ATELIER DE RECHERCHE Jeudi 9 juin 2005

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1 Doctorat HEC Spécialisation : Information, Comptabilité, Contrôle et Organisation ATELIER DE RECHERCHE Jeudi 9 juin 2005 Contribution du Professeur David J. COOPER University of Alberta, Canada (Co-Rédacteur en Chef de Critical Perspectives Accounting) Professeur responsable du séminaire : Eve CHIAPELLO Ce document ne peut être utilisé, reproduit ou cédé sans autorisation du Groupe HEC

2 SÉLECTION D'ARTICLES : - M. Barrett, D. J. Cooper, K. Jamal, "Globalization and the coordinating of work in multinational audits", Accounting, Organizations and Society, 2005, 30, pp B. Townley, D. J. Cooper, L. Oakes, "Performance measures and the rationalization of orgaizations", Organization Studies, 2003, 24(7), pp A. G. Puxty, H. C. Willmott, D. J. Cooper, T. Lowe, "Modes of regulation in advanced capitalims: locating accountancy in four countries", Accounting, Organizations and Society, 1987, vol. 12, n 3, pp A. M. Preston, D. J. Cooper, D. P. Scarbrough, R. C. Chilton, "Changes in the code of ethics of the U.S. accounting profession, 1917 and 1988: the continual quest for legitimation", Accounting, Organizations and Society, 1995, vol. 20, n 6, pp D. J. Cooper, M. J. Sherer, "The value of corporate accounting reports: arguments for a political econmy of accounting", Accounting, Organizations and Society, 1984, vol. 9, N 3/4, pp D. J. Cooper, "Rationality and investment appraisal", Accounting and Business Research, summer 1975, pp T. Hopper, D. Cooper, T. Lowe, T. Capps, J. Mouritsen, "Management control and worker resistance in the national coal board: financial controls in the labour process" (document disponible uniquement en version papier et à la demande).

3 Accounting, Organizations and Society 30 (2005) Globalization and the coordinating of work in multinational audits Michael Barrett a, David J. Cooper b, *, Karim Jamal b a Judge Institute of Management, University of Cambridge, Trumpington Street, Cambridge CB2 1AG, UK b School of Business, University of Alberta, Edmonton, Alberta, Canada T6G 2R6 Abstract This paper examines how the processes of coordinating a multinational audit impacts, and is effected by, the structuration of globalization. Using a detailed field study of an audit involving multiple locations, we argue that the coordination of work in multinational firms links the local and the global in a dialectical manner. In particular, we analyze the relationship between the global and the local through an examination of two key coordinating mechanisms used by audit firms inter-office instructions and the firm s risk based audit methodology. In so doing, we discuss the local appropriation of global systems, as well as the importance of trust and professional identity in the coordination and management of the multisite audit. Our study suggests two key globalizing tendencies associated with reflexivity in audit the increased risk of litigation and the commercialization of the audit industry. These changes are intimately linked at the work practice level to changes in documentation, new technologies and methodologies, and a diversification in business advisory services requiring new skills and client relationships. We discuss the implications of these changes for the future of auditing, audit work and large audit firms. Ó 2004 Elsevier Ltd. All rights reserved. Introduction Accounting and auditing research has a longstanding interest in internationalization and globalization. This has largely been focused on national systems of financial reporting, their standardization and harmonization, or on studies of the impact of national cultures on the use of management accounting or auditing techniques. We take a different, but we believe important, approach to accounting and globalization by asking the question: how is globalization produced and re-produced in everyday managerial * Corresponding author. Fax: address: (D.J. Cooper). practices? Specifically we examine the inter-relation between coordination of audit work and processes of globalization in a multinational accounting firm. Globalization is not just a process involving nation states, international trade rules, multinational organizations (firms and non-governmental organizations) and transnational institutions, important though these features might be (Annisette & Neu, forthcoming; Arnold & Sikka, 2001; Caramanis, 2002; Catchpowle, Cooper, & Wright, forthcoming). Globalization is a process that also involves detailed everyday activity in the context of diverse local institutions. Attention to how management coordination processes affect the shape and experience of globalization is an important issue for accounting research, particularly when those coordination processes involve /$ - see front matter Ó 2004 Elsevier Ltd. All rights reserved. doi: /j.aos

4 2 M. Barrett et al. / Accounting, Organizations and Society 30 (2005) 1 24 multinational accounting firms and a core product of accounting, namely audit. Much analysis of globalization has been fairly abstract and based on limited systematic evidence, leading to accusations of globalbaloney. Beck argues that, the pill to be used against abstractness, including the abstractness of the global, is examples (2000: 26). Accordingly, in this paper we explore globalization process through a detailed, empirical, analysis of some key work practices (Barley & Kunda, 2001) in global coordination. We are also concerned to link this detailed empirical analysis to wider organizational and social transformations. 1 Specifically, we analyze how a project involving multiple locations (in this case, the audit of a multinational client) is organized and coordinated. In so doing, we discuss some of the impacts of these detailed processes on the audit firm and the individuals who work in it. This paper contributes to an exploration of what globalization means to auditors as managers how it impacts them and affects their identity, decisions and practices. Many people around the world have confidence that the audit product has integrity and legitimacy, even in the face of audit scandals and abuses. The range and diversity of the people involved in its production, the different interests that they may have, and the complex processes needed to produce the service, suggests to us that a credible audit is a considerable management achievement. We thus seek to explain how firm wide systems of coordination of the audit are differentially used and made sense of in different locales, and yet yield an acceptable global product. In this way, our paper builds on the international management literature, for example Bartlett and Ghoshal (1989), particularly its focus on coordination mechanisms (Martinez & Jarillo, 1 There are many examples of accounting research that has linked the specifics of accounting to wider social transformations Burchell, Clubb, Hopwood, Hughes, and Nahapiet (1980, 1985), Tinker, Merino, and Neimark (1982), Berry et al. (1985) and Miller and O Leary (1987) are influential examples. Mainstream organization and management literature has rather belatedly re-discovered the importance of such linking see Stern and Barley, ). We offer a perspective, however, that is informed by social theory rather more than the political and economic understandings that underpin the literature in international financial accounting and management. The focus of social theory is on understanding the processes of globalization and the impacts on nations, communities, corporations and the individual. The emphasis is on interaction, sometimes described by the shorthand of the global local dialectic (Giddens, 1991). The question is whether, and how, globalization, variously defined in terms of the perceived shrinking of the world, the separation of time and space, or the interdependence of major national economies, has simultaneously impacted nations, communities, corporations and the individual. The focus on the impact of globalization addresses the question of whether, and in what ways, globalization has resulted in increasing homogenization and convergence at all levels of society (Guillen, 2001). The particular insight of Giddens has been on emphasizing the structuration of globalization, that is how global tendencies are produced and reproduced through the actions of individuals, how individual actions are informed by local understandings and experiences of globalization, and yet simultaneously affect how globalization subsequently evolves. 2 We concentrate on the firm, professional and individual levels identified by social theory, and leave the community, national and transnational levels to future analysis. Thus, we limit our examination to how a global audit, perceived as satisfactory by the auditors and the client, is produced, and some of the effects on the producer firm and individuals. Our analysis of the structuration of globalization is not intended to celebrate the empirical detail, but to draw out how globalization works, and what some of its implications might be for the management of audit work and the identity of auditors. 2 Note that an examination of globalization processes using our perspective does not necessitate study of many countries or involve what is sometimes referred to as international accounting or management.

