SIMON PIERRE DERMARKAR

COMMERCIALIZATION OF AUDITING

SERVICES OFFERED BY PROFESSIONALS

WITHIN ACCOUNTING FIRMS

Mémoire présenté

à la Faculté des études supérieures de l‘Université Laval

dans le cadre du programme de maîtrise en Sciences de l'administration

pour l‘obtention du grade de Maître ès sciences (M.Sc.)

ÉCOLE DE COMPTABILITÉ

FACULTÉ DES SCIENCES DE L'ADMINISTRATION

UNIVERSITÉ LAVAL

QUÉBEC

2011

© Simon Pierre Dermarkar, 2011

Résumé

Le cœur de l'étude mettra en évidence la présence d‘importantes pressions

découlant du mercantilisme au sein de la pratique de vérification professionnelle

dans l'ère post-Enron. L'analyse sera distinguée en deux segments: les pressions

découlant du désir de l'auditeur à être perçu comme financièrement efficace, et

d'une autre part, les pressions découlant de l'objectif de l'auditeur cherchant à

privilégier les clients et à rester compétitif dans le marché.

Les aspects commerciaux généralement reconnus de la vérification (c.-à-d.,

rapidité, efficacité, profitabilité) qui sont mesurés par des indicateurs financiers

(taux de récupération et taux horaire récupéré) qui eux sont contrôlés et encouragés

par certains processus formalisés (par exemple, de budgétisation et d'évaluation de

la performance) au sein des organisations comptables, expliquent précisément

pourquoi les praticiens de la vérification ont le désir d'être perçu comme

économiquement efficace. De plus, les résultats empiriques montrent une certaine

évolution (parfois agressive) de la présence de tels mécanismes qui pourraient

mener à des effets négatifs tels que la détérioration de l'environnement de travail et

à des mutations insoucieuses des méthodes de vérification.

Aussi, afin de freiner les pressions croissantes liées à la concurrence et accroître

leur part de marché, les cabinets comptables déploient une stratégie à faible prix

(« low balling ») pour leurs services de vérification; cette approche aide à conserver

(ou à séduire) les entités auditées. Contrairement à ce que plusieurs peuvent penser,

la règlementation Sarbanes-Oxley ainsi que son adaptation canadienne n‘éliminent

pas entièrement une telle tactique dans l'industrie de la vérification. En fait, la

stratégie a évoluée au point où certains cabinets plus petits doivent, contre leur gré,

adopter ces méthodes afin de lutter contre les comportements marketing agressifs

des «Big Four». Cette approche crée une certaine controverse entre le niveau de

risque du mandat et l'objectif de rentabilité qui semble souvent rester à un niveau

standard, peu importe la variation de l‘honoraire. Je présente des extraits

d‘entrevues indiquant que les mandats de vérification à faible prix peuvent amener

à réduire au minimum les questionnements à travers le travail de vérification ou

littéralement chercher à trouver l'endroit où le travail de vérification peut être

coupé.

ii

Abstract

The core of the study will highlight the presence of important pressures ensuing

from commercialism throughout the professional auditing practice in the post-

Enron era. The analysis of these features will be distinguished into two segments;

first the pressures ensuing from the auditor‘s desire of being perceived as

commercially effective, and second, the pressures ensuing from the auditor‘s aim of

privileging the clients and remaining competitive in the market.

The general business aspects of auditing (i.e., rapidity, efficiency, profitability)

monitored by some financial indicators (i.e., recuperation rate and hourly

recuperated fee) which are controlled and promoted through certain formalized

processes (i.e., budgeting and performance assessment) within accounting

organizations explain specifically why audit practitioners have a desire to be

perceived as economically effective. Moreover, empirical findings indicate a certain

evolution and ongoing – sometimes aggressive – presence of such mechanisms

which potentially lead to negative effects such as deterioration of the working

environment and neglectful alteration of audit approaches.

Also, in order to counter increasing pressures related to rivalry and to increase

market share, accounting firms deploy an evolving low pricing audit engagement

strategy aiming to retain (or seduce) the auditees. Conversely to what many would

think, the Sarbanes-Oxley Act and its Canadian adaptation did not get rid of such

tactic in the audit industry. In fact, the strategy has evolved to the point where some

smaller firms have to keep up by reluctantly adopting such method in order to

counter Big Four‘s aggressive marketing behaviours. In turn, that approach creates

a certain controversy between the risk level of the engagement and the profitability

aim which often remains at a standard level no matter the variation of the fee. I

present excerpts indicating that the low balling auditor might aim at minimizing

questionings through the audit work or literally seek to find where the audit work

can be cut.

Remerciements

Je dédie ce mémoire à la douce mémoire de ma maman.

Je remercie mon père pour le support exceptionnel qu‘il m‘a accordé à travers la poursuite de mes

buts professionnels, académiques et personnels. Je remercie aussi mes sœurs et mon beau-frère pour

les précieux encouragements à l‘égard de mes divers projets.

Je tiens à mentionner l‘inestimable apport que mon directeur de recherche a su me partager; je

n‘étais pas un chercheur en commençant ce mémoire, mais j‘ose espérer tendre à en devenir un

maintenant, grâce à Yves Gendron.

Je tiens aussi à souligner la confiance et la motivation que la direction du département des sciences

comptables de HEC Montréal ainsi que plusieurs de ses membres m‘ont apportées à travers la

complétion de mon projet de recherche.

Finalement, je voudrais très cordialement remercier chacun des sujets de mon étude qui ont

gracieusement accepté de participer aux entrevues qui m‘ont permis de procéder à cette recherche.

Sans eux, ce projet n‘aurait pas été possible.

Mon parcours

Dès mes débuts en tant que stagiaire auditeur, je remarquais cet humble, et parfois sous-estimé, rôle

que les vérificateurs pouvaient jouer en tant que protecteur du public. J‘ai vite appris qu‘il y avait

un champ beaucoup plus large à cette pratique professionnelle. Mes constats m‘amenèrent à

certaines déceptions, mais ils m‘amenèrent surtout à apprécier une étincelle qui est celle de

découvrir et de réaliser que ces découvertes sont infimes par rapport à tout ce qu‘il reste à

découvrir.

Les enjeux tels que le mercantilisme au sein des professions, les conflits d‘intérêts, la corruption, la

protection du public, la gouvernance des marchés des capitaux, etc., sont tous des champs qui

désormais me passionnent et pour lesquels j‘ai l‘intention d‘entreprendre davantage de recherches

qui me permettront de faire de nouvelles découvertes et de les partager.

iv

Table of Contents

Résumé .............................................................................................................................. i

Abstract ............................................................................................................................ ii

Remerciements ................................................................................................................ iii

Table of Contents ............................................................................................................ iv

GOAL AND CONTEXTUALIZATION OF THE RESEARCH .................................... 6

LITERATURE REVIEW ............................................................................................... 10

Protection of the public to profit motives .......................................................... 11 Auditors‘ mistakes ............................................................................................. 14 Commercialism vs. professionalism .................................................................. 18 Commercialism‘s takeover ................................................................................. 24 Aftermath ........................................................................................................... 32 Corrective measures ........................................................................................... 34

METHODOLOGY AND ASSUMPTION ..................................................................... 37

Assumption and approach .................................................................................. 37 Method ............................................................................................................... 39

Recruitment and data collection............................................................. 41 Method of analysis ................................................................................. 44

DATA ANALYSIS ........................................................................................................ 47

1- General aspects .......................................................................................................... 47 1.1- Existence of commercial pressures? ........................................................ 48 1.2- What is pressure? ..................................................................................... 49 1.3- Commercial pressures and its effects ...................................................... 50 1.4- Regulation and issue cycle ....................................................................... 56

2- Perceived as profitable ............................................................................................... 61 2.1- Business aspects .......................................................................................... 61 2.2- Financial indicators ..................................................................................... 64 2.3- Organizational processes ............................................................................ 66 2.4- Strengthening commercialism through subtle influence ............................. 70 2.5- Effects on working environment and audit approaches .............................. 73

2.5.1- Working environment .................................................................. 74 2.5.2- Audit approaches ......................................................................... 75

2.6- Conclusion .................................................................................................. 77 3- Privileging the clients ................................................................................................. 78

3.1- Serving the client as a priority .................................................................... 79 3.2- Commodifying the audit ............................................................................. 83 3.3- Low balling ................................................................................................. 85

3.3.1- Strongly competitive auditing markets ........................................ 86 3.3.2- Low balling .................................................................................. 87

3.4- Conclusion .................................................................................................. 94 FINAL REMARK .......................................................................................................... 95

REFERENCES............................................................................................................... 97

APPENDIX & TABLES.............................................................................................. 103

Appendix 1 – Form of consent......................................................................... 104

Appendix 2 – List of questions........................................................................ 109

Table 1 – Interviewee details........................................................................... 111

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6

GOAL AND CONTEXTUALIZATION OF THE RESEARCH

In the wide economical sphere, financial auditing seeks to represent a

credibility enhancer towards stakeholders having interest in financial

information. Through this role of enhancing financial information‘s

credibility, protecting the public‘s interest as ―watchdogs‖ remains the

primary rhetorical reason of being of professionals performing financial

auditing. When serious failures emerge in financial markets, the public

systematically suffers; we hear of retirement funds crashing, lifetime

savings disappearing in the rush of the events, office shutdowns

increasing unemployment, and more. These matters are serious for the

world economy, for each of the nations around the world, for each

society built in these nations, for each community included in these

societies, and ultimately, for each family of these communities around

our planet. The negative effects can become very vicious and generalized

especially in today‘s globalized and sometimes hyper complex financial

markets. This memoire will study a particular facet of the previously

identified ―watchdogs‖ of financial information, whose work has been

criticized by many in the aftermath of significant corporate debacles such

as that of Enron (Guénin-Paracini and Gendron, 2010). These criticisms

reflect not only on the ―watchdog‘s‖ reputation, but also on the standing

of the companies involved and on the perceived performance of

legislators and regulators aiming to normalize the financial information‘s

enhancing process, and to oversee the achievement of financial auditors‘

reason of being.

From an organizational point of view, we normally expect that those who

are called to protect the public‘s interest, the auditors, would successfully

manage their own firms by effectively raising the flag when major

corporations occupying these public markets hold significant flaws in

their broad financial disclosure processes. Many could consider that

management in such professional firms represents models to

organizational control and governance systems. In fact, these accounting

7

firms are often brought to advise and provide logical insights to enrich

their audit clients‘ control systems. Unfortunately, the present paper

might in some way discourage ones‘ anticipation of such an idealistic

belief through the results obtained that consider the auditors as social

actors who are at the end of the day normal human beings living complex

relations.

In this study I seek to analyze the extent to which commercialism comes

to influence financial audit work. Generally speaking, auditing studies

carried out before the regulatory reforms of 2002 (e.g., Sarbanes-Oxley

Act) indicate commercialism as a dysfunctional factor to the achievement

of financial auditing goals. Regulatory initiatives were enacted in the

hope of reining in mercantilism in the profession. More precisely I seek

to concentrate my research on the commercialism facet of the auditing

profession in the post-Enron era. Through the analysis of interviews held

with auditing practitioners, I will appreciate these professionals‘

perceptions towards mercantile features as of the actual auditing practice.

As argued by Gendron & Spira (2010, p. 298):

[O]ne may wonder whether the rhetorical appeal of

commercialism can ever be constrained in public accounting.

The ongoing rivalry between professionalism and

commercialism in public accounting, which has been

examined by several researchers prior to the collapse of

Enron (e.g., Covaleski et al., 1998; Gendron, 2002; Hanlon,

1994; Humphrey & Moizer, 1990; Radcliffe, Cooper, &

Robson, 1994), remains a highly relevant object of study in

the ―post-Enron‖ era.

The present study therefore fulfills relevant advancements in the field of

accounting research on financial auditing (―watchdog‖) practice. As it

will extensively be demonstrated throughout this paper, the empirical

findings will not only show that mercantile factors have not disappeared

from the professional auditing arena in the post-Enron era, but also how

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they have aggressively evolved in strengthening their positions within

professional accounting firms‘ audit functions.

Firstly, in the literature review chapter, I will recollect and present in a

synthesized manner what has been previously alleged by authors with

regard to mercantilism versus professionalism within the auditing

profession. This will allow general understanding as to why this issue is

capital, not only in regard to the accounting profession, but towards the

general public‘s interest in the economical sphere. Then, I will show how

according to researchers, professionalism‘s vain battle against

commercialism represents one of the major factors with regard to the

Enron-Andersen 2001 debacle. Afterwards, it will be discussed that

corrective measures, although questioned by a number of observers, were

added by regulators in order to rein in the problematic mercantilism-

linked issues at stake towards such brutal financial failures. In sum, this

literature review will in the end demonstrate in what way the present

research effectively fits in the ongoing study process of professional

auditing and how previous literature explicitly reflects the significance of

commercialism within accounting firms‘ audit functions.

Following the literature review will be presented the methodology design

put in place in order to pursue the present research analysis that

appreciates practitioners‘ perceptions towards commercialistic factor

within auditing functions of accounting firms in the post-Enron era. I will

at that point present the data collection process that was done through

interviews with audit practitioners from various size-type professional

accounting firms. Then, the general qualitative-based analysis process

will be presented before development of the main chapters of the

memoire.

9

The core of the study will then highlight the presence of important

pressures ensuing from commercialism throughout the professional

auditing practice. These pressures will be analyzed from a practitioner‘s

point of view by suggesting how the promotion of such commercialistic

features comes to affect auditors‘ behaviours. The analysis of these

features will be distinguished into two (somewhat overlapping)

segments; first the pressures ensuing from the auditor‘s desire of being

perceived as commercially effective will be analyzed, and second, the

pressures ensuing from the auditor‘s aim of privileging the clients and

remaining competitive in the market will be discussed.

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LITERATURE REVIEW

This section will serve to present many authors‘ sayings towards the

studied matter which is commercialism within accounting firms. To

introduce the literature review, I will firstly present the auditors‘ claim

regarding the protection of the public in order to situate the element that

has been identified as the raison d‘être of such profession. This reason of

being is relevant to the study in the sense that if commercialism, which is

the main axis of research through this memoire, comes to impact

professionalism (and therefore the quality) of the auditors‘ work, the

protection of the public may ultimately suffer and this directly supports

the significance of carrying out such studies. My review of literature

mainly indicates the following drama (although literature is characterized

by a number of discordant views). Professional accountants have made

mistakes in the past, audit related or not; these professionals have in

some ways failed to achieve a certain number of their goals. This

eliminates any assumption for which sole reliance on a professional

virtue or affiliation can resolve any problematic issue within professional

environments. Literature also points to commercialism having gained in

influence within accounting firms. Moreover, the ascension of

commercialism is greatly characterized as a confrontation between

commercialism and professionalism. The confrontation implies that the

increase of commercialism is in some way manifested to the detriment of

professionalism within the accounting profession. Ultimately, a number

of studies qualify the increase of commercialism as a literal ―takeover‖

against professionalism, which ultimately led to the Enron-Andersen

scandalous debacle. Finally, I will swiftly present and appreciate from

the authors‘ perspectives the corrective measures seeking to resolve the

accounting profession‘s commercially related failures. As for the

Commercialism‘s Takeover, the Aftermath, and the Corrective Measures

sections, I will mainly rely on researches analyzing Enron-Anderson‘s

financial debacle. In fact, my study aims to specifically appreciate the

auditing profession‘s commercialism stance in the post-Enron era.

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Therefore, by essentially concentrating my review on the Enron-

Anderson debacle I surely expose the most relevant literature regarding

the theme of my study.

Protection of the public to profit motives

My review of literature fundamentally aims to assess the extent to which

the protection of the public is actually a key priority within accounting

firms. One of the key indications of previous studies is the growth of

mercantile features having come to ―overshadow‖ the claim of protecting

the public. The claim was already deemed paramount many decades ago,

as Gaa (2007, p. 29) indicated:

Arthur Levitt, then-Chairman of the Securities and Exchange

Commission (SEC), observed that the need to protect

investors was recognized in the late 17th Century, when

formal stock exchanges first appeared in England (Levitt,

1996).

Problematic issues strongly support Levitt‘s saying, indeed Gaa (2007,

pp. 29 & 30-31) adds:

Only a few years later, the South Seas Bubble, which was an

enormous financial fraud in the 1710s, proved the point. The

scandal was so massive and traumatic that it caused the end

of the joint-stock form of business organization (which was

the forerunner of the modern corporation) for over a hundred

years. Eventually, the need to obtain large amounts of capital

for transportation companies caused the corporate form of

organization to re-emerge in England, with the Companies

Acts of 1844 and 1845. But these laws required audits of

balance sheets, in order to limit the ability of management to

commit fraud (which was regarded as inevitable otherwise)

(Littleton, 1933). […]

12

Levitt [(1996)] also pointed out the central importance of

protecting investors‘ interests by noting that the phrases ―for

the protection of investors‖ and ―in the public interest‖ occur

separately or together in the Securities Act of 1933 and the

Securities Exchange Act of 1934 at least 225 times. Similar

language is found at many points in the Sarbanes-Oxley Act

of 2002, the official title of which (―An Act to protect

investors by improving the accuracy and reliability of

corporate disclosures made pursuant to the Securities Laws

and for other purposes‖, U.S. Congress, 2002) reinforces the

point.

These previous excerpts fairly confirm that the protection of the public

represents a significant signifier with regard to the capital markets

functioning. More precisely, it is indicated that in order to allow capital

markets‘ accesses for major industries it was necessary to ensure the

protection of the public through the prevention of frauds. We can also

observe that the matter is ongoing in the sense that recent legislation such

as the Sarbanes-Oxley Act of 2002 (directly affecting the auditor‘s work)

includes several mentions regarding the protection of the public.

However, auditors‘ commitment towards the protection of the public may

be overshadowed by other reasons, such as financial achievements. In

their review of auditing literature, Cooper & Robson (2006, p. 416)

mention that the profit motives require special attention in the context of

professional service firms:

While questions of how ―public interest‖ and professional

vision as defined and understood by accountants are indeed

important (Fogarty, Radcliffe, & Campbell, 2006; Willmott,

Cooper, & Puxty, 1993), recognition of the profit motive in

firms enables an analysis that is not preoccupied with issues

of professional legitimacy and self-understanding.

Quite provocatively, they add (pp. 422-423):

13

[I]nternal dynamic of multi-national accounting firms

explains how the ―feudal‖ values of accountants

(gentlemanly attitudes and aristocratic and paternalistic

values) are transformed into commercial values of the large

corporation, in which profitability and contribution to the

growth of capital are dominant.

In this last passage the authors speculate on how long-known core values

of accountants are transformed into explicit mercantile features. In the

following segment (p. 433), they express how commercialistic features‘

emphasis potentially brings auditors to jeopardize their public interest

concern in favour of client service and cross-selling opportunities:

In literally hundreds of interviews in the 1990s, in many

countries and large accounting firms, we never heard an

accountant refer to the public interest and when issues of

client management are discussed, the concern expressed in

accounting firms is usually in terms of providing client

service and finding opportunities for cross-selling. At least in

law firms, client management systems seem to be focussed

on avoiding conflicts of interest!

