Abstract
This qualitative field study is based on interviews with 20 experienced audit partners in France and documents the dialogical dimension of ethical deliberation in auditing. We ask: do audit partners consult each other when faced with an ethical dilemma at work? Who among their peers do they prefer to consult and why? Our analysis provides evidence that audit partners do not deliberate alone, contrary to what psychological experimental research on audit ethics usually postulates. When faced with an uncertain situation in terms of professional ethics, they seek reassurance by consulting colleagues. Not just any colleagues, however. Whom they consult depends on whether they wish to avoid or take measured ethical risks. Overall, we find that audit partners approach ethics as a personal and collective risk that must be managed in specific ways. This study enriches what we know about auditor ethics by helping to shed light on what is usually inaccessible to researchers: the questions that audit partners ask their peers when faced with uncomfortable ethical issues in client engagements before making a decision they find acceptable.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
Legalism reflects a system in which the control of the auditing and accounting profession is based on principles dictated by the state (Bédard et al. 2002, p. 142).
Anecdotally, more than 15 years after Enron, Samsonova-Taddei and Siddiqui (2016, p. 192) continue to argue that auditors tend to have a rule-based approach to ethics, which allows them to pursue opportunistic goals with impunity, using the line of defense that they acted in accordance with the relevant technical standards.
Baïada-Hirèche and Garmilis (2016) point out, however, that auditors do not all perceive risks in the same way, depending on the institutional context that governs their profession.
The authors are thankful to both anonymous reviewers for their suggestion to focus on the dialectic between ethics and risks.
CNCC (1998, March), CNCC Bulletin.
CNCC (1999), CNCC Guide.
CNCC (2002), Professional standards and ethics.
Following the last European audit reform, a new code of ethics was published in 2017.
French auditors may receive a disciplinary sanction for a breach of the code of professional conduct committed during an audit or non-audit engagement (accounting services, for instance) or for an offense committed outside of work (e.g., drinking and driving). Sanctioning auditors for misconduct inside and outside the professional sphere is specific to the French context; it derives from the belief that “an auditor who does not behave ethically at the private level will tend to do the same at the professional level” (Hottegindre and Belze 2013, p. 20, our translation).
At the time of the interviews, the H3C was working with the professional association (CNCC) and the French audit firms to revise some of the criticized rules in the professional ethical code published in 2005. Indeed, on October 17, 2007, the European Commission officially asked France to amend articles 22–25 of the code concerning audit services provided by international firms. The EC considered that these articles were not reflective of the European Directive regarding auditor independence and that they were disproportionate. In this context, it should be noted that some of our discussions with the interviewees about their ethical dilemmas developed into discussions about the H3C’s regulatory work and its tumultuous relationships with the audit profession. These unexpected discussions about the regulation of auditing were later used for the purpose of another research project.
The authors thank both anonymous reviewers for this suggestion.
All excerpts from the interviews are translations from the original French.
Reputational risk means that “even apparently small events or losses, such as a minor regulatory fine, can have larger repercussions” (Power 2004, p. 61).
“Audit Policy: Lessons from the Crisis.” Released on October 13, 2010.
The Guardian. “Carillion fiasco shows why auditors must be accountable to parliament” by Richard Brooks. Online at https://www.theguardian.com/commentisfree/2018/may/20/carillion-auditors-recklessness-hubris-greed, accessed April 16th, 2020.
Financial Times. “KPMG South Africa executives dismissed over Gupta scandal” by Joseph Cotterill and Madison Marriage. Online at https://www.ft.com/content/ce8ddb84-9a01-11e7-a652-cde3f882dd7b, accessed April 16th, 2020.
Business Today. Online at https://www.businesstoday.in/current/corporate/price-waterhouse-satyam-case-sebi-order-sscl-gloabl-accounting-firm/story/267826.html, accessed April 16th, 2020.
The Wall Street Journal. Online at https://www.marketwatch.com/story/ex-partner-at-kpmg-convicted-in-steal-the-exam-scheme-2019-03-11, accessed April 16th, 2020.
See, e.g., the new European directive requiring auditors to report their key audit matters, which appear to “serve as moral license to waive an adjustment” (Karsten and Klaus 2019).