5 M. Barrett et al. / Accounting, Organizations and Society 30 (2005) Our research studied the management of a multinational company audit in multiple offices of what was at the time a Big Six 3 accounting firm, which we subsequently refer to as AuditFirm. We examined the technologies and methodologies used to manage a complex, multisite audit. A particular focus of the study was to examine how an accounting firm coordinates work. At the time of our empirical work the then Big Six accounting firms each operated with about seven to eight hundred offices across the world. These firms are concerned to ensure consistency across offices, particularly in relation to major projects, including audits. While these firms have expanded into a wide range of business services, audit work remains a significant element of these firms, provides an important basis for their claims (across all areas of work) to be professional and objective, and is said to fundamentally influence the culture of these organizations (Hanson, 1989). We provide an in-depth examination of audit production across multiple offices in the US and Canada, and between these countries and the lead office in Europe, which manages the worldwide audit. 4 We focus on two key coordinating mechanisms at AuditFirm inter-office instructions and its audit technology, known as REDESIGN. The former reflect the hierarchical nature of an audit involving multiple sites, outlining how the audit is to be consolidated. Inter-office instructions specify, for example, the scope of the audit, what is to be audited, likely critical elements and timelines for major reporting. A series of inter-office instructions cascade through the hierarchy, from the world- wide lead partner, to country engagement partners, and thence down to partners responsible for local subsidiaries within a country. Individual partners at each level use a variety of planning 3 Since the empirical component of the research was completed, mergers have resulted in the Big Six becoming the Big Four. Our descriptions of these firms relate to the time when there were six major firms, but we have no reason to believe the processes analyzed in this paper are dependent on the number of large, multinational accounting/audit firms. 4 We were unable to gain access to study other offices involved in this audit outside of the lead European office and those in North America. tools to determine the audit steps to implement the instructions. REDESIGN is a recent enhancement to the firm s risk based audit technology (which the firm describes as a methodology), which has been rolled out across audit offices worldwide that not only facilitates, but also raises new challenges for, coordinating work. As an integral part of AuditFirm s general strategy, the audit technology seeks to improve the efficiency of audit processes (to enhance the profitability of this business) and to further develop its business services to audit clients. This strategic audit approach provides a re-engineered approach to auditing and focuses on encouraging auditors to identify and provide additional, non-audit services, to the client. These are two prominent examples of the mechanisms used by Big Four firms to ensure the coordination, standardization and control of work not just in auditing, but also in many other aspects of their work. Such mechanisms have enabled them to promote an image of a seamless organization, and this view is reinforced when researchers focus on the formal systems of management, such as organizational structures, strategies, incentive schemes and production systems. There have been few in depth field studies (Power (2003) offers a useful review) that shed light on the detailed work practices of audit. Our study of a large multinational audit where work is done by many auditors, located across multiple locations, and with the engagement partner relying on the work done by other, perhaps remote or even unknown, partners and their local teams suggests that the coherence and effectiveness of the audit is an ongoing, but always problematic, achievement. For example, lack of familiarity and various forms of stereotyping can reduce the confidence that one auditor can place on the work of another, even when the other is a partner in the same firm (Cooper, Brown, Greenwood, & Hinings, 1998). Systems of peer review and inter-office review, as well as fears of litigation, can mitigate the difficulties of coordinating work, but not completely. By examining actual work practices, our field study of audit work supports the argument of Barley and Kunda that significant shifts in the nature of work should coincide with significant changes in the way organizations are

6 4 M. Barrett et al. / Accounting, Organizations and Society 30 (2005) 1 24 structured and in how people experience work. (2001, 77). In particular, we track the inter-connections between globalization of the management of the audit and shifts in the identity of auditors. Thereby, we show that auditors are not passive followers of instructions, but exercise considerable discretion in response to local relationships and risks. Local responses impact the global audit, and affect the ways in which auditors conceive of themselves as professionals, of who is the client and how they identify with the globality of their own firm. The shifts in the nature of work affect how the major accounting firms are structured. Our study suggests an intensification of both globalization and localization. All levels of auditor seem to recognize how local audit work fits into the global, but they also are sensitive and proud of some local audit specificities. This causes some problems for the audit firms themselves. They seek to balance the desire to be responsive to multinational clients, international standard setting and capital markets, and litigation pressures with a wish to allow local autonomy in developing clients and local markets. For local markets, local offices and smaller clients can still be extremely profitable. This causes significant strains within the multinational firms themselves. Audit work is itself changing, beyond the much-hyped technological changes and shifts to a strategic audit approach (Bell, Marrs, Solomon, & Thomas, 1997). Auditors are expected to develop new skills, not only in such obvious dimensions as marketing and business consulting but also in interpersonal skills such as presenting themselves well in face to face interaction and being able to read body language of clients and juniors. Furthermore, managing evidence and documentation is increasingly important. At the same time, the boundaries between auditing and services previously considered to be consulting are increasingly confused (as well as inflected by local traditions and rules), as are the boundaries between professionalism and commercialization. The rest of the paper is organized as follows. The next section outlines the empirical study at AuditFirm and its multinational client, ABC. Our research method, a year long observation of the annual audit cycle, is then outlined. In the following section we discuss those aspects of Giddens work that are central to an analysis of the structuration of globalization. We can then proceed to our analysis of how two mechanisms are used in the coordination and control of the audit, emphasizing the implications for globalization. We conclude by highlighting the usefulness of our theoretical approach in making sense of our case study, and discuss the implications of our findings for auditing, auditors and audit firms, as well as wider processes of globalization. Research methods Field sites The present study involves a Big Four firm we call AuditFirm. We obtained agreement from the Canadian member firm of AuditFirm to conduct a detailed study, in real time, of the audit over a period from July 1996 to September Through the Canadian firm, we also obtained access to the worldwide engagement team and the US audit team. We had full access to the current (and past) audit working papers and files of ABC, AuditFirm s audit client. ABC is a fairly decentralized, multinational manufacturing company operating in eight countries with revenues in 1997 of approximately US $1750 million. ABC s corporate headquarters are in a European country, referred to as Ruritania, 5 and the worldwide engagement partner and controlling audit team of AuditFirm are also based in Ruritania. Country engagement partners report to the worldwide engagement partner, and where there are geographically dispersed operations of ABC (as in the USA and Canada), partners of local offices within each country report to the country engagement partner. Our study focused on the audit of the Canadian and US subsidiaries of ABC, which are consolidated at the North American headquarters, located in the US. In 1995, the North American operations had revenues of about US $600 million, 5 The condition of our access to ABC s working papers was that we maintain the anonymity of the firm.

