society.     

AUDITOR LIABILITY: THE OTHER SIDE OF THE DEBATE

The auditing industry claims to be an unfair victim of lawsuits and has deployed its considerable economic and political muscle in a campaign to secure further liability concessions. Amongst other things, it seeks to replace &ldquo;joint and several liability&rdquo; of partnerships with &ldquo;full proportional liability&rdquo;, a &ldquo;cap&rdquo; on auditor liability and a statutory right to negotiate liability limits with company directors. This paper challenges the evidence and the arguments advanced by the UK auditing industry. It argues that there is little convincing argument to support that industry's claims. On the contrary, ordinary stakeholders are relatively powerless to take action against negligent auditors. It is noted that most of the major lawsuits are by one accountancy firm against another. The UK auditing industry already enjoys considerable privileges, such as incorporation and &ldquo;contributory negligence&rdquo;, a form of modified proportional liability. Despite these privileges, the industry has shunned public accountability. It is holding the UK public to ransom by threats of locating its operations in offshore islands. Scholars are urged to develop alternative public policy options and analysis.     

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 &ldquo;liberalisation&rdquo; 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 &ldquo;liberalisation&rdquo; 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.     

The influence of funding source and legislative requirements on government cost accounting practices

This paper provides preliminary evidence on the determinants of cost accounting practices in government agencies. Drawing on institutional and contingency theories of management accounting choice, we examine two potential influences on the design and use of government cost systems: legal requirements to be self-funding and mandated requirements for cost accounting data. We test these hypotheses using survey data from the U.S. General Accounting Office. The empirical evidence indicates that organizations using cost system output to satisfy external requirements tend to implement more “elaborate” cost accounting systems than units without external requirements, but are no more likely to use cost system data for internal purposes. In contrast, government organizations that are required to “pay their own way” by fully recovering costs through revenues or fees not only implement more elaborate systems than units funded by appropriated budgets or reimbursement of expenses by other government units, but also tend to make more extensive use of cost system output for a wide variety of internal purposes ranging from pricing to management control.     

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.     

Inattentional blindness and its relevance to teaching forensic accounting and auditing

Inattentional blindness, also known as perceptual blindness, is the phenomenon of not being able to see things that are actually there. This concept is not covered in traditional accounting classes in general and forensic accounting and auditing in particular. We discuss why forensic accountants and auditors should be aware of inattentional blindness and we show how it may impact the behavior of the individuals investigating and being investigated. We use a video to illustrate how this concept could be meaningfully incorporated into a teaching curriculum with a focus on forensic accounting and auditing. In particular, we provide illustrations of how this video could be used in forensic accounting and auditing classes to heighten student awareness of how “blind spots” could adversely affect the investigation process. We conclude by using the Leeson/Barings scandal (involving the fraud that brought down Barings bank) to illustrate how inattentional blindness can occur in a real-life fraud situation. We also provide additional material showing the relevance of inattentional blindness to the Madoff Ponzi scandal.     

Continuous audit: Model development and implementation within a debt covenant compliance domain

Because of technological advances and the current audit environment, there is a growing interest in the concept of continuous audit. Conceptually, a continuous audit is an assurance service where the time between the occurrence of events underlying a particular subject matter and the issuance of an auditor's opinion on the fairness of a client's representation of the subject matter is eliminated. A continuous audit is the natural evolution of the integration of technology into the auditing domain. Although the concepts of continuous auditing are now more than a decade old, only recently have technologies emerged that are both widely available and affordable, making implementation of the continuous audit feasible. The Canadian Institute of Chartered Accountants and the American Institute of Certified Public Accountants have together called on the research community to investigate the concept of continuous auditing and its implementation in various audit domains. In response to this call, we develop a conceptual model of a continuous audit, and, as proof of concept, we design and demonstrate an implementation of continuous audit within the debt covenant compliance domain. The demonstrated Web application uses digital agents and alarm triggers sent over the Internet to continuously monitor whether actual values of a client's variables are in compliance with standards for these variables set out in the debt covenant agreement.     

Accounting and networks of corruption

This study examines the nature and role of accounting practices in a network of corruption in an influence-market setting. The study focuses on the Canadian government’s Sponsorship Program (1994–2003), a national unification scheme that saw approximately $50 million diverted into the bank accounts of political parties, program administrators, and their families, friends and business colleagues. Relying on the institutional sociology of Bourdieu, the study demonstrates the precise role of accounting practices in the organization of a corrupt network imbued with a specific telos and certain accounting tasks. The study illustrates how accounting is accomplished and by whom, and it shows how the ‘skillful use’ of accounting practices and social interactions around these practices together enable corruption. In so doing, the study builds on a growing body of work examining criminogenic networks and the contextual, collaborative and systemic uses of accounting in such networks.     

