Conference PaperPDF Available

Sustaining Mutual and Market Interests in the Auditor and Corporate Client Relationship

Authors:

Abstract and Figures

This paper reviews the accounting literature on the audit function, the auditor-client manager relationship, and the possible influence of these relationships on auditor independence. The negotiation interactions between client managers and auditors and the distribution of power reveal the superior position of client management. The interactions also reveal that auditors participate in potential joint ventures. Auditor independence may be subject to compromise to sustain effective relationships with corporate client management even with the presence of a monitoring mechanism such as a board of directors. To ensure favorable opinions from their current auditors, managers may utilize any available possible means. A thorough audit that displeases client management comes at a cost for auditors who can be viewed as economic agents serving their own interests. To sustain confidence in attesting and assurance services, auditors must appear independent to external parties to provide assurance that auditors provide valuable services that support a ‘functional’ market. Trust placed in auditors and, thus, the capital market is possible as long as auditors appear independent. Keywords: Auditor Independence, Client-Auditor Relationship, Power, Negotiation.
Content may be subject to copyright.

Supplementary resource (1)

... "According to an account from a GE staff member to a Fortune writer, the people at GE received calls from other corporations (AIG, Champion International, and Cigna -saying, "Well, this is what companies do. Why is this a front-page story?" (Loomis, 1999 Carmichael, 1975;Belkaoui, 1989;Bayou & Reinstein, 2001;Sanchev, 2002) -Adeem, 2015;2022;Aveh et al., 2016;Bazerman et al., 1997;Bazerman et al., 2002;Bazerman & Moore, 2011;Belkauoi, 2017;Brehmer;DeZoort et. al., 2012;2015;Green, 2008;Kleinman & Palmon, 2001;Kleinman et. ...
... Why is this a front-page story?" (Loomis, 1999 Carmichael, 1975;Belkaoui, 1989;Bayou & Reinstein, 2001;Sanchev, 2002) -Adeem, 2015;2022;Aveh et al., 2016;Bazerman et al., 1997;Bazerman et al., 2002;Bazerman & Moore, 2011;Belkauoi, 2017;Brehmer;DeZoort et. al., 2012;2015;Green, 2008;Kleinman & Palmon, 2001;Kleinman et. al., 2012;Livne, 2013;Lowenstein et al., 2002;Mautz, & Sharaf, 1961/2006McKenna, 2013;Murnighan & Bazerman, 1990;Nouri & Lombardi, 2009;O'Connor, 2002;Reiter & Williams, 2004;Shockley, 1981;Taylor et al., 2013;Tinker et al. 1982;Tinker & Sy, 2017;Turnbull, 2006 ...
... ‫إن‬ ‫ا‬ ‫بل‬ ‫(العنقري،‬ ‫به‬ ‫حياس‬ ‫لن‬ ‫حاجة‬ ‫يف‬ ‫اجع‬ ‫الر‬ ‫موضوعي‬ ‫طرف‬ ‫وجود‬ ‫السامهة‬ ‫الرشكة‬ ‫منوذج‬ ‫أ‬ ‫يشرتط‬ ‫وحيث‬ ، ‫مباكن‬ ‫تقلل‬ ‫الاس‬ ‫ومن‬ ‫ير‬ ‫تقار‬ ‫و‬ ‫امئ‬ ‫قو‬ ‫من‬ ‫السامهة‬ ‫الرشكة‬ ‫منشور‬ ‫تدقيق‬ ‫ليمت‬ ‫للعموم‬ ، ‫مدعاة‬ ‫حقيقة‬ ‫وجوده‬ ‫عدم‬ ‫إن‬ ‫فا‬ ‫إعادة‬ ‫ل‬ ( ‫منوذج‬ ‫ال‬ ‫هذا‬ ‫يف‬ ‫النظر‬ Al-Adeem, 2022 ‫ع‬ ‫تنظري‬ ‫يف‬ ‫النظر‬ ‫إعادة‬ ‫ب‬ ( ‫السامهة‬ ‫الرشكة‬ ‫إدارة‬ ‫ا‬ ‫مع‬ ‫اخلاريج‬ ‫اجع‬ ‫الر‬ ‫لقة‬(Al-Adeem, 2022;DeZoort et. al., 2012;2015; Ronen, 2006;Ronen & Sagat, 2007;Taylor et. al., 2003 .) ...