7 M. Barrett et al. / Accounting, Organizations and Society 30 (2005) somewhat below the revenues of the previous year. The Canadian engagement partner took over this role in 1996, although she was very familiar with ABC, having been manager of this audit before she had become a partner, a few years previously. The worldwide and US engagement partners had been working on the ABC audit for many years. ABC has been involved in a series of mergers and amalgamations within the last twenty years, and during this time has used a number of audit firms as its principal auditor. At the time of our research, AuditFirm were confident about their continuing to act as auditors of ABC, although the audit of some operations of ABC were conducted by other audit firms. The audit we observed is regarded by the Canadian audit team as fairly straightforward and low risk, raising few contentious matters. The Canadian auditors regard the accounting staff in the Canadian subsidiaries of ABC as very competent, and AuditFirm and ABC have a very cooperative relationship. Clearly our study may be of a particularly smooth audit, enabling a straight forward application of the firm s risk based approach to auditing, but as such, this only serves to accentuate key issues about challenges in audit planning and coordination. Both the client and AuditFirm believed the audit went well ; there were no major contentious issues, and the audit went according to plan. Of course, we are unable to determine whether the audit was successful for external stakeholders, and there are certainly public interest concerns about modern audit approaches (Cullinan & Sutton, 2002; Francis, 1994). But there have been no subsequent lawsuits or other controversies for ABC relating to their financial statements in the year under examination. Research process Between July 1996, when we formally obtained access, and January 1997, we spent considerable time interviewing the Canadian audit team in their offices, examining AuditFirm documentation about their audit systems, attending firm training sessions about these systems, obtaining clarifications and interviewing the management of ABC and examining and learning about their financial records and systems. Table 1 provides a chronology of our data collection, including our initial interviews to gain access. In December 1996 and January 1997 we intermittently observed (usually for periods of about three hours at a time) one local Canadian audit team as it audited the files of a number of Canadian subsidiaries of ABC. Conversations between members of the audit team were tape recorded and transcribed, as were our periodic questioning of what the audit staff was doing, and their reasons. These visits also involved brief, but repeated, interviews with the three members of the local audit field staff, and tax and IT specialists from AuditFirm who visited ABC. In February 1997, after most of the local audit work was done on ABC s Canadian subsidiary, one member of the research team spent a week living and working with four members of the Canadian audit team when they were out of town at the client s North American headquarters. A second member of the research team accompanied the lead Canadian partner when she joined the auditors for the last three days of the out of town work. For three days, a specialist tax manager from Canada also joined us, working on some tax issues relating to inter-corporate transfers. While we were accompanying the audit team out of town, we all worked together in the client firm s boardroom. This enabled us to observe interactions between the Canadian audit team, and discuss with them what they were doing, and why. We noted our observations as they occurred, and then developed our analysis after the work-day of the audit team. During this week long period, we interviewed the US engagement partner, the manager responsible for the US audit and two other members of the US audit team. We shared all meals and informal social activities with both the Canadian and US auditors. For both audit teams, their time was spent completing the audit of the Canadian and US subsidiaries, consolidating results for North America and preparing special reports for the worldwide audit team. We also interviewed three senior financial officers of ABC, their chief internal auditor and observed the

8 6 M. Barrett et al. / Accounting, Organizations and Society 30 (2005) 1 24 Table 1 Data collection Date Person/event Length (h) June 1996 Canadian Engagement Partner (2) 1.5 each July 1996 Canadian Engagement Partner and Manager 2.0 September 1996 Canadian Computer Auditor 1.0 October 1996 Canadian Engagement Partner 2.0 December 1996 ABC CFO, Canadian subsidiary Visits to Audit Team at ABC, Canada 3.0, 2.0, 3.5 January Visits to Audit Team at ABC, Canada 2.0, 2.5 AuditFirm Training Workshop 6.0 Canadian Engagement Partner and Manager 1.5 Canadian Engagement Partner 1.0 Canadian Engagement Manager 2.0 Audit Senior, Canada 0.5 Audit Junior, Canada 0.5 Computer Auditor regional specialist (2) 1.5, 1.0 ABC CFO, Canadian subsidiary 1.5 Tax accountant Canadian regional specialist 1.5 February 1997 ABC Controller, North America 1.0 ABC Accounting Director, US subsidiary 1.0 ABC VP Finance, US subsidiary 0.5 ABC Internal Auditor, US subsidiary 1.5 US Engagement Manager (2) 1.5, 1.0 US Engagement Partner 1.0 US Audit Team (combined) 1.0 Observation of closing meeting between US and Canadian Auditors 1.5 and senior ABC Managers April 1997 Canadian Engagement Partner 1.5 AuditFirm Training Workshop 3.5 May 1997 Canadian Audit Partner, Office Canadian Audit Manager, Office Canadian Audit Manager, Office Audit Senior, Canada 0.5 Audit Junior, Canada 0.5 Audit Junior, Canada 0.5 ABC CFO, Canadian subsidiary 1.5 August 1997 Audit Senior, Canada 1.0 Observation of planning meeting of Canadian Audit Team 2.5 Canadian Engagement Partner 1.5 Canadian Engagement Partner and Head of Audit 3.0 September 1997 Worldwide Engagement Partner, Ruritania 4.0 Worldwide Engagement Manager, Ruritania (2) 1.5, 1.5 Canadian Engagement Partner 1.0 formal closing meeting between the North American auditors (the Canadian and US engagement partners and managers) and three members of the North American senior management team of ABC. We continued with regular research visits to the Canadian office and the ABC subsidiary in Canada throughout the period July 1996 September These visits included formal interviews with all members of the Canadian audit team, as well as attendance at formal training sessions about new audit support technology. In May, we visited two other Canadian offices, and interviewed three members of the local teams involved in the ABC audit. In addition, all members of the research team had an extensive interview with the Canadian

9 M. Barrett et al. / Accounting, Organizations and Society 30 (2005) engagement partner and the head of AuditFirm s audit practice in August At that time, we also observed the planning meeting for the following year s audit of ABC, and had a further meeting with ABC s senior Canadian financial officer. Finally, in September 1997, two of the research team visited Ruritania, spending two days at AuditFirm s offices, including four hours with the worldwide engagement partner, a further three with the worldwide senior audit manager, and had access to their working papers for the worldwide ABC audit. Data analysis Together, the interviews, documentary analysis and observations helped us understand the audit methodologies and technologies, and to better understand how AuditFirm is organized and managed. We also had a series of interviews with the accounting staff of ABC in order to better understand its history, how it is organized and the locus of decision making (e.g. around who should be the auditor). Except for one occasion when a partner declined to be recorded, all thirty-seven interviews were tape recorded and transcribed. It was impractical to tape record the days of field observations, but we kept extensive notes. We started our analysis by searching all our transcripts for key words and themes suggested by our theoretical perspectives and research questions. By using an embryonic version of Table 2 as a means to structure our analysis, we provide theoretical generalizability, while remaining committed to our in depth empirical material. We started this project with a concern with the role of space in processes of globalization, the use of technology in planning and control, and the changing nature of professional work and expertise. We were influenced by the ideas of Giddens, who integrates these themes in his broad social analysis of contemporary society (Giddens, 1984, 1990, 1991). Our early interviews were structured around these issues, notably what we now refer to as abstract systems as coordinating mechanisms but as our fieldwork progressed we became more sensitive to issues of the local global dialectic. Issues of reflexivity and identity became more apparent when we observed the auditors at the client, and as a result of some of the later, de-briefing interviews. The researchers periodically met to try to minimize the tendency to find examples in the data that merely confirm our ideas (Silverman, 1985). Indeed, our approach has been to immerse ourselves in the data analysis and to collectively reflect on, and discuss, our observations. As researchers we must remain skeptical about what was said to us, while at the same time remaining tactful so that those we observed had some trust in our competence and good will. By nearly always working in pairs, discussing our impressions about the reliability of what was said to us and developing interpretations of our observations, we were able to sustain our skeptical attitude in data collection. Our involvement inevitably affected the conduct of this audit, but we believe our presence did not materially affect the way they worked or inter-acted. De-briefing interviews with the audit staff in Canada confirm this impression. We have also discussed our Table 2 Key theoretical concepts for understanding globalization as a structuration process Theoretical elements Main themes Local global dialectic The global reproduced in the local Local appropriation of the global Local appropriation feeds into and shapes the global Abstract systems as coordinating mechanisms Reflexivity and identity Abstract systems facilitate standardization across contexts and provide a key coordinating function Coordination mechanisms understood as processes of disembedding Importance of trust, understood as confidence in persons and abstract systems Institutional reflexivity is interrelated with the ongoing construction and reflexivity of identity Local appropriation of abstract systems can both facilitate and undermine their use