Merchants’ accounts,performance assessment and decision making in mercantilist Britain

The part played by double entry bookkeeping (DEB) in the rise of capitalism in Western Europe has been the subject of academic attention and debate for more than a century [Miller, P., & Napier, C. (1993). Genealogies of calculation. Accounting, Organizations and Society, 18(7/8), 631–647]. Our interest in this topic was aroused by sources of relevant comment concerning early uses of DEB identified in Chambers’ An Accounting Thesaurus (1995). In this paper these sources, augmented by a systematic search of surviving treatises on DEB published in Britain between 1547 and 1799, comprise extended evidence that enable us to make “justified statements” [Napier, C. J. (2002). The historian as auditor: Facts, judgments and evidence. Accounting Historians Journal, 29(2), 131–155] in support of the notion that writers encouraged a “capitalist mentality” [Bryer, R. A. (2000a). The history of accounting and the transition to capitalism in England. Part one: Theory. Accounting, Organizations and Society, 25(2), 131–162; Bryer, R. A. (2000b). The history of accounting and the transition to capitalism in England. Part two: Evidence. Accounting, Organizations and Society, 25(4/5), 327–381] among the rising merchant class. They did this by communicating to merchants the potential of DEB for presenting economic events in a financial form that enabled them to evaluate the amount and profitability of their business investments and provided data on which to base decisions designed to enhance the “Value and Condition of his Estate” (Stephens, 1735, p. 4). Further, based on the known occupations of these writers and drawing on knowledge of the operation of an international trading enterprise, the Hudson’s Bay Company, we speculate that DEB might have played a part in helping owners manage their affairs during the major economic and social developments that are known to have occurred in Britain and Western Society more generally between the 16th and 18th centuries.     

Bank audit practices and loan loss provisioning

I empirically examine the evolution of loan loss accounting across banks that differ categorically by external auditing practice. Using a partial adjustment model, and a sample of 75,505 observations on affiliated banks, 1995–2009, I find evidence of convergence across audit categories in target ratios of provisions for loan losses to nonaccrual loans. This is consistent with a standardized method of accounting for “impaired” loans. I observe less convergence, on the other hand, in target ratios of provisions for loan losses to loans, which appears to accommodate a role for managerial discretion.     

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

The paper is a commentary on Bryer's article &ldquo;A Marxist Critique of the FASB's Conceptual Framework&rdquo;; 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 &ldquo;representational faithfulness&rdquo;, 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 &ldquo;impact&rdquo; 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.     

The impacts of electronic commerce on auditing practices: an auditing process model for evidence collection and validation

The main purposes of this paper are twofold. First, the paper identifies and discusses the potential impacts of electronic commerce on auditing practices in the emerging paperless on-line transaction environment. Second, it provides two auditing process models that incorporate modern network security techniques and show how an audit can be conducted in an EC environment. A periodical auditing process model (PAPM) is proposed to demonstrate how secure electronic technologies can be used to facilitate the auditor's evidence collection and validation process for annual and semi-annual audits. We also present a continuous auditing process model (CAPM) which extends the functions of PAPM for continuous auditing. In CAPM, a real-time transaction monitoring system is used to link to firms' accounting information systems for assisting the auditor to detect abnormal activities and generate exception reports on a continuous basis. The CAPM approach intends not only to ensure integrity and effectiveness of the entire accounting system, but also to guarantee the correctness and usefulness of the constantly generated financial statements for public dissemination. The main contribution of this paper is that it illustrates a conceptual framework which shows the feasibility of continuously auditing electronic transactions in the EC environment. Copyright © 2000 John Wiley & Sons, Ltd.     

Management accounting as normal social science

The publication of “Management accounting change: Approaches and perspectives” (Wickramasinghe, D., & Alawattage, C. (2007). Management accounting change: Approaches and perspectives. London, New York: Routledge) provides an occasion for considering the extent to which management accounting has become a normal social science. This review essay argues that management accounting is a social science defined by a pluralism of approaches, and it identifies the generalization of social perspectives on management accounting, and particularly their ability to transcend technical and economic aspects of accounting practice, as crucial components in reproducing this specific form of expertise. Contrary to Kuhnian expectations, this social science hosts a multiplicity of paradigms, and its scientists are not exclusively concerned with the subtlest and most esoteric aspects of the phenomena under study. Instead, as social scientists management accountants are generalists as much as they are specialists.