The dynamics of a regulatory space realignment: strategic responses in a local context
Mary Canning
Dublin City University Business School
Dublin City University
Dublin 9
Ireland
00353-1-7005679
Mary.Canning@dcu.ie
Brendan O’Dwyer
University of Amsterdam Business School
Plantage Muidergracht 12
1018 TV Amsterdam
The Netherlands
0031-20-5254260
b.g.d.odwyer@uva.nl
The dynamics of a regulatory space realignment: strategic responses in a local context
Abstract
This paper seeks to extend and deepen our understanding of the production and interpretation of
accounting regulation. It analyzes how, in response to a regulatory crisis, a revised set of regulatory
arrangements and rules, principally in the realm of disciplinary procedure oversight, was re-negotiated
and re-shaped in the Irish professional accounting context over a ten year period. We mobilize the
concept of regulatory space (Hancher & Moran, 1989; Young, 1994) and Oliver’s (1991) typology of
strategic responses to institutional pressures to trace the actor dynamics, strategies and resources
enrolled throughout the process of developing and interpreting the proposed regulations. While prior
research finds that regulators adopt compromise or acquiescence strategies when confronted with
aggressive regulatee resistance, thereby significantly diluting proposed regulations (see, Shapiro &
Matson, 2008), we unveil a context where regulators successfully enrolled strategies of defiance to
repel this resistance. We also find limited evidence of agreement on meaning between the regulator
and regulatees which conceptions of regulatory space see as central to the initial interpretation of
regulatory rules (Scott, 2001). Our analysis provides a counterpoint to prior research (see, Malsch &
Gendron, 2011) suggesting that the accounting establishment has been highly successful in
influencing the design and interpretation of new regulations aimed at overseeing the accounting
profession. Drawing on our findings, we suggest that the passivity of national regulators in the process
of developing and implementing (local or global) regulations should not be automatically presumed.
We conclude with a call for an enhanced focus on the influence of national political and social
contexts on the development and interpretation of accounting regulations.
Key words: accounting regulation; accounting profession; institutional change; regulatory space; self
regulation
1
The dynamics of a regulatory space realignment: strategic responses in a local context
INTRODUCTION
Regulatory arrangements largely comprise organizational routines and institutionalized
procedures which are occasionally punctuated by economic or political crises (Hancher & Moran,
1989). Such crises induce change, or at least initiate a search for alternative institutional
arrangements. In the accounting profession, one such regulatory crisis occurred in the USA in the
aftermath of the high profile corporate collapses of Enron and WorldCom. This resulted in the selfregulatory status of the accounting profession attracting much greater scrutiny and criticism and led to
the establishment of independent oversight bodies such as the Public Company Accounting Oversight
Board (PCAOB) as part of efforts to restore publicly conferred trust and legitimacy in financial audit
(and reporting) (Arnold, 2009; Cooper & Robson, 2006; Geunin-Paracini & Gendron, 2010; Sikka,
2009). These changes spread to many other jurisdictions where self-regulatory regimes were realigned
to afford greater state oversight over key aspects of the accounting profession’s activities (Caramanis,
Dedoulis, & Leventis, 2010; Hazgui, Lesage, & Pochet, 2011; Humphrey, 2008; Humphrey, Kausar,
Loft, & Woods, 2011; Malsch & Gendron, 2011).1
This paper examines the aftermath of a crisis of faith in the self-regulatory arrangements
surrounding the Irish accounting profession. The crisis emerged in the mid-1990s, prior to the
notorious corporate collapses in the USA, and led to a lengthy process aimed at altering the
institutional arrangements governing the (self) regulation of professional accounting bodies (PABs)
operating in Ireland. The process culminated in the establishment of a new oversight body for the
accounting profession, the Irish Auditing and Accounting Supervisory Authority (IAASA), which was
given the authority to supervise and intervene in the regulatory functions of the PABs (O’Regan,
2009, 2010). We study how these revised regulatory arrangements and rules, principally in the realm
of disciplinary procedures, were re-negotiated and re-shaped over a ten year period (from 1999 to
2009). We mobilize the concept of regulatory space (see, Hancher & Moran, 1989; MacDonald &
Richardson, 2004; Nicholls, 2010; Scott, 2001; Young, 1994, 1995) and Oliver’s (1991) typology of
strategic responses to institutional processes to theoretically frame our analysis. The analysis focuses
on two interrelated features of the regulatory realignment process: firstly, how a revised regulatory
mandate for the new oversight body (IAASA) was initiated, debated and developed by the main actors
in the process and, secondly, the nature of the strategies and resources enrolled by these actors.
1
Please see Appendix I for a list of abbreviations.
2
The paper seeks to contribute to the literature examining the processes through which
professional accounting regulation is developed and interpreted (see, for example, MacDonald &
Richardson, 2004; Malsch & Gendron, 2011; Shapiro & Matson, 2008; Young, 1994, 1995). While
there has been increasing exploration of the regulation of accounting bodies, our knowledge of the
processes through which new regulatory arrangements are formulated in different national contexts
remains rudimentary (Humphrey, Loft, & Woods, 2009; MacDonald & Richardson 2004; Malsch &
Gendron, 2011). The paper specifically responds to Shapiro and Matson’s (2008) request for research
“to better understand how pre-existing forms of monitoring and surveillance are translated into new
forms and [are] … articulated as a solution to society’s problems” (p.225). Our analysis unveils a
process within which regulators enrolled extensive and largely successful strategies of defiance in
order to repel aggressive regulatee resistance aimed at diluting proposed regulations. We find, in
contrast to prior research (see, Shapiro & Matson, 2008), little evidence of the use of substantive
acquiescence or compromise strategies by regulators, with largely symbolic commitments to
compromise prevailing. These findings contradict research suggesting that the accounting
establishment has been highly successful in influencing the design and interpretation of new
regulations (Malsch & Gendron, 2011) while simultaneously challenging claims that accounting
regulatory regimes are inevitably ineffective due to the composition of their mandate being prone to
extensive dilution by vested interests (Shapiro & Matson, 2008).
The paper also responds to calls for an enhanced research focus on the initial choices made
by, and influences on, regulators in interpreting their mandate – what we refer to as the ‘mandate
interpretation stage of a regulatory realignment’ (Cooper & Robson, 2006; MacDonald & Richardson,
2004; Young, 1994, 1995). We analyze the process through which the legally backed mandate for the
new oversight body (IAASA) was initially interpreted by regulators and regulatees; an aspect of the
regulatory change process that is rarely considered in prior research studying the regulation of
accountants (see, MacDonald & Richardson, 2004). This is a stage in a regulatory reappraisal that can
have a significant impact on the substantive effects of any regulatory realignment given it entails the
negotiation of the practical meaning of regulation. Moreover, it is also a central stage where
challenges to the legitimacy of regulators may arise. Our analysis unveils the nature of the resources
enrolled (Hancher & Moran, 1989) and the strategies employed by the actors (Oliver, 1991) seeking
to interpret key aspects of IAASA’s mandate. We expose attempts by the PABs to curtail this mandate
by seeking to impose beliefs and boundaries on what IAASA was capable of doing. We find that
despite the new regulations having acquired legal backing, the PABs were highly uncooperative and
3
continually sought to defy the substance of the regulations. In particular, they tried to undermine the
credibility of IAASA through, inter alia, belittling the expertise of the body and its members,
imposing their own legal opinion on the interpretation of the regulations, challenging the
constitutionality of the regulations, and reinterpreting key aspects of the regulations in a manner
consistent with curtailing intervention in their existing disciplinary arrangements. We therefore
uncover little evidence of the “joint [regulator and regulatee] construction of meaning” which
conceptions of regulatory space see as central to the initial interpretation of regulatory rules (see,
Scott, 2001, p. 9). We argue that the persistent defiance of the PABs reflected a profession in apparent
denial about the gradual accumulation of (local and global) social and political pressures questioning
the self-regulation of accountants. We further posit that this insular, unrelenting, and largely
unsuccessful resistance may reveal some of the internal dynamics of ‘moral seduction’ within
professions whereby professionals become unconsciously biased and find it difficult to abandon their
own self-interest even when seeking to do so (Moore, Tetlock, Tanlu, & Bazerman, 2006).
Our focus on studying accounting regulatory change is significant as researching the
(changing) regulatory practices of accountants renders visible the means through which accounting
and accountants can become powerful social and economic forces in different societal contexts
(Cooper & Robson, 2006; Radcliffe, Cooper, & Robson, 1994). Changes in the regulatory
arrangements for accountants offer the potential for greater democratic control of their activities in the
light of often expressed concerns that non-state regulatory organizations (such as PABs) can
potentially restrict public accountability (Sikka & Willmott, 1995; Sikka, 2001). Moreover, since it is
often argued that organizations are resistant to change, awareness of the initial choices made by, and
influences on, regulators in interpreting their mandate and enacting their regulatory strategy is crucial
to enhancing our broader understanding of the way in which legislation governing the activities of
accountants is eventually implemented in society (MacDonald & Richardson, 2004). As Hancher and
Moran (1989) maintain, we cannot seek to understand regulatory arrangements in the present without
understanding how they have emerged in the past.
We concentrate on a regulatory realignment in a national (Irish) context for three key reasons.
First, the regulatory realignment in Ireland was initiated prior to the high profile bankruptcies in the
USA which influenced the formation of new regulatory structures across North America and Europe.