10 8 M. Barrett et al. / Accounting, Organizations and Society 30 (2005) 1 24 findings (including earlier versions of this paper) with representatives of the Canadian AuditFirm firm, which led to some modifications. Theoretical approach We draw on Giddens (1990, 1991, 2000) social theory on globalization in analyzing our empirical fieldwork. Giddens emphasizes the importance of the local global dialectic as being fundamental to the process of globalization. He defines the local global dialectic as the oppositional interplay between local involvements and globalizing tendencies. Rather than viewing globalization as involving linear convergence or a unilateral, onedimensional analysis, Giddens (1991) suggests that the local both feeds into and shapes the global, and the global constrains and enables the work done at the local level. Furthermore, he highlights that globalization as a process involves intensification of the interconnections between the globalizing tendencies and the transformation of self-identity. As we show in later sections, this conceptualization of globalization and the local global dialectic is particularly useful in our study of managing a global audit by focusing on the inter-connections between processes of globalization of audit work and transformations of the identity of auditors. Giddens suggests that globalizing tendencies are inherent in the dynamics of modern life and involve the disembedding of social institutions the lifting out of social relations from local contexts and their rearticulation across indefinite tracts of time space (1991: 21). The separation of time and space, which Giddens refers to as time space distanciation, is facilitated by the development of abstract systems, and discussion of these is central to our analysis of the coordination of audit practice. Abstract systems are mechanisms that enable disembedding, separating interaction from the particularities of locales (Giddens, 1991, 20). He further suggests (1991, pp ) that modern institutions are increasingly globalized through mechanisms of administrative power (notably surveillance) and control (including self control). Thus abstract systems encompass much more than formal organizational systems: they include issues of self-control. The idea of self control, first introduced in the accounting literature through Miller and O Leary s discussion of the governable person (1987), also means that systems of management affect the dilemmas of the self (Giddens, 1991). We are all affected by a multitude of abstract systems, and, since these systems are increasingly produced by specialist experts, we can only partially understand their technicalities. These systems thus depend upon trust for their operation, where trust is defined as having faith in the working of systems, despite possessing only limited knowledge of these systems (Giddens, 1989). As we will show, people can have confidence in differing systems at different times and places, so trust has multiple dimensions and emphases, yet some form of trust is crucial in both social and system integration. Social integration refers to social relations in conditions of co-presence, which in contemporary society is augmented by forms of system integration, involving coordination and reciprocity across time and space. Our study demonstrates how concerns about social integration simultaneously contribute and undermine the firm s mechanisms of system integration. Whilst acknowledging the development and spread of abstract systems in modernity, Giddens suggests that the individual, in appropriating these systems, does not necessarily succumb to them; rather there is a genuine transformation of the nature of the personal itself. The self has become a reflexive project in modernity, involving changes in self-actualization and anxiety (for example, about what it means to be an auditor, and what is the nature of audit work). This reflexive project extends to, and connects with, institutional reflexivity, the idea that in modernity people and organizations not only attempt to know themselves, but constantly strive to change as a result of this self-knowledge. Institutional reflexivity affects use of abstract systems such as common audit systems, since these may both be facilitated and undermined by local knowledge and practices. For example, knowledge about the local audit client and an auditor s confidence in local client management can undermine abstract systems such as

11 M. Barrett et al. / Accounting, Organizations and Society 30 (2005) formal instructions from the engagement partner through local appropriation by the auditor. In addition, changes to what constitutes the audit and audit work can create anxiety; the reflexive auditor actively seeks to construct his/her identity in developing new roles and performing new work practices (e.g. consulting on business advisory services in addition to performing traditional audit work). Drawing from the above discussion, Table 2 summarizes some key concepts for understanding globalization the local global dialectic, abstract systems as coordinating mechanisms, reflexivity and identity. In the next two sections we examine the role and use of two abstract systems, namely interoffice instructions and a new risk based audit methodology, REDESIGN, as key aspects of the globalizing process and their interrelation to coordinating of work practices in the accomplishment of a global audit at AuditFirm. In so doing, we also discuss the dilemmas of the auditor, how their self-identity is affected by these systems. Inter-office instructions (Re)producing the global in the local Inter-office instructions are used to coordinate audits that involve multiple partners and offices. Typically, these instructions are produced by the engagement partner, and provide the basic framework for the coordination of work. They enable the expertise of engagement partners and teams to be deployed in multiple places around the world. In this section we focus on how these well-established systems facilitate the coordination of audit work across time and space, which both include opportunities for local reappropriation of the global, and the shaping of the local by the global influencing work done at the local level. The audit team in Ruritania specify in the instructions the scope (full or limited review) of the audit examination at each subsidiary and the level of materiality for global consolidation. The engagement office in Ruritania also requested to be informed about a range of issues, notably critical internal control points, significant budget overruns, and further details of reportable items and the report packages. As the Canadian manager put it: Our office in Ruritania would coordinate the audit at a world wide level and they would issue instructions to all the AuditFirm offices around the world that will be helping out in the audit. What we actually do is we issue a report to our office in Ruritania saying what we have audited and they specify the levels they want us to report, problems and issues and things. We clear to them and they issue a report on... the world-wide financial statements, of the ABC group. Notice that the inter-office memos are a system of instructions that cascade through the organization. The national engagement partners specify to each office within their own national partnership what work should be done, with a budget for the amount of hours to be spent on the job. The Canadian lead partner elaborated the material required from local offices: You would detail things such as when we expect them to report, what we want the report to look at, what we expect the memorandum to include, what the fees you are allowed, what we want to see with respect to internal control points. The codification and standardization of instructions is an integral part of the management of the audit, allowing for a stretching of these audit practices across the different offices, which are dispersed in time and space. The global audit can be seen as a highly integrated process, driven by the worldwide audit team in Ruritania. In this view, the ultimate client is the headquarters of ABC in Ruritania, and AuditFirm conducts an audit on the consolidated accounts of that corporation, consistent with the legal requirements in Ruritania, and consistent with the reporting requirements of the Ruritania stock market (where ABC s shares are traded) and other regulatory agencies. Accordingly, the inter-office instructions stretch the regulatory