Article
Full-text available
يَهدف البحث إلى بيان أنّ التجارة والنظم الاقتصادية البشرية سياقٌ ملائمٌ، لفهم دور المحاسبة، فقد نشأت المحاسبة استجابةً لحاجاتِ الأعمالِ في الأمم والحضارات، ثم انحصر دور المحاسبة في الشركات الفردية والتضامن على الرقابة على موارد المالك التي يوكِّل التصرف فيها للغير، ثم دعت الثورة الصناعية إلى قيام أنموذج الشركة المساهمة؛ والذي أسفر عن وجود ’سيدان‘ على المحاسبة خدمتهما هما: المدير التنفيذي (Chief Executive Officer)، وحملة الأسهم؛ الذيْن يتم التقرير والإفصاح لهم عن الآثار المالية للأحداث، التي أثّرت على المركز المالي للشركة المساهمة، التي مولوها ومولوا عملياتها التشغيلية. إنّ الشركة المساهمة عبارة عن: عقود متداخلة (nexus contracts)، منها العقد منظّم العَلاقة بين حملة أسهم الشركة ومديرها التنفيذي؛ التي تُصنّف أنها عَلاقة منظمّة بعقد وظيفي، ومنها أيضًا العقد الاجتماعي بين المُراجع الخارجي ومجتمعه، ومنهم حملة الأسهم. إنّ المحاسبة في الشركات المساهمة في أمسِّ الحاجة إلى نظريةٍ للشركة المساهمَة؛ فقصر تنظيرها على الشخصية الاعتبارية (artificial persona) وعلى الوكالة (agency) تنظير غير كافٍ. تخلص الدراسة إلى أنه قد تستطيع المحاسبة أن تفيد مجتمَعَها إنْ صَمَّمت نظامًا محاسبيًا، يأخذ في الاعتبار أن المدير التنفيذي هو من التصرف والمهابة بمكان وبقدر ما يحظى به المالك، وأنّ المموّل مضاربٌ، ففي عقد المضاربة أملًا في فهم الشركة المساهمّة. الكلمات الدالة: دور المحاسبة، طبيعة المحاسبة، نظم اقتصادية، شركات، نظرية المنشأة، الشركات المساهمة. Accounting arose in response to the needs of businesses in nations and cross civilizations. The role of accounting in individual and joint-venture companies was limited to controlling the owner’s resources and that of whom was entrusted to manage. Then the Industrial Revolution called for the establishment of the corporate model as a mechanism to magnetize the required capital for creation of corporations. Such a model brought into existence two “masters” for accounting. The Chief Executive Officer (CEO) who needs to be served internally, and the shareholders who financed and ill finance its operations and to whom the financial effects of the events that affect the financial position of the corporation are reported and disclosed. The corporation is composed of nexus contracts, including the organized relationship between the company’s shareholders and its CEO, which is classified as an employment contract, and the social contract between the external auditor and his community, including the shareholders. Accounting in corporations is in need of a theory of the corporation, so accounting theory is limited. On legal personality and on agency, there is an insufficient theory that may be able to benefit its accounting society. If the accounting system for corporation is designed to take into account that the executive director is as disposed and respected as the owner, while the financier is a speculator or even better Mudarab. The application of the Mudarabah contract brings hope in understanding the reality of the corporation away from idealism in deciding what the corporation should be. Keywords: Role of Accounting; Nature of Accounting; Economic Systems; Companies; Theory of the Firm; Corporations.
... Describing the relationship between managers and an auditor as a general partnership contract explains the auditors' behavior. The application of general partnership contract in this study competes for an explanation for why auditors lack independence; a concept that may arguably never become a reality (Al-Adeem, 2015). Several accounting scholars have proposed that auditors are associates of or even partners with managers of corporations they audit (e.g. ...
... Based on the "general partnership contract," the interaction and arguably the cooperation between auditors and managers (e.g. Gibbins et al., 2001Gibbins et al., , 2010Al-Adeem, 2015) can be conceptualized as a general partnership. Given that such cooperation is unannounced, this study proposes that implied partnership contract is the best description. ...