It therefore appears that accountants practically never refer to the

public‘s interest when discussing issues of client management. We may

then assume that a number of auditors do not necessarily consider

primordial their service towards the public‘s interest. What type of

commitment should be expected? As stated by Gendron (2002, p. 664):

The essence of the professional logic of action may be

inferred from Hall (1968), who describes the set of attributes

that generally are considered in the sociology of professions

as being representative of ―ideal‖ professionals. According to

this literature, ideal professionals strongly identify with their

14

profession, and consider the main objective of their work to

be that of serving the public.

All of the above leads to believe that a number of auditors (or

accountants in general) do not value their professional stance as much as

one could hope or expect. Could it be that they tend to favour their

commercial stance? Consequences may be dramatic, as suggested by

McNair (1991, p. 635):

What would happen to a profession if the realities of the

economic imperative were to overshadow the less tangible

demands of society?

My review addresses the conflict between commercialism and

professionalism in the following sections. It will be shown that in the

eyes of a proportion of auditors, protecting the public is less tangible than

increasing profitability within accounting firms‘ audit functions.

Auditors’ mistakes

Before discussing how the accounting literature has extensively analyzed

the commercialistic features of the profession being confronted to the

professional features and how this confrontation can lead to failures (e.g.,

Enron-Andersen), I first wish to plainly demonstrate how auditors have

had their share of failures. Without scientifically demonstrating that

auditors‘ failures exposed in this section relate to the battle between

commercialism and professionalism, my initial aim is simply to argue

that the profession is not without flaws. Subsequently, I will analyze how

literature has constructed linkages between failures and the rise of

mercantilism in the profession.

15

The literature indicates that auditors have made significant mistakes and

these mistakes have acutely shaken the perception of the public towards

the integrity and ethical value of certain actions executed by auditors.

―[A]cting with integrity goes beyond the rules, and requires auditors to

act autonomously in making judgments about how far above the moral

minimum they should act on a given occasion‖ (Gaa, 2007, p. 38). To

demonstrate the auditors‘ failures, I present several examples explicitly

showing accounting firms‘ malfunctions. To do this I draw extensively

on Gaa (2007, pp. 34, 40, 41, & 42):

An example of this [failure] is the case of the creation of

KPMG Baymark, in the mid-1990s (SEC, 2001). KPMG

decided to start an investment bank that would provide

various services to its audit clients, including taking over the

operation of KPMG‘s audit clients that were in financial

difficulty. If KPMG had created Baymark legally as a

subsidiary operation of KPMG, it would have clearly violated

the independence standards in place at the time. Thus,

KPMG‘s attempted creation of Baymark disregarded its

obligation to protect investors.

A second case is the now-familiar pattern of behavior that

Andersen engaged in for a number of years (Toffler, 2003). A

short summary of this is that Andersen engaged in practices

that (in the short run) earned large profits, at the expense of

investors. The list of faulty audits is long, and includes most

notably Waste Management and Enron.

In a third case, Ernst & Young was found by the SEC (2004)

to be not independent from one of its audit clients,

PeopleSoft, in virtue of their ongoing business relationships

(in the provision of information technology consulting).

Furthermore, even though EY had sold the relevant part of its

consulting practice before the SEC action, EY‘s attitude and

pattern of past behaviour caused the issuance of a cease and

desist order.

A fourth example of integrity problems is the practice of

Pricewaterhouse- Coopers in billing for air travel of its

16

employees on consulting engagements [...]. During the 1990s,

PwC negotiated ―back-end‖ rebates on tickets. These rebates

were paid to PwC at the end of the year, rather than as ―front-

end‖ discounts on the ticket price itself. Rather than passing

the rebate on to its clients (who had been billed for the gross

travel costs of PwC consultants), PwC kept the rebate. That

meant that PwC effectively charged its clients more than the

actual (net) cost of travel.

A fifth example is the […] promotion of illegal tax shelters in

the U.S. by KPMG to benefit wealthy clients (U.S.

Department of Justice, 2005). 17 employees of KPMG were

indicted, including a former Deputy Chairman, a former

CFO, a former Associate Chief Counsel, and several former

Heads of its tax practice.

In all five cases stated above, we note that mercantile features are

mentioned as being at stake; whether they are features promoting the

accounting firm‘s own profitability enhancement or features seeking to

preserve the quality of the relationships with the client in order to protect

the commercial liaison. We cannot confirm that these features represent

the main originating causes of the failures in question, but it is reasonable

to assume that they nevertheless had a certain influence on the

accounting firms‘ actions. Finally I present one last example that is rather

recent with regard to the Lehman Brothers‘ financial debacle that led to

its bankruptcy:

In March 2010, a 2,200-page document laid out in new and

startling detail how Lehman used accounting sleight of hand

to conceal the bad investments that led to its undoing. The

report, compiled by an examiner for the bank, concluded that,

among other things, the firm‘s demise was the result of bad

mortgage holdings and, less directly, demands by rivals like

JPMorgan Chase and Citigroup, that the foundering bank

post collateral against loans it desperately needed. (New

York Times, May 28 2010).

It‘s not clear that there was a crime committed in the fall of

Lehman Brothers. But the court-appointed examiner‘s report

17

makes it clear that there was financial massaging going on.

The examiner, Anton R. Valukas, refers repeatedly to ―Repo

105,‖ a name for a set of accounting tactics originated by

Lehman that temporarily shuffled about $50 billion off the

firm‘s balance sheet for the two fiscal quarters before it

collapsed. Lehman‘s use of Repo 105 — hidden from the

firm‘s board but not its auditors at Ernst & Young — helped

the investment bank look less indebted than it really was

(New York Times, March 11th 2010).

Even if not clear whether a crime was committed in the sense of the law,

I decided to present this last recent example to show how, with regard to

a bank‘s collapse, an auditor was explicitly mentioned as holding

significant information that the board of directors of the bank was not

even aware of and that ended up being intimately related to the bank‘s

collapse. More recently, in December 2010, the Financial Post published

an article indicating that:

New York prosecutors sued Ernst & Young, accusing the

accounting firm of helping to hide Lehman Brothers

Holdings Inc‘s financial problems, the first major

government legal action stemming from the Wall Street

bank‘s 2008 downfall. [...] The civil fraud case seeks more

than US$150-million in fees that Ernst & Young received

from 2001 to 2008 as Lehman‘s outside auditor, plus other

unspecified damages. [...] The case, filed in New York state

Supreme Court, is one of the biggest legal cases involving an

accounting firm since Arthur Andersen was criminally

indicted in 2002 over the Enron scandal. (Financial Post,

Tuesday December 21st 2010)

As stated by Watkins (2010) in his article ―Will Lehman Brothers and

Repo 105 allegations bring down Ernst & Young?‖:

Within hours of the damning report into the collapse of

investment bank Lehman Brothers and its finding that auditor

Ernst & Young failed to raise the alarm about the bank‘s

accounting practices, the ominous historical comparison was

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being drawn. Even the most senior regulators in Britain were

contemplating the worst. E&Y kept to a short statement

insisting it did its job properly. But one defender of the group

felt the need to be more blunt: ―This is not Ernst & Young‘s

Enron.‖

We will wait for the outcome of the court‘s ruling with regard to that

matter. Overall however, we can say that failures of professional

accounting firms are not infrequent. Further, mercantile features such as

the firms‘ profits and the preservation of the accountant-client

relationship appear to be significant factors along the failures‘ contexts.

Having shown that accountants, commonly known to have the role of

protecting the public‘s interest, are not without flaws, my review will

now specifically analyze the spread of commercialism within the

accounting profession.

Commercialism vs. professionalism

At this point, I find it relevant to specify that the accounting profession

deals with numerous features (e.g., internationalization of reporting

standards) from which emerge diverse types of tensions or issues; the

reason why I add such comment is simply to point out how, through the

course of my study, I specifically and consciously aimed one particular

aspect of the profession – commercialism of auditing in the post-Enron

era.

In this section the goal is to expose from academic authors‘ perspectives,

how the accounting profession has always had tensions between

commercialism and professionalism. Moreover, I will show how the

authors consider that there has been a considerable shift in the ascension

process of commercialism within accounting firms. Indeed,

commercialism has not always been a significant problematic-conflicting

19

factor within accounting firms. According to some authors

commercialism has always been present in the profession but it did not

necessarily create problematic concerns until it rose to the point of

overshadowing professionalism. As mentioned by Gendron (2002, pp.

660, 664):

It is widely recognized in professional and academic

literature that audit decisions are subject to conflicting

influences, in particular between professionalism and

commercialism [...]. For many years, perhaps indeed since

the beginning of the profession, tensions between the

professional and commercial logics of action have been

present within audit practice (Kirkham, 1992, p. 301;

Radcliffe, Cooper, & Robson, 1994, p. 602).

Commercialism may therefore have been an influential force within the

confines of accounting firms since their very beginnings. According to

the golden age thesis, to which several authors adhere, commercialism

was under control until the 1970s, when professional codes of ethics

were relaxed in various jurisdictions in order to promote the free-market

spirit within professions. During this golden age, professionalism

apparently was seriously taken into consideration by accounting firms‘

leaders. Commercialism was to some extent influential – but

professionalism then prevailed. Wyatt (2004, p.46) indeed states:

The firm leaders used articles and speeches to articulate the

nature of the profession and its importance to our business

and commercial system. They spoke out forcefully on the

issues of the day, often without regard to whether one or

more clients might find their remarks objectionable. The

leaders included Leonard Spacek [...].

In fact as Toffler (2003, pp. 18-19) mentioned:

20

It was under Spacek‘s leadership that the firm [Arthur

Andersen] grew into the most respected – and feared –

accounting firm in the world. Revenues nearly tripled

between 1947 and 1956 [...]. Starting in the 1950‘s, Spacek

became the nagging conscience of an industry that

desperately needed reform. [...] Spacek had a solution: the

establishment of what he called a U.S. Court of Accounting

Appeals, a higher, independent court that would enforce a

uniform code of accounting principles. [...] Spacek – to the

frustration of his Big 8 counterparts – continued the crusade

[...], taking on first the oil industry and then the railroads and

the savings-and-loan industry. [...] The Firm bolstered its

reputation as a company that took a stand, even at the

expense of losing clients.

These previous excerpts seem to describe accounting from another

planet! First, Wyatt mentions how the former firms‘ leaders used to

affirm loudly the importance of the profession despite commercialistic

influences (indirectly promoting the protection of the public). Moreover,

Wyatt adds how these leaders would openly and loudly speak of issues

relating to the profession, even to the cost of displeasing their own

clients. Even more surprisingly, we find Toffler‘s comment relating

Arthur Andersen‘s commercial success (tripling of revenues) to attitudes

of rigorousness regarding audit engagements. To Toffler, Arthur

Andersen grew as a top accounting firm by taking controversial stands

against some of the biggest industries in the economy in order to enhance

their reporting processes. Interestingly, according to Toffler (2003) and

Wyatt (2004), what would be considered as destructive measures in

today‘s commercialistic environment seems to be the cause of financial

growth in the 1950s‘ accounting firms. Thus, according to these authors,

in the 1950s professionalism constituted a powerful force in the

profession; commercialism was then potentially present but under

control. Yet a considerable shift occurred afterwards. According to Wyatt

(2004, p. 47):

21

In the early 1960s, Andersen leaders saw a potential in

providing what came to be integrated computer system

services to clients. This led to an expansion in the range of

services provided and a need to attract new personnel with

different skill sets from those embodied in the accounting

majors Andersen had historically recruited. […] The relative

success of the consultants created enormous pressure on the

auditing and tax practice, both to grow revenues and increase

margins. The successes in the consulting practice

increasingly influenced behavior by auditing and tax leaders,

and the impact of these behavioral changes gradually affected

the behavior patterns of audit and tax personnel as well.

Improved profitability became a key focus.

This previous segment illustrates, through the advent of consulting

services, two major emerging factors in the transition from a

professionalism approach to a commercialism approach within

accounting organizations. First, Wyatt states the new type of personnel

that increasingly was hired within the organizations; as it will be

presented subsequently, according to Wyatt, this is a primordial step in

shifting the general culture of the organization from a professional

culture to a commercial one. Second, we realize that the influence of

commercialism consolidates from inside the accounting firm, as a

competitive battle between consulting service and other services such as

auditing and tax. In this memoire, the shift from professionalism to

commercialism in the daily functioning of accounting firms is mainly

characterized by the Arthur Andersen experience up until the Enron-

Andersen turmoil. However, it has to be stressed that other studies such

as Suddaby, Cooper & Greenwood‘s (2007) and Covaleski, Dirsmith,

Heian & Samuel‘s (1998) specifically indicate this shifting process as a

reality in the professional accountancy sphere in general.

The change apparently was gradual, according to Wyatt (2004, p. 48):

22

I want to emphasize that the changes associated with the

growth of consulting practices really evolved relatively

slowly over a period of about 30 years. There were no

dramatic turning points […].

Of course, as a result of this change the meaning of the word

―professional‖ shifted in the mind of a number of practitioners – although

from an analytical perspective it is often relevant to differentiate

professionalism from commercialism in terms of ideals. According to

Gendron (2002, p. 666):

[C]ommercial auditors conceive of their activities as being

―professional‖, arguing that in today‘s competitive world the

essence of professional work is to be businesslike and

responsive to auditees‘ needs. In contrast, in the present

paper the term ―professional‖ refers to a logic based on an

idealized, coherent and organized set of values and ideas

centred on the notion of serving the public—and not

practitioners‘ financial self-interests.

As we can realize professionalism seemed to have experienced a serious

shift in definitions. On one hand, the former 1950‘s ―professionally‖

qualified firms‘ leaders as described by Wyatt and Toffler (with the

Spacek example), are strongly consistent with the definition identified by

Gendron (2002) with the central notion of serving the public. However,

actual ―commercial‖ auditors seem to conceive a professional auditor as

a good businessperson who seeks to provide a variety of useful services

to the firm‘s clients as described by Hanlon (1996).

Gendron (2001; 2002) illustrates interesting aspects of the tension

between commercialism and professionalism within accounting

organizations. Gendron (2002) explains how in some way the

coexistence of this professional/commercial duality can benefit the

accounting organizations since it provides ―decision-makers with a

23

legitimizing space to influence the decision process differently‖

(Gendron, 2002, p. 661) and it offers an ―additional opportunity to

challenge decisions‖ (Gendron, 2002, p. 681). Having both logics as

coexisting pressures allows a certain suppleness and room for

justification when having to support a decision, which can benefit the

firm in certain ways. Gendron (2002, pp. 660, 665, 681) indeed argues:

Adapted from a current of research in organizational analysis,

[...] the firm sets the stage for auditors‘ decision-making by

configuring its organizational components (e.g., the firm‘s

partner-compensation scheme and client-acceptance policies)

in such a way that the professional and commercial logics are

under a moderate level of tension. That is, to sustain internal

cohesiveness and avoid anarchy in decision making, the firm

makes its organizational components more reflective of one

of the logics. In so doing, the firm sends auditors the signal

that it expects the logic to be significantly influential during

decision-making. However, to prevent the favoured logic

from having a disproportionately large impact on decisions

(which may, at times, not be beneficial to the firm), the firm‘s

organizational components are also to some extent reflective

of the other logic of action, whose role is to mitigate and

constrain the favoured logic.

Several means are used in the profession to initiate auditors

to the professional logic, and remind them of its dictates. For

example, auditors‘ codes of ethics generally emphasize the

chief notions upon which the legitimacy of the auditing

profession is predicated, namely, public service and

independence [...]. Concurrently, auditors are exposed to the

commercial logic through several sources, such as the

business literature that constantly stresses the importance of

the ―bottom line‖, as well as the firms‘ performance

evaluation reports that typically are based on indicators such

as ―profits per partner‖ (Covaleski et al., 1998). Auditors

therefore have to operate and make decisions in the midst of

the two logics of action, each of them carrying its own

representation of decision-making. These representations

oftentimes result in points of tension in day-to-day decision

processes. (Gendron 2002)

In an Accounting, Organizations and Society‘s special issue

devoted to auditing, Hopwood (1996, p. 217) wonders why

24

the rhetorics of commercialism and professionalism are still

promoted side by side in many parts of the world. In this

paper, I argue that it is to the advantage of the firm to

perpetuate such contradictory rhetorics via its organizational

components, which are precisely aimed at (loosely)

regulating the coexistence of the rhetorics. The principle of

complementarity within contradiction is in accordance with a

theme that has begun to appear in the professional and

academic literature, that is to say, that conflicting logics are

probably unavoidable in any human organization, and are not

necessarily unhealthy since, when properly played out, they

provide an additional opportunity to challenge decisions [...].

In sum, the author argues that encouraging the simultaneous existence of

professionalism and commercialism can benefit accounting firms‘ audit

functions. Practically speaking, the idea is to constitute an organizational

climate which maintains the option towards both logics within its

processes in order to adapt its approach according to case-specific

interests. Yet dramatic consequences may ensue when one of the logics

prevails to the point of rendering the other logic almost non-influential.

In sum, the relationship between professionalism and commercialism is

not necessarily detrimental; the above literature suggests the

unavoidability and the beneficial outcome from a ―healthy‖ relationship

between the two. Yet auditing literature indicates that commercialism

increased its ascendancy within accounting firms – to the point that it

jeopardizes the ―healthy‖ equilibrium. Which consequences are

understood to ensue from the predominance of commercialism in

accounting firms?

Commercialism’s takeover

I here argue that professionalism is in the process of being overshadowed

by commercialism in the accounting profession and to do so, I principally

intend to expose how a major (perhaps the biggest) financial debacle was

25

potentially caused by commercialism‘s ―takeover‖. However, it needs to

be stressed that even though in this study my discourse tends to

generalize the accounting profession as deeply mercantile-driven, I do

not consider as universal, or exclusive, this facet of the profession – but

plainly significant. Additionally, I aim to emphasize that previous studies

supporting the potential linkage of accounting profession to financial

debacles do not propose absolute causality effects – but simply suggest a

potential (though persuasive and plausible) linkage.

Up to this point, through the literature review, we have noticed that the

auditors‘ role of protecting the public is a significant one, and that in

certain cases these professionals have failed to respond to society‘s

expectations on the matter. Literature also indicates that professionalism

and commercialism often conflict in the decision-making arena within

accounting firms. It is also highlighted that the definition of a

professional auditor seems to have drastically shifted from a serious

watchdog perspective to a business oriented client-pleasing perspective.

Up to this point, however, we did not specifically link audit failures to

the increasing influence of commercialism.

In this section, I rely on the academic literature to relate the progressive

tumbling of professional auditing to the crusade of mercantilism. Wyatt

(2004, p. 45) indicates:

The accounting profession has been beaten up badly in the

media over the last few years, and with some justification.

The Forces at work were numerous and complex and

different investigators place emphasis on a variety of

phenomena that created the environment in which Athur

Andersen disappeared and the reputation of the entire

profession was tarnished. Some of these forces were not new

such as: corporate and individual greed, delivering services

that acted to impair independence, becoming too cozy with

26

clients, and participating actively in finding ways to avoid the

provisions of accounting standards.

