Bias in the boardroom

Invited comment on the consultation document of the ICSA Review of the Higgs Guidance on behalf of the FRC - Improving Board effectiveness. Author's version of October 2010. Final version published in International Journal of Behavioural Accounting and FinanceThis paper investigates the impact of social and psychological factors on the quality of boardroom decision-making. It is argued that bias in the boardroom undermines the monitoring function of boards, with a particularly negative impact on the functional independence of non-executive directors. The study is informed by a two-year participant observer case study of the governance failures of a housing association that experienced significant adverse performance resulting in its near collapse. The case study adds insights to the theoretical discussion by highlighting the pervasive nature of bias in boardroom proceedings. The paper closes by exploring means to minimise the impact of bias. Keywords: behavioural accounting and finance; boardroom decision-making; non-executive independent directors; bias mitigation; case study; bias

Explaining governance failure: accountability spaces in-between and bias

Post-print draft. Published by Inderscience; available online at http://www.inderscience.com/The paper is based on a 2-year participant observer case study of the governance failures in a UK housing association that experienced significant adverse performance resulting in its near collapse. The research is concerned with the accountability of and by the organization’s board, with a view to studying the black box that is the boardroom. The study builds on research by Roberts (1991) who distinguishes between formal and informal forms of accountability, and Collier (2005) who identifies spaces in-between where governance can be lost. Kamuf’s (2007) concept of accounterability forms a focal point of the discussion to enable an understanding of governance that accommodates formal and socialising systems of accountability. The literature on behavioural aspects of governance issues is drawn upon to explore causes for a board’s reluctance to explore critical governance issues (Marnet, 2008). As informal reporting systems are increasingly important drivers of the control role of boards (Parker, 2008), the paper highlights the need to explore dysfunctions of accountability to advance the governance of organizations

History repeats itself: The failure of rational choice models in corporate governance

Conventional proposals to reform corporate governance based on the rational model of decision making may be insufficient in preventing future corporate debacles. Typically underestimated are the pressures from conflicts of interest and bias on reputational intermediaries. Judgements and choices made by auditors during professional engagements may not strictly adhere to the rational model of decision making. This is of significance with regard to the gatekeeper function of auditors and relevant legislation. A discussion on earnings management elaborates by suggesting that strictly numerical measures are not a reliable guide to the quality of corporate governance. It is suggested that our understanding of monitor behaviour in corporate governance would be improved by placing it on psychologically more realistic foundations. Some of these foundations are introduce

How does joint provision of audit and non-audit services affect audit quality and independence? A review

The primary aim of this report is to analyse changes in recent years in the market for the provision of non-audit services (NAS), with a particular focus on the joint provision of audit and non-audit services and the potential effects on independence and the quality of audit. This report is relevant to the ongoing debate at both national and European level on issues of competition, liability and regulation in the audit market. and it seeks to contextualise the issue and provide a résumé of the arguments that have beenadvanced for and against allowing such joint provision

A review of audit quality and joint provision of audit and non-audit services (2013)

Report prepared for Institute of Chartered Accountants in England and Wales (ICAEW)The primary aim of the proposed research is to investigate and analyse changes in recent years in the market for the provision of non-audit services (NAS) - with a particular focus on the joint provision of audit and non-audit services and the potential effects on independence and the quality of audit. To reflect the need for a better understanding of the importance of non-audit services provision, and in order to further quantify, qualify and categorize these, we investigate how NAS are perceived by the public and investors, and why companies request joint provision from firms. Against a background in which issues of audit competition, efficiency, pricing and value added are on the front stage of the audit debate and audit regulation, this research is designed to provide input relevant to these issues, - input which will inform and be of use to firms, as well as the professional bodies and regulators more widely. Such an investigation provides additional insights on the magnitude and type of NAS provision to a broad spectrum of companies and stakeholders and also develops an understanding how NAS may enhance and/or overlap with their use of audit services.Institute of Chartered Accountants in England and Wales (ICAEW

Audit within the corporate governance paradigm

Working pape

Charting the development of the Egyptian accounting profession (1946-2016): An analysis of the State-Profession dynamics

This paper mobilises notions of professional closure and political economy to analyse the development of the Egyptian accounting profession (1946-2016). We rely on interviews with Egyptian Society of Accountants and Auditors (ESAA) board members, government officials, representatives of international/local firms, and academics. Legislative documents (particularly Accounting Practice Law 133/1951), regulations and publications were also analysed. Established since 1946, ESAA’s initial attempts to embed an ‘Anglo-American’ professional model were curtailed by the newly independent State enabling non-credentialed and relatively less experienced native practitioners to be registered as qualified accountants. The State’s influence persisted during the socialist period of nationalisation with a de-emphasising of the accounting profession as an occupational group. The early stages of market capitalism witnessed attempts to re-develop a private-sector-led profession with the support of international organisations, which re-asserted the dominant position of ESAA members. However, government, ESAA and international agencies’ efforts to repeal the original Accounting Practice Law and achieve market closure for the primary benefit of ESAA members were thwarted by political pressure from non-ESAA accountants. Nonetheless, ESAA eventually secured privileged access to the listed firms’ audit market. This paper aims to enhance our understanding of changing State-led priorities on accounting professionalization in African developing countries

International Standards on Auditing (ISAs): conflicting influences on implementation

This chapter sets the scene for further research and empirical forays on the adoption and use of auditing standards generally, and ISAs specifically, by providing (i) a review of the (limited) academic literature on ISAs, (ii) a broad picture of ISA ‘implementation’ (or the apparent variations or lack of implementation) in developing and emerging economies and (iii) a specific illustration of how ISAs have permeated a developing economy (Egypt)

Edging toward ‘reasonably’ good corporate governance

Over four decades, research and policy have created layers of understandings in the quest for “good” corporate governance. The corporate excesses of the 1970s sparked a search for market mechanisms and disclosure to empower shareholders. The UK-focused problems of the 1990s prompted board-centric, structural approaches, while the fall of Enron and many other companies in the early 2000s heightened emphasis on director independence and professionalism. With the financial crisis of 2007-09, however, came a turn in some policy approaches and in academic literature seeking a different way forward. This paper explores those four phases and the discourse each develops and then links each to assumptions about accountability and cognition. After the financial crisis came pointers n policy and practice away from narrow, rationalist prescriptions and toward what the philosopher Stephen Toulmin calls “reasonableness”. Acknowledging that heightens awareness of complexity and interdependence in corporate governance practice. The paper then articulates a research agenda concerning what “reasonable” corporate governance might entail

Semple Cochrane - Excalibur within a Scottish setting or the limitations of audit?

The paper outlines accounting irregularities which led to the near collapse of Semple Cochrane, one of last cases brought before a Tribunal under the aegis of the United Kingdom’s Joint Disciplinary Scheme. The accounting issues at stake provide a backdrop to an exploration of the role of the external auditors within corporate governance, the notion of expertise within the accounting profession, and possible limitations on what auditors can, and cannot, achieve, issues which remain at the centre of discussion on the role and value of audit