Management Control in Audit Firms Partners Perspectives - Case Study Example

A Critical Analysis or a Comparative Critical Analysis Table of Contents Overview 3 Summary of the Research Paper 3 Details 4 Critical Analysis 5 Discussion of Theories and Hypothesis 5 Data Collection and Analysis: Problem with the Method Used 5 Findings of the Researchers 7 Contribution of the Research Paper 8 Comparison with Similar Project 9 Clarity of Research Objective 10 Writing Styles and Presentation 11 Implications for Management Accounting (MA) 12 MA Issues Raised in the Paper 12 Lesson Learned 13 Practical Usefulness of Research Findings 14 Implication for the Future of MA 15 Suggestions for Improvements 16 Analysis of the Title of Article 16 Areas to Research 17 Research Methods 17 Discussion of the Findings 18 Description of the Analysis of the Research Paper 20 Approach Adopted to Analyse the Article 20 Brief Description of the Sources Used to Conduct the Analysis 21 References 22 Bibliography 23 Overview Summary of the Research Paper Audit firms have always been the subject of severe policy debates across the world over the past few decades. Critics from both USA and Europe have made dividing lines between the ownership restriction and concentration on the audit firms (Oxera, 2007). Even it addresses all other issues related to the management control system in the firms. This is an area that has been explored by many scholars and experts of this field but there has been no satisfying result. Bernard Pierce and Breda Sweeney researched on this similar field. Their research topic was ‘Management Control in Audit Firms – Partners’ Perspectives. The researchers have undertaken three audit firms for the particular research. The purpose of their study is to have an in-depth assessment of the control systems of the three firms discussed in the research topic in accordance to partners’ perspective. The findings of the paper reveal that certain aspects and controls that were not at par with the partners’ level and that resulted in well managed cost-quality conflicts. For cementing the effect of the other formal controls at the lower level, loads of audit methodology has been modified and changes were induced in the operating procedure. It mainly refers to the implementation of clan control. Certain aspects have also been addressed by the authors and these are informal communication which can provide a signal of the relationships among the partners and between the staffs and partners and the management of the external and internal relationships. This research paper has brought into light the significance of these controls to attain the balance between additional monitoring and trust building (Pierce, & Sweeney, 2005). Authors Details Bernard Pierce is one of the authors of this article and he is associated with Dublin City University Business School as the Dean and Professor of Accounting. He is also associated with the Association of Chartered Certified Accountants (ACCA). He had been the Head of the Department of Accounting and Finance department at University of Zambia. Recently, he became associated as a member with the Irish Accounting Review’s editorial board. His areas of interest are performance management, management accounting practice and management control, money laundering and controls, changing roles of management accountants and system effectiveness. Therefore, it can be said that being a specialist in the field of accounting and finance, the author possess interests in diversified areas in subjects related to these fields (DCU, n.d.). Another author of this article is Breda Sweeney who has been associated with the National University of Ireland in the department of Accountancy and Finance. His areas of interests are ethics, audit environment, product innovation and management control (NUI, 2010). Critical Analysis Discussion of Theories and Hypothesis The authors have undertaken reviews of the literature in the article which demonstrate the views of various researchers and simultaneously consider the outlook of the scholars, but they did not refer any theory related to the particular topic or on management accounting. The authors tried to present the article based on two approaches that are literature review and primary research. They emphasised on determining the outcome of the study by following a qualitative approach and conducted semi structured interviews for that purpose. They did not conduct any hypothesis testing to reach the ultimate solution or to generalise their findings. They described the opinions and responses of their interviewees and then they have critically analysed their views in respect of their findings from the literature reviews (Pierce & Sweeney, 2005). Data Collection and Analysis: Problem with the Method Used To accomplish the study the authors have chosen three audit firms among the four big firms. This is a good idea to assess an issue or a matter on the basis of the best practices available in the region but it could also have resulted in diluted outcome. The reason behind it is the avoidance of the smaller firms. Big audit firms possess comparatively higher number of employees along with a large customer base. The control mechanisms of those firms are also complicated. Moreover they also deal with a higher level of risk factor. Based on these attributes it can be stated that the decision of the authors of selecting these firms are appropriate but it could be better if they selected a combination of big, small and medium firm. The purpose of the study is to develop a well built management control system of an audit firm. Though the particular aspect is depended upon certain factors that have very less impact on the small audit firms, control techniques of small firms could add value to the research findings of this paper. It is quite evident that small and medium audit firms have different mechanism to control the formal and informal issues and internal policies. This can open new horizon in front of the researchers to develop a suitable and well build management control process for all kind of firms (Pierce, & Sweeney, 2005). Secondly, authors of the article did not