Hence, the mimetic and isomorphic pressures that Malsch and Gendron (2011) claim led to many
jurisdictions following the example of the PCAOB in the USA were not a contextual feature of the
initial stages of the realignment process studied here; especially when the self-regulatory apparatus of
4
the Irish accounting profession was being publicly debated and oversight solutions were being
offered. Second, while local regulatory sites do not exist in a vacuum (Djelic & Sahlin, 2009;
Humphrey, Kokkali, & Samsonova, 2010; Humphrey et al., 2009; Loft, Humphrey, & Turley, 2006;
Malsch & Gendron, 2011; Richardson, 2009), studying these sites can reveal nuances and trends in
the development and interpretation of regulations at national level thereby unveiling contextually
contingent factors that local regulators must confront either in isolation or as part of efforts to
translate global regulatory trends within their national contexts (see, for example, Caramanis et al.,
2010; Hazgui et al., 2011; Jeppesen & Loft, 2011; Malsch & Gendron, 2011). Moreover, the
translation of transnational regulatory oversight models within different national contexts is
contingent on the ability and willingness of nation states to intervene in the self-regulatory status of
national professional associations (Suddaby, Cooper, & Greenwood, 2007). This renders the study of
nation state-professional association regulatory negotiations highly relevant to our aim of improving
our understanding of regulatory production and interpretation more generally. While studying the
relationship between the nation-state and professional associations is sometimes characterized as
outmoded given the emergence and dominance of transnational actors such as the Big 4 firms, quasi
regulatory actors such as the WTO, and large trading unions such as the EU, these actors have not
displaced the nation state and its professional associations but rather, have, to varying degrees, been
superimposed on the traditional actors (Suddaby et al., 2007). This further highlights the importance
of continuing to study the influence of these traditional actors on regulatory production and
interpretation (Caramanis et al., 2010; Jeppesen & Loft, 2011; Malsch & Gendron, 2011).2
Third, the regulatory realignment we study coincided with the emergence of a neo-liberal
economic and political hegemony in Ireland in which the country became the poster child for neoliberal, open and ‘free’ economies, so much so, that in 2008 Ireland was ranked third in the Wall
Street Journal/Heritage Foundation Index of Economic Freedom behind Hong Kong and Singapore.
Hence, a forceful anti-regulatory rhetoric came to dominate political and popular discourse throughout
the ten year period over which the regulatory realignment we study took place. However, and perhaps
surprisingly, despite this widespread rhetoric we show how IAASA received significant political
backing for its establishment and its mandate in the face of considerable PAB/Big 4/5 resistance
deriding increased state intervention in the regulation of accountants.
2
Transnational actors are also said to rely on the authority of the nation state to discipline professional associations to adopt
regulatory logics and practices that are more aligned with commercial than professional/public interest objectives (see,
Sikka, 2009). Hence, while not the explicit focus of this study, specific examinations of nation state-professional association
negotiations over regulation are important for they can unveil the nature and extent of this claimed superimposition and the
extent to which nation states are willing and able to translate transnational regulatory logics of commercialism within
national professional associations.
5
The remainder of the paper is structured as follows. The next section discusses the concept of
regulatory space and adapts Oliver’s (1991) typology of strategic responses to institutional pressures
to theorize the nature of the strategies available to actors in a regulatory space realignment. The
research method employed is then outlined. A case narrative analyzing the process through which the
regulatory realignment proceeded is then presented. This is reported in chronological order over a ten
year period through three separate stages to reflect the deliberations and negotiations that took place
between different actors, in particular the regulatory authority (Irish Department of Enterprise, Trade
and Employment (DETE)), the (proposed) new oversight body (IAASA), the PABs, and the major
professional services firms (Big4/5). The final section discusses the findings and concludes with a call
for an enhanced research focus on the influence of national political and social contexts on the
development and interpretation of accounting regulation.
ANALYTICAL FRAMEWORK
We mobilize the concept of regulatory space (see also, Hancher & Moran, 1989; MacDonald
& Richardson, 2004; Nicholls 2010; Scott, 2001; Young, 1994, 1995) to frame the empirical analysis
as it privileges the study of the dynamics through which powerful organizations gain, maintain, and
sometimes lose their dominant positions within a regulatory arena (Black, 2002; Hancher & Moran,
1989). This is particularly pertinent for analyzing the entry of a new regulatory body (such as IAASA)
into an existing regulatory arena (MacDonald & Richardson, 2004). Moreover, the concept focuses
attention on the importance of interdependence and bargaining between sophisticated and powerful
actors within regulatory processes, thus challenging views of regulation as being hierarchically
exercised by the state or its approved oversight bodies (Hancher & Moran, 1989; Scott, 2001). The
concept is particularly appropriate for examining changes or re-negotiations of rules within an
existing regulatory arena (Scott, 2001), a central focus of this study, as it directs researchers to
examine closely the ways in which key actors promote various regulatory positions (Young, 1994,
1995). Oliver’s (1991) typology of strategic responses to institutional processes complements, extends
and deepens this focus on actor interactions. It conceptualizes the nature of the passive and active
strategies available to actors in a regulatory realignment as well as indicating the circumstances under
which key actors may be most likely to employ passive or active strategies in their promotion of
regulatory positions (see also, Bealing, Dirsmith, & Fogarty, 1996; Shapiro & Mason 2008).
6
The regulatory space concept
A regulatory space is an abstract conceptual space constructed by people, organizations, and
events acting together upon a set of specific regulatory issues subject to public decisions (Jonnergard,
2011; Jonnergard & Larsson, 2007; MacDonald & Richardson, 2004; Young, 1994, 1995). Within
this space, different issues and interests are voiced and regulatory agendas and the “destiny for
different forms of regulation are set” (Jonnergard & Larsson, 2007, p.471). An analysis of a
regulatory space does not immediately assume ‘regulatory capture’ whereby powerful special interest
groups (representing the regulated entities (regulatees)) capture the regulatory process to promote the
(economic) welfare of their members (Thornburg & Roberts, 2008), but rather seeks to understand the
nature of the shared space, the rules of admission to the space and the relations between occupants.
Regulators must negotiate boundaries to regulation with the regulated and with others who might wish
to occupy the space. Key issues that require negotiation are the practical meaning of the legislation
and the legitimate role of the regulator among regulatees (Hancher & Moran, 1989; MacDonald &
Richardson, 2004).
In processes involving the re-negotiation of regulation the onus is on the regulator to address
the existing normative discourses that have been applied to activities within the space. A regulator can
“either work within or attempt to influence these normative discourses in order to establish and
maintain the legitimacy of its actions” (MacDonald & Richardson, 2004, p. 492). With regard to the
regulatory realignment studied in this paper, the existing and largely unquestioned normative model
of, and discourse surrounding the (self)-regulation of accountants was viewed as requiring significant
change and several alternative normative discourses were initially proposed (RGA, 2000). A new
regulatory oversight body (IAASA) was formed to oversee key aspects of the operation of
accountants’ self-regulatory regime. The nature and extent of this regulatory change was heavily
dependent on the mandate for action ascribed to IAASA which, in order to be effective, needed to be
accepted as legitimate by various powerful actors (primarily the PABs, in this instance) operating in
this space. These actor expectations could influence the “types of actions that [we]re seen as
appropriate for [IAASA] to undertake” (Young, 1994, p. 88). Examining this process of “agenda
formation” (Young, 1994, p. 88) for regulatory bodies in conjunction with the formation of the new
regulations themselves is central to developing an understanding of the nature of the construction or
realignment of a regulatory space.
7
Strategies and underlying rationales in a regulatory space realignment
Oliver’s (1991) typology of strategic responses to institutional pressures facilitates
consideration of the nature of the strategies available to actors in a regulatory space realignment (see
also, Shapiro & Matson, 2008). Oliver (1991) theorizes that actors will adopt a variety of passive and
active strategic responses to proposed institutional changes largely aimed at resisting threats to their
autonomy. Oliver’s (1991) typology specifically theorizes “how elite and powerful institutions will
attempt to actively shape and defeat legislation and regulation that adversely affects their interests”
(Shapiro & Matson 2008, p. 201). For example, when regulatees believe that regulatory changes may
harm their interests, Oliver (1991) suggests that they will try to render proposed regulations largely
symbolic or block them altogether. Within this process, Oliver (1991) identifies five possible
strategies of response ranging from passive to active: acquiescence, compromise, avoidance, defiance,
and manipulation.
An acquiescence strategy adopts tactics encompassing: unconsciously following taken-forgranted rules or values; imitating other institutional or organizational models; and consciously
complying with existing values, norms or regulations (Oliver, 1991). These tactics reflect actor
behaviour in arenas where norms are well established and allow little scope for active actor resistance.
A compromise strategy mobilizes the tactics of balancing, pacifying and bargaining (Oliver, 1991;
Shapiro & Matson, 2008). Balancing tactics attempt to achieve parity among or between multiple
external and internal stakeholders’ regarding their various demands. Pacifying tactics adopt minor
levels of resistance to institutional pressures and primarily focus on appeasing the institutional sources
that are being resisted (Oliver, 1991). Bargaining tactics are a more active form of compromise
involving attempts by actors such as regulatees, to obtain some concessions from, say, regulators,
regarding their demands or expectations. For example, in the regulation of disciplinary issues in the
accounting profession, the definition of regulatory infractions can primarily become a matter of
interpretation between regulators and regulatees. The interpretation of rules is seen as a matter of
ongoing adjustment and debate with the strictness or otherwise of enforcement linked to factors such
as the social or relational distance between regulators and regulatees and the frequency of contact
between them3 (Scott, 2001, p. 347). Hancher and Moran (1989) argue that regulation cannot happen
Less strict enforcement has also been linked to “the revolving door between regulators and regulatees” (Scott, 2001, p.
346).
3
8
without extensive cooperation between the actors in a regulatory space in which regulators must
negotiate boundaries with the regulated especially regarding the practical meaning of the regulation.
Regulators may also adopt these tactics when developing regulation in order to avoid potential legal
challenges by regulatees aimed at restricting their powers.
An avoidance strategy attempts to preclude the necessity of conformity by shielding actors
from inspection and public scrutiny using tactics of concealment, buffering and/ or escape. For
example, regulatees subject to new regulations may conceal their nonconformity with norms of
expected behaviour behind “a façade of acquiescence” (Oliver, 1991, p.154) thereby signifying a
mere symbolic acceptance of regulator requirements. Regulatees may develop plans and procedures
that offer the appearance of conformity with regulator rules and norms but with little intention of ever
implementing them. Actors may also buffer themselves from institutional pressures of inspection or
scrutiny by partially detaching or decoupling their technical activities, in our case self-regulatory
arrangements, from external contact. However, this tactic may prove misguided for actors like PABs
whose legitimacy and economic success partly depend on public approval and scrutiny of their
practices. Actors may also attempt to escape from institutional rules or expectations by leaving the
domain altogether or altering their own goals or activities.