... Following the introduction of SOX, CEOs, CFOs, and auditors are bound together. Such an association increases the jointness that perhaps already exists (Al-Adeem, 2015). ...
Article
Full-text available
The audit function in a corporate model can be a defective tool in monitoring executive management. Arguably, the Sarbanes-Oxley act (SOX) inadvertently has placed auditors in unwanted positions while increasing their independence. Auditors' reliance on their clients for collecting information, financial dependence, and self-bias in processing information restrain them from neutrally and objectively judging corporate reporting. Mandated rules can never substitute integrity and the desired objectivity by shareholders. By reconceptualizing the result of the relationship as a general partnership where trust plays a critical role, this study considers the relationship between management and their auditors, offers an explanation about the audit firms' behavior, and offers reasons for the failure of some audit for committing unethical actions. The analysis leads to testable empirical and policy implications. Accounting theorists should be on board critiquing and retheorizing positively but not normatively: A corporation with the absence of an objective party that shareholders count to attest corporate reporting impartially.
... Despite the variety of corporate governance mechanisms mandated and recommended by bulletins and other official statements as well as pronouncements, the effectiveness of these mechanisms remains debatable primarily because of the involvement of executive managers (Adelopo, 2012;Al-Adeem, 2015a;Fogarty, 2003). For example, academics doubt the effectiveness of the audit committee in a publicly held corporation (Adelopo, 2012). ...
... The second part also contains questions related to the subject's experience as a member of the board of directors, a factor that may cause variation in the subject's experiences. 8 Two more items are included in the 6 Retrieved from http://archives.univ-biskra.dz/bitstream/123456789/7743/1/ %D9%85%D8%B3%D8%A4%D9%88%D9%84%D9%8A%D8%A9%20% D9%87%D9%8A%D8%A6%D8%A9%20%D9%85%D8%AC%D9%84%D8 %B3%20%D8%A7%D9%84%D8%A5%D8%AF%D8%A7%D8%B1%D8% A9%20%D9%81%D9%8A%20%D8%AA%D9%81%D8%B9%D9%8A%D9 %84%20%D8%AD%D9%88%D9%83%D9%85%D8%A9%20%D8%A7%D 9%84%D8%B4%D8%B1%D9%83%D8%A7%D8%AA.pdf 7 After translating the items, we tested the validity of the translated items using two steps. ...
... The items in the third version were used for preparing an electronic survey. 8 A question labeled "Number of Boards of Directors in which you are a member now" was removed from the analysis because of an issue related to the measures. That is, the options given to the respondents were irrelevant to the question. ...
Article
Full-text available
Elements of corporate governance must be activated at all scales for the efficient functioning of a nation’s capital market. The effectiveness of the board of directors depends on factors related to, for example, the composition of the board and its independence. This study aims to investigate empirically whether the board of directors is an effective mechanism for monitoring managers in Saudi Arabia through a survey. A questionnaire that was developed and employed by Elyas (2015) is utilized for data collection after modifying it and judging its appropriateness. We targeted individuals who had relevant experience as members of the board of directors as our respondents. Only 29 subjects took the survey. The results indicate that the respondents generally disagree with the survey items, pointing out the ineffectiveness of the board of directors in monitoring executive management. Although the subjects’ credible experience can be assumed, the generalizability of our research findings is limited because of the low number of respondents.
... On the other hand, personal relationships with the management may pressure the auditor to state impartial opinions considering the client's reaction to the relationship being affected or limit the necessary and strict scrutiny (He et al., 2017). For an auditor, serving the relationship with a client may not lead to benefits to the public (Al-Adeem, 2015;Kown & Yi, 2018), including intended users, mainly shareholders, and other beneficiaries of the audited financial statements (Al-Adeem, 2022). Examining the relations between auditors and executive management, Guan et al. (2016) reported the possibility of collusion between them, which weakens the quality of auditing. ...
Article
Full-text available
As "social animals," auditors rely on the data and the social influences of their clients (Kleinman & Palmon, 2001, 10), putting their independence at risk. While conducting an audit, an auditor is not working alone. The auditor must communicate with the client management while performing the audits, which may negatively impact the auditor's independence in a number of ways. Only the auditor can determine whether the audit was conducted objectively or if its independence has been compromised. The survey respondents agree that, in their experience, 15 of the 20 personal ties-related factors that were included in the study had an impact on the independence of Saudi Arabia's auditors. Despite the fact that respondents agreed that auditors can keep their personal feelings distinct from their professional judgement, they were confused about whether or not ties with client management had a detrimental impact on objectivity and independence. Auditors have the option to refuse to let personal relationships compromise their objectivity. They may reply in real-time to the seduction of their client management.