obtain pilot survey in their research methods. They structured their questionnaire for the interview on the basis of the outcome of literature review, where they did not mention the control procedure of the three firms. It implies that through the pilot survey of each firm (involving one partner from a firm) they could have gained an idea of the real scenario of the firms and could have modified their questions accordingly. It is not possible for any researcher to strictly adhere to the guidelines of a research work prepared in the planning phase. Researchers need to be flexible enough throughout the research work as they can bring required changes in the methodologies. Therefore, the ultimate results also used to differ from the expected results. Instead of this fact, researchers were able to stick at all those factors what they wanted to implement, such as probing throughout the interview process made the interviewees aware of the results of the previous research and certain few factors. The researcher wanted to maintain the gender balance while selecting the respondents but due to the less number of lady partners in the chosen firms they were not able to do so (Pierce & Sweeney, 2005). Findings of the Researchers In the analysis part of the study, authors have emphasised the roles of the formal and the informal controls. The interviewee that signifies the partners of the firms recognised significance of the quality control in the current audit environment. From the responses of the interviewees, certain factors have been revealed and these are staff shortage, high staff turnover and volatile market. All these affect the quality standard of the audit firms. It has also appeared that the management or the partners of the firms are compelled to promote their staffs into the managerial level before they are capable to manage the portfolios associated with such level. Another interesting fact that has been revealed is that recently employees are under-utilised unlike previous circumstances, where employees were used to be over utilised. Regarding the control system of the management, mixed responses have been collected from the interviewees. According to them the control system should consist of both formal and informal elements. While making judgment in the critical audit areas, most of the partners referred to a broader set of control procedures, many of them have even commented on formal procedures. The responses of the partners of three different audit firms indicates different aspects as expected but it needs to be true at least for the particular region where the research has been conducted. From the overall analysis of the paper it can be stated that the findings are quite meaningful. It can also be justified. Due to the extensive problem of the staff turnover, proper training and development of staffs and employees have been recommended. Again informal communication is another suggestion and for strengthening the quality the firms need to implement that. Few other aspects have been revealed from the interview that is justified as per the demand of the study. Thus, it can be concluded that the paper represents meaningful and significant information regarding the topic. Contribution of the Research Paper From the previous study of the authors, they have found that the senior and the junior audit employees are engaged with a range of 10QTBs. The most important ones are the premature sign-offs (PSO), superficial review document and biasing sample selection. The outcomes that were revealed from the previous research were not at all expected from the audit firms. Therefore, they had decided to employ the partners’ perspective in their present study. The findings of the present study disclose loads of challenges that can arise while implementing clan and bureaucratic controls in the chosen firms of Ireland. All these challenges also provide an opportunity to further research. It is evident that the three audit firms that have been taken into account by the authors to conduct the study, can be the chief audiences and the major beneficiaries of the paper. The article indicates the factors that might have restricted the proper control and monitoring process of the internal policies in an audit firm and that further affect the quality standard. Therefore, it can be said that indirectly this article serve for all the audit firms in that particular region. Even the big companies of that region can be considered as the beneficiaries of this paper (Pierce & Sweeney, 2005). Comparison with Similar Project It is evident that the researches on this area are very rare. Therefore, it can be considered as the opportunity for the reviewer to held critical analysis of such an article and the writer has grabbed that opportunity. One of the objectives of this paper is to review the article with respect to a similar article which has been written by Karla M. Johnstone and Jean C. Bedard. Title of the article is ‘Audit Firm Portfolio Management Decisions’. Again the purpose of the article is to scrutinise the purposeful portfolio management decisions. Unlike the main article, this article has undertaken one particular audit firm and conducted an in-depth assessment. This article has focused on the differentiation of the fee profiles and risk of the firm’s recently accepted, discontinued and continuing clients. Aims and basic objectives of this article have also been discussed earlier. In this context, Johnstone and Bedard, the authors of this article emphasised more on the risk factor which is closely associated with the portfolio management decisions. Authors tried to investigate two contemporary issues and that are involvement of risk avoidance in recent client continuance decisions and new client acceptance decision in the portfolio management of a firm. The second issue includes the factors of risk those should be avoided. From few prior researches, it has been revealed that mostly the large audit firms try to avoid risk as they have more to lose than the smaller firms and that encompasses reputational decline and hazards of litigation. Again few research results, contradict the previous findings and according