12 10 M. Barrett et al. / Accounting, Organizations and Society 30 (2005) 1 24 conditions of Ruritania to the offices of North American auditors. They also stretch the negotiations between the Ruritanian engagement team and the management of ABC about the scope of work and deadlines for reporting. In short, the instructions communicate to offices spread throughout the world how the engagement team wants the audit conducted and what financial issues they want examined. However, the North American auditors appeared to have little appreciation of the differing institutional structures in Ruritania, structures that meant that the nature of the Ruritanian governance and reporting requirements were quite different than those faced by a North American multinational. It was only when we visited the worldwide engagement partner that we realized the dramatic differences in the institutional structures that affected his inter-office instructions to the rest of the world. The worldwide engagement partner defined his role as follows:... We have got 3, no 4, reporting lines. 1. the shareholders of ABC, 2. the majority shareholder... (3) the regulatory authority [in Ruritania] and then 4. we have this special situation... where the auditor has to report to the works councils. These global requirements, reflecting the local in Ruritania, are amplified through the inter-office instructions to affect the local in North America. Note that knowledge of these institutional differences is unnecessary at least for routine work the instructions guide the work. However, as we will see below, the local appropriation of these instructions also differs within and between the Canadian and US audit teams. AuditFirm, who had recently reinforced the power of the worldwide engagement partner, has strengthened these inter-office instructions as planning mechanisms. These partners now set rates, determine who should work on the job and specify how the work should be done (Greenwood, Rose, Brown, Cooper, & Hinings, 1999). The physical or symbolic distance from the head office of the client and the office of the engagement partner affects the discretion of the auditor. 6 Indeed the increased authority of the engagement partner means that the worldwide lead partner can accumulate more profit to his or her office, and similarly the country engagement partner tends to receive more profit than those partners who are doing work away from the centre: as one partner in a local office put it, you are at the end of the feeding chain. Toffler (2003) makes much the same point in her discussion of how profit sharing worked at Arthur Andersen. The importance of the inter-office instructions and the authority of engagement partners may lead to premature conclusions that reinforces a view of the organization as increasingly global. We explore the globalization process more fully, however, showing how the abstract, but detailed, set of instructions trickle down from the worldwide engagement partner to each of the national lead partners, and how these instructions are made sense of, and acted on. We thereby identify the differential understandings and experiences of the global. Fundamentally, despite the specifications in the inter-office instructions, the North American auditors viewed the focus of their work quite differently from the perspective of the worldwide engagement team in Ruritania. Moreover, the Canadian and US auditors had significantly different views about the authority of the inter-office instructions and how the audit work should be carried out. We explore these differences to demonstrate the opportunities for local appropriation of global instructions. There is an important point that needs to be stressed at the outset of our analysis. The local appropriation of the system of inter-office instructions, while producing some variability across space, also aids in the reproduction of these global systems: The structuring properties allow the binding of time space in social systems, the properties which make it possible for discernibly similar social practices to 6 Of course, this statement should not be read as suggesting a mechanical rule whereby discretion is a function of distance. Rather, it reflects a tendency related to those who are at the centre and those who see themselves, or are seen by those at the centre, as periphery.

13 M. Barrett et al. / Accounting, Organizations and Society 30 (2005) exist across varying spans of time and space and which lend them systemic form (Giddens, 1984, p. 17). At the same time, structural constraints do not operate independently of the motives and reasons agents have for what they do. (p. 181). Local agents appropriate and shape the global systems, but in so doing, reproduce the basic similarity of their work. The local appropriation alters the specifics of the instructions and affects the nature and volume of work that the local auditor does, but the audit continues as the global engagement team intended. However, local actions can alter the global team s understanding and instructions for audits in the future, and perhaps even in other places where the audit takes place. We learned that alterations to the conduct of the audit were based on the North Americans audit experiences, which were communicated to the worldwide engagement team, and thence to the other national engagement teams. The worldwide engagement partner informed us that the ability of the North American audit teams to feed into and shape the global reflects their higher status compared to those in other countries. Local appropriation of the global: the case of materiality levels One of the major elements in the inter-office instructions specifies the materiality levels for the audit, levels which have implications for the scope of the work. Materiality levels indicate to the local auditors the amount and type of work needed to conduct the audit. The determination of a materiality level is crucial to an auditor in terms of balancing the risk of failing to detect a major error in the client s financial records versus doing so much work that the audit is unprofitable. Audit- Firm s Inter-Office Examination memo of 1996 set a level of materiality for group reporting purposes for items affecting net income of 5% of reported profit before taxes with a minimum of [local Ruritanian currency, then approximately US $600,000]. This level was their judgment of what they needed to assure themselves that the consolidated financial statements were materially free from error. The US and Canadian auditors used this level of materiality for reporting to Ruritania. But, as the materiality guidelines in the AuditFirm Examination Instructions allow, the Canadian auditors chose a level of materiality for Canadian statutory accounts (CAN$ 3 million) which was nearly four times the level requested by Ruritania. This higher level represented the Canadian lead partner s assessment of the relatively lower risk of the Canadian subsidiaries. The Canadian engagement partner saw minimal risk in the audit, and the work done in Canada was increasingly different from the global requirements specified in the inter-office instructions. The Canadian partner reflected on the changes she had made: This year our instructions are pretty much the same. I changed some when I took the audit over and I wanted to personalize it? we changed the materiality [at the individual account level] and bumped it significantly and a few things like that, but other than that they are essentially the same. (Emphasis added) Her personalization of these instructions reproduces the local autonomy of partners in AuditFirm. It is also made possible by the reputation of Canada and AuditFirm s internal control system as having a mature, well developed and reliable set of audit institutions and practices. The world-wide engagement in Ruritania could trust the judgment of the Canadian auditor: I know they are applying AuditFirm standards, they are going through quality control processes on a regular basis. So, I expect the quality is there on the assignment. (World wide engagement partner) These changes were incorporated into the audit instructions and subsequently sent out by the Canadian managing office to the branch offices participating in the audit. The branch partner remarked: We received the inter office instructions. I had virtually no involvement in planning as the scope of work is predetermined. This partner seems not to feel close enough to affect the overall planning of the Canadian audit, but, in a manner equivalent to discretion of the Canadian lead partner in relation to Ruritania, the branch