A defiance strategy resists institutional pressures more actively and enrols the tactics of
dismissal, challenge, and attack. Dismissing or ignoring proposed regulations by regulatees is likely to
occur when it is perceived that the potential for external enforcement of regulations is low, when
regulator objectives radically conflict with regulatees’ institutional values or requirements, or where it
can be argued that the regulations are based on flawed premises (Shapiro & Matson, 2008).
Regulatees may also actively challenge or contest the norms or collective rules of the institutional
environment that regulators are constructing especially when they consider them to be at variance
with “their own insular and elevated vision of what is, or should be appropriate, rational or
acceptable” (Oliver, 1991, pp.156-157). An attack tactic is distinguishable from a challenge tactic by
the intensity and aggressiveness of an actor’s active deviation from institutional pressures and
expectations. Attacking organizations aim to undermine and strongly condemn institutionalised values
and the actors that express them.
Manipulation is the most active response to institutional demands and expectations and
involves a resolute and opportunistic attempt to co-opt, influence or control institutional pressures and
9
evaluations (Oliver, 1991). It aims to change or exert power over the content of the expectations
themselves or the actors that seek to express or enforce them. Co-opt tactics attempt to persuade an
institutional constituent to join the actor and thereby neutralize institutional opposition and enhance
legitimacy. Influence tactics attempt to shape values, beliefs, definitions or criteria of acceptable
practices or performance. For example, regulatees may offer to redraft proposed regulations or
suggest changes in content with the aim of making them more compatible with their concerns. They
may also seek to lobby regulators or directly influence public perceptions to dilute the content of
proposed regulations (Shapiro & Matson, 2008). Controlling tactics are less about shaping or
influencing institutional activity and more about establishing power and dominance over external
constituents, such as regulators, that are applying pressure on the organization.
The specific strategies adopted in a regulatory space realignment depend on the interrelated
nature of actors’ roles, the resources available to them and the accompanying power deriving from
these resources. The capacity of actors to adopt passive or active response strategies is contingent on
the resources they can and do employ as part of their efforts to influence the establishment and
interpretation of proposed regulatory rules and associated regulatory boundaries. Four core resources
are available to actors: formal (legal) authority; organizational capacities such as marketing, lobbying
and professional advice and expertise; control of information; and wealth (Hancher & Moran, 1989;
Kaye & Gibbons, 2008; MacDonald & Richardson, 2004; Scott, 2001; Young, 1994, 1995).
Organizational capacity and information resources are especially influential in determining the power
regulatees have to develop defiance and manipulation strategies which may influence the formulation,
interpretation and enforcement of regulations. The possession of wealth can also support regulatees’
adoption of defiance or manipulation strategies aimed at directly or indirectly corrupting regulatory
processes through funding lobbying activities, research and legal opinion shopping (Shapiro &
Matson, 2008). As resources are dispersed or fragmented, regulatory power is also likely to be
unevenly dispersed (Scott, 2001) with actors in the space typically interacting through various formal
and informal networks which tend to be complex, dynamic and horizontal, involving negotiated
interdependence and bargaining (Kaye & Gibbons, 2008; MacDonald & Richardson, 2004; Young,
1995).
10
RESEARCH METHODS
To address our core objective of extending our understanding of regulatory production and
interpretation we conducted a qualitative analysis of a range of archival data. As the realignment of
the regulatory space from 1999 to 2009 centrally involved interactions between the DETE, the PABs4,
the Big 4/5 firms5 and, latterly, the newly formed oversight body (IAASA), our analysis focuses
predominantly on these actors. However, other actors, for instance: government ministers; media
correspondents; and other regulatory bodies entered and exited the space at various stages throughout
the realignment and, hence, their inputs are also examined.
We analyze three distinct stages in the regulatory realignment process: stage 1 - proposal to
realign the regulatory space; stage 2 - limiting the realignment of the regulatory space; and stage 3 mandate interpretation within a regulatory space realignment. The core formal documentary evidence
analyzed in each stage of the process is outlined in Table 1 below. This included: the Report of the
Review Group on Auditing (RGA) which proposed significant changes to the regulation of the
accounting profession in Ireland when issued in 2000; all submissions made to the DETE in response
to this report; the Companies (Auditing & Accounting) Bill, 2003 (hereafter the Bill) that was drafted
to implement some of the RGA recommendations; all submissions made to the DETE in response to
this Bill; transcripts of all debates in the Irish parliament (the Houses of the Oireachtas6) surrounding
the content of the Bill. We also analyzed the consultation paper issued by IAASA seeking views on
the practical implementation of the legislation and all submissions made in response to this paper as
well as IAASA’s feedback paper prepared in response to these submissions. In addition to official
documents we scrutinized several other relevant sources including: media reporting commenting on
the local regulatory changes and the implementation of the EU Eight Directive over the ten year
period; articles dealing with the regulatory changes in the member journals of the PABs; opinion
pieces on the impact of global regulatory developments on the regulatory changes; all public
pronouncements and presentations made by IAASA since its formation; and all press releases
emanating from the DETE, IAASA and the PABs over the ten year period studied.
Insert Table 1 about here
4
The PABs that we focus our attention on are the nine professional accounting bodies that have a presence in Ireland and
now come within IAASA’s supervisory remit: Association of Chartered Certified Accountants (ACCA); Association of
International Accountants (AIA); Chartered Institute of Management Accountants (CIMA); Chartered Institute of Public
Finance & Accountancy (CIPFA); Institute of Chartered Accountants in England & Wales (ICAEW); Institute of Chartered
Accountants in Ireland (ICAI); Institute of Chartered Accountants of Scotland (ICAS); Institute of Certified Public
Accountants in Ireland (ICPAI); and Institute of Incorporated Public Accountants (IIPA) (IAASA, 2006, p.23).
5 The Big4/5 firms include: Deloitte & Touche; Ernst & Young; KPMG; PricewaterhouseCoopers; and the former Arthur
Andersen.
6 Oireachtas is a Gaelic language term meaning ‘Parliament’ in the English language.
11
Consistent with much prior research studying emerging developments in accounting
regulation we used a modified form of content analysis (see, Larsson, 2005; MacDonald &
Richardson, 2004; Malsch & Gendron, 2011; Shapiro & Matson, 2008; Suddaby et al., 2007) to
analyze the archival data. This focused on examining both the manifest (literal meaning) and latent
(deep structural meaning) content of the evidence (Shapiro & Matson, 2008; Suddaby et al., 2007).
Initially, we read all the documentary evidence separately focusing on the manifest content of the
documents. This focus led to an identification and description of the structural changes to the
regulatory space, identifying the key actors involved and the boundaries of their responsibilities and
authority. The key issues emerging in the regulatory change process were also unveiled. We then
discussed these analytical insights in depth over an extended period. The second analysis phase
concentrated on the latent content of the data involving an interpretative content analysis focused
more explicitly on understanding and explaining the data in the context of the central characteristics
of the regulatory space concept. The third analysis phase sought to uncover, guided by Oliver’s (1991)
typology, the specific strategies adopted and the resources utilized by the key actors as they sought to
influence the emerging regulations. This involved re-reading and interpreting the data separately, and
then engaging in discussion and debate until agreement was reached about their meaning in the
context of the analytical framing drawing on key aspects of the regulatory space concept and Oliver’s
(1991) typology.
The first stage of our analysis focuses on the initiation of the proposed changes to the
delegated self-regulation of Irish accountants which were outlined in a proposal document published
by the RGA in 2000 (see also, O’Regan, 2009, 2010). Responses to the regulatory changes proposed
in this document were requested by the DETE (DETE, 2000) and 37 submissions were received in
January 2000. We wrote to the Freedom of Information Office of the DETE requesting a copy of all
of the submissions received by them. We received full copies of 30 submissions.7 Twenty-four of
these submissions dealt with issues related to the self-regulation of the accounting profession (see
Table 1).
Following the receipt and consideration of submissions on the RGA, the DETE proposed
legislation (the Bill) to establish IAASA. This event is characterized as Stage 2 of our analysis. The
DETE invited interested parties to respond to the proposed legislation. We requested and received full
7
We received four partial submissions with comments blackened out (which we were unable to use given their partial
nature). We were refused access to two submissions on the grounds that they contained prejudicial information, and we were
informed that the records for one submission did not exist.
12
copies of the 60 submissions from the Freedom of Information Office of the DETE, 21 of which dealt
with issues relating to the setting up of an oversight body.8 These submissions together with the
discussions of the Bill that took place before the Houses of the Oireachtas formed the basis of our
analysis of this stage of the process (see Table 1). We reviewed the final Companies (Auditing &
Accounting) Act, 2003 (hereafter 2003 Act) that was published subsequent to DETE’s consideration
of the submissions and transcripts of subsequent Houses of the Oireachtas debates in order to assess
the extent to which the concerns of the relevant actors had been addressed in the final Act (see Table
1).