to them large firms used to accept a certain level of risk, even they bear additional risk through serving riskier clients as the risk can be spread among the large and diversified client portfolio. The authors found that study on the portfolio management of the audit firms need to be continued due to its potential economic consequences and that will affect both the audit firm and its clients. The authors further recognise that portfolio management is crucial for the long term financial security. Again for companies also, portfolio management decision of their audit firms is important as the social consequences leads to resignation of auditors (Johnstone & Bedard, 2004). Clarity of Research Objective It is a recognised fact that measuring or assessing audit quality is really complicated. Authors have found from their research that there are unstable degrees of tension between the requirement to attain the competitive cost and free targets and to protect the quality standards. The way through which quality reduction behaviour can be changed and concealed is difficult to detect and that arise another level of complexity. They further stated that the key concerns for an audit firm are to demonstrate apt level of control and to avoid litigation. They believe that three types of controls, that are bureaucratic, market and clan; and two kinds of control processes, interactive and diagnostic; provides a potential contribution towards the overall control system of an audit firm. But they also recognised that these contributions can be hampered by the intricacies of the audit environment. Authors of this article have considered two approaches. Previous researches had been conducted on the relatively junior audit staff to idealise the operation of the formal control system. On the other hand, the informal control system which has been suggested to be of utmost importance for the audit firms is not empirically examined. Based on both these approaches, it has been decided by the authors to conduct their research, focusing on the partners of the audit firms. From the recent scenarios, it has been found that partners are occupying the position of the senior management and owners and most importantly they want to elicit their perspectives on the functions of both the formal and informal aspects of the control system of audit firms. Depending on this approach it can be stated that decision of the authors are appropriate and will be effective enough to achieve the aim of the study (Pierce, & Sweeney, 2005). Writing Styles and Presentation Authors have written the article in an organised manner. The article started with a thorough discussion of control system and mentioned results of various previous research findings. The article has been structured as a dissertation which encompasses all the major aspects that needs to be involved in an article for providing in-depth analysis of a provided topic. It involves literature review which is essential for this kind of research study as the topic covers a vast area of research. Related issues of the same time period and same issue of different time frame need to be addressed and that can be possible only through citing views of different researchers and their results. They have analysed their research findings in a systematic manner and used specific and logical headings to demonstrate the results. This is helpful as it can attract the readers’ attention. Apart from the writing, presentation of the key findings in a tabular format and proper utilisation of the appendices to exhibit the questionnaire is subject to appreciation. Even referencing has been done in a proper format (Pierce & Sweeney, 2005). Implications for Management Accounting (MA) MA Issues Raised in the Paper Basically, two major issues have been detected and those are cost-benefit analysis and quality control system. Several issues of an audit firm have been discussed but those are more concerned with the human resource management and especially two major aspect, performance management and conflict resolution. From several recent researches, it is apparent that nowadays performance management is linked with the management accounting because of organisational demand and in that case all those issues can be considered under the head of management accounting. The article discloses that due to the staff problems, partners of the audit firms were compelled to promote the staffs to managerial level before they were actually eligible for the post and that refers to disguised unemployment. It further leads to the increase in cost and simultaneously affects the quality of the services. Lesson Learned Issues that have been discussed in the previous paragraph need to be resolved in a constructive manner and certain strategies related to this area have also been discussed in the article and that is really a value addition factor for the researcher and learner in this field. It is evident that whatever data, information and research outcome have been revealed from the article, is undoubtedly an important lesson but that are the minimum expectation from an article. This research paper has also provided certain factors beyond that expected level. It mainly consists of the ways of presenting the collected data and its evaluation pattern. In this article the authors have used a qualitative approach and conducted semi-structured interview process. The most crucial aspects that can be learned are the ways of using probes during the interview session. Again the article teaches that how the accumulated data can be assessed and presented in a well organised pattern by using a simple approach. Findings are sound but levels of critical factors are low. This is expected from a good and standard article. Practical Usefulness of Research Findings Various statements of the management scholars have been used in the article and that can be utilised as the management myth not only for the audit firms but also for the general organisations. Certain attributes of management accounting have been referred in the article and those are cost-benefit analysis, quality control factors, cost-quality conflict and most importantly clan control