... As a result, the Saudi market has witnessed several fraudulent activities attributed to the accounting and auditing professions (Zerban, 2017). Mohammad Al Mojil Group, Etihad Etisalat (Mobily), which is one of the high-profile telecommunication companies in Saudi Arabia (Rashad and Al-Sayegh, 2015), and Bishah Agriculture Development Corporation, which was prohibited from exchanging shares in the Saudi capital market (Al-Adeem, 2015) are just a few examples that became public. ...
Article
Full-text available
Corruption occurs when there is a misuse of current resources to maximize personal benefits at the expense of other parties, causing financial problems and preventing the development of emerging economies. Forensic accounting services utilize financial data to solve legal disputes. Saudi Arabia’s government does not tolerate obstacles that impede the realization of its ambitious Vision 2030, a long-term plan for transforming society and reforming the economy. The war on corruption has been observed in Saudi Arabian domestic policy. Whether the forensic accounting profession and the readiness of accountants qualified to conduct forensic inquiries and investigations are effectively accompanied by the government’s fight is probed. This study explores the current state of forensic accounting in Saudi Arabia. Potential means of employing such status to make Saudi Vision 2030 a reality to combat corruption and the ability of forensic accounting to ease the government’s fight are also investigated. A questionnaire was conducted on 181 participants comprising accountants, auditors, judges, accountancy academics, Oversight and Anti-Corruption Authority employees, and any supervisory body in Saudi Arabia. The results show that 46% of the surveyed participants were unaware of forensic accounting, implying that despite its significance and demand for its services, forensic accounting is undersupplied in Saudi Arabia. Thus, it is inferred that the current state of forensic accounting is below the required level. To address this issue, forensic accounting should be incorporated into accounting curricula, accountants should join specialized scholarship programs and seek to be certified forensic accountants. Policy-makers must develop charter institutions and related forensic accounting standards.
... The effectiveness of an audit committee as a mechanism for corporate governance remains questionable (Adelopo, 2012). Preliminary evidence from Saudi Arabia suggests that the perception toward a board of directors is that it may not be effective in monitoring executive management (AlAdeem & AlSogair, 2019) Thus, opposing the position of management in the process of preparing financial statements may not be optimal for auditors (AlAdeem, 2015). Along these lines, the maximization of firm value in the interest of shareholders is a myth (Stout, 2012[4] ;Stevelman, 2013;Weinstein, 2013). ...
Article
Full-text available
This study empirically investigates whether shareholders of corporations that are publicly held and traded in Saudi Arabia’s capital market are engaged as the owners of the corporations in which they have invested their wealth?. We conducted a content analysis of the annual reports and financial statements of 62 such corporations to discern the tone of the top management and board of directors. The study finds that the board of directors and top management both situate shareholders as owners. Financial statements and annual reports are prepared in line with the proprietary view of the firm. Nevertheless, there is a need to improve corporate reporting in Saudi Arabia in terms of company risks and related mechanisms. Because analysis was limited to 62 companies and no inferences were made regarding the texts, the findings must be generalized with caution. Saudi Arabia’s corporate reporting might be improved by addressing the risks companies face and related approaches to risk management. This study may be replicated for Saudi corporate reports in the years following the IFRS adoption with an eye for comparing the results of the two periods to further examine the nuances of corporate communications with shareholders. Keywords: Corporations. Proprietary Theory; Shareholder Communication; Corporate Governance. Corporate Reporting, Board of Directors; Saudi capital market.
... Such a segment has a political weight causing governments to react when their capital markets display failures. The US government's recent action "represented by the Sarbanes-Oxley Act, to ensure confidence in the capital market" is only an example of governments' care to investors [7]. If the accounting profession does not serve them well, then governments act. ...