In general, this previous citation suggests that the newly adopted

definition of ―commercial‖ auditors characterized as client-pleasing

businesspersons is significantly influential within audit practice. Wyatt

relates this to cases of audit failures as reported in the media and popular

press. As added by Gendron (2002, p. 664):

Commercial auditors are described in auditing literature as

striving to make audit activities profitable within a short to

middle term horizon, their driving motivator in the workplace

being remuneration (Humphrey & Moizer, 1990, p. 232;

Willmott, 1986, p. 576). As a result, commercial auditors are

concerned about their ability to satisfy the needs of company

managers, who are viewed as those who largely influence

audit renewals (Hanlon, 1996). Commercial auditors

therefore tend to favour auditees‘ interests, striving to be

considered in the eyes of management as business advisors in

order to obtain audit renewal and consulting engagements

(Kaplan, 1987, pp. 6–7).

This description of the latest version of a ―commercial‖ auditor is

radically distinct from the Spacek‘s professional model. Continuously

pleasing the clients in order to ―make audit activities profitable‖ is now

often emphasized. A common technique used to make audit activities

profitable is the cross-selling of various consulting services to audit

clients. As rapidly introduced above, the rise of consulting brought

auditing to become more and more a commodity. As mentioned by Wyatt

(2004, p. 49):

As we moved into the 1990s, the Securities and Exchange

Commission expressed increasing concern about both the

range of services rendered and the increasingly large billings

related to consulting services. The SEC challenged several

firms, alleging that certain services impaired the

27

independence of auditors, but the Commission was not able

to demonstrate any direct tie-in between consulting fees and

granting of an inappropriate opinion on financial statements

by auditors.

In accordance with the SEC‘s viewpoint, several studies relate the rise of

commercialism and consulting services to the Enron-Andersen debacle.

Wyatt (2004, p. 50) explains the downfall by stating that:

In essence, the culture of the leading firms in the profession

had changed. New personnel who lacked a background that

placed prominence on accounting professionalism gradually

gained increasing influence in accounting firms. The

consulting arms were rapidly growing and were gaining

higher compensation levels than the audit and tax partners.

The leaders of the audit and tax practices felt increasing

pressure to grow revenues rapidly and, more importantly, to

grow profit margins in their service areas. Those with a

facility to sell new work advanced more rapidly. Cross-

selling a range of consulting services to audit clients became

one of the important criteria in the evaluation of audit

partners. Those with the technical skills previously

considered so vital to internal firm advancement found

themselves with relatively less important roles. […] The

focus on delivering quality professional service did not

disappear, of course. No one rang the bell in a firm and

announced, ―Quality professionalism is out!‖ On the other

hand, keeping the client happy and doing what was necessary

to retain the client achieved a prominence that did not exist

prior to the advent of the consulting arms.

It is worth stressing that Wyatt worked many years as partner in Arthur

Andersen. He also adds (p. 50):

Primarily commercial interest had undermined the core

values of the professional firm. The issue was not how the

delivery of a particular consulting service might affect the

auditors‘ judgment. The issue was not how the existence of

consulting fees that were greater than the annual audit fees

might affect the auditors‘ judgment. The issue was how the

28

increasing infusion of personnel not conversant with, or even

appreciative of, the vital importance of delivering quality

accounting and audit service affected the internal firm

culture, its top-level decisions, and the behavior patterns of

impressionable staff personnel. It wasn‘t that consulting

personnel were unprofessional in performing their work, it

was that their actions and behavior were far more

commercially driven than would be acceptable for audit

personnel.

Wyatt illustrates a perspective through which the over-emphasized focus

on cross-selling consulting services to audit clients increased the infusion

of ―[n]ew personnel who lacked a background that placed prominence on

accounting professionalism‖ and these employees gradually gained

significant influence within accounting firms. As expressed by Wyatt, the

shift was progressive, ―[n]o one rang the bell in a firm and announced,

―Quality professionalism is out!‖‖ and therefore it might have been

manifested subtly through the auditing functions of the firms. Toffler‘s

following example provides insight into how the manifestation of the

commercialism‘s takeover occurred in the backstage of daily life.

Through the publication of her book, Toffler (2003) expressed her

personal experience at Arthur Andersen before the firm collapsed. At one

point she explicitly explains how, due to commercialism‘s triumph

within the firm, she found herself in a delicate situation for which her

ethical behavior characterized her as a ―consultant from hell‖. Indeed,

Toffler (2003, pp. 65-66) explains:

At that point I did what I thought was the only ethical thing

to do – but something that from Arthur Andersen‘s

perspective was the equivalent of pulling the pin on a

grenade. I wrote a note to the CFO saying that the problems

([concerning issues towards the CFO‘s organization which

was an audit client of the firm)] originally raised had not

been addressed. ―As far as I am concerned,‖ I wrote, ―you are

still sitting with the same vulnerabilities now that you had

29

when we started this project.‖ I cc‘ed [the engagement

partner] on the note, but I didn‘t show it to him first, knowing

that he would go ballistic. But I thought it was my obligation.

Needless to say, [the engagement partner] did indeed go

ballistic. For him, I was the consultant from hell. As soon as

he received the note, he called, spitting venom. My

recollection of the conversation goes like this: ―How could

you have sent something like that without showing it to me

first? This is a ten-million-dollar audit client! How dare you

put anything like this in writing? We never put anything like

this in writing! How dare you tell the client there is a

problem? If there is something to be told to the client, you

tell me and I will talk to the client.‖ I apologized, but

honestly, I wasn‘t that sorry. I simply thought the client

should know, and I didn‘t have any reason to believe that he

would ever hear this from anyone else. I did get a nice note

back from the CFO, but the partner and I never spoke again. I

had made him look bad and I had committed the cardinal sin

of displeasing his prize client and threatening his livelihood.

This example describes the general perception of Arthur Andersen‘s

unethical and doubtful culture fostered within the firm before its collapse.

It characterizes an ethical act as ―pulling the pin on a grenade‖ and it

describes the practitioner aiming to pull that ethical act as ―the consultant

from hell‖. It expressly favours reassuring a ―ten-million-dollar audit

client‖ rather than voicing problematic issues. The excerpt illustrates how

the culture of consulting services‘ personnel as described by Wyatt

(2004) spreads onto the auditing personnel.

Gendron & Spira (2010, p. 285) present the fairly overconfident attitude

of the Arthur Andersen‘s (AA) leaders that characterized aggressive

business development methods as the primary focus of the firm‘s audit

function in the late 1980‘s:

[A] key discursive feature of AA is the gradual ascendancy of

commercialism, which allegedly undermined auditor

professionalism. [...] Squires et al. (2003, p. 97) refer to the

imagery of the tiger as a telling indication of an

organizational climate that emphasized mercantilism:

30

Worried that increased business competition was

eroding profits, some partners argued that Arthur

Andersen had to adopt aggressive marketing

strategies, like those used by Andersen

Consulting, to stay viable, and at the 1989 partner

meeting, the themes were profit and sales. The

rock song ‗‗Eye of the Tiger‖ boomed from

speakers, and a live tiger was brought on stage.

The new head of the US audit division, Richard

Measelle, declared that raising profit would

‗‗require the eyes of a tiger, eyes that seize

opportunities, eyes that are focused on the kill.

It‘s the eye of the tiger, it‘s the thrill of the fight‖.

We can note that the perspective within Arthur Andersen had at that

point considerably changed since Spacek‘s reign of the 1950‘s. ―[A] live

tiger was brought on stage‖! This clearly reflects the fierceness that a

once known to be professional and respectable firm had adopted and the

reason of such aggressiveness was remedying to eroding profits. Gendron

& Spira (2010, p. 285) add:

The tiger metaphor contradicts the profession‘s historical

ideals of auditor independence and public service, and is

quite revealing about what is increasingly seen in the

literature as the entrepreneurial mindset characterizing the

firm‘s leadership. The divorce of Andersen Consulting from

AA at the turn of year 2000 is also viewed as having

increased the level of commercial pressure on AA partners,

who suddenly lost an important source of revenue. In sum,

commercialism was a significant part of the organizational

environment in which individual identities evolved at AA

and, [...] it often intervenes in interviewees‘ efforts at making

sense of the firm‘s collapse.

Up to this point, I have broadly described the ―takeover‖ by referring to

the Arthur Andersen‘s demise which is certainly the most powerful

example in hand to illustrate accounting firms‘ overwhelming desire for

31

commercial success and the types of issues which could emerge from

such desire.

However, Suddaby et al. (2007) somewhat extrapolate this over-

emphasized focus on commercialism as being present in all, once known,

Big Five1 accounting firms. In fact, through their study on regulation-

and governance-related processes throughout accountancy profession,

they observe that:

Another important characteristic of professional governance

is the myth of separating professional practice from

commercial interest. (p. 337)

As the large accounting firms grew in size, so too did they

expand the range of services provided. Once the market for

traditional audit services became saturated, firms became

increasingly reliant on new services to maintain revenue (and

profit) growth. (p. 340)

More directly, however, representatives of Big Five firms

adopted the economic rhetoric of their corporate clients,

justifying their expansion to new business services as being

in the best interests of the consumer, which ultimately is in

the public interest (Suddaby & Greenwood, 2005; Willmott,

Cooper, & Puxty, 1993). Conflating public interest with

consumer interest is, perhaps, the clearest indication of the

degree to which the social norms of professional governance

had become displaced within the Big Five. (p. 344)

In summary, a number of studies indicate that commercialism did at

some point prevail in accounting firms, thereby reducing the influence of

1 ―In 1970 there were eight [...] firms but mergers in 1989 created the ―Big Six‖. The

1997 merger of Price Waterhouse and Coopers Lybrand reduces this to the ―Big Five‖

and the demise of Arthur Andersen has left the ―Big Four‖. The ―Big Four‖ refers to the

four largest international accounting firms in the world and consist of Deloitte Touche

Tohmatsu, Ernst & Young, PricewaterhouseCoopers and KPMG.‖ (Suddaby et al.,

2007, p. 338)

32

professionalism. Profit was a key driver; and the emphasis was to please

clients in order to ensure a continuous flow of profits.

Aftermath

In 2010, Gendron and Spira published a field-study research on the

collapse of Arthur Andersen. A majority of their interviewees (i.e.,

former partners and employees of the firm) present commercialism as

one of the main reasons of the firm‘s scandalous downfall.

As the importance of commercialism (to the detriment of

professionalism) only progressively gained influence within accounting

organizations, the reality of its actual effects may not have been obvious

within the firms. I insist on this gradual progression since it might have,

through its process of application, attenuated the concerns and therefore

eliminated part of the attention that it deserved to attract. As Wyatt

mentioned, ―no one rang the bell‖! Gendron & Spira (2010, p. 296)

further specify:

[T]hrough the collapse of Enron the link between

commercialism and audit failure gained significantly in

reality in the eyes of a majority of our interviewees.

It is as if an obvious scandal was required for auditors (but not all of

them) to realize the shadowing power and reality-shocking presence of

commercialism within accounting firms. As if the puzzle could only at

the time of the collapse actually be completed. Was the auditing staff

blinded or was the takeover too complex to identify its effects through

the professional weaknesses created by commercialism?

33

Indications of blindness are found in literature, especially in auditors‘

endless desire of pleasing clients by developing imaginative justifications

to support the clients‘ sometimes weak standpoint. Gendron & Spira

(2010, p. 285) mention:

Consistent with the view that commercialism exerted

significant influence in the firm, [...] a number of AA

auditors (including the interviewee) were imaginative in

trying to find reasons for supporting their clients‘ standpoint

on accounting matters, therefore casting doubt on the claim

of auditor independence.

Some interviewees view commercialism as having exerted a subtle (but

significant) influence on the behaviour of Enron‘s auditors. Gendron &

Spira (2010, p. 294) indeed state:

[Some interviewees considered] that commercialism

contributed significantly to the firm‘s debacle, believing that

partners involved on Enron‘s account were influenced, more

or less consciously, by the fear of losing the audit

engagement. Again, the rivalry between AA‘s accounting and

consulting areas is seen as a key factor in having engendered

client fearfulness.

Losing the client could reflect a weak performance for the leading

partners in charge, and, through AA‘s aggressive commercialistic-driven

culture, weak-performing leaders represent the prey for the Tiger!

Extreme measures, such as exclusion from AA‘s partnership, and thus

potentially ending one‘s professional career, were part of the treatment

reserved for weak-performing preys to the eye of AA‘s Tiger. As

explained by Gendron & Spira (2010, p. 296):

Several of the partners that we interviewed highlight that

underperforming partners in AA faced the very concrete

34

possibility of being banished from the partnership.

Participants also mentioned that in the last few years

preceding AA‘s downfall, partners were feeling literally

―squeezed out‖ by the firm‘s intense efforts to generate an

increasing and unrealistic level of fee per partner. All of this

suggests that individual partners in large accounting firms are

not considered as owners, but instead as managers in charge

of individual profit centres (i.e., their ―client portfolio‖).

This representation of daily life within large accounting firms is far

remote from the golden age representation discussed above. At the very

least, commercialism is a serious concern, not only for academics as

object of study but also for practitioners given the detrimental

consequences it can generate. One obvious question is the extent to

which post-Enron regulation was successful in reining in the ascendancy

of commercialism within accounting firms.

Corrective measures

Several studies agree to say that the new sets of rules swiftly adopted in

the aftermath of the Enron debacle are nothing but a start towards

concrete salvation of the problematic issues at stake within the

accounting profession. As Toffler (2003, p. 249) states:

Arthur Levitt‘s [(from the SEC)] challenge to the accounting

industry to separate most audit and consulting services is now

largely a fait accompli, thanks to the Sarbanes-Oxley Act.

Yet it hasn‘t gone far enough. Still not included in the new

rules is a restriction on much of the kind of consulting that

Arthur Andersen fell under the heading of risk management

and litigation support services. Having experienced it

firsthand, I believe that the pressure to sell consulting

services may have been the single most powerful factor in

creating this culture of greed. Make the audit work for the

client so it will stick with you and then buy more consulting

services; put your consultants against one another so they

will do anything to get the engagement; create needs in the

client that don‘t exist, then provide services to meet those

35

needs; turn your partners into salespeople instead of careful

analysts, and pray the God of revenue. The new regulations

are a good start, but we have a long way to go.

Indeed as presented by Toffler‘s previous excerpt, separating audit and

consulting services is just a good start because modifying the culture and

the greed built-in accounting professionals is a very difficult challenge.

Wyatt (2004, p. 51) supports this by logically indicating that ―behavioral

changes that have evolved within firms over the past 30 years‖ will

obviously not be solved with one simple addition to the set of rules that

govern accounting practice. Wyatt (2004, p. 51) mentions:

The passage in 2002 of the Sarbarnes-Oxley legislation will

help establish boundaries on the scope of nonauditing

services, and it should improve the qualification for audit

committee members (among other provisions); however, the

underlying causes of the decline in accounting

professionalism remain in place. The leaders of the various

firms need to understand that the firm‘s internal culture

requires a substantial amount of attention if the reputation of

the firm is to be restored. No piece of legislation is likely to

solve the behavioral changes that have evolved within firms

over the past 30 years.

Finally, Gaa (2007, p. 34) argues that the regulatory process is probably

not the exclusive type of solution necessary for three reasons that he

explains as follows:

There are several reasons why this legalistic compliance

approach, even if it specifies necessary conditions, is not

sufficient for guaranteeing that an auditor will protect the

interests of investors […]. First, no set of rules is complete

[…]. Second, the world changes over time, and rules

generally change only in response to problems. That means

that they are nearly always out of date, at least to some extent

[…]. Third, even though the independence rules are intended

to work for the benefit of investors, compliance with

36

independence rules does not guarantee that auditors (acting in

accordance with them) will in fact protect investors‘ interests.

The role of protecting the interest of investors cannot be regulated

through a ―legalistic compliance approach‖, according to Gaa.

Drawing on my literature review, it is reasonable to maintain that the role

of auditors in our present economy is questionable due to the detrimental

effects of commercialism within accounting firms. The Enron-Andersen

case has been interpreted as ensuing from the excessive embracement of

mercantilism within accounting firms. Further, doubts are raised

regarding the effectiveness of post-Enron regulation in reducing the

powers of commercialism in the profession. Assessing the extent to

which commercialism exerts influence today undeniably constitutes a

relevant research endeavour.

37

METHODOLOGY AND ASSUMPTION

The purpose of the section is to present the study‘s assumption and the

type of approach utilized in order to investigate it. In particular, I expose

the different methodological steps followed to carry out the research: the

recruitment and description of the subjects, the data collection done

through the interviewing process, the analysis of the data gathered and

finally the limitations associated with the study.

Assumption and approach

The aim of this research is to assess, in a post-Enron context, the extent

to which commercialism exerts influence on accountants‘ professional

practice. As presented through previous academic literature, the presence

of commercialism within accounting firms‘ environment is often

understood as having provoked serious issues throughout the accounting

profession (e.g., the Enron-Andersen debacle). Drawing on doubts

expressed by some researchers regarding the effectiveness of post-Enron

regulation, my personal assumption is that the commercial features

within accounting firms have not disappeared. Moreover, I assume that

mercantilism has considerably evolved in a way of maintaining its often

subtle influence over the profession. Having demonstrated that certain

risks are likely to emerge from an overemphasized commercialism within

the accounting profession, we can easily justify the relevance of the

present study.

As it will be shown in the subsequent chapters of the memoire, my

assumptions are fairly consistent with the empirical findings. Regarding

the approach utilized, my goal was to specifically concentrate my efforts

in collecting fresh ideas and perceptions of professional auditors towards

38

the dynamic of the market in which they practice. Gendron & Spira

(2010) expressly indicated the lack of knowledge with regard to the

tensions between commercial logic and the professional logic within

accounting firms in the post-Enron era. The analysis technique I chose to

retain in order to lead the present research is a qualitative based

approach. As Gendron (2009, p. 124) indicates:

I […] stress the relevance of conducting qualitative research

on accounting and corporate governance phenomena, in spite

of the publication pattern of several dominant accounting

journals, which indicates resistance toward deviation from

quantitative orthodoxy. [...] The relevance of studying

accounting in action — typically using qualitative methods

— has been underlined by a number of accounting

researchers since the 1980s. [...] In sum, qualitative research

constitutes a relevant research method in the development of

better understandings of complex accounting realities and

processes.

The commercialism issue at stake in the present research specifically

refers to a relatively complex reality of the accounting profession. The

interview process was explicitly aimed to be adaptable to the particular

avenues of discussions. The ambiguity and flexibility surrounding the

tension between commercialism and professionalism, and the ways used

to resolve emerging dilemmas, obviously call for methodological

―openness‖. Moreover, Gendron (2009, p. 130) adds:

[Q]ualitative research is a relevant and legitimate mode of

inquiry. It can provide thick descriptions of new phenomena;

it can develop or refine theories about accounting and

governance in action; and it can sensitize academics to the

realities of practitioners and allow meaningful case studies to

be developed for teaching purposes.

In the following sections I develop more specifically the methodology

used to deploy this qualitative research.

39

Method

A main feature of the present study is to identify and analyze the possible

ways that auditors and their firms employ to control the commercial

aspects of their auditing services. Through my personal practice as an

auditor I realized that questioning directly auditors on the influence of

commercialism may not be productive, commercialism and impairment

to independence being often considered taboos. Hence I thought that a

focus on control mechanisms, along with meeting individually with these

professionals, would be more likely to generate interesting discussions.