Risk appetite is defined as the amount of risk an entity or a person is willing to bear (Power 2009, p. 850).
References
Arnold, V., Sutton, S. G., Hayne, S. C., & Smith, C. A. (2000). Group decision making: The impact of opportunity-cost time pressure and group support systems. Behavioral Research in Accounting, 12, 69–96.
Ashby, S., Palermo, T., & Power, M. (2012). Risk culture in financial organizations: An interim report. London: Centre for Analysis of Risk and Regulation and the University of Plymouth.
Ashby, S., Power, M. K., & Palermo, T. (2014). A brave new world? Making sense of practitioner and regulator perspectives on risk culture. Journal of Financial Perspectives, 2(3), 65–76.
Baïada-Hirèche, L., & Garmilis, G. (2016). Accounting professionals’ ethical judgment and the institutional disciplinary context: A French–US comparison. Journal of Business Ethics, 139(4), 639–659.
Bailey, W., & Sawers, K. (2012). In GAAP we trust: Are principle-based standards better than rule-based standards? Behavioral Research in Accounting, 4(1), 25–46.
Baker, C. R., Bédard, J., & Prat dit Hauret, C. (2014). The regulation of statutory auditing: An institutional theory approach. Managerial Auditing Journal, 29(5), 371–394.
Bamber, E. M., Watson, R. T., & Hill, M. C. (1996). The effects of group support system technology on audit group decision making. Auditing, 15, 122–134.
Baud, C., Brivot, M., & Himick, D. (2019). Accounting ethics and the fragmentation of value. Journal of Business Ethics. https://doi.org/10.1007/s10551-019-04186-9.
Bauer, T., Hillison, S., Peecher, M., & Pomeroy, B. (2018, April 1). Revising audit plans to address fraud risk: A case of “Do as I advise, not as I do”? Working paper. Available at SSRN: https://ssrn.com/abstract=2712923 or https://doi.org/10.2139/ssrn.2712923.
Bédard, J., Baker, C. R., & Prat dit Hauret, C. (2002, May). La réglementation de l’audit: Une Comparaison entre le Canada, les États-Unis et la France. Comptabilité-Contrôle-Audit (special issue), pp. 139–168.
Boholm, Å. (1996). Risk perception and social anthropology: Critique of cultural theory. Ethnos, 61(1–2), 64–84.
Boholm, Å., & Corvellec, H. (2011). A relational theory of risk. Journal of Risk Research, 14(2), 175–190.
Bozeman, B., & Kingsley, G. (1998). Risk culture in public and private organizations. Public Administration Review, 58(2), 109–118.
Brint, S. (1996). In an age of experts: The changing role of professionals in politics and public life. Princeton: Princeton University Press.
Brivot, M., Roussy, M., & Mayer, M. (2018). Conventions of audit quality: The perspective of public and private company audit partners. Auditing: A Journal of Practice & Theory, 37(2), 51–71.
Burgemeestre, B., Hulstijn, J., & Tan, Y. H. (2009). Rule-based versus principle-based regulatory compliance. In Proceedings of the 2009 conference on legal knowledge and information systems: JURIX (pp. 37–46).
Carter, C., & Spence, C. (2014). Being a successful professional: An exploration of who makes partner in the Big 4. Contemporary Accounting Research, 31(4), 949–981.
Chow, C. W., Massey, D. W., Thorne, L., & Wu, A. (2014). A qualitative examination of auditors’ differing ethical characterizations across the phases of the audit. In R. Baker (Ed.), Research on professional responsibility and ethics in accounting (pp. 97–138). Bingley: Emerald Group Publishing Limited.
Corbin, J. M., & Strauss, A. (1990). Grounded theory research: Procedures, canons, and evaluative criteria. Qualitative Sociology, 13(1), 3–21.
Craft, J. (2013). A review of the empirical ethical decision-making literature: 2004–2011. Journal of Business Ethics, 117(2), 221–259.
Dai, N. T., Free, C., & Gendron, Y. (2019). Interview-based research in accounting 2000–2014: Informal norms, translation and vibrancy. Management Accounting Research, 42, 26–38.
Douglas, M., & Wildavsky, A. (1982). Risk and culture: An essay on the selection of technical and environmental dangers. London: University of California Press.