Article
Full-text available
While the precise moment when accounting was first used remains unknown, one can speculate that the emerging need for economic systems necessitated the invention of technologies such as double-entry bookkeeping and the creation of new business models to determine the purpose of accounting at a given time period. Corporations as a business model may not be served by the conventional role of accounting, which caters to the needs of engaging in other businesses forms. Accounting principles such as a historical cost valuation basis can only be justified in reference to accounting rules but not necessarily theories. A corporation needs to be theorized and properly conceptualized from an accounting perspective so that the role of corporate accounting may be suggested or an existing one adopted.
Article
Full-text available
ينطوي هذا المقال على مقدمة بها الحافز لكتابته، وإشارة إلى من قد يجده مفيداً، فيستفيد منه من يشرف على أبحاث تخرج طلاب الماجستير، وبخاصة من يشرف على من يرغب في كتابة بحث تجريبي من غير تسلّحه بالمنهج التجريبي قبل البدء في مشروعه البحثي والسبر. وهو أيضا مفيد للطالب وبخاصة من لم يحظ بتعليم في طرق البحث التجريبي، فيحتاج إلى وصفة بخطوات مع الإفاضة بالشرح تارة، والتمثيل تارة أخرى، ليرى من سمات المنهاج والطريقة ما قد يرى. ولقد اقتصرنا المقال على البحث الاستطلاعي أو الاستكشافي ليتم شرحه تطبيقا، وذلك لأسباب منها منح الطالب فرصة لتطوير مقاييس لتكميم مسلك الظاهرة المُشاهد المرصود، وبخاصة لمن لم يدرس القياس نظرية وطريقة، ومنها إمكانية أن يقوم الطالب بإنجاز هذا النوع من الدراسات خلال فصل دراسي واحد من غير اللجوء لمن يسوّقون لأنفسهم بمراكز خدمة الباحثين والطلاب وهم خادعون. تم في قسم مستقل تفصيل الخطوات العملية للسير مع طالبٍ متضلعٍ منبريٍ لتنفيذ دراسة استطلاعية/استكشافية لعمل وكتابة مشروعه البحثي، وهذه الخطوات هي أن يتم تعريض الطالب أو الطالبة لجرعة من نظرية المعرفة، ثم تعليم الطالب آداب وأخلاق النقل، فاختيار الموضوع وعنوان البحث، يعقبها كيفية كتابة مقدمة البحث، وفي خطوة مستقلة تم بيان كيفية وهدف مراجعة الأدبيات ذات العلاقة بموضوع بحث الطالب، كما تم وصف الطريقة التي سيتبعها للإجابة عن سؤال البحث، مع تعريض الطالب لنظرية القياس (measurement) بخطوة مستقلة لأهميتها وقيمتها المضافة للطالب إن هو عقلها، كما تم تسليط الضوء على تعليم الطالب أهمية التعاريف الإجرائية لمتغيرات الدراسة مع توجيهيه في هذا المقال لكيفيه تعريفها، وأسهبنا في خطوات مستقلة في توصيف كيفية تصميم أداة البحث بطريقة فعالة وكفؤة لجمع البيانات، وتحليل النتائج، فالخلاص من البحث بنتائج والختم بها وبالمقيدات عليها، وفي النهاية سيتم تعليم الطالب تقنية كتابة ملخص البحث (abstract)، وإعداد قائمة المراجع، وبالإضافة للشروحات، فقد تم تطعيم الخطوات بأمثلة وأشكال متعددة لإيصال المفاهيم ليسهل هضمها. وفي القسم الذي يليه تم عرض فكرة تقديم الأبحاث بطريقة مؤتمر مصغّر لإدخال الطالب في أجواء المؤتمرات، وفي القسم الأخير من هذا المقال تم ختمه بوصية. كما انطوى المقال على ملاحق يستعين بها من أراد التدريس، فبعضها من قبيل مصادر تعلم. الكلمات الدالة: منهاج الاشراف، طريقة الاشراف، مرحلة الماجستير.