To carry out the investigation I proceeded via semi-structured interviews

with professional auditors. According to Power (2003), there is very little

of what is now called ―fieldwork‖ in auditing and one reason for this is

that professional service firms are hesitant ―to provide research access to

client data and live audit assignments, although this is more often

assumed than demonstrated‖. ―Because the largest accounting firms

operate as private partnerships, relatively little is known about their

governance structures‖ (Jenkins, Deis, Bedard, and Curtis, 2008, p. 58).

Through my personal professional networking, I had the privilege of

obtaining interviews with professional auditors from diverse firms.

Therefore we can say that a number of auditors ―agreed to participate in

the field research, thereby allowing me to look beneath the surface of

audit practice into the ―blackbox‖‖ (Power, 1994, p. 304). In order to

manage the interviews properly and ensure preservation of my

relationships with the interviewees, there had to be a certain level of trust

exchanged between the interviewer and the interviewee. As Gendron

(2002, p. 661) states:

The field study was chosen as the preferred mode of

investigation since this method allows the investigator to

examine the conditions in which a phenomenon of interest

occurs […]. The field study method is also likely to enhance

40

the researcher‘s ability to build relationships based on trust

with interviewees, thereby making them more willing to

freely respond to questions […]. Building trustworthy

relationships with interviewees was critical to the present

research since auditors may be reluctant to discuss sensitive

issues such as the firm‘s practice development strategy and

partner-compensation scheme, as well as the client-

acceptance decision per se [...].

Studying the conditions in which a social phenomenon occurs is a

complex and challenging goal. With regard to this study, analyzing how

commercialism (social force/phenomenon) is to be manifested according

to human subjects (practitioners within accounting firms‘ audit functions)

is not something that can rigidly be approached. A dynamic and flexible

process therefore needs to be deployed: in my case interviews centred on

auditors‘ perceptions, opinions and personal experiences regarding the

control of commercialistic forces. Also, if we wish to eventually enhance

the processes and controls relating to commercialism within accounting

firms, it is relevant to obtain views of people involved in these important

organizational processes, as the present study aims to do by interviewing

practitioners. Further, this way of representing the pragmatic purpose of

my research may have helped in establishing trustworthiness in the eyes

of interviewees.

I nevertheless concede that group interviews and general anonymous

surveys could have been pertinent data collection methods. Nonetheless,

I personally believe that highly relevant data would unlikely have been

gathered through a survey, given the inherent lack of flexibility in

capturing rich and unpredictable data. Survey questionnaires are

inescapably directed in ways which favour certain angles to the detriment

of others. Group discussions were also not to be privileged since the

presence of other professionals in the same room would, in all likelihood,

have considerably limited the openness level of each participant.

41

Recruitment and data collection

I approached (through e-mail and/or telephone) approximately 15

professional accountants with auditing experience (mostly in the

province of Québec) to participate in the research. A number of these

individuals were persons of my personal and professional acquaintance. I

ended up interviewing 13 subjects from which three were not at the time

external audit practitioners (see Table 1); the latter however respectively

had significant previous auditing experience at two different Big Four

firms and one medium size firm. According to Cooper & Robson (2006,

p. 416), ―[a]ccountants working in industry have a different sense of their

responsibilities than those working in large firms, who again have

different values than those who work in smaller public offices or those in

the public, voluntary or community sectors (Hastings & Hinings, 1970)‖.

Encouraging the participation of some former auditors was relevant,

given that they may be able to benefit from temporal distance in

reflecting on their audit firm experiences. Life experiences in smaller

firms may also be significantly different from those in larger firms.

I had the privilege to interview men and women of different experience

levels in auditing. From the 13 subjects, eight had their audit experience

within three of the Big Four firms and five from four different medium

size and small audit firms. Seven of the interviewees were at partner

level. With regard to the three subjects who were not practitioners within

audit firms at the time of the interviews, they respectively have 3, 12, and

14 years of auditing experience. The audit experience level of the other

ten interviewees is high, varying from eight to 31 years. As we can

realize the subjects with whom I had the opportunity of exchanging

through these 13 interviews are very well experienced professionals who

had a lot to say on auditing, business and the relationship between the

two. In fact the average number of years of experience accumulated by

the subjects who participated to the research, for general business

42

experience and for specific auditing experience, is respectively 20.9 years

and 16.8 years.

I began each interview by describing the objective of the research and by

introducing an informed consent form (see Appendix 1, in French),

which both the interviewer and interviewee needed to sign. The academic

institution through which I proceed for the current study has established

rules that I have to respect when approaching human subjects through my

research project. These rules imply that before approaching any human

subjects, I previously needed to obtain the approval of an ethics

committee to which I had to submit in-depth documentation of my

research method and goals. Through this documentation, one of the

things I had to explain was specifically how the data was going to be

cautiously manipulated throughout the project and after. I obtained the

approval from the ethics committee on June 29th 2009. I could only then

start approaching potential interviewees for the data collection process

that went on until the beginning of December 2009.

I asked interviewees for permission to tape the interview, while

emphasizing that complete anonymity would be provided to them and

their current employing organization. Full transcripts were made for each

of the interviews. Participants were told that they would have the

opportunity to subsequently verify the accuracy of the transcript and add

changes that they feel might be needed to make them comfortable with

what they said during the interview. Only three out of the thirteen

subjects brought changes to the transcripts; all of these changes were

minor and had no significant effect on the analysis of the collected data.

Several steps were taken to protect the identity of interviewees. First, I do

not disclose office identification. Second, in the text I do not link

interview excerpts with the corresponding individuals. Instead I use the

following categories when defining sources of quotes: active/former,

43

partner/senior manager/manager. These categories refer to the

interviewee‘s status at the time of the interview.

The interviews were held in semi-structured mode and in most cases at

the working premises of the interviewees. As mentioned by Gendron

(2002, p. 668):

[I]nterviews, […] are recognized as particularly effective

when the researcher is interested in in-depth responses from a

relatively small number of interviewees (Palys, 1992, p. 166).

The interviews were semi-structured to allow interviewees to

express themselves according to their own systems of

meaning (Deslauriers, 1991, p. 36).

The length of verbal interviews ranges from 45 to 100 minutes through

which diverse themes related to commercialization and control were

discussed. After having settled the administrative part of the interviews, I

presented to the individuals a list of questions that would help guide the

discussion (see Appendix 2, in French); I did not necessarily follow the

sequence in which the questions are listed.

Specifically, the interviewee was first questioned on her/his professional

experiences. Afterwards, I was interested in knowing their general

perception of the market dynamic for auditing services, and if their

perception had changed in the post-Enron era. I also asked about their

general perception of the competition level between firms with regard to

business proposals for audit engagements, and if they thought

competitive rivalry is a good thing in the financial audit domain. In

particular, I wanted to hear the subjects express themselves towards their

audit firms‘ governance and control system (including promotion

mechanisms), especially their views on the extent to which

commercialism is adequately controlled within their firm. Participants

44

were also questioned on sources of commercialism (whether the

pressures engendered by competitive rivalry are stronger than the internal

pressures within the firms in trying to attain good financial results on the

audit engagements), the low-balling approach, and regulation which

seeks to control commercialism.

Method of analysis

I used a flexible analysis method and started by a general categorization

of the statements gathered. As mentioned by Miles and Huberman (1984,

p. 22):

From the beginning of data collection, the qualitative analyst

is beginning to decide what things mean, is noting

regularities, patterns, explanations, possible configurations,

causal flows, and propositions. The competent researcher

holds these conclusions lightly, maintaining openness and

skepticism, but the conclusions are still there, inchoate and

vague at first, then increasingly explicit and grounded.

Patton (1990, p. 372) added:

The problem is that […] there are no absolute rules except to

do the very best with your full intellect to fairly represent the

data and communicate what the data reveal given the purpose

of the study. [...] However analysis is done, analysts have an

obligation to monitor and report their own analytical

procedures and processes as fully and truthfully as possible.

I did not use any particular program or tool to proceed with the

categorization of the comments read through the transcripts. In fact, I

first proceeded in identifying general themes of discussion that were

emerging from the interviews. I identified 13 different themes:

45

Competition between audit firms

Business development in auditing

Making audit engagements profitable

Pressures from the clients

Distinguishing the Big Four from the other firms

Distinguishing publicly owned clients from the other clients

Distinguishing professional auditors from the other professions

Low balling approach

Necessary evil

Mysterious role of auditing

Auditing standards

Ascension in the audit firm

Possible solutions

I utilized an iterative process to identify these 13 themes through multiple

and extensive reading of the transcripts. Practically speaking, I created a

file for each theme identified and I proceeded to in-depth readings of the

transcripts for each interviewee from which I copy-pasted each relevant

passage relating to the selected themes in the created corresponding file. I

was aiming to gather opinions that went in the same direction to advance

identification of general patterns on the issue by the interviewed

practitioners. I was keeping in mind through all this analysis process my

ultimate goal. My goal is to appreciate, from the subjects‘ points of view,

the extent of commercialistic influence in the post-Enron era.

Through advancement of the analysis, I ended up narrowing down the 13

themes into two main topics: pressures ensuing from the auditors‘ desire

of being perceived as commercially effective and pressures ensuing from

46

the auditor‘s desire of privileging the clients and remaining competitive

in the market.

While the gist of my analysis aims to identify indications of

commercialistic influence, I nonetheless sought to take into account ideas

expressed which opposed my working assumption – and the analysis

chapters below will present some evidence on the matter. Right from the

start, I was also aware of a potential bias on the part of interviewees. As

mentioned earlier, most of the participants were auditors at the time of

their interview. Oftentimes they presented confident views of the

profession and a profound belief that commercialism is currently under

control in accounting firms. Importantly, I interpreted such statements as

frontstage representations – unless some convincing evidence or

anecdote is provided by the interviewee. I often recognized through the

course of the interviews that many participants actually stated the

common behaviours of auditors as the ones promoted by the codes of

ethics or audit regulators. These statements were communicated in a very

idealistic manner while, on the other hand, when some of these

interviewees were exposing genuine examples, they explicitly

demonstrated how commercialism generated significant risks. It can be

added that three of the subjects were not auditors at the time of the

interviews and thus, their comments were probably free of bias since they

had nothing to lose and were not under the ascendancy of their

accounting firm indoctrinating mechanisms (Gendron and Spira, 2010).

Indeed, I could recognize that former auditors seemed keener in

disclosing some relevant risks emerging from commercialism within

accounting firms‘ audit functions while current auditors were

significantly more reluctant regarding such openness.

47

DATA ANALYSIS

This section is designed to offer a straightforward examination of the

empirical results ensuing from the data regarding the present study. I

would like to remind that my general approach through this research was

to openly discuss the ―business facets‖ of auditing with professional audit

practitioners in order to establish their appreciation towards these facets

in the post-Enron era. The collected data suggests that these ―business

facets‖ currently play an ongoing significant role in the audit setting

within professional accounting firms and, at this point, my goal is to

expose the ground of discussions through which I could reveal such

suggestion. As mentioned earlier, there are mainly two axes of analysis,

the first one principally relates to the pressures ensuing from the auditors‘

desire of being perceived as commercially effective (section 2 below)

while the second axe of analysis will concentrate on the pressures

ensuing from the auditor‘s desire of privileging the clients and remaining

competitive in the market (section 3 below).

1- General aspects

Before developing the core sections of the empirical analysis according

to the two axes identified above, I will briefly introduce how the subjects

of the study very generally appreciated the existence of commercially

driven pressures throughout the profession; at that point I will also define

―pressure‖ in the sense of the present paper. Moreover, I will briefly

show how subjects perceived the importance of commercialism and its

negative effects on the profession and on the protection of the public. I

will then present how regulators have sought to contain these

commercialistic forces; doubt can nonetheless be cast on the extent to

which regulatory mechanisms can indeed fully reach their objectives.

48

Through these topics, I seek to set the stage for the core part of my

analysis.

1.1- Existence of commercial pressures?

―Audit has always been a business‖ (Power, 2003, p. 382) and ―during

the 1980s and 1990s the audit approaches of the large firms changed and

evolved as economics of auditing became more sensitive‖ (Power, 2003,

p. 382). According to Power‘s comments, it would be consistent to

expect that the subjects of the study will corroborate the existence of a

certain commercial pressure throughout the auditing practice. Along this

line of thought, I will present the outcome of a general question that was

asked through the interviews and that helps introduce the empirical

findings. That question was: ―do you find that there is a commercial

pressure evolving around auditing services?‖ Several excerpts expressly

relate to the existence of such mercantile pressures:

Effectively, yes. As I always say, we are in business and we

are in business to make money. (ACTIVE PARTNER,

OCTOBER 2009) 2

[…] Of course in auditing there is an important pressure

linked to the recurrence of the service. […] Of course there is

a pressure on the profitability performance, but it is a

pressure to say like any other [business], that we have to do

better, but never to say not to do what needs to be done.

(ACTIVE PARTNER, OCTOBER 2009)

Absolutely! [...] It‘s always going to be like that [...] it‘s

about the performance rate of the engagement. (ACTIVE

SENIOR MANAGER, OCTOBER 2009)

2 For the data collection of this study, the interviews were held in French, and

therefore, all relevant interviews’ excerpts were translated in English for the purpose of this memoire.

49

It is obvious! […] The process starts from a time budget for

each engagement. […] [E]ffectively it puts a pressure.

(ACTIVE PARTNER, OCTOBER 2009)

There is a pressure to increase the rates [of profitability], it‘s

a structured pressure intended to be pushed down to the staff.

(ACTIVE PARTNER, OCTOBER 2009)

These previous extracts indicate that the logic of commercialism is often

recognized as being matter of fact by professional auditors within

accounting firms. Many statements include expressions such as ―of

course‖, ―absolutely‖, ―it is obvious‖, ―always‖ to characterize the

presence of commercial pressures; these expressions fairly substantiate

how impregnated these pressures are within the audit practitioners.

Furthermore, these expressions potentially reflect the absence of doubt

towards the being of such pressures in the ―business‖ of auditing. These

pressures will furthermore be analyzed throughout the following sections.

Indeed, a major purpose of this study is to evaluate to what extent these

pressures influence auditors‘ behaviours and how do these pressures

manifest themselves through the audit practice in our post-Enron era.

1.2- What is pressure?

What is pressure in the context of professional auditing practice? How is

it manifested, encouraged and controlled? Does it impact the quality or

the profitability of the services? The present study is designed to shed

some light with regard to these questions. Ordinarily, pressure is the

effect of a force applied on something or someone. In our case, pressure

can be understood as a social force applied on the organizations, or a

social or self-generated force applied on the individuals.

50

Very generally speaking, I suggest that a common factor associated to

pressures in profit oriented organization (including accounting firms) is

the aim of getting the job done with the least amount of time; this usually

means using less resources, incurring less costs and therefore, generating

more profits. In fact, ―[e]ver since scientific management guru Frederick

Winslow Taylor started timing assembly-line workers with a stop-watch

in the 1800s, there‘s been a push to work faster‖ (Penttila, 2003 p. 1).

Penttila (2003 p. 1) adds that ―[f]or small companies, the pace of keeping

up with the competition "is pushing very hard on everybody, from

management all the way down," [...] seeing employee complaints over

retention and job satisfaction as a result. [...] [Also,] focusing too much

on pace increases error and turnover rates.‖ At this point, without

explicitly linking the ―pressure‖ topic to auditing practice, Penttila‘s

comments suggest a certain setback regarding the application of

pressures within the working environment in general.

Through this study the aim is to appreciate, from a practitioner‘s point of

view, the description and effects of pressures ensuing from

commercialistic features in the post-Enron audit scene. More specifically

the aim is to investigate, in our post-Enron era, the significance of these

pressures, as well as their evolution towards audit practitioners wanting

to be perceived as profitable within professional accounting firms and

wanting to privilege clients and maintain a decent positioning in the

financial audit market.

1.3- Commercial pressures and its effects

In this section, I will briefly discuss interviewees‘ appreciations of risks

and dysfunctional behaviours possibly emerging from commercialism in

order to set the relevance of the studied topic. I will also suggest that the

general reduction of audit quality articulated through dysfunctional

behaviours in response to mercantile forces is not constrained to the past

51

but remains valid in our post-Enron era. Today‘s auditors are often

confronted to dilemmas and sociological ambivalence situations, in

which trade-offs between cost and quality are centerpiece.

As indicated by a former partner from a small firm:

My worry is that […] as soon as the issue is more financial

than professional, whether we like it or not, there is a risk.

(FORMER PARTNER, NOVEMBER 2009)

I asked how the risk could manifest itself and he replied:

Through the decrease of [work] quality, through the risk that

the auditor lacks of pure independence, and the risk that the

engagement does not undergo the required quality control

stages […]. It is a risk that could exist, and that could not

exist. However, unfortunately, as soon as you try to unite

profitability and internal [quality] control, it is two things that

do not bond together. (FORMER PARTNER, NOVEMBER

2009)

According to the interviewee it is clear that commercialism incurs

potential hazards in the auditing practice. S/he suggests commercial

pressures translating into important risks within the context of audit

engagements. Another former Big Four auditor explained that in the day-

to-day operations pressures often ensue from views imposed by partners:

Well it is like having a 60-hour engagement that has to be

finished in 20 hours without lessening the quality [of the

work]. (FORMER MANAGER, OCTOBER 2009)

52

Interestingly enough, the interviewee substantiates this general comment

through reference to a specific situation he went through, in which he had

to devote an enormous amount of hours in a short period of time to

resolve a problem in an audit engagement:

[I]t took a lot of time and my mood wasn‘t good, because

whether you like it or not, it is your fault. But every

employee is different and that is why I had to come in

starting at 3:00am, because it stressed me, I did not want

anyone to criticize my work. [...] I wanted to reach my targets

and deliver the merchandise without cutting the corners short.

That was me. Others could have said ―ah it‘s ok‖ [...] and

that‘s it. It‘s a tricky situation because at the end you can

look bad [because of all the hours spent] but if you cut the

work short, maybe no one will notice and that‘s it.

(FORMER MANAGER, OCTOBER 2009)

This excerpt is a remarkable example of pressure, which is powerful

enough to motivate the individual to go in at 3:00am. It also indicates

that pressures are sustained differently by each individual; others do not

bother as much with quality in concluding ―ah it‘s ok‖. These previous

interview excerpts suggest that pressures to perform financially can lead

to dysfunctional/neglectful behaviour jeopardizing the protection of the

public. We can therefore observe that ―economic survival, from a short-

term horizon, may push the firm to reduce the time (i.e. cost) spent in

completing an audit‖ (DeAngelo, 1981a, b). Yet quality concerns push in

the opposite direction, driving firms to invest greater amounts of time

(Mautz & Sharaf, 1961; Holmstrom, 1984; McNair 1991).