14 12 M. Barrett et al. / Accounting, Organizations and Society 30 (2005) 1 24 partner does determine the level of detailed audit work in relation to his/her local client. Two points about materiality levels in interoffice instructions need emphasizing. First, the Canadians have the discretion, the local autonomy, to make this decision. All they must do is provide a report to Ruritania indicating that, in their judgment, the financial statements of the Canadian subsidiaries are presented fairly in all material respects. The lead Canadian partner discussed her approach as follows: Ruritania gives some guidance, but at the end of the day we are giving a GAAP opinion. What Ruritania asks us to do is to report to them on a given levels of materiality. That s within the range of the scope that we do our work, but for our Canadian GAAP statements we are guided by our Canadian materiality guidelines, our auditing guidelines. Second, that materiality levels significantly affect the amount of work that needs to be done on the audit. If an auditor is checking a small subsidiary, then a higher material level may result in what is known as a desk review, checking the reasonableness of the client s statements by comparing key ratios with previous years and with the auditor s knowledge of similar types of business. So, increasing materiality levels, drives the amount of hours on the audit down. As a manager in one of the branch offices of the Canadian audit commented, I regard the materiality level as so high on this job that it s almost a review job. The dialectic between abstract systems and local identities Auditor appropriation of abstract systems such as the materiality levels specified in the inter-office instructions was further influenced by the client relationships developed between local engagement partners and the managers of client subsidiaries. For example, the Canadian audit team consistently talked about their client being the local ABC management, even though these managers had no involvement in decisions about the scope of the audit, or even which firm should be the auditor. This is not surprising since the AuditFirm partner leading the audit in each country would negotiate the fees and work to be done with the management of their respective subsidiary of ABC. As a member of the Canadian team put it to us: It s [the CFO of the local ABC plant] who we take to the hockey game. He s my client. To reinforce the point, the Canadian auditors pointed out that they have never met the auditors from Ruritania. Maintaining relations with the local managers of ABC was much more salient for the Canadian auditors. The local client managers shared a sense of place with the Canadian audit team, a pride in the local community, their pre-occupations, and a concern with local issues. The auditors resented many of the demands coming from Ruritania, or regarded them with passive indifference: Ruritania, is I guess, an internal client we have got to keep them happy but it is the external client that s critical. The way we view the inter office correspondence is you have got to meet their needs. Generally you try to satisfy that within the GAAS audit work if they ask you to go over and above, then you will do it. I am not going to take their instructions and build my whole audit around that. I will build my own audit and look to what they want, and see if there is anything extra. (Canadian engagement partner) Similar sentiments were expressed by the (relatively new) US audit manager, who also felt distant from Ruritania: [Our] relationship with Ruritania is nonexistent. All they do is send us a package. [The US Partner in charge] talked to [the Worldwide engagement partner] a bit at the beginning of But they have no contact with me. (US audit manager) In general, however, the US firm viewed Ruritania as their client and conducted their audit around the inter-office instructions. This contrasted with the Canadian partner s approach, as she explained:

15 M. Barrett et al. / Accounting, Organizations and Society 30 (2005) I think there are some differences between the Canadian and the US firm. I think at the end of the day we get the same product out, but we might go about it a little bit differently. Why they are more focused on Ruritania, I have no idea. There were quite different risk exposures facing the two subsidiaries of ABC. The US subsidiary operates in a more litigious environment, was making a loss, and the US office responsible for the audit had changed in the previous year. It is thus unsurprising that the US audit partner followed Ruritania s instructions more precisely than the Canadian. Another way the local feeds into the global audit is how the different national audit teams identified with their own multinational. Both audit teams lamented that the world wide engagement partner had not visited them, and they speculated frequently about the progress of the audit in other jurisdictions around the world. When the two national audit teams from North Americans spent social time together (in the bar or at mealtimes), the main topics of conversation were comparative charge out rates (and salary levels of people at equivalent levels in the two offices), and the direction and future of Audit- Firm. This is hardly surprising, but physical co-presence highlighted for these auditors their common anxieties, how little they knew about AuditFirm, but also how they shared a common, global fate, both in relation to the future of AuditFirm but also about their future involvement in the ABC audit. The global is inflected, or given meaning, by the specificities of the local. 7 This feeling of distance worked its way throughout AuditFirm. A partner in one of the offices, which did a significant amount of work for 7 Beck (2000) provides a vivid example of this process. Food from a specific region or nation say Mexican food is now available almost throughout the world, and there are some fairly universal expectations about the menu. But what Mexican food means in Mexico, may be quite different from its nature and meaning in London, Dallas, Amsterdam, Hong Kong, or Mexico City. Mexican food is both the same and quite different around the world. the Canadian audit, commented that they were not close enough to influence the scope or budget of the work; they just accepted the instructions from the Canadian lead partner. Yet, for them too, the client was the local plant management of ABC, not the Canadian lead audit partner, to whom they reported. We suspect that local appropriation of inter-office instructions occurred at this level too. It is worth concluding this section by reemphasizing that these local decisions feed into the global statements, and that the global instructions constrain and enable the work done at the local level. This is what Giddens refers to as the dialectic of the global local (1991) and when Beck argues that the local must be understood as an aspect of the global (2000, p. 48). Formal systems are an integral part of an audit, enabling the necessary centralization and standardization of audit work. While these technologies seek to provide coordination, standardization and control, our study also highlights the role of partner autonomy, local understandings of risk exposures and client relationships. The reappropriation by the local partner suggests that whilst abstract systems involve a disembedding of social and work practices across time and space, there is still significant attention to local work practices, legal traditions and knowledge both in how these systems are appropriated and how they come to be re-embedded in different local contexts. Specifically, the global engagement partner may use these systems quite differently from national lead engagement partners, who may use them quite differently from those at the branch level. For example, we noted that whilst national lead partners actively reappropriates these systems, the branch offices, which were not only distant in space but also remote in the management of the audit, had lower levels of reappropriation. Furthermore, the global local dialectic suggests, that the use of these systems is always constrained and enabled by actions and events occurring at these multiple interconnected levels. Thus, there are often different forms of reappropriation occurring at different rates in each of the participant offices. Such differences feed into the complexity and challenge of managing across offices, particularly in terms of effective co-ordination.

