Clan Type Controls Over Audit Quality - Audit Seniors' Perspectives

Irish Accounting Review, TheVol. 14 Nbr. 2, December 2007

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Previous research on audit quality has highlighted the difficulty of using formal controls in the audit environment and the suitability of more informal types of control such as 'clan controls' has been advocated. This study examines audit seniors' perceptions of the existence and operation of clan type controls in audit firms. Findings based on semi-structured interviews with 16 audit seniors from all of the 'Big Four' audit firms suggest that audit seniors are explicitly aware of the existence of two types of informal controls (informal communication and role modelling) which are consistent with the features of clan control. Additionally, valuable insights were obtained into the practical operation of these forms of clan control. In particular, some potential limitations of their effectiveness were highlighted, such as the accuracy of information transmitted through informal channels of communication, variability in styles of audit partners and the existence of more than one clan in the firms.

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Clan Type Controls Over Audit Quality - Audit Seniors' Perspectives


The control of audit cost and audit quality is a critical concern for audit firms, and the conflict between cost and quality has been well documented in the literature (McNair, 1991; Sweeney and Pierce, 2004). Audit firms are labour intensive and therefore management of time is the dominant factor for cost control. Time can be monitored using formal time recording procedures such as budgets and timesheets (Rhode, 1978). The assessment of audit quality can prove more problematic however, as the output of an audit is difficult to measure and auditors are often uncertain as to what constitutes a good audit' (Power, 2003). In addition, supervision is a limited form of control in the audit setting, as managers are not usually present at the audit location to supervise seniors (Sweeney and Pierce, 2004), and audit seniors are under time pressure which limits the time they can devote to supervising or reviewing the work of junior staff (Sweeney and Pierce, 2004). Consequently, it has been argued that the characteristics of the audit environment render formal behavioural and output controls less effective in the control of audit quality (Dirsmith and Covaleski, 1985). As a result, audit firms employ formal controls to the extent that they are feasible but they may also rely on informal mechanisms such as clan controls (Macintosh, 1985). Clan controls are a subtle and illusive yet powerful type of social control that require the existence of certain conditions to operate successfully, such as exclusive membership, commitment to organisational goals and agreement on appropriate behaviours (Macintosh, 1985). It has been suggested that these conditions may be present in the audit environment (Macintosh, 1985) and that audit partners are members of a clan and consequently use clan controls to control audit quality (Pierce and Sweeney, 2005).

Previous research in this area in Ireland has focused on audit partners' perspectives of the use of clan controls to control audit quality (Pierce and Sweeney, 2005). However as audit partners are in the unique position of being owner/ managers of the firm, image management concerns may have influenced their responses (Pierce and Sweeney, 2005). In the audit setting, audit seniors perform the majority of the audit fieldwork and have been found in previous studies to exploit the weaknesses of formal controls (McNair, 1991; Sweeney and Pierce, 2004). Hence their perspective on the use of clan type controls is important and, therefore, the purpose of this research is to examine the existence and operation of clan type controls from the audit seniors' perspective. The next section sets out the background literature on clan controls and its application to the audit environment. Thereafter, the research objective is developed, followed by details of the research method...

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