Speaking of quality, more recently, Coram et al. (2008) have studied the

moral intensity of reduced audit quality (RAQ) acts and they have

concluded that these RAQ acts are deemed unacceptable practices as they

diminish the quality of audit work and increase the likelihood of an

inappropriate audit opinion. These authors maintain that anecdotal and

53

empirical evidence indicates that RAQ behavior does occur, and the audit

profession faces a significant challenge to identify ways to reduce or

eliminate this behavior. As shown below, my analysis suggests the

ongoing continuance of ―dysfunctional behaviour‖ in audit settings –

despite regulatory initiatives and the reputational concerns that large

firms are alleged to have subsequently to the collapse of Arthur

Andersen. These behaviours can, according to some authors, manifest as

under-reporting of chargeable time, shifting of time between clients and

within budget categories, and premature signoff (Kelley & Margheim,

1990; Choo, 1986; Margheim & Pany, 1986; Alderman & Dietrich,

1982; Lightner et al., 1982a, b; Gaertner & Ruhe, 1981). These

dysfunctions, often linked to RAQ acts, are assumed to ensue, at least

partially, from commercial pressures that are often inconsistent with a

professional focus on quality.

As stated by McNair (1991), providing a service for which quality,

except in times of extreme failure, is difficult to measure can create a

dilemma for the professional executing the work (Wilson & Grimlund,

1990; Holstrom, 1984; Allen, 1984b; Mautz & Sharaf, 1961). Indeed as

stated in McNair (1991, p. 637):

Holstrom (1982, 1984) formulates his model in a setting

where there are defined cost and quality tradeoffs [...].

Descriptive of the context of auditing, this cost/quality

tradeoff appears to create an inherent dilemma for the public

accounting firm (Chow et al, 1988).

It seems like a compromise between commercialism (cost reduction) and

professionalism (quality of the work) is required to take action. ―The

question that remains, though, is how this area of compromise, or

judgement, is defined within the organizational boundaries of the audit

firm, and subsequently conveyed to the individual audit staff member‖

54

(McNair, 1991, p. 637). Are they proper compromises (McNair, 1991)?

Through the present empirical analysis, the appreciation of the

professional auditors will try to provide some light on the matter, in

assessing the extent to which individual audit staff is influenced by

commercialism in the post-Enron era, and how. One interviewee stated:

[A]t one point you take a turn, you realize that quality costs

money and that you are no more competitive in comparison

to your environment. Quality is always important but it

cannot be the most important. It has to be considered as a

whole. There has to be cost-benefit analysis according to

your evaluation of the risk. (FORMER SENIOR

MANAGER, OCTOBER 2009)

His statement stresses that professional auditors inevitably are confronted

in making certain compromises related to commercial (or mercantile; or

economic) aspects even in this post-Enron era. Indeed, the excerpt

implies that commercialism can genuinely take over professionalism in

the auditing domain through certain compromises.

As Power (2003, p. 382) specifically stated:

[T]his makes auditing profoundly ambivalent because the

acute compromises that the auditor is forced to make as an

individual are rendered invisible.

Without suggesting any further empirical findings relating to the

sociological ambivalence, it might be relevant to remind the general

concept that underlies the present topic of discussion. If we consider

Power‘s statement and look back at the preceding interview excerpt, we

can picture an invisible compromise internalized by auditors which

55

potentially leads to cost/quality tradeoffs according to their risk

assessment. McNair (1991, p. 644) also said:

Sociological ambivalence [...] denotes the situation where an

individual appears to be pulled in psychologically opposite

directions.

Specifically, ambivalence occurs whenever conflicting signals about

desired behaviour are generated by the organization‘s management

control system (McNair, 1991), such as budgeting or promoting

processes. These two control mechanisms will be presented below as

playing a key role in promoting commercially-driven processes within

accounting firms. McNair also added:

Sociological ambivalence appears to be in an inherent part of

the audit setting, yet, given the fact that this embedded

dilemma is only communicated through informal

mechanisms (e.g. norms of performance and evaluation), the

problem passes from the firm to the individual auditor for

resolution (McNair, 1991, p. 645) [and ultimately, individual

auditors are forced to internalize and resolve this dilemma

through time budgeting and reporting process (Power, 2003,

p. 382)].

An ―ah it is ok‖ attitude can specifically reflect this kind of

internalization. In fact, auditors facing simultaneous professional and

commercial challenges might experience such ambivalences and

conflicting dilemmas that plausibly incur unwanted elements such as

RAQ acts (dysfunctional behaviours) or budget overruns‘ absorptions.

On the one hand, these RAQ acts may not be caught and therefore the

protection of the public is at stake. On the other hand, the budget overrun

may considerably undervalue the important efforts deployed by the

auditor and jeopardize how s/he will be judged in the performance

measurement process. These statements amplify the relevance of

56

studying professional auditors‘ appreciation towards commercial facets

related to the audit practice.

1.4- Regulation and issue cycle

Many regulatory initiatives have been established, in the aftermath of the

collapse of Arthur Andersen, to control and eliminate dysfunctional

behaviour jeopardizing the protection of the public through the audit

practice. Have they improved the situation? Regulatory agencies work to

ensure adequate governance of audit practitioners; in the past decade,

their regulating activities were severely triggered by the financial

debacles. As stated by Charles et al. (2010, p. 18):

In the wake of Enron, WorldCom, and other perceived audit

failures, the Sarbanes-Oxley Act of 2002 and the Public

Company Accounting Oversight Board imposed additional

restrictions on nonaudit services that audit firms can provide

to their public company audit clients. Three of the Big 4

firms sold off their consulting practices between 2000 and

2002. [...] In the years leading up to and during the crisis, the

accounting profession faced a long list of criticisms

including: focusing too much on nonaudit services provided

to audit clients; rewarding partners more for new business

and increased revenues than for quality audits [...].

This excerpt is presented not only to expose some of the regulators‘

work, but also because it shows how the measures adopted by regulators

in order to remedy the problematic situation are intimately linked to some

commercial aspects of accounting firms. In fact, when referring to

regulation restraining the scope of nonaudit services that auditors can

offer to their audit clients, or to add regulation attempting to attenuate the

effects of audit partners‘ new business development on their respective

retribution and performance measurement, the regulator seeks to rein in

the ascendancy of commercialism within accounting firms. When adding

57

new rules regulators and accounting bodies often claim that they seek to

protect the public interest. Commitment to the public interest is

rhetorically paramount, as indicated in the following regulatory

organizations‘ missions and visions:

Canadian Institute of Chartered Accountants: ―Adhering

to high professional and ethical standards is the way the CA

[(Chartered Accountants)] profession fulfills its mandate to

act in the public interest. It is a mandate that has defined us

for over 100 years and one that we take very seriously‖

(CICA, 2010).

The American Institute of Certified Public Accountants

(AICPA) and its predecessors have been the voice of the

accounting profession since 1887. The AICPA prides itself

on its serving the CPA profession and the public interest to

which it is profoundly committed. AICPA members work in

all sectors of the business and financial services profession,

including Public Accounting, Financial Planning, Tax,

Business & Industry, Law, Consulting, Education and

Government. (AICPA, 2010)

Institute of Chartered Accountants of England and

Wales: The Institute is responsible for protecting the public

by ensuring that members maintain the highest standards of

professional conduct and competence. (ICAEW, 2010)

These are the accounting bodies in charge of governing financial auditing

practice in Canada, in the United States and in the United Kingdom. All

three explicitly refer to the public‘s interest or the protection of the public

in their respective visions. The claim of protecting the public also

permeates the discourse of accountancy‘s regulatory overseers. For

instance, the following is found on the website of the Canadian Public

Accountability Board (CPAB):

―CPAB‘s mission is: To contribute to public confidence in

the integrity of financial reporting of public companies in

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Canada by promoting high quality, independent auditing‖

(CPAB, 2010a).

―During its first six years of existence, CPAB has made a

significant contribution to the audit sector in Canada. From a

standing start, it moved quickly to staff up with subject

matter experts and implemented an inspection methodology

which added considerable value to the audit firms of public

reporting issuers. Driven by a culture of integrity,

commitment and collaboration, CPAB has demonstrated an

ability to perform on a major stage and has much to be proud

of‖ (CPAB, 2010b).

We can generally observe that the accounting and regulatory bodies

expose very rigorous and extensive aims in preserving the public‘s

protection in the financial sphere. Moreover, we can also denote that

some of these organizations, as exemplified by CPAB, are proud of their

alleged achievements in strengthening the governance of financial

auditing in the post-Enron era. Are these rhetorical claims well-founded?

Is commercialism actually under control in the field?

In the aftermath of the Enron‘s collapse, accounting bodies and

regulatory organizations have renewed their commitment to protecting

the public through a diversity of claims, new regulation and policy. As

discussed earlier, some of the regulators‘ important changes aimed at

restraining commercial facets in the audit practice. Therefore, the degree

of commercialistic influence in the post-Enron audit practice will, to

some extent, allow the assessment of the regulatory bodies‘ effectiveness

with regard to the changes they wanted to implement in the profession.

Can we consider, in the same way that tax experts find legitimate

loopholes to increase the value of their work, that auditors will be pushed

to find further ways to construct opinions or facades of opinions – which

commonly seek to protect the public – by executing the least work

possible (or the least billable hours possible; or by affecting the less

experienced professionals to the task) in trying to increase the

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profitability of their auditing services? Again at stake is the dilemma

leading to cost/quality tradeoffs and potentially to weakening of public

protection…

Many interviewees stated an interesting point regarding the goals of Big

Four accounting firms: in the first few years following the collapse of

Enron the firms were very interested, at the very least on paper, in

improving the quality of the audit work. That is, they were trying to

enhance the audit procedures and its documentation; they were trying to

increase the quality of the audit opinions. The emphasis on quality

probably ensued from the Enron effect of upsetting the auditor‘s

reputations. Today, these firms have reportedly taken a very different

trajectory that aims to improve efficiency and the economics of audit

engagements. This alteration apparently took place when the economy

was not going well and clients were looking to reduce all costs including

auditing costs. This general appreciation illustrates a significant change

between the Enron event and today. While just after the Enron‘s scandal

the pressures seemed to be directed towards quality (professionalism) of

the work, it tended afterwards to shift towards efficiency and cost

reduction (commercialism). Can we identify a cycle of professional

auditing diligence, in that immediately after scandals professionalism

tends to take the lead and after an uninterrupted unruffled period,

commercialism subtly takes over? This is consistent with ―issue-cycle‖

theory as elaborated by Moore et al. (2006, p. 20):

Accountants did not declare that they wanted to be free to

make as much money as possible by offering as wide a range

of profitable services as possible. Rather, they cloaked their

claims in the ideology of the free market and economic

efficiency, as in a now-famous letter from Kenneth Lay, then

chairman of Enron, to Arthur Levitt, then chairman of the

SEC, explaining why Andersen should be allowed to

continue offering both auditing and consulting services to

Enron. [...] Thus, issue-cycle theory suggests a definition of

prudent long-term political advocacy for interest groups:

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good advocates know where they are in the issue cycle.

These advocates capitalize on opportunities to push hard for

regulatory advantages in benign environments where they

can fly below the radar screens of potential adversaries. Good

advocates also know when it will be difficult to hide under

rhetorical smokescreens and when to back off before

triggering scandal and backlash. Finally, when thinking about

the dynamics of issue cycles, it is critical to consider the

political psychological nature of the most common target of

special interest influence: our legislative system.

This quote indicates how auditors and their regulators might in fact react

at length immediately after a critical pass but that the lessons emerging

from these times of crisis seem to fade away overtime (Architzel, 2009).

Thus, auditors over time ―get back at their business‖ – or should I say,

find the legitimate loopholes – and put aside the critical aspects and the

ongoing enhancements necessary to ensure the satisfactory professional

accomplishment (protection of the public) of their practice. Once again

the suggested pattern of the issue-cycle illustrates the unceasing force of

commercialism that obstinately craves to takeover professionalism.

Up to this point I have discussed that, according to the subjects of this

study, commercialism generally shows a significant influence, and often

a negative one (e.g.: RAQ, etc.), towards the professional audit setting.

Moreover, I have discussed that this influence may have an effect on the

protection of the public which is the regulators‘ main focus and which,

according to my present analysis, remains a current issue that persistently

and dynamically deserves meticulous attention. In the remaining part of

this memoire, I will expose two major mechanisms through which

commercial features exert influence on the audit setting: practitioners‘

desire of being perceived as profitable and practitioners‘ desire of

privileging the clients.

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2- Perceived as profitable

In this section my goal is to expose what the study‘s interviewees

recognize as pressures which act on and stimulate one‘s desire to be

perceived as economically effective. I will first present some features,

identified as ―business aspects‖ as revealed through data analysis, that

illustrate how mercantilism can impact the audit setting. The illustrations

involve certain commercialistic tensions in the field: rapidity vs. risk

management in completing audit engagements, growth of the business

volume vs. profitability of the business, and pricing vs. budget overruns

of audit engagements. I will then examine how firms, according to

interviewees, monitor the profitability level of practitioners through a

few financial indicators: the recuperation rate and the hourly recuperated

fee. I will then expose how interviewees describe the organizational

processes (budgeting, performance measurement) through which these

financial indicators are monitored and therefore, how the articulation of

the pressures is driven within accounting firms. Finally, I will discuss

certain effects, as revealed through the interviews, ensuing from the

firms‘ stimulation of profitability pressures that threaten audit quality.

2.1- Business aspects

How is commercialism experienced in day-to-day audits? As mentioned

by one partner:

The goal is to complete the engagements as rapidly as

possible while respecting our auditing standards and

managing our risk; that is our game. […] So there is like a

balancing effect to manage between these factors. (ACTIVE

PARTNER, OCTOBER 2009)

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In this excerpt the partner underlines two major aspects related to

commercialism in the audit setting: rapidity and risk management. With

regard to rapidity, and as generally argued above by Penttila (2003),

Stettler (1970, p. 430) stated:

[T]he pressures to complete a job within the time estimate

[…] is a significant aspect of public accounting […]. The

pressure is always present and is often severe. Even to the

extent that promotion or professional success will usually

hinge on whether the accountant can work fast enough to

keep within the time estimate.

If an auditor had to invest eight additional hours of work in order to

considerably diminish the audit risk, one can expect that the additional

work will probably get done. On the other hand, if an auditor had to

invest 80 additional hours of work in order to diminish (by a little or by a

lot) the audit risk associated with the engagement, one can potentially

doubt the execution of the additional work, or at least expect the

emergence of a dilemma in executing or not executing the additional

work. Should rapidity or risk containment be favoured?

Another interviewee expressed a tension between growing revenue

versus securing profitability:

[I]f I only operate weakly profitable engagements, surely

there is a problem. Thus, that is the equation to manage

between the growth of business and its profitability. We can

easily triple our revenues; with a weak profitability it does

not mean much. (ACTIVE PARTNER, OCTOBER 2009)

Commercialism is translated as a tension between growth and

profitability. The tension is even apparent upfront, before auditors begin

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to work on audit engagements since the latter are usually offered at fix

prices without previously knowing how much time precisely will have to

be invested in order to complete the job. As specified by another

participant:

It is always difficult to give an exact price [to the client].

Sometimes we have to absorb the costs [...]. It creates a

pressure. (FORMER MANAGER, OCTOBER 2009)

Another subject also explained:

When we […] close the WIP3, the goal is to have a profitable

engagement […]. I often compare [auditing business] to an

auto repair shop where you bring in your car, the mechanics

does the job, it costs $110-120 per hour and when you leave,

the job cost you $120 per hour. Sometimes we are not able to

bill this kind of fee, so we encounter an enormous and

important risk. (ACTIVE PARTNER, OCTOBER 2009)

The analogy of auditing being similar to an auto repair shop is especially

of interest, given that it associates auditing with a business which is

driven by the objective of making money through a mechanistic and

procedural job. The interviewee highlights a distinction between the two,

though, in that audit firms support an additional risk due to the fact that

they are not systematically in a position to bill the totality of their hours

to their clients. Why is that? Are auditing services not as valuable as auto

repairs? At first, the audit proposal contains an estimate of how the firm

plans to complete the engagement. Moreover, in some cases, marketing

strategies such as loss-leading or low-balling may well be deployed by

the firms in order to forcefully gain the audit engagement; these

3 In the accounting jargon the expression ―work in progress‖ (WIP) relates to the

amount of hours (and/or the amount of hours multiplied by the hourly cost (in $))

incurred to complete an engagement. As the WIP increases, in the context of fix audit

contract fee, the profitability decreases.

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strategies come to influence the pricing of the audit and thus, plausibly

represent additional sources of profitability pressure. Marketing

strategies are discussed in the next section. At this point, it is important

to note that auditors commonly aim to complete audit engagements as

quickly as possible no matter the structure of the contract with the client.

Also, it is pertinent to observe that in the above excerpts interviewees do

not juxtapose commercialism to professionalism; some commercialist

feature is opposed to some other commercialistic feature in illustrating

key tensions which underlie day-to-day auditing. This is a significant

indication of the extent to which commercialism is ingrained in the

mindset of practitioners; commercialism is autonomously supported

through a constellation of binary oppositions in which professional

referents are not significantly involved.

2.2- Financial indicators

Firstly, it is important to note that the indicators presented in this paper

do not represent an exhaustive set of measures, but are rather the most

important ones which emerged from the collected data. The goal is to

present financial indicators which, according to interviewees, play a

significant role in the firms‘ monitoring of performance. A subject

explained:

The partners are principally evaluated on 2 or 3 criteria

[based] on the performance rate of the engagement. [...]

[First] the recuperation rate [...] [and] the hourly recuperated

fee [...]. (ACTIVE SENIOR MANAGER, OCTOBER 2009)

These indicators are not new to the audit setting but are relevant to the

present study in order to situate the subjects‘ appreciation of mercantile

features (their significance, their evolution...) in the post-Enron era of

65

audit services. Here is my summarized version of the interviewee‘s

description of the two measures:

RECUPERATION RATE

A staff member works one hour for a client and that staff

member‘s standard billing rate is set at 100$/hour. How much

can I bill the client? If I bill 60$, it would give a 60%

recuperation rate.

HOURLY RECUPERATED FEE

A member of the staff works two hours on an engagement

and that staff member‘s standard billing rate is set at

150$/hour (total revenue should then be 300$ = 2 hours x

150$/hour). However, according to our arrangement with the

client we can only bill 100$ in total and therefore our hourly

recuperated fee is 50$ (100$ of billing / 2 hours billable).

It is important to note that the hourly rate established for an individual

(e.g., staff accountant – 100$, secretary – 90$, senior – 200$, manager –

280$, quality control person – 320$, partner – 375$) implicated in an

audit engagement is an estimate established by each firm‘s budgeting

policies. The estimate usually takes in consideration the remuneration

level, the overhead cost, the experience level, the general qualifications

of the employee and more. Obviously as the employee holds a superior

position in the firm, her/his corresponding hourly rate gains in

importance.

The interviewee who offered these two indicators‘ descriptions, senior

manager in a Big Four, specified that the firm usually aims for a 60-75%

recuperation rate for small businesses. S/he also mentioned that the target

depended on the clients‘ category; for instance, for important publicly

owned companies the firm would accept a lower recuperation rate

because of the significant billing volume or the emerging exposure of the

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firm simply by having their name on the auditor‘s report attached to

intensively-viewed financial statements. On the other hand, regarding the

hourly recuperated fee, the firm would usually aim at 110-115$/hour for

auditing services.