16 14 M. Barrett et al. / Accounting, Organizations and Society 30 (2005) 1 24 Audit methodology: REDESIGN In this section, we examine a quite different but equally important abstract system, REDESIGN. It was the most recent manifestation of the firm s risk based audit methodology which was rolled out across their national offices worldwide and facilitated the coordinating of work for the accomplishment of the ABC audit (descriptions of such methodologies can be found in Bell et al. (1997), Winograd, Gerson, & Berlin (2000) and Eilifsen, Knechel, & Wallage (2001)). We explore REDE- SIGN as an integral mechanism for coordinating audit work across offices, and how this methodology affects trust within AuditFirm. REDESIGN was explicitly described in AuditFirm training materials as re-engineering the audit. This re-engineering has three key elements: a move to reduce documentation, reviewing audit work through interviews (both linked to efficiency gains and reduction of litigation risk), and a focus on developing a business advisory mindset (which we understood to encourage cross selling and increased commercialization). These features can be usefully examined using Giddens s structuration approach to see how the global local dialectic is played out in the context of the audit firm. Abstract systems and new forms of trust Documentation mechanisms, trust, and coordination effects A major focus of REDESIGN is how audit documentation is re-conceived, which has consequences and implications for trust and legal exposure. REDESIGN replaces what is now seen as unnecessary and extensive documentation with a brief statement that merely states what work has been done, and how. Less documentation underscores how different forms of trust are differentially involved. The firm s legal advice appears to be that the courts are not to be trusted with documents that errors in documentation may be used by lawyers to allege negligent audit work, that petty errors such as a failure to sign a page of the working papers, or missing pages may be misinterpreted by courts as evidence of poor working practices. Further, the reduction in documentation involves a shift in the nature of the evidence collected and documented less supporting evidence is kept in the form of client vouchers and details of work done, and more is documented about the processes carried out by the auditor. Conceptions of what is risky seem to shift from a concern with clients documents to ensuring audit processes are carried out. Documents themselves are seen as risky capable of being used in courts against the auditor; partners indicated that the firm had obtained very careful legal advice on this issue. This push is reinforced by planned moves to a paperless audit 8 and to get auditors to think about providing additional business services and advice. At training sessions and our de-briefing meetings with a number of junior auditors, some of them expressed discomfort in signing off without traditional forms of documentation, such as a bank reconciliation, being in the file. There was also confusion about what should be included in the file, and concerns that it would be hard for next year s auditors to follow last year s working papers without sufficient documentation. These concerns highlight the discomfort produced by auditors with the (lack of) interaction with other auditors (social integration), in this case those working on the audit in future years, who are absent in time and space. These interactions had previously been mediated by confirmatory documents, such as bank reconciliations and detailed notes that can help future auditors understand what had been done in previous years, which had formed a link between auditors from one year to the next. The fear was that previous years work would now be even more distant. Coordinating the audit over time was seen as requiring extensive documentation from one year to the next, especially when there was significant turnover of staff on the audit over time. The reduction of documentation requires new forms of trust relations based on abbreviated reports of the procedures used to sign off the audit components. Future auditors would no longer have the benefit of actual physical evidence of the 8 Such a drive was more recently highlighted in Arthur Andersen s shredding of documents related to Enron.

17 M. Barrett et al. / Accounting, Organizations and Society 30 (2005) work done in previous years. Interestingly, fears about the reduction in documentation and new documenting practices came mostly from junior auditors, who seem to like to fully document their work. Junior auditors are inexperienced and are anxious about the visibility of their performance the loss of a paper trail to guide and justify their work increases their anxiety and uncertainty. Review by interview and face-work trust REDESIGN seeks to significantly reduce the time spent on an audit by introducing a review by interview, which has implications for increased face work in the coordination of the worldwide audit (Boden & Molotch, 1994; Nohria & Eccles, 1992). Face-to-face reviews replace the traditional practice of writing review notes and subsequently clearing them with a supervisor (a similar process is described by Winograd et al. (2000)). A senior audit partner said that it is expected that REDE- SIGN will reduce the required hours on an audit by 20%. With the new approach, significant issues are reviewed and discussed between senior and junior auditors, as soon as possible after the work had been conducted. These changes involve an intensification of face work commitments, which require the development of new forms of trust relations between auditors and their managers in face-to-face interaction. Auditors are expected to be trustworthy in remembering what they did, and orally communicating that effectively. Senior auditors are to be trusted in eliciting the truth from junior auditors. Partners and senior auditors now face the risk that the junior auditors have not actually done the work they say they have. It seems they will either have to trust or develop other ways of monitoring the work of juniors. Review by interview imposes risk on junior auditors and affects their sense of the audit being more challenging: while a satisfactory response can enhance their reputation, it also requires a immediate response, without the benefit of researching the appropriate answer. All the juniors we talked to stressed that audit work was nothing like what they expected when they entered the profession: it was less bureaucratic and more intellectually challenging. There have been mixed reactions to this approach as became evident during an in-house workshop on REDESIGN. Managers and partners generally believe that junior staff like the increased interaction as it provides more opportunity for them to talk with partners. On the other hand, some of the junior staff have already coined the term review by interrogation, and are clearly not comfortable with the perceived interrogation factor which accompanies this approach. Auditors now need to be prepared to justify their audit opinion on the spot, describing the steps they took in arriving at their opinion. 9 While some junior auditors on the ABC audit expressed enthusiasm to us for review by interview, they also indicated that other junior auditors in the office felt significant anxiety with the process. Apparently for others, face to face interviews implied greater scrutiny of their work, could expose areas of ignorance, and served to increase surveillance and control. The Canadian junior auditors of ABC reported to us, however, that review by interview was an opportunity for personal interaction with their seniors, a way of demonstrating their competence and getting to know the partner, and they believed this would increase the partner s trust in them (Nohria & Eccles, 1992). The nature of our access did not provide us with the opportunity to observe more than one or two such interviews, so we cannot comment on the dynamics of the interactions, the co-ordination of bodily movements and the minute details of body language that Goffman and Giddens stress in their discussion of processes of social integration, and how they help reproduce social life. However, in the interactions we did observe, it was clear that the self-confidence of juniors (which seemed linked to their performance on professional examinations) significantly affected the style of interaction, and was influenced by the extent to which others trusted their competence as competent auditors. 9 In the ABC audit, we observed that the review often took place as soon as the work had been done. This no doubt depends on the extent and availability of the audit partner and/ or manager in the field.

18 16 M. Barrett et al. / Accounting, Organizations and Society 30 (2005) 1 24 These activities together involve a significant increase in face work commitments, with new webs of face-to-face interaction being embedded in place. As Boden and Molotch (1994) argue, increased use of formalized systems and information technologies increases the compulsion for co-presence and proximity. They provide numerous examples of the importance of co presence, which is thick in information (Boden & Molotch, 1994, p. 259), and argue that the proclivity for co presence is especially strong... [in] conditions considered sensitive, complex, or uncertain (p. 270). These are characteristics of auditing, particularly when it involves multiple locations and personnel. Auditors seem to prefer physical documents and signatures (rather than copies and faxes) a longstanding preference which has been supported by the courts but also means that they strive to upgrade their modes of communication. Auditors who were out of town seemed to want to speak to people on the phone, rather than relying on , even when matters weren t urgent, and would often prefer reassurances on apparently minor matters from coworkers from both AuditFirm and ABC based on face to face interaction, rather than phone calls or written statements and notes. This compulsion for face to face inter-action and social integration could be a response to boredom, insecurity or loneliness, but these possibilities did not appear to be the dominant motivation for our observations. Yet, this compulsion becomes increasingly difficult to achieve as auditors are physically dispersed across offices and countries. Extending the philosophy behind review by interview, the worldwide engagement partner in Ruritania summed up his general attitude to face work: My dream is to set up a meeting [of all those working on the ABC audit] at the same time as the controller s meeting of ABC, bringing everybody together...i am in favour of bringing people together because whether the electronic system is providing, it is the eye-to-eye contact which is the most important. That is where you get immersion on top of the message itself. It is key. Reflexivity and identity: redesigning audit and the shift to the auditor as business advisor Training sessions stressed that the purpose of REDESIGN is to get auditors to refocus and rethink the operation and purpose of an audit. This refocusing has significant implications for the identity of auditors, their role, and the changing nature of their work. Furthermore, how REDE- SIGN is locally appropriated within different offices, and the increased focus on business advisory services, has implications for coordination and control of global audits. As one audit manager remarked: (The idea is to) drive your commodity to be the most effective, efficient audit so that you can deliver for your clients, and free up your people (auditors) to deliver business advisory services that clients are looking for. The REDESIGN methodology involves increased face work activities in client-auditor relationships, to facilitate the auditor trying to sell business advisory services. To the partners we talked to, this is a major promise of REDESIGN. Whilst business services have always been important, selling them had typically been seen as the responsibility of audit managers and partners. The new orientation is to involve audit staff at all levels in providing what are seen as more profitable activities for AuditFirm. A significant component of the training session on REDESIGN involved convincing junior auditors, some of whom had graduated from University less than a year previously, that they could contribute to the identification of potential problems with, and solutions to, the client s business. Many of the junior auditors had mixed reactions to this challenge; it opened up the risk of seeming foolish and ignorant to the client but simultaneously left them feeling that they had something imaginative and innovative (albeit constrained by the range of services offered by AuditFirm) to offer. Young auditors were encouraged to think about and apply the knowledge gained in university courses such as marketing, finance, production, and organizational design. Such knowledge