Douglas, P. C., Davidson, R. A., & Schwartz, B. N. (2001). The effect of organizational culture and ethical orientation on accountants’ ethical judgments. Journal of Business Ethics, 34(2), 101–121.
Doyle, E. M., Hughes, J. F., & Glaister, K. W. (2009). Linking ethics and risk management in taxation: Evidence from an exploratory study in Ireland and the UK. Journal of Business Ethics, 86(2), 177–198.
Ericson, R. V., & Doyle, A. (Eds.). (2003). Risk and morality. Toronto: University of Toronto Press.
Everett, J., Friesen, C., Neu, D., & Rahaman, A. S. (2018). We have never been secular: Religious identities, duties, and ethics in audit practice. Journal of Business Ethics, 153(4), 1121–1142.
Évraert, S., & Prat dit Hauret, C. (2003). La culture organisationnelle perçue des cabinets comptables français par les associés-dirigeants: Essai de typologie. Revue Finance Contrôle Stratégie, 6(4), 5–24.
Ewald, F. (1986). L’État providence. Paris: Grasset.
Fedor, D. B., & Ramsay, R. J. (2007). Effects of supervisor power on preparers’ responses to audit review: A field study. Behavioral Research in Accounting, 19(1), 91–105.
Garnier, C. (2020). Joining the right Écurie or how to become an audit partner: How unofficial promotion networks operate in Big 4 Firms in France. Comptabilité - Contrôle - Audit, 26(2), 7–44.
Gendron, Y., & Spira, L. F. (2010). Identity narratives under threat: A study of former members of Arthur Andersen. Accounting, Organizations and Society, 35(3), 275–300.
Gibbins, M. (1984). Propositions about the psychology of professional judgment in public accounting. Journal of Accounting Research, 22(1), 103–125.
Guénin-Paracini, H., Malsch, B., & Paillé, A. M. (2014). Fear and risk in the audit process. Accounting, Organizations and Society, 39(4), 264–288.
Hannah, S. T., Avolio, B. J., & May, D. R. (2011). Moral maturation and moral conation: A capacity approach to explaining moral thought and action. Academy of Management Review, 36(4), 663–685.
Harding, N., & Trotman, K. T. (2016). The effect of partner communications of fraud likelihood and skeptical orientation on auditors’ professional skepticism. Auditing: A Journal of Practice & Theory, 36(2), 111–131.
Hazgui, M. (2015). The power dynamics in the audit regulatory space in France (2003–2012). Comptabilité-Contrôle-Audit, 21(1), 11–43.
Herrbach, O. (2000). Le comportement au travail des collaborateurs de cabinets d’audit financier: Une approche par le contrat psychologique. Ph.D. thesis. Université Pierre Mendes France, Grenoble, France.
Herrbach, O. (2005). The art of compromise? The individual and organisational legitimacy of “irregular auditing”. Accounting, Auditing & Accountability Journal, 18(3), 390–409.
Hottegindre, G., Loison, M. C., & Farjaudon, A. L. (2017). Male and female auditors: An ethical divide? International Journal of Auditing, 21(2), 131–149.
Hottegindre, G., & Belze, L. (2013). Le H3C, état des lieux du volet disciplinaire. Revue Française de Comptabilité, 461, 20–23.
Humphrey, C., Kausar, A., Loft, A., & Woods, M. (2011). Regulating audit beyond the crisis: A critical discussion of the EU green paper. European Accounting Review, 20(3), 431–457.
Jenkins, J. G., Deis, D. R., Bedard, J. C., & Curtis, M. B. (2008). Accounting firm culture and governance: A research synthesis. Behavioral Research in Accounting, 20(1), 45–74.
Kadous, K., Leiby, J., & Peecher, M. E. (2013). How do auditors weight informal contrary advice? The joint influence of advisor social bond and advice justifiability. The Accounting Review, 88(6), 2061–2087.
Karsten, A., & Klaus, R. (2019). Real effects of reporting key audit matters on auditors' judgment and choice of action. International Journal of Auditing, 23(2), 165–180.
Kelly, P. T., & Earley, C. E. (2009). Leadership and organizational culture: Lessons learned from Arthur Andersen. Accounting and the public interest, 9(1), 129–147.