The subject went on explaining how the measures are considered

distinctively in the field through an example:

If my hourly cost is 375$/hour, I work one hour for a client

and […] I bill 115$, my [recuperation] rate in percentage is

very weak [(115$/375$ = 31%)], but in terms of auditing

services, I still billed 115$. (ACTIVE SENIOR MANAGER,

OCTOBER 2009)

In order to strengthen the economics of this engagement, the senior

manager should have affected an employee whose hourly billing rate is

lower.

Through the expression of certain financial measures of auditors‘

performance, commercialism remains a significant force in the post-

Enron era. These measures will tend to translate into pressures to

minimize the time spent to complete an engagement while affecting the

lowest hourly rated employees to the task. Of course, we may be

concerned about the impact of such pressures on audit quality.

2.3- Organizational processes

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Having identified certain key measures of auditor performance which are

used in the field, the goal is now to analyze the organizational processes

through which these indicators are put in place, communicated and

evaluated within accounting firms in the post-Enron era. Two

organizational parameters emerge from the interviews in this respect. In

accordance with Hanlon‘s (1996) study, the present memoire reveals

budgeting and performance measurement as significant mechanisms

deployed by accounting firms in order to communicate relevant

information aiming to encourage employees in attaining the firms‘ goals.

Hanlon (1996, p. 360) states:

As argued, at the centre of these new control mechanisms

within accountancy is profitability. In order to improve one‘s

career one needs to convince one‘s superiors of one‘s

profitability potential. This involves skills which are

increasingly commercial [...].

As described by interviewees:

The process is established from a budget of hours for each

engagement. Then, [we analyze] the work [having to be

done] regarding that budget of hours, we monitor the

overruns according to our estimates and at the end,

necessarily, we compare the final number of hours with the

billing. (ACTIVE PARTNER, OCTOBER 2009)

Yes, of course everybody knows that the more we bill our

time, the better it is. [...] We establish a budget, [...] we look

at our hourly rate, we estimate the time having to be allocated

to the engagement and we try to fit this within the budget.

(ACTIVE PARTNER, NOVEMBER 2009)

These excerpts indicate how the budgeting process is methodically

amalgamated to the auditing process up until the final comparison

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between the initially budgeted and the final figures of the engagement.

We can denote that the budgeting process commonly deployed at the

planning stage of the audit serves to monitor the commercial

effectiveness all through the course of the engagement. Hanlon (1996,

pp. 353-354) also states:

The strongest commercial feature of how accountancy work

is tightly controlled is to be found in the budgeting process.

[...] There is a strong pressure to do the audit with less

resources every year and to come in under budget and make

more profit. [...] Budgets also have an impact upon the

quality of the work and many would say it makes the work

more ‗unprofessional‘.

Hanlon (1996, p. 354) interestingly mentions:

Much of the assessment to become a partner is based upon

commercial issues e.g. ability to relate to clients‘ needs (and

presumably recommend services the firm has to offer which

the client ―should‖ buy); client comments also allow a direct

commercial influence in the sense that the senior‘s

recommendations were based upon sound financial

judgement.

How are these processes articulated in day to day activities within

accounting firms? The following excerpts illustrate how these processes

actually take place:

We always want to do better. We have a lot of information to

establish where we position ourselves with regard to the

recovery [rate] and the chargeable hours in order to compare

to other partners. There is this competitive pressure [...] for

the performance. (ACTIVE PARTNER, NOVEMBER 2009)

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The staff certainly bears a pressure to perform and to be

efficient. Therefore, obviously, when we have meetings [...]

we show them the budget and the fees. [...] We are always

seeking to be more successful and efficient. Naturally, when

we see the hours adding up, there is a pressure [...]. (ACTIVE

PARTNER, NOVEMBER 2009)

[The managers] see the WIP, [they] see the bills, [they] have

to prepare the analysis of the WIP [...]. [W]e work jointly [...]

to figure out how to proceed [...] in order to get more

interesting recuperation rates. (ACTIVE PARTNER,

OCTOBER 2009)

[O]f course when comes the time to prepare the billing for an

engagement, you will feel it if you‘re not profitable. That is

the goal of reducing costs […], just by taking a day to plan

the engagement; it‘s already a pressure to make sure you fit

in your budget. (ACTIVE SENIOR MANAGER, OCTOBER

2009)

The goal is to reduce the costs [...] there is a pressure to be

profitable, [and] to fit in the budget. Regarding the

[individual] profitability it means respecting the forecasted

amount of hours. (ACTIVE SENIOR MANAGER,

OCTOBER 2009)

Most of these excerpts explicitly characterize these organizational

processes as a significant source of pressure within the audit setting. We

can also notice that a considerable attention seems to be oriented towards

the firm‘s control mechanisms aiming to promote financial

accomplishments. All in all, the previous excerpts illustrate how team

members on audit engagements are collectively involved in the

monitoring process of the economics surrounding auditing engagements.

Partners, in particular, seem to experience a ―competitive pressure‖

arising from the comparison of one another measurements – in partner

meetings or otherwise.

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2.4- Strengthening commercialism through subtle influence

Not all interviewees straightforwardly acknowledged the significance of

the mercantile pressures emerging from organizational processes. In fact,

certain subjects even adopted a defensive discourse in trying to preserve

the validity and the benefits of such performance measurement processes

– claiming that the measurement of audit engagements‘ performance did

not solely depend on financial indicators but that quality oriented features

are also taken into consideration through these processes. Interestingly,

though, these interviewees‘ comments systematically drifted towards the

economics of auditing.

Through the interviews, a question was: does a practitioner within an

accounting firm wish to be considered as a profitable employee? One

interviewee confidently answered:

No, not for me. I don‘t care. Really, I never questioned

myself how much my time generates for the firm. (ACTIVE

SENIOR MANAGER, OCTOBER 2009)

The answer seems to imply that the senior manager is rather impermeable

to commercial pressures identified by most of the other interviewees. Yet

as the discussion continued the same interviewee added:

[O]f course, when things are not going well, I always try to

identify the opportunities to bill as much as possible. It‘s like

at the auto repair shop, the bolts used to do the job have to be

billed [to the customers]; if they give them away to everyone,

at some point, they are going to have to close the shop. It‘s

like a statutory audit mandate, if the [client] is not ready and

the [―overrun‖] is too big to be absorbed at the end, we will

have to [bill the additional hours]. (ACTIVE SENIOR

MANAGER, OCTOBER 2009)

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That same subject also stated:

I do follow-ups with the senior, together we discuss how to

execute the work and finally what I want is a commitment.

Do you think you can finish this by Friday 5:00 pm, by

executing a reasonable amount of hours each day? (ACTIVE

SENIOR MANAGER, OCTOBER 2009)

According to these excerpts, ―optimal‖ profitability arises not only from

maximizing the basic efficiencies in performing the audit tasks, but in

learning which budget overruns are billable, and which are not (McNair,

1991), and also by controlling the amount of hours spent by the staff to

complete an engagement. These are all very-mercantile oriented features!

It can therefore be surmised that the subject‘s sensitivity towards

commercial pressures is not consciously perceived at first, but it shows

up through the instinctive practice of seeking to identify the additional

billing possibilities in order to maximize profitability or the way of

obtaining the senior‘s commitment towards the deadline in

accomplishing the audit work.

Another interviewee is strongly confident that the regulatory bodies are

sufficiently well spanned through the reviewing processes of audit

opinions‘ quality executed by licensed auditors to ensure adequately the

protection of the public. Nevertheless, as it will be presented, the same

interviewee went on describing how mercantile features are also, and

even predominantly, considered through the performance measurement

process. Firstly, the interviewee specifically stated:

[L]et me tell you that every office undergoes [many internal

and external rigorous auditing of their audits] […], it is

obvious that we are monitored. Certainly, when [I] went to

execute that type of work [(auditing of audits)] for [naming

another office of the firm], we could evaluate how the [audit]

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approach was applied; if the office, the partners, the

managers, were taking any risks through the execution of

their work. At the quality level and the [appropriateness] of

the fee […] it is serious because, as I was told, if a partner is

being audited and his account gets a dreadful score in terms

of quality, it would directly influence his career and his

financial retribution as well. I heard that some audit partners

who received bad scores were forced to stop practicing audit

engagements. (ACTIVE SENIOR MANAGER, OCTOBER

2009)

This quote indicates that the organizational performance measurement

process is not exclusively centered on financial and commercial success,

but it also seeks to promote the technical quality of the audits, the

appropriate application of the auditing approach, and the minimization of

the professional risks. As such, the quote does not directly support the

commercial facet of auditing – showing that professionalism is seriously

considered and monitored. The excerpt is relevant to this study since it

shows how the interviewee presented her/his thoughts not only on a

commercialism based speech but also on a professionalism based

approach. I obviously expected such speeches through the interviews; in

fact, I expected that the interviewees would tend to equilibrate their

statements revealing strong mercantile features with some softening

comments like the ones that professional regulators would wish to hear.

To continue with the last excerpt, through the interview, the same

manager also gave a description of commercial aspects considered in the

performance measurement process within her/his employing Big Four

firm.

[…] [T]he seniors [and] the managers will evidently have

profitability factors towards their engagements. They will

have factors related to the development of new clientele that

are [...] very important factors in their evaluation [process].

(ACTIVE SENIOR MANAGER, OCTOBER 2009)

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I then asked:

And definitely there are also factors related to the technical

quality of the work?

The interviewee replied:

Yes, absolutely, but I would say [...] that the financial factors

are quite important; that is what I understand out of it. That is

the pressure that the partners get a lot. (ACTIVE SENIOR

MANAGER, OCTOBER 2009)

In this paper I aim to provide evidence that commercialism is a

significant influential force in auditing practice, even in the post-Eron

era. Accordingly, the preceding interviewee suggests that financial

aspects of the engagements, while coexisting with quality aspects, are

primordial through the evaluation process of the firm‘s partners.

2.5- Effects on working environment and audit approaches

As generally discussed, the ―business aspects‖ promoted within the audit

setting can lead to dysfunctional behaviours which may translate into a

weakening of the audit opinions‘ quality and perhaps jeopardize the

protection of the public. In this section, I discuss two specific effects that

might emerge from these commercialistic pressures within accounting

firms: deterioration of the working environment and altering of the audit

approaches.

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2.5.1- Working environment

With regard to the working environment, the following participant insists

that auditors are generally dedicated to perform quality work in order to

ensure protection of the public. Yet the interviewee is significantly

concerned about the human relations context under which auditing

engagements are carried out:

For public companies, at least at [naming the firm in which

the interviewee practices], forget profitability and quality,

they are two notions that are totally distinguished. […] [I]t

will not impact on the quality of the audit work. It will rather

probably impact on the [working] relationships, the mood;

the atmosphere will be depressing within the audit team,

within the office […] (ACTIVE PARTNER, OCTOBER

2009)

According to this quote, the working environment seems to absorb the

negative effects of the tension between commercialism and

professionalism. Does this necessarily mean, as one may hope, that

professionalism is the leading feature in the field? If we consider that the

financial outcome of an engagement is poor while quality requirements

are attained, and that in turn, the repressed commercialism generates an

after-effect jeopardizing the human relations atmosphere within the firm,

can this still reflect a form of commercialistic ―takeover‖?

In fact, by being pushed to perform financially, the auditors might find

themselves underrated towards the general value of their work if they end

up not attaining the desired financial profitability levels. Quality-oriented

auditors may not feel appreciated and ultimately, they may seek to leave

the accounting firm‘s environment. One interviewee (from McNair‘s

(1991) study) indicated that the practitioners leaving the accounting firms

get ―higher salaries, fewer hours, [...] less stress‖ and so they end up

getting better working conditions. In a more recent context, I questioned

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a senior manager on the effects of commercial pressures put on the audit

staff and the interviewee explained that it translated into:

[F]atigue, [...] frustration, staff leaving the firm. (SENIOR

MANAGER, OCTOBER 2009)

I then asked: does this mean that the firm might lose some skilled staff?

The interviewee swiftly answered:

[Y]es, absolutely, this is actually critical. (SENIOR

MANAGER, OCTOBER 2009)

On the one hand, as indicated by the previous excerpts, the declining

quality of the audit environment might repel qualified auditors from the

audit-practice. On the other hand, I argue that such deterioration might

retain those practitioners who fit best with the commercially-led culture

within today‘s accounting organizations.

2.5.2- Audit approaches

I now suggest, on a more technical basis, beyond the working

environment, that many accounting firms continuously explore how to

amend their audit approaches in responding to commercialism. As

explained by an interviewee:

[T]here are different ways to meet the requirements. Each

firm has its own audit approach. You have all these facets

that need to be fulfilled, but you have one [(firm)] that will

put an hour and say that it is fulfilled while another firm will

put a week to say that it takes a week to meet the

requirement. You have differences in judgements and

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perceptions [...]. I am relatively convinced that it is not all the

firms that put the same efforts and time to bolster quality,

given the impact on profitability [...]. According to what I

heard, at [naming a Big Four firm], some changes were

undertaken recently in order to give more flexibility to the

professional judgement of the auditors. (FORMER SENIOR

MANAGER, OCTOBER 2009)

I then asked:

What was, according to you, the issue that triggered such a

change?

The subject quickly replied:

Profitability. (FORMER SENIOR MANAGER, OCTOBER

2009)

Interestingly, profitability is mentioned as a key motivator in

reinvigorating the extent of individual judgment in the audit process –

which is typically associated with professionalism. Commercialism and

professionalism do not oppose in every respect; sometimes they can push

towards the same direction.

At some point during an interview, one participant was asked: how does

rivalry between firms reflect itself in the auditing business? His first

comment relates to the use of a low balling strategy which will be

discussed in the next section of the analysis. The interviewee also said:

There is also the auditing approach; I find that during the past

years [Name of the partner‘s firm] has focused a lot on the

77

internal execution of the engagements and their

documentation fearing the CPAB4. Now we are focussing

more on the market and we improved, or rather revised, our

auditing approach [...]; we target the risks and apply

procedures, I would not say narrowed, but modified, while

respecting our auditing standards and concepts. It‘s not

complicated, I find that [Name of the partner‘s firm]

standards are heavier than the other firms and now we have

to adjust ourselves to the market because otherwise we are

going to ―get out‖. (ACTIVE PARTNER, OCTOBER 2009)

Interestingly the partner insists on shifts in audit methodologies being

made specifically to address market and business issues rather than

professionalism and quality oriented issues. It is as if the professional

logic is subjugated by the commercial logic; subjugation being seen as

the ―natural‖ aspect through which practically every significant facet of

auditing that has been presented in this memoire has been linked to

commercialism. Are accounting firms today keen on identifying

loopholes that justify less work (or less procedures; or less time invested

in the audit) in order to maximize profitability of audit engagements?

2.6- Conclusion

At this point I have indicated how, in the post-Enron era, practitioners in

audit functions of accounting firms wish to be perceived as economically

effective employees. The general business aspects of auditing (i.e.,

rapidity, efficiency, profitability) monitored by some financial indicators

(i.e., recuperation rate and hourly recuperated fee) which are controlled

and promoted through certain organizational processes (i.e., budgeting

and performance assessment) within accounting organizations contribute

to consolidate the pressures on audit practitioners for being perceived as

economically effective. However, the pressures are not necessarily easy

to deal with; they may engender negative effects, such as deterioration of

the working environment.

4 Canadian Public Accountability Board (CIPAB)

78

3- Privileging the clients

The second facet of the empirical analysis reveals that, beyond

practitioner‘s desire of being perceived as economically effective, audit

clients (auditees) represent another considerable source of pressures in

the post-Enron audit setting. Previous authors have already related the

importance of client care and marketing techniques to the business of

auditing. Humphrey & Moizer (1990) provide evidence that through the

audit planning process the logic of professionalism is re-fashioning as

one of client service. Also according to Power (2003), audit planning

serves (technical), ideological (legitimating) and marketing (selling) roles

simultaneously. My study contributes to the literature in showing that the

client care imperative is still a significant driving source of influence in

the post-Enron era.

With regard to the present study, the interviewed practitioners

systematically signified the importance of pleasing the clients in the audit

process. In this section I specifically aim to present evidence on the

matter. I also aim to show that client retention is not an easy task in the

current financial audit environment. That is due to the perception that

audit services rendered by accountants are negatively seen from the

public‘s point of view and even more deceivingly from practitioners‘

point of view. Finally, the low balling strategy, revealed as one of the

economic tactics deployed in the audit market in order to retain/please

the clients, will be described as an offensive measure from which

dysfunctional behaviour may emerge. I will show that, in contrast to what

many consider, low balling is, regardless of Sarbanes-Oxley Act, in an

evolutionary mode in our post-Enron era.

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3.1- Serving the client as a priority

Firstly I will present how pleasing the auditees is a predominant concern

for auditors – sometimes even above quality of audit work. Accordingly,

many interviewees explicitly describe the importance of making clientele

development and clientele retention a priority through the audit process.

Eisenstaedt (2010, p. 31) recently stated that:

Client retention is the No. 1 issue facing accounting firms

today. Firms are trying to protect their most profitable clients

from the pressures of new business challenges and various

threats that weren‘t even on their radar screens just two years

ago. [...] At the same time, clients continue to become more

sophisticated and demanding. They can easily find lower-cost

providers who promise better service without having to

sacrifice quality or take on more risk. In today‘s business

environment, these are compelling reasons for even the most

loyal or smallest clients to review their relationships with

their accounting, tax and business consulting firms.

The previously quoted author indicates how nowadays client retention

constitutes a significant issue within accounting firms. My findings

corroborate this statement.

It even seems that the client service mantra benefits from the

involvement of certain academics. In particular, Beattie (2009, p. 6)

claims the following:

Ground-breaking research that will reveal what clients really

think about the quality and types of services provided by their

accountants is being undertaken by CCH, publisher of

Accountancy. [...] ―For accountants to grow and prosper in

the current economic climate, it‘s really vital for us to

understand what clients‘ needs and wants are,‖ [...] ―If you

look at other industries... they focus so much time and

attention on client needs, but in accountancy I don‘t think we

do enough of that. We need to understand what it is they are

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buying from us.‖ [... T]he research will help give an insight

into how a client chooses an accountant in the first place.

―We retain clients for quite a long time in the industry but

how much of that is lethargy and how much is loyalty is an

interesting question that we could know more about‖.

On the one hand Cooper & Robson (2006, p. 423), ―claim that the

commercialization of the Big Four went too far [...]‖ and on the other

hand we have Beattie‘s (2009) excerpt arguing that the accounting

industry does not focus enough time and attention on client‘s needs. The

excerpt below shows how quality concerns are ―nice concepts‖ but if you

―want to make money […] you have to serve the client‖ first.

It‘s the same way to sell audit engagements everywhere. For

some years, [the firm] pushed towards quality, quality, and

quality. [They were saying that clients] are not clients, they

are entities; it is not the management, it is the audit

committee; risk management, quality control… All very nice

concepts communicated, but in the long run it does not work.

[…] Today, if you want to make money you have to manage

your limits, but you have to serve the client. [The firm] lost

many clients because of its fussiness towards regulation

while other firms would have more liberal interpretations.

(FORMER SENIOR MANAGER, OCTOBER 2009)

This quote clearly emphasizes the prioritizing of pleasing the auditees

(i.e., protecting the firms‘ commercial interests), and also illustrates one

potential dysfunctional behaviour (i.e., weakening of professionalism by

reducing ―fussiness towards regulation‖) emerging from such

prioritisation. As mentioned by Hanlon (1996, p. 339) more than a

decade ago:

[I]n accountancy the client for auditing services is

increasingly viewed as the company managers rather than the

shareholders, the public, or the state.