19 M. Barrett et al. / Accounting, Organizations and Society 30 (2005) would help them to identify problems in the client firm, and to suggest advice about solutions. Junior auditors were requested to keep a learning journal of reflections on improvements that could be made to how they carry out their part of the audit. These improvements were then proposed to clients as potential business advisory services. In this way, the role and strategy of AuditFirm as an accounting firm that sought to extend its services had significant implications for the identity of the most junior auditor. To facilitate the increased delivery of these business services, REDESIGN also seeks to increase the length of the audit cycle. This is an example of the way in which firms can stretch time, to use it more efficiently, in the pursuit of profit. Increasingly, the audit work is being spread over the year instead of being crammed into the short audit season following year end (when resources are particularly scarce). An important part of this approach is to allow more time for relationships to be developed between auditors and clients. Certainly there was an emphasis in getting to know the client and even the most junior auditor was expected to wander around and be friendly, not so much to check details of the audit work per se, but to ensure the client had a positive attitude about the audit team. It is believed that this can be best accomplished by having more frequent periodic discussions during less busy periods. A related part of this approach involves making a conscious effort for auditors, at all levels, to talk and develop relationships with client management outside of the accounting group, for example, with operations staff and senior managers. It was hoped that the all levels of client personnel would thereby come to trust the competence and goodwill of the auditor, thus making it easier to sell services and learn about the challenges facing the client. An audit manager described the change: We talk to people in operations because we [need to] understand what has been going on in the company. Typically in the old days, auditors would stick there in the accounting department and that would be all they would talk to and they would have a very narrow focus. So we definitely try to have a broad focus. The inter-relationship between reflexivity in the audit and shifts in auditor identity was evident a couple of other ways. The first concerns the differential interpretations of REDESIGN s focus on controls based audit. This was particularly noticeable in the way the US and Canadian offices audited their ABC client. At the audit sign off meetings, a number of Canadian auditors, including the audit manager, were obviously perplexed as to why the US team continued to rely solely on substantive testing. Clearly, this reliance will depend on a number of factors, such as differences in the nature of the client s business, profitability etc. in different regions. However, what is surprising is not that different offices or countries would take a different attitude to the risks associated with their part of the job, but the way in which the Canadian auditors made sense of these differences (see Cooper et al., 1998, for a similar argument). The Canadian team spent a whole lunch time session commenting on how they were more advanced than the Americans in adopting new technologies and approaches, how this suggested that the Americans weren t as modern, professional or well trained as they thought themselves to be, how the differences reflected the American auditors concern to maximize the time spent on the job to enhance their revenues, and so on. One auditor put it this way: It amazed me, because I went down to the States and they don t feel comfortable with control based auditing... I think we get better audit reliance by looking at controls... down in the States they have made a conscious decision that we give our best audit assurance by vouching stuff. Here we see how cultural views of the identity of Americans (and, by implication, conceptions of Canadians as the other ) such as the quality of education, the emphasis on self interest and a more market based system of economic activity are played out in social processes. The views of the Canadian auditors about their American

20 18 M. Barrett et al. / Accounting, Organizations and Society 30 (2005) 1 24 counterparts (the accuracy of these views is not relevant to the current analysis) are reinforced by their interactions and reproduce national stereotypes e.g., that Americans are concerned to maximize revenues, that American auditors are not as well educated as Canadians. Other understandings, such as that Americans are more tolerant of risk and quick to adopt new methods and technologies, are disrupted and changed. At the same time, however, the Canadian auditors seemed to inadequately recognize or downplay the fact that the US subsidiary was much less profitable and that the US auditors were operating in a more litigious environment. These factors lend some credence as to their risk averseness and potentially help explain their decision to rely totally on substantive testing for this client. Nonetheless, these different approaches to audit testing highlight that the expectations and stereotypes about national culture of different auditors can reproduce (and change) social understandings, thereby affecting the ability to plan and coordinate across national boundaries. A second example of how the development of business advisory services and associated changes in auditor identity affected the global coordination of AuditFirm concerns the process of bidding on a major consulting project. The North American auditors saw a major opportunity to bid on the implementation of a large ERP system in ABC. Some of the Canadian and US auditors blamed the Ruritanians for not informing them of the client s plans to implement the system, and hence alerting them to consulting opportunities. During the audit, the presence of another Big Four firm in the client was a constant reminder to the Canadians and US auditors that they were operating in a global context, and no amount of good relations with the local ABC managers could ensure they could obtain the valuable additional consulting work they strived for. Ruritania was seen as remote, even as incompetent. Yet, when we visited Ruritania we learned that the audit committee of ABC would, in fact, not permit their auditors to do the sort of consulting work that the North Americans were struggling to propose on. Apparently, this was not communicated to the Canadian and US auditors. Governance and regulatory practices in Ruritania affected North America, even when the North Americans did not recognize this. The lead partner in Ruritania explained: I don t want to be at the level of implementation which is a big billion dollar business SAP worldwide because I am on the verge of getting into some operational managerial decisions. So, [business advisory services] has been interpreted in a different way... we are providing business advisory services, but not to threaten the integrity of the audit. We conclude this section by returning to the theme of re-appropriation, and the global local dialectic. Coordination of work through instructions is combined with opportunities for local appropriation. The risk based and strategic approach to the audit was to be used on the ABC audit. However, the features and emphases of the methodology seemed to vary quite significantly. Some adaptations may seem quite cosmetic. For example, the Canadian version is named REDESIGN, eh!, the latter phrase being commonly ascribed as Canadian. Other changes seem more substantive. At an audit methodology training exercise we participated in, a strong distinction was made between what the National office apparently saw as the purposes of REDESIGN, eh! and how it is understood in the office where the training took place. That is, some aspects of the methodology, such as identifying business opportunities, were emphasized or embellished in the local office, while others, which reflect the official and National Office orientation, such as achieving further efficiencies in auditing procedures, were downplayed. The differential construction of REDESIGN suggests re-appropriation of this technology by partners at a number of different levels and offices. Discussion and conclusions Using the theoretical elements previously identified in Table 2, we summarize the key findings from our longitudinal field study. Our theoretical perspective and key illustrations from our study

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