Kennedy, J., Kleinmuntz, D. N., & Peecher, M. E. (1997). Determinants of the justifiability of performance in ill-structured audit tasks. Journal of Accounting Research, 35(3), 105–123.
Knechel, W. R., & Leiby, J. (2016). If you want my advice: Status motives and audit consultations about accounting estimates. Journal of Accounting Research, 54(5), 1331–1364.
Kornberger, M., Justesen, L., & Mouritsen, J. (2011). “When you make manager, we put a big mountain in front of you”: An ethnography of managers in a Big 4 accounting firm. Accounting, Organizations and Society, 36(8), 514–533.
Kosmala, K., & Herrbach, O. (2006). The ambivalence of professional identity: On cynicism and jouissance in audit firms. Human Relations, 59(10), 1393–1428.
Latan, H., Jabbour, C. J. C., & de Sousa Jabbour, A. B. L. (2019). Ethical awareness, ethical judgment and whistleblowing: A moderated mediation analysis. Journal of Business Ethics, 155(1), 289–304.
Legault, G. A. (1999). Professionnalisme et délibération éthique. Québec: Presses de l’Université du Québec.
Lherm, F. R. (2013). Entre efficacité et légitimité: l’audit «scienctifié» et la dimension du croire dans le système financier. Nouvelle Revue de Psychosociologie, 2(1), 139–153.
Linsley, P. M., & Shrives, P. J. (2009). Mary Douglas, risk and accounting failures. Critical Perspectives on Accounting, 20(4), 492–508.
Lord, A. T., & DeZoort, F. T. (2001). The impact of commitment and moral reasoning on auditors’ responses to social influence pressure. Accounting, Organizations and Society, 26(3), 215–235.
Malsch, B., & Salterio, S. E. (2016). “Doing good field research”: Assessing the quality of audit field research. Auditing: A Journal of Practice & Theory, 35(1), 1–22.
Mikol, A. (1993). The evolution of auditing and the independent auditor in France. European Accounting Review, 2(1), 1–16.
Moore, D. A., Tetlock, P. E., Tanlu, L., & Bazerman, M. H. (2006). Conflicts of interest and the case of auditor independence: Moral seduction and strategic issue cycling. Academy of Management Review, 31(1), 10–29.
Morrill, J. (1996). Canadian Institute of Chartered Accountants. Professional judgment and the auditor. Contemporary Accounting Research, 13(1), 371–378.
Ng, T. B. P., & Shankar, P. G. (2010). Effects of technical department’s advice, quality assessment standards, and client justifications on auditors’ propensity to accept client-preferred accounting methods. The Accounting Review, 85(5), 1743–1761.
O’Dwyer, B. (2004). Qualitative data analysis: Illuminating a process for transforming a “messy” but “attractive nuisance”. In C. Humphrey & B. H. Lee (Eds.), The real life guide to accounting research: A behind-the-scenes view of using qualitative research methods (pp. 391–407). Amsterdam: Elsevier.
Otley, D. T., & Pierce, B. J. (1996). The operation of control systems in large audit firms: An empirical investigation. Auditing: A Journal of Practice & Theory, 15(2), 65–84.
Palermo, T., Power, M., & Ashby, S. (2017). Navigating institutional complexity: The production of risk culture in the financial sector. Journal of Management Studies, 54(2), 154–181.
Patton, M. Q. (2015). Qualitative research and methods: Integrating theory and practice. Thousand Oaks: SAGE.
Pérezts, M., & Picard, S. (2015). Compliance or comfort zone? The work of embedded ethics in performing regulation. Journal of Business Ethics, 131(4), 833–852.
Peytcheva, M., & Gillett, P. R. (2011). How partners’ views influence auditor judgment. Auditing: A Journal of Practice & Theory, 30(4), 285–301.
Pickerd, J. S., Summers, S. L., & Wood, D. A. (2015). An examination of how entry-level staff auditors respond to tone at the top vis-à-vis tone at the bottom. Behavioral Research in Accounting, 27(1), 79–98.
Pierce, B., & Sweeney, B. (2005). Management control in audit firms—Partners’ perspectives. Management Accounting Research, 16(3), 340–370.
