Thomas Carrington/blog

The eternal audit expectations gap is never as pronounced as when a company suddenly collapses or when a company announces significant restatements of, or errors in, its financial accounts. In these cases the auditor is dragged out of the shadows and asked why s/he didn’t warn investors and other stakeholders of what was, or was likely, to come. Auditors will here refer to materiality levels and audit standards as a defense, while the accusing users of the audit will refer to the ‘promises’ of the audit—i.e., that the auditor will provide assurance to management’s assertions. These discussions are never fully settled. Only when the auditor loses in court—which very rarely happens—do we approach a settlement of whether the audit was a failure or not. Still, even though the issue is never completely settled the discussion of whether a contested audit was a failure or not nevertheless tend to stabilize over time. But how does that happen?

Building on material I collected for my dissertation I have—together with Gustav Johed—explored this very question, focusing on the role of the media in this process. The result of this exploration is documented as a chapter in Josef Pallas, Lars Strannegård and Stefan Jonsson’s anthology Organizations and the Media: Organizing in a Mediatized World.[1] What we found was, as expected, that media play an important role in stabilizing notions of audit failure. But we also found that it is much too simplistic to equate this important role with the media acting as judges over the audit’s fate as a ‘success’ or failure. Instead, we found a much more complex process in which many different actors took part. Sure, the business press had an influence over other actors but so did a number of these actors have over the business press. To bring some analytical order to the process we observed—the debate about the quality of the audit of the financial services firm Intrum Justitia, which in 2003 had to disclose errors in the financial reports due to faults in the accounts of its British subsidiary—we propose three main roles for the media based on patterns observed in the studied material.

First, we notice the (rather obvious) role of the media as an instigator of opinions and propositions. By choosing which stories to publish, the setting of headlines, and through editorials and opinion pieces the media is in a good position to influence the opinions of others that matter. We call this role, the agency role. In the case explored in this study we found the business press to be rather tough in its rhetoric in headlines and so on but at the same time rather restrained in its factual claims and blames. This, we did not have the opportunity to explore in any depth in this book chapter. It would however be interesting to see further analysis about how the style of media reporting affects propositions such as whether an audit is a failure or not. This notwithstanding, whether or not the media have any impact at all depend on how their propositions are taken up by later users.

Second, the business press can play a role as something that other actors ‘use’ and refer to. When the propositions of the business press are picked up by relevant others, the media acts (makes a difference)[2]. We call this role the actor role. Although, it is probably fair to assume that if the business press is to have a role as an actor they must first take an agency role, i.e., publish something, it is worth notice that the absence of the media in the debate could act too. It is always difficult proving a negative and yet, calling for audit failure in the absence of a media debate is probably an uphill battle. Here too, further investigation is warranted.

Third, we found that the media can be used as not only a bat with which to beat down competing arguments or make ones own position more pungent, the media can also be used as, well, a medium. We call this role the arena role. Here, the media serves as a platform for other actors to get their message across. With this we do not imply that the media should be neutral or impartial. What gets printed is after all ultimately in the hands of the business press. Nevertheless, the business press is an important amplifier of other actors’ voices and, as far as we can tell from a one case analysis, the media is more interested in debates and selling copies (advertising) than promoting a specific argument about an audit’s status as a failure or not.[3]

With this study we do not suggest that we have found a solution for the eternal audit expectations gap. There are good reasons to expect that this gap will not only prevail but be sustained and even maintained.[4] What we do suggest is, however, that this study shed some light on how this gap in local and situated cases of alleged audit failures is sufficiently bridged to stabilize the notion of the audit as a failure or not.