Subsequent to the publication of the 2003 Act, IAASA issued a consultation paper which
explicitly considered regulations regarding its role in governing the disciplinary arrangements of the
PABs (termed Section 23 enquiries). Comments were invited from interested parties but submissions
were only received from the PABs. IAASA responded to these submissions before moving to finalize
its mandate in the final regulations. This third stage, entitled ‘Mandate interpretation within a
regulatory space realignment’ (see Table 1), forms the final focus of our analysis. It is here that the
most extensive regulatory conversations between regulators and regulatees over the legislation
establishing IAASA occurred, allowing for an examination of the interplay between IAASA and the
PABs regarding the interpretation of IAASA’s role and authority. We obtained from IAASA’s
website copies of the Consultation paper dealing with Section 23 Enquiries (IAASA, 2007a); the
Feedback paper issued by IAASA in response to the submissions it received on the Consultation paper
(IAASA, 2007b); and the final regulations governing the conduct of Section 23 enquiries (IAASA,
2007c). We emailed the CEO of IAASA asking for access to the eight submissions received on which
the feedback paper was based. Direct access to the submissions was refused on the grounds that such
information fell within the confidentiality clause of the 2003 Act but a contact name in each of the
eight PABs that had responded to the consultation paper was provided instead to allow us to request
the information directly from the PABs. We emailed each of the eight PABs and received a positive
response, by way of a copy of their submissions, from seven bodies (see right hand column of Table
1)9. Consistent with Malsch and Gendron’s (2011) analysis of the formation of the Canadian Public
Accountability Board (CPAB), the public consultation at all three stages of the realignment was
literally taken over by accountants. For example, the initial deliberations in stage 1 inviting views
about the nature and effectiveness of self-regulation generally elicited nine responses out of a total of
24 from actors outside of the accounting profession (‘non-accountants’). In stage 2, eight out of a total
8
The remaining 39 submissions dealt with other issues raised in the Bill which were not relevant for the purposes of this
study.
9 ICAS refused us access to its submission even after a number of emails and telephones calls requesting access. No reason
was forthcoming as to why access was refused.
13
of 21 submissions were received from non-accountants. While in the mandate interpretation in stage
3, as noted above, all eight responses on the proposed regulatory powers of IAASA came from the
PABs.
CASE NARRATIVE
This section presents the results of our analysis. It is divided into three distinct stages (as
noted above) tracing the chronology of the regulatory realignment process over the 1999 to 2009
period.
Stage 1 – Proposal to realign regulatory space
In December 1999, the Review Group on Auditing (RGA) was established by the Irish
government in response to a series of investigations that uncovered extensive fraud accompanied by
significant failures in the financial auditing process in Ireland.10 Its core mandate was to determine if
self-regulation was working effectively and consistently and whether in the light of such an
assessment, new or revised structures were required to improve public confidence and, if so, what
form they should take (RGA, 2000). To aid this assessment, the RGA invited submissions from
interested parties. Our exploration of these submissions and other documentary evidence analyses key
actors’ conceptions of their (then) existing positioning within the regulatory space and what strategies
and resources they employed to ensure that any proposed change to this positioning was minimized.
Assessing the actors’ initial reactions to the possibility of change allows us to better understand the
strategies they adopted as the process progressed.
In their submissions to the RGA, the PABs welcomed some regulatory change as long as it
left their existing power and status intact. For instance, they favoured the establishment of a body
similar to the UK’s Financial Reporting Review Board. Such a body would carry out a “watchdog
role” (ICAI, 2000, p.13), represent “a swift and economical means of ensuring enforcement with
existing standards” (ACCA, 2000, p.3), and be responsible for overseeing the work of the profession
through “consensus, without redress to … inflexible statutory impositions or regulations” (CIPFA,
2000, p.6). The PABs insisted that this body should only operate in a supervisory capacity and should
possess no intervention powers. To combat this possibility of intervention they questioned the
10
Three critical events of a public interest nature had occurred in Ireland between 1994 and 1999 in which Irish accountants
were implicated in alleged audit failures. They were widely reported in the media and had a damaging effect on the image of
the accounting profession (Canning & O’Dwyer, 2001, 2003).
14
appropriateness and ability of any outside body to intervene effectively in their affairs and emphasised
the importance of exclusive professional knowledge and expertise in the effective regulation of
accountants, a perspective fully supported by the (then) Big 5 firms:
It is our view that it is an essential prerequisite for any regulatory body to have a detailed
knowledge of the issues arising within the auditing profession to ensure that it can carry out
its role in an effective and efficient manner and ensure that the public interest is best served.
(ICAS, 2000, p.2)
The professional requirements for accountants, and particularly auditors, are complex and
voluminous. The person or persons involved in the regulatory process must have or have
available to them the necessary professional, technical and practical knowledge to be in a
position to assess and judge the issues before them. (Deloitte & Touche, 2000, p.25)
The PABs stressed the importance of wealth, both financial and manpower, to the successful
regulation of global accounting practices, and questioned the ability of an oversight body with limited
resources to regulate effectively:
[T]here are likely to be concerns over financing, staffing by persons with appropriate
commercial experience and speed of response to emerging issues. (ICAEW, 2000, p.3)
ACCA is a global organization and so, uniquely as a regulator, is much larger than the
practices that it regulates. This relationship is crucial in facilitating decisive regulatory action.
(ACCA, 2000, p.2)
Caution was also advised given possible threats to Ireland’s attractiveness to inward investors.
For example, the Big 5 firms and other accounting regulatory bodies recommended that the RGA seek
guidance from the UK and EU to ensure that the proposals would not diminish Ireland’s attractiveness
as a location for investment and business activity (Accountancy Foundation, 2000, p.1; Arthur
Andersen, 2000, p.5; Auditing Practices Board, 2000, p.1; Ernst & Young, 2000, p.2; KPMG, 2000,
p.3; PricewaterhouseCoopers (PwC), 2000, p.3). At this time, however, adopting UK and EU
regulatory models would have meant the continuation of a more traditional self-regulatory regime
given that the RGA’s proposed changes were initiated and advanced prior to the formation of revised
regulatory structures in North America and Europe in response to the financial reporting scandals in
the USA:
When this blueprint [RGA proposals] was developed, these concepts and solutions were
particularly novel and pioneering and, depending on the perspective of the commentator,
some might have said audacious and unwarranted. The latter comments would arise from the
fact that the thinking behind them and the proposals were not in vogue elsewhere at the time.
However, some time after the present set of propositions had been put into the public domain,
a number of financial crashes occurred, most notably Enron and WorldCom, because of issues
which included compliance failure and supervision. These collapses focused attention in
jurisdictions worldwide on these subjects. (Ahern, 2003a, p.2)
15
Following the submissions received, the RGA considered four possible regulatory options.
These comprised: state supervision of delegated regulation; self-regulation; direct state regulation; and
independent supervision of delegated regulation (RGA, 2000, p.112). A form of independent
supervision of delegated regulation was chosen involving the establishment of “a statutory Oversight
Board which would have enhanced powers to enable it to deliver a more effective and equitable
system of regulation than applie[d] under the current arrangements” (RGA, 2000, p.112).
The RGA acknowledged the importance of wealth to effective regulation when observing that
“insufficient State resources applied to oversight of the auditing profession ha[d] contributed to the
lack of effectiveness of existing regulation” (RGA, 2000, p.17). To combat this resource constraint
the RGA argued that if the proposed Oversight Board (later to become IAASA) was to be seen as
bringing “some persuasive external influence” to the regulatory space “it should be given adequate
statutory powers of approval, direction and intervention to satisfy itself on an ongoing basis that the
structures, procedures and professional standards in the recognised accountancy bodies [we]re
operating to high standards (RGA, 2000, p.18, emphasis added). In other words, ‘formal authority’
was to be bequeathed to IAASA to compensate for its limited wealth and organizational capacities.
The most controversial element of the suggested amendments was the proposal to grant the
oversight body the right to intervene in misconduct cases conducted as part of the PABs’ disciplinary
procedures. Even after the RGA published its report, the Institute of Chartered Accountants in Ireland
(ICAI) persisted in claiming that the oversight body’s proposed role in these ‘operational’ issues was
inconsistent with a supervisory function. It was adamant that it would undermine the ability of the
PABs to effectively regulate their members and warned that it “would not tolerate” this body
undermining their own disciplinary work (Creaton, 2000). The ICAI’s rejection of key aspects of the
RGA report was surprisingly aggressive given the weight of public opinion behind the report’s key
proposals (Harding, 2000). The ICAI president warned that the proposals would create the “toughest
regulatory regime in the world” and potentially increase business costs (Canniffe, 2000; Smyth,
2000). However, the RGA Chairman responded indignantly, claiming that this “sort of ponderous
reaction by accountancy bodies is exactly the kind of thing that has contributed to their problems.
They should grab the opportunity to tidy up their public image” (Creaton, 2000). He was far from
alone in his views:
The argument mounted by the accountancy profession, Big 5 firms and business generally,
that a heavy handed regulatory regime could be bad for business confidence, inward
investment of new industries, and economic growth generally – should be rejected. It does not
16
hold up to the test of evidence when we look to other comparable countries (USA, Australia,
New Zealand, Canada and Italy). (Cahill11, 2000, p.7)
The RGA resisted these pressures from the accounting establishment to refrain from affording
the proposed oversight body the power to intervene in the PABs’ procedures. Instead, they
recommended the establishment of an oversight body with formal authority to both supervise the
regulatory functions of the PABs and intervene in their disciplinary procedures, where necessary. The
Deputy Prime Minister (Tánaiste12) welcomed the RGA report (DETE, 2000) and announced plans to
proceed with the establishment of IAASA on an interim basis until such time as appropriate
legislation could be enacted (DETE, 2001). This led to the subsequent drafting of the 2003 CAA Bill
(‘the Bill’) which provided for the establishment of IAASA and granted it the power to supervise and
intervene in the regulatory functions of the PABs. While Oliver (1991) contends that “the more
institutional pressures are entrenched in a legal or regulatory apparatus, the less likely it is that
organizations will resist these pressures” (Oliver, 1991, p.167), this statutory recognition afforded to
IAASA failed to dampen the PABs’ resistance, as our analysis of stage 2 now reveals.
Stage 2 – Limiting the realignment of the regulatory space
In early 2003, the Irish government circulated the 2003 CAA Bill and interested parties were
again invited to make submissions to the Deputy Prime Minister (Tánaiste). The Bill was then brought
in front of the Irish parliament (Houses of the Oireachtas) for discussion and approval. As with all
three stages in the regulatory realignment, the most extensive resistance to the Bill came from the
ICAI, the body most likely to be significantly affected by the proposed regulatory changes. Its
response was again forthright, and despite asserting that it was fully supportive of the RGA’s
principal recommendations (a common theme in all PAB submissions), it used active strategies of
defiance in an attempt to dilute key aspects of the proposed legislation. It challenged “the abilities of
the proposed legislation as drafted to implement th[e] [RGA] recommendations” (ICAI, 2003, p.6)
stressing the need for the legislation to be “fair and proportionate” in order to avoid “duplication of
the regulatory burden imposed on professional bodies, individuals and companies” (ICAI, 2003,
p.12). In effect, it sought to impose beliefs about what could be done (Hancher & Moran, 1989) by
engaging in rhetoric asserting that the proposed regulations were unfair and disproportionate.
