Intra-professional conflict in the Greek auditing profession: liberalisation and its impact on auditor behaviour

This study examines the intense intra-professional conflict which arose over the question of the liberalisation of the Greek auditing profession in 1992. The main rival groups in this conflict were a group of indigenous auditors who resisted the liberalisation and local branches of international accounting firms who fought for reform. The critical paradigm on accounting professionalism is used to understand the wider social, economic, and political context in which change in the Greek auditing profession occurred. The analysis shows that the structure of the auditing profession in Greece is the outcome of a dynamic interplay of economic, social, and political forces, at both the national and the international level. In the encounters between these interests, state agencies and professional groups play a key role.An important theme of the study is to enquire into the practical impact of the liberalisation on the emphasis accorded by practitioners to the performance of various audit functions. Thus, the study also attempts to examine the potential impact of changes which resulted from the political struggle at the macro-level on the behaviour of micro-level actors. The perceptions of auditors, corporate financial executives, and users of audit reports were surveyed through mail questionnaire and personal interviews. The results of the investigation reveal a considerable divergence in the perceptions of the respondent groups, in relation to the effects of liberalisation. This divergence is explained as being the result of self-interested bias. It is suggested that through the responses to the survey respondent groups attempted to advance and promote their own perspective on the auditing profession. The survey results reinforce the conclusions drawn from the historical analysis, by illuminating the deeply political nature of the affairs of the Greek auditing profession and its socially constructed and contextually dependent character.This study has methodological implications for conducting accounting research in sensitive areas which touch on vested self-interests. The analysis presents evidence which suggests that the use of quantitative mail questionnaires in such contexts is not a wholly effective research tool; it fails to capture important exogenous factors, such as respondents' perceived self-interest, which could significantly influence the responses of participants. The study confirms that the employment of a combination of quantitative and qualitative research tools is a more fruitful approach for conducting research in politically charged contexts.Finally, the results of the study have implications for audit practice. The findings suggest that following the liberalisation, auditors gave significantly less emphasis to: a) being independent, b) the public communication of audit findings (writing remarks in auditors' reports and 'whistle blowing'), c) the protection of the interests of external stakeholders, and d) the 'true and fair' presentation of financial statements. The results also indicate that increased emphasis is placed by auditors on the provision of Management Advisory Services to audited companies. These significant changes are linked to the economic dependence of auditors on audited companies, which the liberalisation brought about

Transplanting Anglo-American accounting oversight boards to a diverse institutional context

The introduction of accounting and auditing oversight boards (OBs) has been promoted on a global scale as a key component of the international financial architecture that has emerged over the past two decades. Such institutions, modeled on the Anglo-American tradition, are domestically organized and embedded within distinctively diverse institutional contexts. Their role is to ease agency problems, improve the quality of financial reporting, and help provide stability in the global financial system. We employ an institutional approach, located within the broader political economy framework of global capitalism, to examine the establishment and operation of the new regulatory regime in Greece. Greece, a member of the European Union, exhibits characteristics of a "delegative" democracy, i.e. a traditionally weak institutionalization, reform (in)capacity problems and a clientelistic political system. Our case study shows that the formation and operation of the newly-established system of oversight is conditioned by local political and economic constraints and, thus, does not automatically translate into concrete benefits for the quality of financial reporting. We also draw attention to the structural mismatch between a progressing globalized financial integration and the fragmented nature of the system of oversight, and illustrate that OBs' independence from local governments is an important but neglected issue

The enigma of the Greek auditing profession: some preliminary results concerning the impact of liberalization on auditor behaviour

The paper reports the results of a survey of the perceptions of individual auditors and corporate financial executives in Greece, regarding changes in emphases which auditors gave to various audit functions following the liberalization of the Greek auditing profession in 1992. The term 'liberalization' is used here to denote the introduction of competition in the market for statutory audits and the concomitant economic dependence of auditors on audited companies. The liberalization was effected through legislation and was the result of a long and intense intra-professional conflict between a group of indigenous auditors who until then enjoyed legal monopoly of practice and local branches of international accounting firms who wanted to enter the market for statutory audit services. The survey results suggest that following the liberalization, significantly more emphasis was placed by auditors on the provision of Management Advisory Services to audited companies. In relation to functions which are typically performed by auditors in order to form a professional opinion on corporate financial statements the survey revealed a large divergence in the perceptions of respondent groups.

Audit effort and earnings management

We test the effect of audit effort on earnings management using a unique database of hours worked by auditors on 9,738 audits in Greece between 1994 and 2002. When audit hours are lower, (1) abnormal accruals are more often positive than negative, (2) positive abnormal accruals are larger, and (3) companies are more likely to manage earnings upwards in order to meet or beat the zero earnings benchmark. These results persist after we control for endogeneity between audit hours and earnings management. We conclude that low audit effort increases the extent to which managers are able to report aggressively high earnings.