Power, M. (2003). Auditing and the production of legitimacy. Accounting, Organizations and Society, 28(4), 379–394.
Power, M. (2004). The risk management of everything. The Journal of Risk Finance, 5(3), 58–65.
Power, M. (2009). The risk management of nothing. Accounting, Organizations and Society, 34(6–7), 849–855.
Prat dit Hauret, C. (2007). Ethique et décisions d’audit. Comptabilité-Contrôle-Audit, 13(1), 69–85.
Prat dit Hauret, C. (2003). L’indépendance du commissaire aux comptes: Une analyse empirique fondée sur trois composantes psychologique du comportement. Comptabilité-Contrôle-Audit, 9(2), 31–58.
Prat dit Hauret, C., & Durrieu, F. (2005). La culture organisationnelle des cabinets d'expertise comptable perçue par les experts-comptables stagiaires: Échelle de mesure et analyse empirique. Comptabilité-Contrôle-Audit, 11(1), 39–54.
Ramirez, C. (2003). Du commissariat aux comptes à l’audit. Actes de la Recherche en Sciences Sociales, 1, 62–79.
Rich, J. S., Solomon, I., & Trotman, K. T. (1997). Multi-auditor judgment/decision making research: A decade later. Journal of Accounting Literature, 16, 86–126.
Samsonova-Taddei, A., & Humphrey, C. (2015). Risk and the construction of a European audit policy agenda: The case of auditor liability. Accounting, Organizations and Society, 41, 55–72.
Samsonova-Taddei, A., & Siddiqui, J. (2016). Regulation and the promotion of audit ethics: Analysis of the content of the EU’s policy. Journal of Business Ethics, 139(1), 183–195.
Satava, D., Caldwell, C., & Richards, L. (2006). Ethics and the auditing culture: Rethinking the foundation of accounting and auditing. Journal of Business Ethics, 64(3), 271–284.
Sinkin, J. (2013). How to select a successor. Journal of Accountancy, 216(3), 40–42.
Solomon, I. (1987). Multi-auditor judgment/decision making research. Journal of Accounting Literature, 6, 1–25.
Stenger, S. (2015). Pourquoi travaille-t-on dans un cabinet d’audit «Big Four»? Fonctions du système «up or out»: Contrôle, compétition et prestige social. Doctoral dissertation. HEC, Jouy-en-Josas.
Sweeney, B., Arnold, D., & Pierce, B. (2010). The impact of perceived ethical culture of the firm and demographic variables on auditors’ ethical evaluation and intention to act decisions. Journal of Business Ethics, 93(4), 531–551.
Tansey, J., & O’Riordan, T. (1999). Cultural theory and risk: A review. Health, Risk & Society, 1(1), 71–90.
Thorne, L., & Hartwick, J. (2001). The directional effects of discussion on auditors’ moral reasoning. Contemporary Accounting Research, 18(2), 337–361.
Thorne, L., Massey, D. W., & Jones, J. (2004). An investigation of social influence: Explaining the effect of group discussion on consensus in auditors’ ethical reasoning. Business Ethics Quarterly, 14(3), 525–551.
Trotman, K. T., Bauer, T. D., & Humphreys, K. A. (2015). Group judgment and decision making in auditing: Past and future research. Accounting, Organizations and Society, 47, 56–72.
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Appendices
Appendix 1
Interviewee details.