Thesis
The President's domestic agenda is a critical force in the national policy process. Despite recent increases in congressional initiative, the President remains a powerful agent in the distribution of political benefits. This research rests on the analysis of the five most recent administrations: Kennedy, Johnson, Nixon, Ford, and Carter. The study is restricted to the President's domestic agenda--to the exclusion of foreign affairs. The end aim of this research is to isolate those variables which can be said to have an impact on domestic choice. In the effort, the research concentrates on two primary sources of data: (1) 126 interviews with past and present members of the five presidential staffs; and (2) Office of Management and Budget legislative clearance records. This study hinges on a resource definition of presidential power. According to this theory, Presidents are constrained by the level of both internal and external resources. The internal resources involve at least four separate entities--time, energy, information, and expertise--while the external resources focus on congressional support, public approval, and electoral margin. Without these requisite resources, presidential bargaining is not seen as having an impact on policy outcomes. Furthermore, these resources rise and fall over the term of office, creating two distinct policy patterns. The cycle of declining influence appears as time, energy, and congressional support drop, while the cycle of increasing effectiveness arrives as information and expertise grow. Initially, this research was concerned with the basic parameters of the President's domestic program. What does the domestic agenda look like? When is the agenda set? Here, each agenda item can be separated into three components: the issue or problem orientation, the alternative or programatic solution, and the priority or level of White House concern. Using both the staff interviews and the OMB clearance data, it is clear that the president's domestic agenda is set very early in the term and repeated often. The study also asked why certain issues emerge from the domestic policy process. According to the staffs, issues are generally selected on the basis of perceived benefits. Presidents are quite willing to borrow ideas from any available source, but they consistently search for issues with the greatest political "payoffs." If issues are selected on the basis of benefits, how are the alternatives chosen? Once again according to the staffs, alternatives are selected on the basis of perceived costs. Moreover, there are clear differences between Democrats and Republicans on the kinds of alternatives which emerge from the presidential cost considerations. Democrats tend to prefer large-scale expenditure proposals, while Republican Presidents opt for smaller-scale items. Republicans also have turned to the veto much more frequently in recent years as a tool of domestic policy. These differences flow from the interaction between congressional support and each President's political ideology. Finally, how do Presidents make the domestic choices? In examining the domestic policy process, this study argues that Presidents have a choice of several distinct organizational styles, or the staff anarchy of the garbage can. However, given the context of domestic choice and the level of internal and external resources, Presidents generally drift toward the behavioral model, opting for bargaining of staff differences or slipping into efforts at internal staff domination. As before, the cycles of declining influence and increasing effectiveness have a significant impact on domestic decisions. As the cycle of declining influence grows, the White House tends to lapse into coalitional conflict and domination. Since the cycle of declining influence creates limits on the President's domestic agenda, the staffs engage in zero-sum conflict.
Article
A growing number of today's college students attend local 2-year community colleges. Many of these students will ultimately transfer to major universities in pursuit of the traditional Bachelors degree. The question of whether such transfer credits adequately prepare students for future academic endeavors is important for educators interested in preparing successful students and maintaining the quality of their institution. In this paper, we examine whether students who transfer credits earned for the traditional Principles of Economics course sequence achieve the same levels of academic success, measured in terms of GPA, as students taking the sequence at a major state university. The model indicates that community college transfer students perform poorly relative to native students in terms of cumulative GPA. This result is driven by a self-selection process whereby the more academically challenged students are those who choose to transfer credit from 2-year schools. The results of our model are used to develop a grade equivalency measure between the university and 2-year schools. Using this measure we are able to reject the hypothesis that grades are equivalent between 2- and 4-year institutions. Finally, we find that grades in the Principles of Economics sequence are strong predictors of overall academic success.
Article
This study investigates how undergraduate marketing students perceived intensive delivery of subjects over summer school as compared to traditional semester delivery. The results suggest that students preferred the intensive mode but did not perceive there were substantial differences in learning. The results also indicate that students in the intensive mode found the subject more interesting and rated the subject higher overall as compared with the traditional mode. Individual assignment grades for students in the intensive mode were higher than those in the traditional mode, but group assignment grades, examination results and final grades were not statistically different between the two modes. Intensive modes of delivery may be a viable alternative to traditional semester long classes, although they do potentially have increased costs if adopted on a large scale.
Article
We surveyed introductory psychology students at 2 universities regarding their purchase and use of introductory level college texts. Most students who purchased texts used them infrequently, perceived that studying class notes and attending lectures were more important than reading the text for receiving a good grade, and spent less than 3 hr per week reading their texts. We recommend that college instructors establish specific, predictable contingencies to increase the likelihood that students will purchase and read the assigned texts in their introductory classes.