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In the same line of thought, other interviewees mentioned the following:

[It] is clear that we are a service provider […]. [G]enerally,

they [the clients] obviously want to reduce their costs. We do

not want our current clients to call for proposals, we

appreciate serving them. [...] But yes, it is clear that the

clients put a pressure, because they can go look in the market

and ask for proposals. (ACTIVE SENIOR MANAGER,

OCTOBER 2009)

[As an auditor] you are a supplier, never forget that, an

auditor is a supplier. Yes, we sell professional services but

we are not alone, we are not an oligopoly, we are not a

monopoly, we swim with other auditors and the clients know

other partners from other firms [...]. (ACTIVE PARTNER,

OCTOBER 2009)

The client has the last word. [...] For sure the client always

wants the cheapest. […] What is your limit? After you can

discuss with the client […]. (FORMER MANAGER,

OCTOBER 2009)

The portrayal of auditors‘ as simple suppliers or service providers, the

―obvious‖ statement that auditees systematically seek to reduce audit

costs, auditees openly calling for proposals in order to change auditors,

the existence of open audit-markets fought between competitors, and

finally, the perception that the ―client has the last word‖ are all

significant indicators of commercialism in today‘s auditing environment.

Besides, another interviewee explained:

[As] an auditor you want to sell your services. [As] an

auditor, most of all, you want to please your client. You do

not always want to be there with your calculator and saying

you will charge that extra. First and foremost, you want to

please! [...] Coming in-between to discuss the billing […] is a

bit taboo. The day that the profession will be able to do that,

we would have enormously progressed. That is why presently

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in our trainings we include an aspect related to all of that. [...]

It makes a significant difference. (ACTIVE PARTNER,

OCTOBER 2009)

Interestingly enough, the quote indicates that the partner‘s medium sized

firm is in the process of adapting the employees‘ training programmes in

order to include clientele retention and business development issues.

Again, pleasing the auditees, and so maintaining interesting financial

results throughout the auditor/auditee relationship, constitutes a major

social referent in the post-Enron era.

Finally, a participant points out how auditors, in trying to please clients,

adopt particularly keen behaviours towards auditees:

[W]hat do you do when the client disagrees with you? [...]

For sure, from one year to another we are all in a seductive

mode to preserve the clients. […] The relationship has to be

rock-solid [...]. (ACTIVE PARTNER, NOVEMBER 2009)

All the statements presented in this section describe the auditor/auditee

business-oriented relationship for which perpetuation is seemingly

revealed by interviewees through this study as a major issue for auditors.

Ultimately, all the commercial pressures described put auditors in a

constant seductive mode towards their auditees in order to keep them

away from the influence of competitors. Is this commercially-oriented

context conducive to protecting the public?

With the eminent concern as to client retention within accounting firms

and with the over-emphasized desire to please the client, and even seduce

it in times of need, it can confidently be argued that the clientele

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management process is a dominant source of influence in the post-Enron

period.

3.2- Commodifying the audit

In their desire to please the clients and to ensure their loyalty, auditors

participate to the commodification of the audit – which tends to be

perceived by a number of auditors and auditees as a ―product‖ which

needs to be valuable in some respects from a managerial perspective. As

mentioned by Hanlon (1996, p. 347):

[S]pecialisms within accountancy have different types of

relationships with clients. The auditors appear as an

expensive ―policing‖ nuisance to the client whereas those in

other areas such as tax are seen as experts bought in by

management to increase profitability. The auditors have tried

to move down this commercial road by presenting the

management with a management letter indicating possible

improvements to the accounting and accountability systems.

This recent phenomenon is carried out at the end of the audit

to make it appear more ―worthwhile‖.

―. . . it (the audit) is very much an

after the event situation. You‘re

constantly hassling people to do

something. An audit is not something

that anybody (not even shareholders

nor the public!) wants but they have

no choice in the matter. They have to

have it [...]‖ (Jane O‘Driscoll, Big Six

Senior).

Furthermore, with regard to the general climate characterizing the audit

as a commodity, a Panel observed that audit senior and manager focus

group participants frequently indicated that ―engagement partners and

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firm leaders treat the audit negatively – as a commodity‖ (POB5, 2000,

99 in Jenkins, Deis, Bedard, and Curtis 2008, p. 46). Accordingly, one of

my interviewees mentioned:

Firstly, we should stop saying [that auditing is a commodity]

inside the firms! […] Yes [the perception] nevertheless

remains [...]. [T]hey [(the clients)] are in the present and the

future while we come in sometimes three months after the

end of the financial period and we analyze the past year.

(ACTIVE PARTNER, NOVEMBER 2009)

This excerpt interestingly suggests that a number of auditors do

participate in the commodification of their services. Along the same

lines, the following excerpt provides a striking illustration of an auditor

who seems to be naturally inclined to unquestioningly accept the view

that auditing is a commodity – whose ―value‖ in the eyes of the clients is

far from being obvious. Interestingly, the value of auditing from a public

interest perspective is not mentioned at all, as if it is not a significant

referent in the interviewee‘s interpretive schemes:

Lawyers might have an advantage because [...] it is an added

value for the client while auditing is a bureaucratic

unnecessary requirement because it is an expense and it

brings no value to society. [...] Being an unnecessary

requirement, the client does not look for a Cadillac; the client

rather looks for something that works, that will not cost too

much in maintenance. (FORMER SENIOR MANAGER,

OCTOBER 2009)

Finally, current partners added the following:

5 Public Oversight Board www.publicoversightboard.org/about.htm

85

So we have to try selling our product, referring to the

auditor‘s report, a commodity, which is exactly the same than

all the other firms regardless of the size. Often what we see

[...] is that for the client there is no added value from that

document. (ACTIVE PARTNER, NOVEMBER 2009)

The market would say: perfect, we have the same [auditor‘s]

report for cheaper. We have the same report, the same

signature, but no one, or almost no one, understands what

auditing actually is. (ACTIVE PARTNER, OCTOBER 2009)

In sum, my analysis reveals that a number of accountants tend to

participate in the commodification of auditing, believing that it ―makes

sense‖ for auditees not to see any ―value‖ in the auditors‘ work and

report. Serving the client is a priority, and many auditors are not likely to

question this priority, accepting the ―validity‖ of the client‘s rhetoric

regarding the commodification of the audit function.

3.3- Low balling

Having discussed accountants‘ aspiration of privileging clientele in order

to preserve financial interests through the auditor/auditee business

relationship in the post-Enron era, I now intend to present some of the

aggressive marketing tactics deployed by auditors who seek to achieve

the challenging goal of retaining and pleasing their auditees. Firstly,

according to my data analysis, the current post-Enron audit market is

highly competitive. Secondly, I will present how competition encourages

a highly aggressive marketing method which seems to be increasingly

popular: the low balling technique.

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3.3.1- Strongly competitive auditing markets

Many interviewees clearly pointed out the fierce degree of competition

existing in the post-Enron audit scene. More specifically, the data of my

research reveals that accounting firms aim to fortify their respective

position in the audit market by soliciting clients which they previously

did not necessarily target. A recent study supports my statement;

Esentaedt (2010, p. 31) mentioned:

Now, larger competitors are going "down market" to find

work, firms are opening new offices outside of their

established geographies, and industry concentration through

mergers and acquisitions is making retaining clients even

more difficult.

Eisenstaedt‘s remark about the larger firms‘ approach was confirmed by

a medium-size firm partner through my study‘s interview process:

[The audit market is] very competitive, very competitive! I

would say that lately what we see is an all around

competition from the Big Four. Usually, we were each a little

bit in our respective markets and so, the Big Four had the

―big‖ companies and our goal was not to become the Big

―Fifth‖, we are very comfortable where we are. [...] [T]he

competition was not primarily between the Big Four and us,

because it was the ―Big Four‖ and they were evidently

always a lot more expensive than us. Lately, we can observe

that even them attempt to penetrate our entrepreneurial non-

public [market] with prices which can really surprise us.

(ACTIVE PARTNER, NOVEMBER 2009)

The partner explicitly points out the aggressiveness of the competition

which is manifested through low prices in call for tenders. The alleged

alteration in the Big Four marketing strategy is seen as a threat for

smaller firms. Interestingly, one Big Four partner claims the opposite, in

that smaller firms were trying to aggressively compete with the Big Four:

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I do not want to denigrate certain firms, but there are the Big

Four firms and there are the other smaller firms that try to

penetrate certain interesting [Big Four] clients. (ACTIVE

PARTNER, OCTOBER 2009)

These quotes lead us to believe that in the current post-Enron auditing

markets, firms seek quite aggressively, through price competition, to gain

as much market share as possible.

In sum, at this point we can say that competition among accounting firms

is, according to the data of this study, strong and dynamic. I next aim to

show how the growing rivalry leads to the adoption of evolved marketing

strategies.

3.3.2- Low balling

In this study, low balling is defined as the strategy by which an

organization offers its services at prices which are inferior to the usual

market level or simply lower than competitors, in order to guarantee

establishment or continuance of a business relationship and thus,

potentially increase the business growth and business value of the

organization. As stated by McNair (1991, p. 637):

Planning to raise these [auditing] fees over time, as well as

capture more lucrative aspects of the client‘s business (e.g.

consulting and tax work), the firms entered into bidding wars

for clients that, today, appear to be making audit services a

―loss leader‖.

88

Low balling is also in line with the commodification phenomenon

described above, in which a number of auditors come to perceive that the

utility of the audit function is quite limited – hence justifying fee

reduction. The issues related to the low balling strategy in the audit world

are not new; in fact, DeAngelo (1981a, b) was one of the first accounting

researchers to point out that competitive pressures were causing large

public accounting firms to ―lowball‖ their initial fee structures to obtain

audit clients. The common goal was to subsequently ―capture more

lucrative aspects of the client‘s business‖ but the Sarbanes-Oxley Act of

2002 (section 201) specifically restrains considerably the scope of

services which auditors can render to their auditees when the latter are

publicly owned companies. The Act‘s list of ―prohibited activities‖

includes general consulting services and therefore, seemingly eliminates

the common visible usefulness of deploying such a low balling strategy.

Nevertheless, this issue remains of interest since low balling is, as the

memoire‘s findings show, an ongoing and evolving scheme deployed by

firms in the current post-Enron auditing context. In fact, many

interviewees have broadly discussed the issue and gave genuine

examples of the deployed strategy. I will present a few of these examples

in order to clarify their respective perception of the low balling concept:

#1 - [W]e were billing $1 000 000 and [naming another

competitor – Big Four firm] decided to bill $500 000.

(ACTIVE SENIOR MANAGER, OCTOBER 2009)

#2 - [I]t is funny just yesterday we were talking about this, it

was an audit that we proposed for $40 000 and [...] [the

competitor] came in with $28 000. Moreover, our $40 000

was already cut. (ACTIVE PARTNER, NOVEMBER 2009)

#3 - We prepared an offer and we learned that there were four

firms participating in the proposal [...]. We were the highest

[bidders], [naming a small firm] I don‘t know their price [...],

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but [naming a medium size firm] were 10% lower than us

and [another Big Four] were 30% lower than [the medium

size firm]. [The latter Big Four] was aiming to gain a client

operating within a [specific industry]. When you prepare a

service proposal you need to have the background and the

experience, and I think they were willing to cut the price in

order to build a reputation and a team of people [able to

answer the needs of such clients...]. [T]hey want to position

the firm in order to gain a maximum of competence for

similar clients in the same industry. (ACTIVE PARTNER,

OCTOBER 2009)

#4 - [The] word going around is that [naming a Big Four

competitor] is cutting the prices on the market, something

that was not done in the past few years. [...] I had to review a

service proposal which we were preparing, and I was

surprised by the [low] price which we were offering [in

response to the other Big Four low balling competitor].

(ACTIVE SENIOR MANAGER, OCTOBER 2009)

#5 - [W]e were asked to prepare a time budget for a certain

client in regard to an audit engagement. [...] We concluded

that it could not be done under $200 000 considering the size

and the complexity. The partner at that time wanted to win

the client and said it was fine to make it for $100 000. The

business was not necessarily going well. Hence you find

yourself with an engagement that has an enormous risk and

an awful profitability rate. [We] were going to recuperate

20% or something like that. That was a bad assessment made

just to win the client. You have big ―egos‖ that will bypass

the system.‖ (FORMER SENIOR MANAGER, OCTOBER

2009)

In revealing these cases the subjects were answering a general question

asking about their common appreciation towards low balling. The first

two cases illustrate the degree of fee reduction involved in low balling.

The third example shows that strategic concerns are thought to relate to

low balling – as some firms seek to establish their presence in certain

niches. The fourth excerpt indicates the dissemination of low balling as

accounting firms get increasingly involved, through isomorphism or

otherwise, in the game. Finally, the fifth example reveals the ability of

90

certain players in allegedly bypassing certain formal controls surrounding

the pricing of the audit fees in call for tenders.

The interviewees also present certain reasons as to why the low balling

strategy is favoured. In particular:

[B]y penetrating with a rebate, we say: go in now and make it

profitable later. I exaggerate, but this is what actually

happens in the market. […] [Y]ou get in with a loss

percentage [...], you accept it and tell yourself that overall, on

the long run, you will gain back. […] [I]t is common practice.

(ACTIVE PARTNER, OCTOBER 2009)

[I]f we think there is potential for specialized services [...]

and the other firm cannot offer it [...] then our firm can accept

the idea of giving up a bit of the audit fee in order to gain

other fees recovered at higher rates. This is a business

strategy. It is similar as being at the drugstore, the ―Chips

Lays‖ are always on sale, [...] that is to get the customer in

and then ―oups‖, on her/his way [to get the chips] the

customer finds the sun lotion, picks up her/his medication.

(ACTIVE SENIOR MANAGER, OCTOBER 2009)

[W]e have a certain leeway. [...] There are strategic audit

engagements which we want to obtain in order to enhance

our [market] positioning [...]. Yet, these are exceptional cases

which we still have to manage intelligently. [...]

Nevertheless, it is obvious that for auditing there is an

important pressure [put by the client] on the invoicing

because of the recurrence of the service, every year you come

back and have an opportunity, so it‘s a bit like a ―loss

leader‖. (ACTIVE PARTNER, OCTOBER 2009)

These previous excerpts indicate the potential of long term profitability,

cross-selling opportunities and strategic marketing positioning as

noteworthy grounds on which accounting firms rely on when adopting

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low balling approaches. Interestingly enough, the third interviewee

paradoxically mentioned the following:

We do not want auditing to be like the bridges, contracts

going to the cheapest bidders. [...] [T]hese bridges collapsed

and they killed people even if engineering standards were

used in building them. [...] Would you [(asking me)] embark

on a rocket that was [...] [built by] the cheapest

subcontractor? Auditing is the people‘s money; it is the

shareholders‘ money. Look at what happened with [naming a

few of the financial scandals] [...]. Hundreds of thousands of

investors have lost their savings of a lifetime, it will ruin their

health and some will die morally because they were

financially ruined. (ACTIVE PARTNER, OCTOBER, 2009)

This certainly seems contradictory. The partner initially stated that the

low balling strategy is acceptable, within a given ―leeway‖, as it serves a

marketing positioning purpose for the firm. Yet on the other hand, the

same interviewee indicates that engagements should not be given to the

lowest bidder since the quality of the work might suffer in such cases

(i.e., bridges collapsing). The partner refers to bridges that had collapsed

in a Canadian province a few years earlier; the construction contracts

regarding these bridges were supposedly given out to the cheapest

bidders. In so doing, the fixing of audit fees appears as a very delicate

endeavour. In the course of an interview with another participant, I asked

about the consequences of low balling strategies:

I think we might get the type of auditor who will arrange to

have no questioning [to the client]. (ACTIVE SENIOR

MANAGER, OCTOBER 2009)

This implies a façade auditor, who seeks to minimize inquiring towards

the auditee‘s business in order to minimize the time spent to complete the

audit and perhaps reduce the degree of audit quality. Another interviewee

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describes in the following excerpt the pressures possibly emerging from

the deployment of low balling tactics:

[O]k, we want to bill a lower fee, how to do it? We had

planned this much time to execute that part of the

engagement; we go ahead and we cut [the hours]. Are there

some audit firms that overlook the quality, I am not ready to

say no, but I know that they are ready to consent lower prices

in order to obtain the client. To execute a publicly owned

company‘s audit engagement brings an open visibility, like

advertising. It is enjoyable to say that we audit this

[important company] [...]. It shows the other smaller clients

that we are well capable of serving these important

companies [...]. (ACTIVE SENIOR MANAGER, OCTOBRE

2009)

Again, audit endeavours are reduced, thereby impacting (potentially) on

audit effectiveness. Audit quality does not weigh very high as compared

to the economic rationales which are invoked in justifying audit firms to

compete on price. Moreover, this last interviewee interestingly indicates

the ongoing potential usefulness of deploying a low balling tactic

towards publicly owned auditees notwithstanding the Sarbanes Oxley

Act. I consider this suggestion as an evolutionary marketing tactic

deployed by certain firms and depreciating the regulatory Act.

My interviews indicate that in response to the aggressive competitiveness

characterizing the auditing market, auditors feel pushed towards the

adoption of a low balling strategy, which may ultimately translate into

some dysfunctional behaviour threatening audit quality. Once again

commercialism seems to exert a dominant influence in post-Enron audit

settings, in stimulating auditors‘ desire of privileging the clients

(auditees).

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Finally, to complete the analysis of the low pricing business development

strategy, I offer the following excerpt reflecting the viewpoint of a

medium size firm partner. S/he mentions:

If we propose an audit engagement to a client which we do

not think, according to its size and goals, will ask for

additional services, I would say that in that case we will not

low ball. It is just not worth it. [...] As a firm, we are

presently in evolution with regard to the low balling strategy.

It was never our approach to deploy low balling. Presently

we are reacting because we realize that we are losing a lot of

potential clients. We know that when we find a Big Four

coming in 30% lower than us [...]; that is considerable. We

would expect that from smaller firms. But now when we see

the Big Four coming in lower, it‘s like nonsense because they

have higher hourly rates and this is considering the fact that

our proposals are already discounted. [...] So obviously they

are ready to make money with other services. [...] The whole

firm has to approve the strategy. That‘s presently our

challenge; all partners, including consulting [and] tax, [have

to agree] because we share all the profits. Consulting will be

doing very good and then we look at auditing business, which

is not going very well, with low recovery rates. We

[currently] have this whole debate. We are just back from a

convention and we were discussing if the clients were the

audit function‘s clients or if they were the firm‘s clients. [...]