11
12
A senior academic commentator, former Professor of Accounting at University College Cork, Ireland.
Tánaiste is a Gaelic language term meaning “deputy Prime Minister” in the English language.
17
Some members of Government dismissed this rhetoric while reminding the ICAI of the
serious problems within the accounting profession which had originally led to the necessity for the
proposed regulation:
According to the Institute of Chartered Accountants in Ireland, Ireland is likely to have the
toughest regulatory regime as a result of the legislation, but that is hyperbole. Even if it were
true, what of it. The accountancy profession was found lacking by not asking the questions
that needed to be asked about proper standards [referring to a number of the scandals that had
led to the formation of the RGA]. That is why I am disappointed by the reaction of the ICAI.
(Boyle, 2003, p.48)
Undoubtedly accountants are best equipped to identify the pockets and crevices which hide
the evidence of corruption. They may not be the most reliable, however, in meting out the
appropriate punishments to their colleagues or in determining public accountability of the
accountancy and auditing profession. The Companies Bill [2003 CAA Bill] currently going
through the Oireachtas [the Irish parliament] reflects this view quite accurately. (O’Toole,
2003, p.12)
Government members also highlighted the economic benefits that the proposed legislation
would bring by improving the reputation of the Irish accounting profession through increasing
transparency, thereby sending a clear message that “nod and wink accountancy [was no longer] the
norm” in Ireland. Moreover, the regulation was widely viewed as increasing the attractiveness of
Ireland as a hub for international investment and business:
This legislation will be very positive for the profession, in general, and for its reputation, in
particular, because it will protect the industry as a whole from damage caused by any noncompliant members. (Leyden, 2003, p.15)
The highest standards are needed, given that Ireland is competing in a global market as it tries
to encourage people to invest here. Nod and wink accountancy should not be the norm.
(Boyle, 2003, p.48)
It is probably fair to say the road map [the 2003 CAA Bill] devised should ensure Ireland will
remain at the forefront of prudential initiatives in the commercial arena. This is imperative if
we are to maintain international confidence in Ireland as a place in which to invest and do
business. (Ahern, 2003a, p.2)
However the PABs persisted in rejecting these enhanced ‘economic fitness’ (Oliver, 1991,
p.161) arguments. Drawing on its significant legal resources, the ICAI sought to ‘manipulate’ the
process by proposing numerous drafting amendments to the Bill:
The Institute [ICAI] has instructed its legal advisors to develop drafting amendments where
we have recommended that such is required. The Institute will submit these to the department
[DETE] as soon as available and will be happy to assist with any further development of the
legislation in whatever way we can. We will seek to meet with those involved in drafting the
bill to discuss this further. (ICAI, 2003, p.3)
18
This apparent manipulation strategy was supported by several other actors including two of
the Big 4 firms. Given its concern that “the current proposals [we]re too vague” and required
“significant redrafting to enable the legislation to be effective and equitable in practice and to reflect
current international developments”, PwC (2003) recommended that the DETE “liaise closely with
the ICAI and the other recognised accountancy bodies in drafting the provisions for these extremely
complex areas, having regard to the significant efforts being made [by them] in this regard” (PwC,
2003, p.15). A similar suggestion emerged from KPMG who argued that the accountancy bodies
should be consulted and involved in the preparation of the document setting out the process for
intervention because the “remit of the proposed new Supervisory Authority” as outlined in the Bill
“included too many functions risking either ineffective implementation or conflicts in function or
both” (KPMG, 2003, p.2). The importance of consultation between IAASA and the PABs in the
drafting of the detailed rules governing the role of IAASA was also evident in debates occurring in the
Houses of the Oireachtas, but only insofar as the role of IAASA should not be diluted:
We do not want to tie its [IAASA’s] hands in particular cases by stating that it must consult.
(Ahern, 2003b, p.24, emphasis added)
IAASA should set out and agree with the accountancy bodies the broad parameters of the
disciplinary procedures. (Ryan, 2003, p.35)
Two issues dominated this stage of the consultation process: the continuing concerns over the
proposed intervention power awarded to IAASA into the disciplinary decisions of the PABs, and the
limited accounting member representation proposed on the board of IAASA.
Proposed intervention power of IAASA
Having undertaken consultation “with members in business and in practice” the ICAI
continued to challenge IAASA’s proposed intervention power by arguing that it was not “compatible
with the role of independent oversight” and gave “rise to significant legal difficulties on the grounds
of natural justice, double jeopardy and constitutionality” (ICAI, 2003, p.6). If IAASA was not “kept
above the line of executive responsibility” it would not preserve its integrity and would “have no
defence against public criticism” (ICAI, 2003, p.18). This meant that the public could not “be
protected from the cost and consequences of over-regulation” and that the “correct approach” was for
the PABs to remain responsible for regulating and disciplining their members. The costs attached to
such an intervention role by IAASA were also highlighted by the ICAEW as being “out of all
19
proportion to the cases under consideration and so not in the public interest” (ICAEW, 2003, p.2). To
avoid IAASA becoming the ‘first port of call’ for complaints, the ICAI suggested that IAASA should
only have the power to investigate members of professional bodies in “cases of significant public
interest” (ICAI, 2003, p.6). However, further elaboration on the meaning of ‘significant public
interest’ was absent despite the term being repeatedly used to support the ICAI’s claims (see, Lee,
1995).
In order to reinforce its challenge to the direct intervention role proposed for IAASA and to
ensure that “the background to [the ICAI] submission in respect of disciplinary matters [was]
appreciate[d]”, the ICAI unveiled the key characteristics of its own “elaborate” disciplinary process,
highlighting the amount of monetary and organizational resources it had invested in self-regulation.
As Oliver (1991, p.156) asserts, organizations are more likely to adopt a defiant strategy when they
believe that they can demonstrate their probity or rationality; a strategy evident in the ICAI’s claim
that its procedures were “designed to ensure that fair, independent and public disciplinary decisions
are reached” (ICAI, 2003, p.19). This assertion implied that despite its disciplinary process having
previously been shown to operate in a highly flawed manner, thereby providing some of the impetus
for the RGA’s establishment (Canning & O’Dwyer, 2001, 2003), the ICAI’s process could now be
relied upon given changes implemented in late 1999. These changes were, however, continually
questioned with some commentators arguing that they were more symbolic than substantive
(O’Dwyer & Canning, 2008; Ross, 2009, 2010). An inability for ‘outsiders’ to assess symbolism over
substance makes it easier to manipulate public opinion by giving the impression that a problem is
being solved when this is not the case (Moore et al., 2006, p.20) as was reflected in the ICAI’s
argument that it was “wrong in principle” and “likely to be held contrary to natural justice” for
IAASA to be granted the power to annul disciplinary decisions of what was an “independent
tribunal”, albeit one whose independence and fairness had previously been shown to be tarnished. The
ACCA similarly challenged IAASA’s proposed powers to intervene in its disciplinary affairs,
deeming them “excessive, unreasonable, and likely to interfere with the internal affairs of professional
bodies in a way which [wa]s not justifiable or constructive” (ACCA, 2003, p.2). The proposed
combination of oversight and regulation was deemed unattainable because IAASA would not have
key information and organizational capacity resources such as “the skills and knowledge to perform
this role” and it would “detract from the body’s potential for exercising effective, arm’s length
supervision of the regulatory process” (ACCA, 2003, p.2).
Despite the threat of legal challenge implicit in the ICAI’s concerns about ‘natural justice’
and ‘double jeopardy’, and the other PABs’ insistence that the powers being proposed were ‘excessive
and unreasonable’, no compromise ensued and the final 2003 Act left the oversight and intervention
20
functions of IAASA intact. Hence, although the regulator was faced with potential legal challenges
from regulatees aimed at restricting its powers it did not countenance any compromise (Oliver, 1991;
Shapiro & Matson, 2008). Instead, the final 2003 Act largely reflected the arguments of Government
senators and ministers in the Irish parliament indicating that the proposed changes would enhance the
profession’s image and maintain international investment and business confidence in Ireland. The
legislators appeared to decide that passing the legislation unamended was the best strategy towards
ensuring enhanced “economic fitness” (see, Oliver, 1991, p.161).
Proposed membership of the board of IAASA
The PABs and the accounting firms continued to argue that for IAASA to fulfil its obligations
as set out in the Bill, it needed specialised technical knowledge and expertise of auditing and
accounting (ICAI, 2003, p.6; ACCA, 2003, p.1; ICPAI, 2003, p.1; PwC, 2003, p.12; Sisk plc, 2003,
p.3). Such organizational capacity resources were deemed lacking thereby impeding IAASA’s ability
to fulfil its functions, especially as “only” two of its thirteen board members were to be drawn from
PAB members:
Only 2 out of the 13 directors are to be qualified accountants. Unless this balance is adjusted
it is probable that IAASA will be unable to fully carry out its remit. (ACCA, 2003, p.1)
The PABs contrasted this under-representation with oversight regimes in the UK and USA
where they claimed accountants comprised 40 per cent of board membership:
The accountancy profession representation on the board is in marked contrasts to the 40% of
the membership of the US13 and UK oversight boards and other Irish supervisory boards.
(ICAI, 2003, p.13)
PwC referred to practice in the EU, noting that “the European Commission recognised that
auditor participation in Public Oversight of the audit profession is certainly of great value as it gives
the non-practitioners valuable insight into the practices of the profession” (PwC, 2003, p.12). While
the ICPAI considered it “unusual for a profession to be so under-represented on its independent
supervisory authority” (ICPAI, 2003, p.1), the ACCA was more defiant and asserted that “no other
professional grouping is so under-represented on a similar or analogous authority” (ACCA, 2003,
13
Only one of the five board members on the PCAOB is an accountant, the remaining four are lawyers (see
http://pcaobus.org/about/board/pages/default.aspx).