approaches which are not widely perceived aspects. These concepts can be implemented at a point of time and by any kind of organisation. Moreover, the study deals with the management control system of an audit firm and the impact of the management control procedure can be laid upon all the stakeholders of the audit firms and especially the internal and external customers. Control procedure should be well defined from the inception of a firm and that also need to be flexible. Therefore, it can be stated that the prospect entrepreneur who desires to own an audit firm or want to be a partner of an audit firm, can be the reader of this paper. Junior professionals who are still into the educational field need to study these kinds of papers to get accustomed with the organisational policies and culture. Eventually, it can be concluded that not only the authors served the major three audit firms and their associates, but also the contents in the paper served the vast audiences in large and involved several practical exposure. Implication for the Future of MA The findings of the present study reveal certain uncontrollable challenges that have arisen while implementing clan and bureaucratic controls in the chosen firms of Ireland. All these challenges somehow enable researchers to opt for further research. The contingency theory framework can also be adopted to assess the differentiations among the contextual variables. It will enable the authors to describe varying approaches of control. It has been found by the authors that instead of having stability in the clan membership, a rapid staff turnover among the lower level staffs has been experienced by the audit firms. It results in the promotion of certain inexperienced seniors to the manager level. Therefore, the buoyant market of qualified accountants has enhanced the difficulty of gaining the attention of the high calibre staffs. This can be the probable area of further researches. The big four audit firms in Ireland tried to frame their processes and structures into the small numbers of ‘specialist units’. These changing organisational structures can have an influence in both formal and informal control process and bestow chances of further research. The current study has been taken place according to the partners’ perspective and a future research can be conducted at the senior level to idealise the perception of them regarding clan controls. In this particular research study the authors or the researchers have considered various aspects of clan control such as trustworthiness of the team members, building relationship with the team members and others. It denotes that other aspects of clan control can be assessed in the further research. Through that they can further examine the relationship of the continually changing formal controls with clan control (Pierce & Sweeney, 2005). Suggestions for Improvements The core topic of this article covers a vast area and thus, can not be completed within a stipulated time period. Moreover, all the related aspects cannot be encompassed in a single research paper. Therefore, several potential scopes remained untapped. Few such areas will be demonstrated in this part along with the proper recommendation. Analysis of the Title of Article Basically the article includes certain major factors that are control system; performance level and most importantly the entire research process have been conducted based on the partners’ perspective. The title of the article is “Management control in audit firms—Partners’ perspectives”. Authors in the article tried to emphasise on the management control system and therefore, somehow the performance management approach has been missed out. Apart from this, another important aspect is the ownership of the partnership firm. This is also changing because of the rapid promotion of the partners and employees but this issue is not so important. Region of the research work plays a vital role in the title as the reader must identify the region before they start reading. In this article, authors mainly encompassed the three chief audit firms of Ireland and entire study is based upon that. In that case inclusion of the name of the region is necessary. Areas to Research Focus of the researchers was mainly in the effective control system of the firms but to satisfy the demand of the study they have discussed various related topics. First of all, analysis of the findings of the collected data reveals certain important aspects and the most important among that is the requirement of proper training of the staffs and recruitment policies. Both these aspects are related to the human resource management. Therefore, while discussing the final findings, the researchers or the authors required to involve HR aspects also. Appropriate recruitment policy enables an organisation to select a deserving candidate and after that, training and development process of that employee further enhance the quality standard of the given firm. Evaluation and implementation of these mechanisms, in a proper manner require extensive involvement of human resource management. Research Methods It has already been discussed that few changes were required in the research methods to make it effective and justify the title of the article. Authors or the researchers had used semi-structured interview process as they had to probe certain things in which they were successful. The interviewees were provided the gist of the previous research conducted by the authors. They have been even asked to put some light on those findings too. This is a brilliant idea to make the interviewee accustomed with the previous researches. Obtaining this mechanism, researchers were able to capture the attention of the interviewees towards their previous study and were able to make them more involved with the recent study. This is again a brilliant idea and execution of this method got success. But the problem is with the selection of the samples. It was predetermined that the research work will be conducted based on the three big audit firms of Ireland. Also, to highlight the overall effect of the control system in the audit firms of that particular region, authors should have undertaken all kind of audit firms especially small audit firms. It is true that risk factor has been engaged in the objective of the study and big audit firms tend to be more risky, but the topic emphasises more on the management control system. Therefore, to reach at the proper conclusion that how the control system in the audit firms can be improved, researcher should undertake a combination of three kinds of audit firms instead of three big audit firms. From the overall analysis, it can be stated that the adopted methods and policies to accomplish the study were sound to certain extent but researchers should emphasise more on the selection of the audit firms to employ more critical assessment of the management control system of audit firms.   