Everyone has to agree that when I will do my audit, my

recovery will be [low] because I have to do my audit work, I

am accountable, I may be reviewed. [...] I will not cut the

level of work in attempting to reach a goal that I know is

impossible. [...] Everybody has to agree [...]. Do not come

asking me questions afterwards. Why is it [the engagement‘s

profitability] so low? It‘s the firm‘s strategy; but we are not

yet at this level. We are still accountable, my recovery rates

are examined. I am a partner; when I have to reach 60% and I

realize I‘m getting to 50%, I then question myself: ―Are we

doing too much work?‖ (ACTIVE PARTNER, NOVEMBER

2009)

The partner explains that the medium size firm is presently in evolution

with regard to such a matter and that the firm had to embark on that

evolving path in order to respond to the other firms‘, especially the Big

Four firms‘, aggressive tactics based on low pricing. S/he adds that the

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firm‘s partnership has not yet reached an overall agreement regarding

how to react to a low balling environment: will audit partners be

encouraged or not to reduce the level of work when the audit fee is cut

significantly? Not being at ―this level yet‖ implies that organizational

pressures currently encourage partners to reduce the level of work when

being involved in a low-balling situation. These pressures are important

since the interviewee recognizes that s/he will engage in questioning –

although earlier in the interview s/he is aware of the risks involved in

reducing audit work. The organizational climate which brings the audit

partner to question the amount of work necessary to support the opinion

(―are we doing too much work?‖) is associated to internal accountability

in terms of financial performance towards the other partners; again,

commercialism is sustained through organizational practices.

3.4- Conclusion

I have indicated in this third and last section of the empirical analysis that

in order to respond to what is generally perceived as increasing pressures

ensuing from a high degree of competition in the audit market,

accounting firms increasingly rely on a low pricing strategy in order to

retain (or seduce) auditees. In contrast to what many would assume the

Sarbanes-Oxley Act and its Canadian adaptation did not get rid of such

tactic in the audit industry. In fact, the strategy has evolved to the point

where some smaller firms have to keep up by reluctantly adopting such

method in order to counter the Big Four‘s aggressive marketing

behaviour. In turn, low balling may engender a climate encouraging

auditors to reduce the level of audit work, thereby jeopardizing audit

quality. Interview evidence is presented in this respect.

95

FINAL REMARK

Unfortunately the auditing profession does not seem to learn from its

mistakes. Concerns relating to commercialism in accountancy are

ongoing issues in the current post-Enron era. This was specifically what I

assumed at the beginning of this memoire and I have empirically found

that from practitioners‘ points of view, auditors in their daily endeavours

are now often encouraged to give more weight to ―the business of

auditing‖ while downplaying the role of professional referents. My goal

was precisely to appreciate the practitioners‘ views towards

commercialisation of auditing services within accounting firms. Can I

suggest that auditing practitioners are blinded to the extent of

commercialization surrounding their practice?

As indicated in my memoire the research literature does not offer any

absolute causal linkages between financial debacles (i.e., failures in

protecting the public) and ascending commercialism within accountancy

profession. Nevertheless, Gendron (2002, 2010), Wyatt (2004) and

Toffler (2003) provide evidence which help us realize that

commercialism may have played a significant role in audit collapses.

These studies allow an in-depth examination of Enron-Andersen‘s 2001

failure which certainly underlines the dark side effects of commercialism

in auditing practice. To put the matter under perspective, it is important

to recognize that auditing is not idiosyncratic in being heavily influenced

by commercialization; nonetheless auditing constitutes a field where

commercialization seems to be increasingly developing and

consolidating, despite the occurrence of audit failures which can, in

theory, be interpreted as ensuing from too much commercialization in the

field. The strong influence of commercialism in the field of public

accounting has been pointed out by many authors. What is new is

96

showing that commercialism dominates even in an apparently serious

regulatory context, post-Enron.

Most people normally consider that concerns relating to the protection of

the public would have considerably been resolved in the post-Enron

legislative crusade towards financial markets and auditing profession.

Unfortunately, not only do my interviews indicate otherwise, but

debacles such as that of Lehman Brothers‘ 2008 bankruptcy, just to name

one, provide persuasive evidence that issues surrounding the protection

of the public may be neglected in the profession.

I do not suggest that auditors are the weakest link throughout these

demises within the financial sphere. Nor do I suggest the wrongful doing

of auditors in each of these debacles. I rather suggest that auditors‘ key

purpose as watchdogs of financial markets has not been attained. Having

as chief objective the protection of the public interest, it is not

unreasonable to argue that auditors have in a sense failed in this respect.

Commercialism is not the only factor negatively disturbing the auditing

profession, but it remains one for which the present study sheds some

light on its significance in the post-Enron era.

Nonetheless there is now serious controversy in literature as to what is

currently accountancy‘s main problem to deal with. On the one hand, I

find Eisenstaedt (2010, p. 31) vigorously insisting on client retention as

being the ―No. 1 issue facing accounting firms today‖. He specifies (p.

31):

If a firm wants to retain its best clients, the ones who have

high financial value, are less sensitive to fees, are most likely

to buy multiple services, and are the best source of referrals,

they need to adopt new approaches to nurture client loyalty.

97

Firms only need to look as far as their clients to learn how to

retain their business.

While on the other hand, Sukhraj (2010, p. 12) argues:

Questions are being asked over why it took a whistleblower

to alert auditors at E&Y to the Repo 105 transactions, rather

than the auditors challenging the deals themselves. And if

they hadn‘t done so in this instance, how many other times

did they not do so in issuing other audit opinions? And is this

telling, of their brothers and sisters who carry out similar

functions for the capital markets across the globe? Among

these questions also lies the key concern of the value of the

audit, and indeed its future.

These diverging viewpoints compellingly remind us of the confrontation

between commercialism (i.e., in this case client retention) vs.

professionalism (i.e., in this case the raison d‘être of auditing). I believe

that professionalism has to find its way back in the leader position of the

accountancy profession. Spacek‘s once known glory has to reunite with

accountants; the tiger has to represent the aggressiveness through which

the profession defends its foundations and beliefs by ensuring the

public‘s protection.

98

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APPENDIX & TABLE

105

Appendix 1 – Form of consent

La commercialisation des services de certification offerts par des experts-

comptables en cabinets

Projet approuvé par le Comité d‘éthique de la recherche avec des êtres humains

de l‘Université Laval (no d‘approbation 2009-150), le 29 juin 2009.

Formulaire de consentement

1. Présentation de l’équipe de recherche

Yves Gendron est professeur titulaire à l‘École de comptabilité de

l‘Université Laval. Plusieurs de ses travaux de recherche visent à mieux

comprendre certains aspects fondamentaux de la vie des professionnels

de la comptabilité – que ce soit la prise de décisions des vérificateurs

externes sur le terrain ou encore la façon dont les membres de la

profession comptable ont vécu la chute du cabinet Arthur Andersen. Son

travail académique a été publié dans un large éventail de revues

universitaires telles que Accounting, Organizations and Society,

Contemporary Accounting Research, et Journal of Business Ethics.

Simon Dermarkar est étudiant à la maîtrise en sciences comptables de

l‘Université Laval. Ayant récemment obtenu son titre de comptable agréé

suite à ses études en comptabilité publique à HEC Montréal et œuvrant

pour presque trois ans en tant qu‘un vérificateur au sein d‘une firme

d‘experts-comptables, il s‘est intéressé au processus de

commercialisation des services de certification et aux différents enjeux

qui s‘y rattachent. Veuillez prendre notre que la démarche est

indépendante à ses activités professionnelles et que cette recherche est

réalisée dans le cadre de sa maîtrise en comptabilité à l‘Université Laval.

Avant d’accepter de participer à ce projet de recherche, veuillez prendre

le temps de lire et de comprendre les renseignements qui suivent. Ce

document vous explique le but de ce projet de recherche, ses procédures,

avantages, risques et inconvénients. Nous vous invitons à poser toutes les

questions que vous jugerez utiles à la personne qui vous présente ce

document.

2. Nature de l’étude

La recherche a pour but premier d‘analyser à travers l‘ère post Enron, la

façon dont les professionnels offrant des services de certification

perçoivent le processus de recrutement, de commercialisation et de

rétention de la clientèle en certification. Plus particulièrement, la question

de la rentabilité au sein du cabinet et de la compétitivité entre les

cabinets, sont les idées principales du projet de recherche.

106

3. Déroulement de la participation

Votre implication dans cette recherche consiste à participer à une

entrevue d‘une durée d‘environ une heure, qui portera principalement sur

les éléments suivants :

Éléments d‘information sur votre parcours professionnel.

Votre perception générale de la dynamique du marché des

services de certification que se partagent les cabinets comptables.

Votre appréciation de la compétitivité qui peut exister entre les

vérificateurs dans le processus des offres de services.

Votre avis sur des questions comme les suivantes :

o Les effets de la compétitivité entre les cabinets et les

enjeux qui s‘y rattachent.

o Les différences entre l‘avant et l‘après Enron, en ce qui

concerne la commercialisation au sein des cabinets

comptables.

o La possibilité que certains cabinets adoptent une approche

« low-balling » - offrir des services à prix moindre afin

d‘obtenir le mandat de vérification.

Les risques liés à l‘adoption d‘une telle approche

de recrutement de clientèle à l‘égard de la qualité

des opinions émises par les services de

certification.

o Points forts et faiblesses des normes professionnelles qui

régissent ces processus de commercialisation.

Nous aimerions enregistrer l‘entrevue. Toutefois, si vous n‘êtes pas à

l‘aise avec cette procédure, vous n‘avez qu‘à nous le signaler et nous

n‘enregistrerons pas l‘entrevue. Nous prendrons alors des notes écrites

détaillées.

4. Avantages, risques ou inconvénients possibles liés à votre

participation

Participer à cette recherche vous offre une occasion de réfléchir,

individuellement, aux processus de commercialisation au sein des

cabinets comptables et aux enjeux qui en découlent. De plus, votre

participation permettra d‘approfondir l‘appréciation de la façon dont les

normes professionnelles régissent ce processus de commercialisation en

matière des services de certification. Or, nous connaissons relativement

peu de choses de la façon dont ce processus de commercialisation est

implanté, contrôlé et « vécu » au sein des cabinets d‘expertise comptable.

Il est également possible que nous développions du matériel pédagogique

à partir de certaines facettes des données recueillies par entrevue.

Il est possible que certains extraits de votre entrevue soient intégrés à nos

manuscrits de recherche ou notre matériel pédagogique. Cependant, nous

nous engageons à ce que votre participation à cette étude comporte le

107

moins de risques possible, en protégeant au maximum de nos possibilités

votre anonymat, ainsi que celui de votre organisation.

5. Participation volontaire et droit de retrait

Vous êtes libre de participer à ce projet de recherche. Vous pouvez aussi

mettre fin à votre participation sans conséquence négative ou préjudice et

sans avoir à justifier votre décision. Si vous décidez de mettre fin à votre

participation, il est important d‘en prévenir le chercheur dont les

coordonnées sont incluses dans ce document. Tous les renseignements

personnels vous concernant seront alors détruits.

6. Confidentialité et gestion des données

Les noms des participants ne paraîtront dans aucun rapport. Des

codes alphabétiques seront utilisés en référence à vous ou à votre

organisation.

Seuls les membres de l‘équipe de recherche (c.-à-d. Yves

Gendron et Simon Dermarkar) auront accès aux enregistrements

des entretiens et à leur retranscription.

Une fois les entretiens retranscrits, une copie manuscrite vous

sera envoyée. Bien que le courrier électronique ne puisse jamais

être totalement sécuritaire, nous vous enverrons tout de même la

transcription de votre entrevue par courriel, à moins que vous

nous indiquiez une autre modalité de transmission que vous

jugerez plus sécuritaire. Une fois la transcription reçue, vous

serez libre de la modifier, de la rectifier ou d‘y ajouter des

explications, et ce, pendant les six semaines qui suivront la date

de réception de ladite transcription. Au-delà de ce délai, les

chercheurs prendront pour acquis que vous acquiescez à la teneur

de la transcription de votre entrevue.

Si vous le demandez, nous vous enverrons, avant publication, une

copie de tout manuscrit de recherche ou matériel pédagogique qui

sera produit.

Les enregistrements originaux seront détruits un an après la

réalisation des entretiens. Pendant cette période, les

enregistrements originaux seront conservés sur le micro-

ordinateur des membres de l‘équipe. Ces ordinateurs seront

toujours gardés sous clef, normalement dans le bureau respectif

de chacun des membres de l‘équipe. De plus, leur utilisation

nécessite la connaissance d‘un mot de passe connu seulement de

l‘utilisateur.

Les notes manuscrites prises pendant les entretiens seront gardées

sous clef dans le bureau d‘un des membres de l‘équipe de

recherche pendant les deux années suivant la publication du

dernier manuscrit de recherche, après quoi elles seront détruites.

Les transcriptions définitives des entretiens (copie papier) seront

gardées sous clef dans le bureau d‘un des membres de l‘équipe de

recherche pendant une période indéfinie. Une version

électronique de ces transcriptions sera conservée pendant la

108

même période sur un disque dur externe et dont l‘accès sera

soumis à un mot de passe connu des seuls membres de l‘équipe

de recherche. Nous désirons conserver ces données indéfiniment

car elles pourraient être utiles pour des recherches ultérieures,

notamment dans le cadre d‘études historiques ou longitudinales

portant sur l‘évolution des dynamiques au sein des cabinets

d‘expertise comptable. Cependant, les données conservées pour

une utilisation ultérieure seront préalablement dénonimalisées de

manière irréversible. Les données étant rendues dénominalisées, il

n‘y a pas de risque à conserver celles-ci pour un temps indéfini.

7. Renseignements supplémentaires

Si vous avez des questions sur la recherche ou sur les implications de

votre participation, veuillez communiquer avec un des membres de

l‘équipe de recherche:

Yves Gendron, au numéro de téléphone suivant : (418) 656-2131

poste 2431, ou l‘adresse courriel suivante :

yves.gendron@fsa.ulaval.ca

Simon Dermarkar, au numéro de téléphone suivant: (514) 817-

7287, ou l‘adresse courriel suivante: sdermarkar@gmail.com

8. Remerciements

Votre collaboration est précieuse car elle nous permettra de réaliser cette

étude. Nous vous remercions d‘y participer.

9. Signatures

Je soussigné(e) consens librement à participer à la recherche intitulée :

« La commercialisation des services de certification offerts par des experts-

comptables en cabinets ». J‘ai pris connaissance du formulaire et j‘ai

compris le but, la nature, les avantages, les risques et les inconvénients

du projet de recherche. Je suis satisfait(e) des explications, précisions et

réponses que le chercheur m‘a fournies, le cas échéant, quant à ma

participation à ce projet.

___________________________________________________________

Signature du participant, de la participante Date

Une copie de tout manuscrit de recherche sera expédiée aux participants

qui en feront la demande en indiquant l‘adresse où ils aimeraient recevoir

le document, juste après l‘espace prévu pour leur signature. Le premier

manuscrit ne sera pas disponible avant la fin de 2009. Si cette adresse

changeait d’ici cette date, vous êtes invité(e) à informer le chercheur

de la nouvelle adresse où vous souhaitez recevoir ce document.

L‘adresse à laquelle je souhaite recevoir une copie des manuscrits de

recherche est la suivante :

109

___________________________________________________________

__________

___________________________________________________________

___________________________________________________________

__________________

J‘ai expliqué le but, la nature, les avantages, les risques et les

inconvénients du projet de recherche au participant. J‘ai répondu au

meilleur de ma connaissance aux questions posées et j‘ai vérifié la

compréhension du participant.

___________________________________________________________

Signature du chercheur Date

10. Plaintes ou critiques

Pavillon Alphonse-Desjardins, bureau 3320

2325, rue de l‘Université

Université Laval

Québec (Québec) G1V 0A6

Renseignements – Secrétariat : 418 656 - 3081

Télécopieur : (418) 656-3846

Courriel : info@ombudsman.ulaval.ca

110

Projet approuvé par le Comité d‘éthique de la recherche avec des êtres humains

de l‘Université Laval (no d‘approbation 2009-150), le 29 juin 2009.

Appendix 2 – List of Questions

La commercialisation des services de certification

offerts par des experts-comptables en cabinets

Thèmes d’entretien

1. Parcours de l’interviewé et généralités

Quel est votre parcours professionnel?

o Titre professionnel?

Depuis quand faites-vous partie du cabinet X?

Quelle est votre fonction actuelle au sein du cabinet X?

o En quoi consiste-t-elle?

2. Perception et appréciation de la commercialisation des services de

certification

Votre perception générale de la dynamique du marché des

services de certification que se partagent les cabinets comptables.

o Cette dynamique a-t-elle changé depuis l‘affaire Enron?

Comment?

Votre appréciation de la compétitivité qui peut exister entre les

vérificateurs dans le processus des offres de services.

o Croyez-vous que la concurrence est une bonne chose du

point de vue de la profession comptable? Pourquoi?

Croyez-vous qu‘il est pertinent de vouloir contrôler le degré de

commercialisation au sein de la profession comptable? Pourquoi?

Le cabinet comptable peut-il avoir une emprise sur le degré de

commercialisation en son sein? Comment?

3. Opinion et pratiques concrètes

Votre avis sur des questions comme les suivantes :

o Les effets de la compétitivité entre les cabinets et les

enjeux qui s‘y rattachent.

o Est-ce que les pressions découlant de la compétition entre

les différents cabinets sont plus importantes que les

pressions internes visant à atteindre une meilleure

rentabilité?

111

o Les différences entre l‘avant et l‘après Enron, en ce qui

concerne la commercialisation au sein des cabinets

comptables.

La commercialisation vous affecte-t-elle au jour le

jour? Comment?

o La possibilité que certains cabinets adoptent une approche

« low-balling » - offrir des services à prix moindre afin

d‘obtenir le mandat de vérification.

Les risques liés à l‘adoption d‘une telle approche

de recrutement de clientèle à l‘égard de la qualité

des opinions émises par les services de

certification.

o Existe-il une pression qui pousse à vouloir être un

professionnel rentable pour la firme?

Quels effets est-ce que ce type de pression peut

avoir sur les mandats de certification?

Le régime de rémunération des associés est-il

susceptible d‘induire des effets de

commercialisation?

Est-ce que les critères utilisés pour nommer les

nouveaux associés sont basés sur des facteurs liés

à la commercialisation?

Quels mécanismes votre cabinet a-t-il mis en place

pour contrôler le degré de commercialisation au

sein du cabinet? Que pensez-vous de ces

mécanismes?

4. Normes professionnelles qui régissent ces processus de

commercialisation

Points forts et faiblesses des normes professionnelles qui

régissent ces processus de commercialisation.

Y a-t-il amélioration possible au niveau de la surveillance des

processus de commercialisation et rentabilisation des services de

certification ?

Est-ce que la surveillance et la divulgation des niveaux de

rentabilité des vérificateurs pour les dossiers de

vérification des sociétés ouvertes seraient une façon

d‘assurer une transparence et un contrôle sur la qualité des

services offerts?

5. Conséquences (réelles ou perçues)

Quelles sont les conséquences, pour un associé, de ne pas se

conformer aux normes professionnelles et aux politiques

organisationnelles en matière de commercialisation?

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Table 1: Interviewee details

Firm Size Hierarchical Level Experience (in

years)

Big

Four Medium Small Partner

Senior

manager Manager Business Audit

1 Former Former 16 14

2 x x 16 16

3 x x 18 18

4 x x 9 8

5 x x 27 27

6 x x 20 20

7 Former Former 11 3

8 x x 25 9

9 X x 31 31

10 X x 21 17

11 x x 24 21

12 X x 22 22

13 Former Former 32 12