21
p.1). One non-Big 4 accounting firm belittled the proposal on the basis that the perceived
underrepresentation of the accounting profession would be unacceptable in other professions:
It is also disappointing to note that only two of the thirteen seats on the proposed board will
be occupied by accountants. Imagine having a medical board with only two doctors
represented on the medical board and the rest made up of Politicians, Solicitors and
Accountants. (Grant Thornton, 2003, p.1)
The PABs and the Big 4 firms continued to voice their objections to the low level of
accounting member representation using influence tactics involving the lobbying of members of the
Houses of the Oireachtas. The arguments enrolled by the PABs in their submissions on the Bill with
respect to ‘unusual’ practice, deviations from ‘international practice’, and a lack of ‘necessary
knowledge’ therefore re-appeared in the Houses of the Oireachtas debates:
The accountancy and auditing profession consider it would be appropriate to review this
section [Board composition of IAASA] and increase their representation on the Board. It is
unusual for a profession to be so underrepresented on its own supervisory authority. (Murphy,
2003, p.39)
The Institute of Chartered Accountants in Ireland [ICAI] consulted its members, carried out
widespread research and sent in detailed proposals. As parliamentarians we have a duty to
listen to them. (McGrath, 2003, p.28)
International best practice suggests that 40% of the Board should consist of experts from the
profession. Will the Minister guarantee that 5 seats on the Board will be filled by accountants,
given the highly specialised and technical nature of the Board’s remit? (Crawford, 2003, p.3)
A paucity of supervising accountants would only guarantee that the supervisory authority
would be deficient in terms of the necessary knowledge of the subject matter of its
responsibilities. (Howlin, 2003, p.13)
In response to this lobbying, the legislators eventually acquiesced and increased the
accounting profession representation on the board of IAASA from two to five (Ahern, 2003c, p.13).
With the final draft of the legislation published and statutory backing afforded to IAASA to
support both oversight and intervention powers, it appeared that the regulatory landscape for
accountants had now been permanently changed and further resistance from the PABs was futile.14
Yet, the PABs refused to acquiesce and persisted in publicly challenging the powers awarded to
IAASA, as reflected in the following commentary by Brian Walsh, the (then) CEO of the ICAI:
14
On December 23 2003, the President of Ireland signed the Companies (Auditing and Accounting) Act into law.
22
During the Oireachtas debate on the Bill, Opposition deputies pointed out the inherent
dangers for IAASA if the public believed it was the first port of call for complaints about
accountants. It will surely be natural for people who wish to complain about the behaviour of
an accountant to seek assistance from the State-backed body. But IAASA is not equipped to
carry out this function nor was it intended that it should do so. It urgently needs to agree a set
of referral procedures with the recognised accountancy bodies whose processes are in place
and have been approved by the Department of Enterprise, Trade and Employment [DETE].
(Walsh, 2004, p.54)
Such unremitting resistance was unexpected given that Oliver (1991) suggests that
acquiescence typically describes the behaviour of regulatees after relevant legislation has acquired full
legal backing. However, as we have argued earlier, a central, but often ignored, part of any regulatory
space realignment is the process through which the powers assigned to new regulatory bodies are
initially interpreted by key actors, especially regulators and the regulatees. It is to this interpretation
stage that we now turn our attention.
Stage 3 – Mandate interpretation within a regulatory space realignment
With the legislation finalised, IAASA was established on a statutory footing. One of its first
tasks involved issuing a consultation paper inviting interested parties to comment on the draft
regulations governing the conduct of its enquiries into the disciplinary arrangements of the PABs in
conformance with Section 23 of the 2003 Act. In framing its consultation paper IAASA commenced
with a compromise strategy which acknowledged the importance of negotiation and consultation to its
acceptance by other actors in the regulatory space:
[T]he Authority places a high value on the consultation process in an attempt to ensure its
final decision making is well informed, rigorous and accountable. (IAASA, 2007a, p.3)
This was the final phase in the regulatory realignment. It determined the manner in which
IAASA’s mandate would be interpreted and enforced and, hence, the degree to which the PABs’
power and autonomy to regulate their own members would be diluted. The key actors’ discourse at
this interpretation stage centred around three core issues. The first issue involved the intervention
powers awarded to IAASA, an issue that also dominated in stages 1 and 2. The second issue was
concerned with IAASA bringing greater transparency to any transgressions by members of the
accounting profession; for instance, through the holding of oral hearings in public and the publication
of its decisions. The third issue involved IAASA’s proposed privileged contact with PAB members
which potentially threatened the PABs’ legitimacy given that, hitherto, the PABs had controlled
communication with their members about disciplinary issues.
23
Continued resistance to the proposed intervention power of IAASA
In an apparent effort to pacify the persistent PAB concerns about IAASA’s dual oversight and
intervention role, IAASA indicated that it was not seeking to “supplant the prescribed accountancy
bodies’ investigation and disciplinary processes” but “to merely supervise” them (IAASA, 2007a,
p.7). Notwithstanding this, it also emphasized that its supervisory role was fulfilled in the context of
an important caveat potentially extending its boundaries significantly, namely its aforementioned
power “to initiate and perform its own enquiries, where considered necessary, appropriate and/or in
the public interest” (IAASA, 2007a, p.7). Hence, while IAASA commenced from a position of
compromise in an apparent attempt to pacify the PABs, it moved swiftly to a position of
‘manipulation’ whereby it sought to “shape the criteria of acceptable practices” (Oliver, 1991, p.158)
by suggesting that it would “initiate and perform its own enquiries” (IAASA, 2007a, p.7).
The PABs persisted with their efforts to defy this expansion of IAASA’s power into the realm
of intervention, however palatable IAASA’s wording tried to make it appear. For example, the ICAI
continued its attempts to dilute IAASA’s mandate by maintaining that Section 23 “d[id] not empower
the Authority [IAASA] to substitute its own decision on the substantive merits of any given
disciplinary case but rather to assess whether procedures ha[d] been properly followed” (ICAI, 2007,
p.2). It also insisted that IAASA should make complainants and members more aware of this limited
role awarded to it under Section 23 by “mak[ing] it clear in its introduction that the primary
responsibility for the investigation of complaints and disciplining of members lies with the [PABs]”
(ICAI, 2007, p.2).
The greatest danger is that complainants and members will see Section 23 as an automatic
route for appeal and will routinely seek recourse to it which will result in the Authority
[IAASA] wasting time on vexatious complaints. (ICAI, 2007, p.2)
The tone of the ICAI’s response left little room for compromise. It reflected a final ‘hands-off
our territory’ message to IAASA seeking to severely restrict how its mandate was interpreted, thereby
limiting its power to act. The ACCA were also keen to remind IAASA of its restricted investigative
mandate by requesting that such limitations be highlighted more explicitly within the regulations
(ACCA, 2007, p.3). IAASA’s response, however, was equally robust and it proposed no changes to
the regulations to clarify its position further as it was “satisfied that the regulations clearly and
accurately reflect[ed] the wording of Section 23 [of the 2003 Act] and d[id] not seek to go beyond the
scope of the decisions to be reviewed under that section” (IAASA, 2007b, p.7). Its response drew
heavily on the formal authority afforded to it by the 2003 Act:
Given that the Authority [IAASA] has been provided with these powers by the Act, it is not
considered appropriate to insert provisions into the Regulations, the effect of which would, in
effect, be to limit the Authority’s statutory powers. (IAASA, 2007b, p.6)
24
The ICAEW and the CIPFA were particularly concerned about IAASA’s proposed role in
reviewing disciplinary decisions already taken by a PAB. Both bodies considered it inappropriate for
IAASA’s proposed Enquiry Committee15 “to annul all or part of a PAB decision unless the decision
was perverse or irrational or, put another way, was one which no reasonable accountancy body could
have come to” (CIPFA, 2007, p.2; ICAEW, 2007, p.2). The rather incendiary terminology ‘perverse’, ‘irrational’, ‘reasonable accountancy body’ - was left open to interpretation but sought to
ensure that IAASA would rarely review PAB disciplinary decisions. While this issue was also
vigorously pursued by the ICAI in Stage 2, it was absent from the ICAI response to the consultation
paper in stage 3. Intriguingly, IAASA provided no formal response to these (ICAEW and CIPFA)
concerns in its Feedback Paper.
Proposed communication of transgressions by PAB members
Fuelling the PABs’ continuing resistance to IAASA’s intervention role was an apparent fear
of the increased exposure it would bring to their disciplinary processes which, up until then, had been
largely shielded from outside inspection (Canning & O’Dwyer, 2001, 2003, Sikka, 2001). Such
exposure could emerge through the proposed communication by IAASA of transgressions by PAB
members to the public, evident in its proposals to hold oral hearings in public and to publish the
decisions from such hearings. For example, the 2003 Act provided that “an enquiry committee [could]
conduct an oral hearing at its own behest or upon the reasonable request of the PAB if it consider[ed]
that an oral hearing [wa]s necessary and appropriate” (2003 Act, p.29). These hearings were to be
held in public but “an enquiry committee [could], at its sole discretion, exclude the public from all or
part of the hearing” (IAASA, 2007a). While the ICAI claimed that it was “not opposed to oral
hearings” in principle (ICAI, 2007, p.4), it proceeded to argue that holding hearings in public could
cause an unacceptable breach of confidentiality while adding nothing to the ‘public interest’ – a
notion it again failed to elaborate on. The tone of the ICAI response remained confrontational and
sought to belittle IAASA’s proposals:
This [the holding of oral hearings in public], if it occurred, could be extremely prejudicial as
the role of the Authority [IAASA] is not to investigate the conduct of the member originally
subject to the investigation and decision of the disciplinary body and certainly very few of
these cases would have been heard in public by the prescribed accountancy body. (ICAI,
2007, p.4)
The ACCA, on the other hand, while apparently not opposed in principle to the holding of
oral hearings, challenged the location of power over this decision. It attempted to shift the balance of
15
An Enquiry Committee is established where there is a prima facie case that a PAB has not complied with its approved
investigation and disciplinary procedures and the circumstances are such to warrant a full enquiry.
