Accounting & Finance Research Community Seminar

Title: Sharing the load or shifting the blame? – the changing practice in how auditors form and conclude material judgements

Date: 08 March 2023
Time: 14:00-15:00
Location: NUBS 4.25

If you would like to attend, please register using the following link: https://forms.office.com/r/7KXNxAFytm.

Guest Speaker: James is a former Managing Partner in Deloitte, having led the Scottish and NI practice from 2008 to 2010 and then leading the Deloitte Audit and Risk Advisory business in Switzerland from 2010 to 2015.  During his time with Deloitte, he was also Global Leader of Audit Analytics, a member of the UK Talent Executive and a member of the Auditor Panel of the Global Public Policy Committee, comprising the six largest global firms and reporting to the firms’ global CEOs on audit quality, regulatory developments and the value of audit to market stakeholders.  James was an Audit partner from 1998 to 2017, a National Risk Partner for Deloitte in Audit as well as Corporate Finance, and a Senior Client Partner leading global audit and advisory engagements. Having retired from Deloitte, James is currently Chair of the Audit Committee at Macfarlane Group plc, Chair of Trustees of RS Macdonald Charitable Trust, a trustee of Rainforest Trust UK and a member of the FRC Stakeholder Insight Group. He is also acting Chair of the ICAS Research Panel. An Honorary Professor at the Adam Smith Business School at the University of Glasgow, James is completing part-time doctoral research focusing on audit judgement.

Abstract

This research focuses on audit practice in the formation and conclusion of material judgements; those questions of accounting, valuation, audit evidence or scoping that are of sufficient significance that they have to be addressed and concluded to complete the audit. It considers how the objectives of the auditor and the practices applied are changing with increased regulatory scrutiny, stakeholder expectations and public criticism. Using the phronetic approach to analyse current practice (Flyvbjerg, 2001), the objective is to engage with stakeholders, audit firms, regulators and academics in the development of audit practice and practitioners. The research compares Foucault’s work on regimes of truth and governmentality (Foucault, 1976, 1978) to the profession’s programs to improve audit quality. Through a case study approach and interviews with audit engagement leaders (‘AELs’) from UK and Switzerland (Empson, 2017; Pessoa, 2019), the research considers the implications of changes in power and knowledge for the processes of audit judgement. Referencing Haidt’s Social Intuitionist Model (Haidt, 2001), it examines how different thinking processes and specialist knowledges are used and referenced, and how governmental oversight within the audit environment affects practice. Overall, the research finds that increased intervention by specialists and consultation with firm-accredited quality bodies, whether mandatory under firm methodology or voluntary on the part of the AEL, are driving changes in the practice and agency of the AEL. Third-party inputs, in addition to prescribed methodologies, documentation standards and internal quality controls, provide positive defendability to the AEL. But they do so as disciplinary technologies that ensure that the work of the AEL remains aligned with the firm’s governmental objective. Consequently, the primary accountability of the AEL is not the material judgement itself or its outcome, but rather the execution of the material judgement process in compliance with the firm’s policies and methodologies.