Discussion of the Findings The manner in which the authors have discussed the findings, deserve appreciation as they indicate each and every concerned factor of accumulated data. But it is also true that there is a better technique to exhibit the findings. After analysis of entire article, it has been found that though the authors used tabular format to represent the findings, they did not employ any charts and diagrams to make it more attractive and easier to understand. Apart from that the authors did not obtain any comparative study. They could have undertaken a similar case and analysed their data in comparison to that. Again they could have framed their questionnaire with certain close ended question which could have enabled them to represent the data through a chart and to draw ultimate conclusion with the help of hypothesis testing which is more authentic tool of assessing data (Pierce, & Sweeney, 2005). Description of the Analysis of the Research Paper Approach Adopted to Analyse the Article It is evident that the researches on this area are very rare. Therefore, it can be considered as the opportunity for the reviewer to held critical analysis of such an article and the writer has grabbed that opportunity. It has been intended to frame the structure of the paper in such a way that all the major attributes of the article can be indentified and discussed. It refers to the critical analysis of literature review. Methodology and findings need to be conducted. But concentrating only on these factors cannot enhance the quality of critical review of any article. While conducting review of the article; assumptions, findings and contributions of the article or paper are required to be considered meanwhile. At the beginning, details of the authors and target audience should be addressed. Again while concluding, the article’s future scope of the study should be expressed. Critical review of article does not denote that, only the discussion regarding the particular article will be undertaken but it encompasses explanation and implication of the core subject. In this case the core subjects are the management accounting and its practices and audit. Therefore, extensive exploration of the above mentioned subjects are necessary to involve. Furthermore, it can be stated that with these small and broad requirements of critical analysis the paper has been designed instead of theme by theme analysis. Brief Description of the Sources Used to Conduct the Analysis Few extra sources need to be considered while analysing the article. Critical review of an article encompasses certain factors for that the writer needs to refer certain other articles and journals. He may also be required to add certain internet sources. First of all, website of the Dublin City University has to be referred to accumulate information regarding the authors. The authors of this article are Prof Bernard Pierce and Prof Breda Sweeney. From this particular website, information about Prof Bernard Pierce has been collected as he was associated with the university as Dean. Secondly, an article has been chosen to conduct a comparative study with the main article. The name of the article is ‘Audit Firm Portfolio Management Decisions’ and it has been written by Karla M. Jhonstone and Jean C. Bedard. This article emphasised on the risk factor of the audit firms along with the portfolio management decisions. The main theme of the article is quite similar to the main article. These are the main two sources that have been used but apart from that, few other supporting sources have also been considered. One is the article of Oxera Group which has been focused more on the ownership rules of the audit firm. It has also demonstrated the present scenario of the audit market. The other article is ‘Separation of Ownership and Control’. It has been written by Eugene F. Fama and Michael C. Jensen. This article also focused on the ownership aspect and has a significant importance in the main article as it considers the control mechanism also. References DCU, No Date. Prof Bernard Pierce. Staff Details. [Online] Available at: http://www.dcu.ie/info/staff_member.php?id_no=1596 [Accessed November 23, 2010]. Johnstone, K. M. & Bedard, J. C., 2004. Audit Firm Portfolio Management Decisions. Management Accounting Research. 42 (4), pp.1-33. NUI, 2010. Dr. Breda Sweeney. Staff. [Online] Available at: http://www.nuigalway.ie/acc/staff/breda_sweeney/index.html [Accessed November 23, 2010]. Oxera, 2007. Ownership Rules of Audit Firms and their Consequences for Audit Market Concentration. Auditing. [Online] Available at: http://ec.europa.eu/internal_market/auditing/docs/market/oxera_report_en.pdf [Accessed November 23, 2010]. Pierce, B. & Sweeney, B., 2005. Management Control in Audit Firms—Partners’ Perspectives. Management Accounting Research. 16 (2005), pp.340-370. Bibliography Atrill, P. & McLaney, E., 1994. Management Accounting: An Active Learning Approach. Wiley-Blackwell. Bacal, R., 1999. Performance Management. McGraw-Hill Professional. Chadwick, L., 1993. Management Accounting. Routledge. Fama, E. F. & Jensen, M. C., 1983. Separation of Ownership and Control. Files. [Online] Available at: http://student.bus.olemiss.edu/files/jeggington/OLE%20MISS%20PHD%20Program/Fin%20635/2/famajensen.pdf [Accessed November 23, 2010]. Lucey, T., 2003. 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