25
power away from IAASA and on to the PABs by arguing that a PAB “should have an automatic right
to an oral hearing if it so requests” and that it was not for IAASA to decide whether an oral hearing
should be held (ACCA, 2007, p.5). In this way, the ACCA sought to restrict IAASA’s mandate over
the practical implementation of the legislation.
IAASA was again unwilling to capitulate to these attempts to restrict its mandate. It sought to
portray the ICAI view as an isolated, minority perspective by indicating that only “one respondent
was opposed to the holding of oral hearings” (IAASA, 2007b, p. 11) while proceeding to dismiss the
ICAI’s suggestions. Having sought its own legal advice it concluded that it should have full discretion
in all cases to determine whether a hearing was appropriate and/or necessary (IAASA, 2007b, p.11).
Hence, it enrolled its own organizational capacities (its legal advisor) to reject the PABs’ proposals
outright, thereby highlighting how robust it could be when threatened despite its stated commitment to
consultation and negotiation.
The proposal to publish the outcome of IAASA’s decisions in such oral hearings was also
contested by the ICAI. It suggested that IAASA should be required to inform the relevant PAB of the
exact nature of what it proposed to publish including “confirmation that details relating to the original
complaint and of the member subject to the investigation by the prescribed accountancy body w[ould]
not be included” (ICAI, 2007, p.17). In addition, the ICAI argued that a decision should not be
published if the PAB instigated an appeal against the decision and this appeal was ongoing. These
objections threatened to significantly limit IAASA’s mandate and, hence, its ability to bring
transgressions by PAB members to the public’s attention. Despite this resistance, IAASA remained
uncompromising in its response and mobilized its formal authority under Section 23 (7) of the 2003
Act which specifically allowed, at its discretion, the reporting of such decisions.
There was one exception to the PAB resistance to decision disclosure. This emanated from
the ACCA who appeared to support publication of decisions. It argued that there should be mandatory
publication of a decision to enter into a settlement unless IAASA determined that publication of the
terms of settlement would be contrary to the public interest (ACCA, 2007, p.7). While this response
appeared to represent a rare example of PAB support for an IAASA proposal, IAASA interpreted it as
an attempt to further restrict their discretion to disclose. It responded robustly by stating that “the
Authority’s [IAASA’s] entitlement to publish its decisions, and the grounds upon which such
decisions have been reached, includes the right to determine whether to publicise a decision and the
content of any public settlement” (IAASA, 2007b, p.13, emphasis added).
26
Proposed contact with PAB members
The PABs were further concerned about IAASA’s proposed direct contact with individual
PAB members. The ICAI contested the appropriateness of IAASA notifying PAB members, who
were implicated in an original PAB enquiry, of the initiation of such an enquiry by IAASA. Instead,
the ICAI argued that such notification “[wa]s the responsibility of the PAB” (ICAI, 2007, p.4) and
that IAASA should limit itself to procedural matters. Such contact by IAASA threatened the ICAI’s
legitimacy given that up until now all communication relating to disciplinary issues concerning its
members came directly from the ICAI. This reinterpretation of IAASA’s role unveiled the ICAI’s
narrow vision of what was appropriate or rational (Oliver, 1991) and its desire for IAASA to remain
distant from the ICAI’s procedures. IAASA, however, “fundamentally disagree[d] with this view” on
the grounds that as members could be adversely affected by IAASA’s decision(s), it “ha[d] an
obligation to provide such members with notice of the proceedings and that there [wa]s no scope for
delegating such obligations to a [PAB]” (IAASA, 2007b, p.11, emphasis added). Such was IAASA’s
unease that it actually extended its final regulations to include complainants in the notification
(IAASA, 2007c, p.6):
A Preliminary Enquiry Committee … may, if considered appropriate and in accordance with
the law, inform the complainant, if any, of the appointment of the Preliminary Enquiry
Committee, of the initiation of the preliminary enquiry and of any extension of scope of the
preliminary enquiry made under regulation 4.5, if such extension is relevant to such members
and complainant, if any (IAASA, 2007c, p.6).
To summarise, our analysis indicates that the PABs felt continually threatened by the
proposed powers assigned to IAASA through its intervention role, and its proposed open reporting of
transgressions by, and direct communication with, PAB members. They persisted in challenging these
powers despite the requirements of the 2003 Act and IAASA’s unremitting resistance. Overall, the
PABs’ efforts to substantively influence the establishment and interpretation of the proposed
regulatory rules and associated regulatory boundaries were unsuccessful. Instead of withdrawing or
significantly diluting its regulatory proposals in the face of this overwhelming regulatee opposition
(see Shapiro and Matson, 2008), IAASA, while appearing open to compromise and negotiation,
robustly resisted this hostility16.
16
While our analysis above focuses on the three core issues that tended to dominate interactions between IAASA and the
PABs in stage 3, several other issues of interpretation also caused conflict. We do not dwell on these in the narrative for
reasons of focus. For example, the ICAI used a cost savings rationale to try and support a proposal that it should have greater
influence over decisions to initiate enquiries by being involved in filtering out complaints about their disciplinary processes
which may have been outside the scope of Section 23 (ICAI, 2007, p. 5). IAASA also proposed the establishment of an
Investigation Committee, separate from IAASA, to decide if an enquiry should be initiated. The PABs argued that this
committee should first report its preliminary views to them before informing IAASA in order to allow them to respond
before a final decision was made and passed over to IAASA (ICAI, 2007, p. 12). They also sought to dilute the power
27
DISCUSSION AND CONCLUSIONS
This paper has examined how the regulatory arrangements and rules governing the activities
of professional accountants in Ireland, principally in the realm of disciplinary procedures, were renegotiated and re-shaped from 1999 to 2009. Our analysis focused on two interrelated aspects of this
process: firstly, how a revised regulatory mandate for a new oversight body (IAASA) was initiated,
debated and developed by key actors in the process and, secondly, the nature of the strategies and
resources utilized by these actors throughout the process. We mobilized the regulatory space concept
and Oliver’s (1991) typology of strategic responses to proposed institutional change to frame our
examination.
The paper seeks to contribute to the literature in two ways. First, its focus on the process of
regulatory production and interpretation extends prior insights into the interactions that shape
regulatory structures that may lead to institutional change (see, MacDonald & Richardson, 2004;
Malsch & Gendron, 2011). The analysis contradicts prior research suggesting that the accounting
establishment has been highly successful in influencing the design and interpretation of new
regulations aimed at overseeing the accounting profession in different national contexts (see, Malsch
& Gendron, 2011). Moreover, while previous research finds that regulators largely adopt compromise
or acquiescence strategies in the face of aggressive regulatee resistance, thereby diluting proposed
regulations (see, Shapiro & Matson, 2008), our analysis reveals a context where regulators enrolled
extensive defiance strategies aimed at repelling this resistance. While the PABs effectively took over
the public consultation process surrounding the proposed regulations and mobilized defiance and
manipulation strategies of their own in an effort to dilute IAASA’s mandate, other than increasing
their representation on IAASA’s board, these strategies proved unsuccessful and IAASA’s mandate
remained largely undiluted. While we do not claim that this regulatory realignment process signals a
context where profound change in the practice of self-regulation has occurred, our analysis challenges
categorizations of accounting regulatory regimes as relatively impotent and superficial given that their
mandate is likely to be significantly diluted by vested interests (Shapiro & Matson, 2008).17
afforded to this Investigation Committee (CIPFA, 2007, p. 2; ICAEW, 2007, p.2). In all of these instances, IAASA either
ignored or rejected the PABs’ suggestions outright (IAASA, 2007b, pp. 12-13; IAASA, 2007c, p. 7).
17 In arguing for the limited impact of the PABs on the establishment of IAASA and the initial interpretation of its mandate,
we do not seek to downplay the success of the PABs in getting their representation on the IAASA board increased. We
recognize, as Malsch and Gendron (2011) argue in the case of the formation of the Canadian Public Accountability board
(CPAB), that this meant that the PABs attained some ideological or latent power (Lukes, 2005) given that IAASA’s board is
now comprised of more individuals who may share and identify with the accounting profession’s dominant discourses.
However, this potential power has been countered somewhat by the fact that crucial enquiry committees set up to investigate
28
Second, in response to requests in prior research (see, Cooper & Robson, 2006; MacDonald &
Richardson, 2004; Young 1994, 1995), we placed part of our analytical emphasis on the process
through which the legally backed mandate for IAASA was initially interpreted by IAASA and the
PABs. Our analysis illustrates how the PABs persistently enrolled defiance strategies in the mandate
interpretation phase despite IAASA’s mandate having acquired legal support. Given that public
outrage and media concern about the behaviour of accountants had, by this time, waned significantly,
the PABs may have seen this as an ideal time to go on the offensive as it enabled them to “pok[e] low
visibility loopholes in … [the] high visibility legislation that politicians [were] point[ing] to as
evidence of their responsiveness to the public’s concerns” (Moore et al., 2006, p. 19, emphasis
added). Scott (2001) contends that the regulatees’ (in our case the PABs’) superior information,
organizational and wealth resources should have led to these strategies provoking a substantive
reinterpretation of the regulatory rules, especially as “the combination of intelligence and money is
hard to beat” (Moore et al., 2006, p. 20, see also, Hancher & Moran, 1989). However, IAASA’s
refusal to capitulate to these concerns by responding with escalating defiance strategies of its own
indicates that its legitimacy with the PABs was not its primary concern given the legal and political
weight behind its establishment.
Control of information is a key resource used by organizations to obtain or maintain power in
a regulatory space, and in particular, to dominate the interpretation of regulatory obligations (Scott,
2001). The PABs apparently realized that if they relinquished control of this resource to IAASA, their
dominant position within the regulatory arena would diminish. Hence, they went on the offensive and
adopted defiance and manipulation strategies aimed at imposing beliefs and boundaries on what
IAASA was capable of doing (see, Hancher & Moran, 1989). For example, when the establishment of
an oversight body for the accounting profession was initially proposed, the PABs adopted strategies
aimed at limiting the oversight body’s intervention powers so that they would maintain control over
key information regarding their members’ activities and the operation of their disciplinary processes.