Intervieweea | Occupation | Years of experience/years as partner (if available) | Firm size | Interview duration in minutes |
|---|---|---|---|---|
Auditor #1 | Audit partner | 20 | Non-Big 4 | 35 |
Auditor #2 | Audit partner | 10; 5 as partner | Big 4 | 42 |
Auditor #3 | Audit partner | 20; 11 as partner | Big 4 | 50 |
Auditor #4 | Audit partner | 10 | Non-Big 4 | 52 |
Auditor #5 | Audit partner (risk partner and member of the CNCC ethics Committee) | 12; 5 as partner | Big 4 | 45 |
Auditor #6 | Audit partner | 14; 8 as partner | Big 4 | 35 |
Auditor #7 | Audit partner | 26; 20 as partner | Non-Big4 | 46 |
Auditor #8 | Audit partner | 18; 10 as partner | Non-Big 4 | 55 |
Auditor #9 | Audit partner (member of the CNCC Ethics Committee) | 10; 5 as partner | Non-Big 4 | 62 |
Auditor #10 | Audit partner | 10; 4 as partner | Big4 | 35 |
Auditor #11 | Audit partner (member of the CNCC Ethics Committee) | 12 | Non-Big 4 | 45 |
Auditor #12 | Audit partner (head of quality control) | 20; 10 as partner | Big 4 | 42 |
Auditor #13 | Audit partner | 22; 12 as partner | Big 4 | 35 |
Auditor #14 | Audit partner | 20; 11 as partner | Big 4 | 60 |
Auditor #15 | Audit partner (member of the CNCC Ethics Committee) | 24; 14 as partner | Non-Big 4 | 65 |
Auditor #16 | Audit partner | 25; 15 as partner | Big 4 | 75 |
Auditor #17 | Audit partner (member of the CNCC Ethics Committee) | 16; 8 as partner | Big 4 | 40 |
Auditor #18 | Audit partner | 24; 15 as partner | Non-Big 4 | 50 |
Auditor #19 | Audit partner | 20; 13 as partner | Non-Big 4 | 52 |
Auditor #20 | Audit partner | 30; 20 as partner | Non-Big 4 | 47 |
Appendix 2
General outline of the interview guide.
Introduction | |
Presentation of the participant: education, career background, etc | |
Themes/topics to address | |
The audit profession’s ethical obligations | |
The regulatory framing of auditors’ professional ethics | |
Auditors’ independence rules | |
Awkward situations/ethical dilemmas personally encountered by the interviewee | |
Spontaneous reactions/steps taken to deal with these dilemmas | |
Any other topic that the participant may think relevant to mention |
Appendix 3
The NVivo codebook
Nodes and sub-nodes | Description |
|---|---|
Ethical dilemmas | Types of ethical dilemmas encountered |
Relationships with clients | The interviewee reports consulting peers regarding ethical issues involving the relationship with a client |
Applicable rules | The interviewee reports seeking peer advice on the rules applicable to a given ethical dilemma |
Consequences of possible decisions | The interviewee reports seeking peer advice to weigh the various consequences of possible courses of action or decisions |
Ethical values | The interviewee reports discussing values with peers |
Peer consultation | Characteristics of peer consultations |
Formal consultation with peers | Consultation with members of the regulatory bodies or partners officially in charge of ethics or risk management in the firm |
H3C-CNCC | |
Risk partners | |
Informal consultation with peers | Consultation with friends or other trusted colleagues within the audit firm |
Risk-avoidance attitude | The interviewee remembers having sought the advice of peers to make the most conservative decision, that is, the decision that would best meet the applicable rules and minimize sanction risks |
Risk-taking attitude | The interviewee consulted peers to seek reassurance in situations where s/he had already made a fairly risky decision and wanted to enhance his/her justification |
Regulatory environment | Interpretations of the current regulatory environment and how it impacts auditors’ ethics, according to the interviewee |
Ethical rules | |
Post-Enron climate | |
Understanding ethics in auditing | The interviewee’s own understanding of ethics in auditing |
Independence | The interviewee associates audit ethics with independence |
Compliance | The interviewee associates ethics with complying with applicable norms and rules |
State of mind | The interviewee envisions ethics as a private state of mind |
The collective construction of ethics | The interviewee highlights the collective dimension of ethics |
Risk culture | The interviewee highlights the importance of correct risk assessment in ethical decision-making |
The role of the firm | The interviewee highlights the role of the firm in setting the tone and defining auditors’ ethics |
The role of the profession | The interviewee highlights the role of regulatory bodies in setting the tone and defining auditors’ ethics |
The impossible regulation of ethics | The interviewee considers that ethics is impossible to regulate or control |
Rights and permissions
About this article
Cite this article
Hazgui, M., Brivot, M. Debating Ethics or Risks? An Exploratory Study of Audit Partners’ Peer Consultations About Ethics. J Bus Ethics 175, 741–758 (2022). https://doi.org/10.1007/s10551-020-04576-4
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10551-020-04576-4