References to their extensive knowledge, expertise and organizational capacity resources permeated
these strategies. They sought to defy the emerging regulations by claiming that they were based on
‘flawed premises’ and that regulators possessed insufficient expertise. Manipulation strategies
manifested themselves in their subsequent suggestion of a solution to this claimed expertise
deficiency by independently engaging lawyers to re-draft the proposed legislation; a strategy which
potential disciplinary infractions can exclude any PAB representative and, at the very least, a three person committee has to
be comprised of two IAASA directors.
29
replicated the AICPA’s offer to redraft planned legislation in its attempts to dilute internal control
legislation in the USA (Shapiro & Matson, 2008). The PABs also sought to undermine the regulatory
power assigned to IAASA by promoting a highly restricted view of the power vested in IAASA in the
draft legislation. They insisted that, in contrast to the essence of the regulations, primary responsibility
for the investigation of complaints and the disciplining of PAB members remained with them, while
simultaneously insisting that they, and not IAASA, should initiate communication with PAB
members.
Hancher and Moran (1989) argue that regulation cannot happen without extensive
cooperation between the actors in a regulatory space, especially where regulators must negotiate
boundaries with regulatees over the practical meaning of regulation. This implies the use of
acquiescence and compromise strategies by regulators and regulatees in the mandate interpretation
stage of regulatory realignments. Our analysis, however, unveils scant evidence of the use of
substantive acquiescence or compromise strategies by the PABs or IAASA, with only symbolic
commitments to compromise being offered in initial correspondence. For example, in framing its
initial consultation paper, IAASA highlighted the importance of negotiation and consultation to its
acceptance by other actors in the space. The PABs’ submissions were also framed in the context of
their potential contribution to a cooperative consultation process. Yet, little compromise was evident
in the body of the PABs’ submissions with a largely defiant, uncompromising tone predominating
instead. Moreover, IAASA progressed from a proclaimed open approach to consultation and
compromise in its consultation paper to one of outright defiance. Hence, the “joint construction of
meaning” embedded in acquiescence and compromise strategies which Scott (2001, p. 9) sees as
central to the interpretation of regulatory rules was rarely evident. Moreover, in contrast to Oliver’s
(1991) contention that acquiescence strategies are more likely when regulation has been established
and has acquired formal legal support, the PABs persisted in adopting defiance strategies after legal
backing for IAASA’s mandate had been established. The ICAI in particular, recognising the power of
IAASA’s legal mandate resource, sought to undermine this legal authority by threatening to use its
own legal opinion to support its claims that the proposed legislation threatened ‘natural justice’ and
was unconstitutional.
The unrelenting nature of the ICAI’s defiance and manipulation strategies painted a picture of
strong and effective disciplinary and complaints processes thereby deflecting the extensive prior and
ongoing criticisms of these procedures. The ICAI’s responses exuded a hubris and a selective memory
of events that had only recently fundamentally and publicly undermined the integrity of their
30
processes (Ross, 2009, 2010). They also betrayed a general tone of incredulity that their ‘internal’
governance was being questioned, a tone that also prevailed in their responses to public censures of
their disciplinary processes in the late 1990s (Canning & O’Dwyer, 2003). The insularity evident in
the PABs’ actions appeared to reflect an ongoing desire to retain relevance at national level at all
costs as well as unveiling the persistent problems the PABs had adjusting to a local (and global)
political and social environment where automatic deference to the accounting profession was no
longer assured. Moreover, it represented a selective insularity as the PABs were quick to refer to
international developments in regulatory oversight when it suited their arguments; as was evident in
their references to international regulatory ‘norms’ to support their successful efforts to have PAB
representation on the IAASA board increased. Moore et al. (2006) argue that most professionals feel
that their professional decisions are always justifiable and that concerns about aspects of their work,
in this case the PABs’ regulation of their members, are “overblown by ignorant or demagogic
outsiders who malign them unfairly” (p. 11). The PABs’ evident complacency and selective
appreciation of international regulatory developments chimes with this perspective. However, their
continual strategy of defiance may also reveal some of the internal dynamics of ‘moral seduction’
within professions where professionals (or in this case their representatives) become unconsciously
biased and find it difficult to abandon their own self-interest even if they seek to do so (Moore et al.,
2006). It is as if the PABs were in denial about the ‘reality’ of the gradual accumulation of pressures
over an extended period which challenged their previously unquestioned status in the Irish social and
political context. They seem to have failed to fully appreciate the extent to which the strategies they
adopted actually exhibited extreme self-interest even if they themselves may have perceived them as
reasoned and balanced. As Moore et al. (2006) note, “the most effective lies are those we believe
ourselves” (p. 22).
The PABs’ insistence that increased regulation of accountants in itself threatened inward
investment spoke to the emerging embrace of neo-liberalism in Ireland (and at transnational level)
where state interference in the regulation of the profession was widely “characterised as a key barrier
to trade, inward investment and the global mobility of labour” (Suddaby et al., 2007, p.344). Here,
consistent with dominant regulatory logics in the field of accounting, the credibility of the regulatory
realignment was seen as resting on its ability to reflect and support an economic logic (Suddaby et al.,
2007). A logic of professionalism focused on a broader notion of the ‘public interest’ that went
beyond commercial concerns was, at least initially, downplayed. However, these assertions
privileging an economic logic were contested by Irish government and opposition party politicians
who argued that closer regulation of accountants actually meant more reassurance and protection for
inward investors. Moreover, despite the prevailing anti-regulatory, neo-liberal hegemony persisting in
31
Ireland around this time, politicians of all persuasions consistently countered the PABs’ antiregulatory rhetoric in government debates. There was a prevailing view in the Irish parliament that
further state regulation of the profession would enhance not only the international reputation of the
accounting profession but also Ireland as a place for international investment and business; a view
disputed by the PABs and the Big 4/5 firms. The Irish Government refused to accept that shifts in
politics and economics at the transnational level were weakening their capacity to regulate the PABs
and their member firms. Instead, through IAASA, they enrolled their “coercive powers to intervene in
the self-regulatory status of … [their] [national] professional [accounting] association[s]” (Suddaby et
al, 2007, p.353).
Recent work examining both global and local sites of accounting regulation suggests that a
form of allegiance is developing between the largest accounting firms and the oversight bodies
designed to monitor their activities (Malsch & Gendron, 2011) with Big 4 firms in some national
contexts actually aligning with local regulators to call for greater independent oversight of the
profession (Humphrey et al., 2009). Hence, these firms are seen to be powerful at both global and
local regulatory levels, engaging in extensive lobbying efforts to influence transnational regulatory
arrangements while also remaining influential in the “‘old’ field of nation states and professional
associations” (Suddaby et al., 2007, p. 355). In the process, it is often argued that they have become
less the subject and more the site of (global and local) regulation (Cooper & Robson, 2006; Humphrey
et al., 2009; Malsch & Gendron, 2011; Suddaby et al., 2007). However, in this case the Big 4/5
formed an allegiance with the PABs in Stages 1 and 2 of the realignment process and opposed key
oversight proposals. They supported and enrolled the PABs’ strategies of resistance to key aspects of
the proposed regulatory changes through lobbying politicians and publicly proposing that the
regulators engage in much greater consultation with the PABs in drafting the regulations. Their
responses betrayed little empathy for the core interventionist proposals in the revised regulations, and
exhibited (in common with the PABs) a “generalized disdain … towards government intervention”
(Malsch & Gendron, 2011, p. 461).
The regulatory realignment we study was initiated, and developed rapidly, in advance of
international developments in regulatory oversight. We fully recognize that the realignment did not
occur in a vacuum and that regulatory developments at the global level may have offered implicit
support to IAASA’s defiance strategy. However, IAASA’s defiance was also lent considerable
support by the sheer weight of local political backing for its establishment and its mandate. This
support should not be underestimated especially given the failed attempts by the SEC to impose
32
internal control obligations on USA firms (Shapiro & Matson, 2008). Hence, it is misleading to
assume that local regulators merely act as regulatory ‘dopes’ unproblematically establishing and
enacting mandates emanating in the global regulatory arena. As the case of the implementation of
public oversight regimes for accountants in other EU countries shows, considerable gaps can emerge
between the intended purposes of transnational regulation and the ways in which they are transformed
at national level (for example, in Greece, see Caramanis et al., 2010; and in France, see Hazgui et al.,
2011). The implementation of EU-inspired regulatory reform by member states is often associated
with significant gaps between the intended content and purpose of the regulation and the actual
implementation at national level (Caramanis et al., 2010). Our analysis suggests that the quest to
prioritize studies of global regulatory arrangements, while highly relevant given transnational
developments, should not lead us to ignore studies of the detailed processes through which these
global regulations are translated at local level. Hence, we conclude with a call for an enhanced
appreciation of the influence of national political and social contexts in the development and
interpretation of accounting regulation, whether arising from within these contexts or as part of local
interpretations of global regulations. Despite the global nature of accounting regulation, the passivity
of local regulators should not be readily presumed but subjected to continuing, careful scrutiny
(Caramanis et al., 2010; Jeppesen & Loft, 2011; Malsch & Gendron, 2011).
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Appendix I: List of Abbreviations
ACCA - Association of Chartered Certified Accountants
2003 Act - Companies (Auditing and Accounting) Act, 2003 (Ireland)
AICPA – American Institute of Certified Public Accountants (USA)
2003 CAA Bill - Companies (Auditing and Accounting) Bill, 2003 (Ireland) (‘the Bill’)
CIPFA - Chartered Institute of Public Finance and Accountancy
CPAB – Canadian Public Accountability Board
DETE - Department of Enterprise, Trade and Employment (Ireland)
EU - European Union
IAASA - Irish Auditing and Accounting Supervisory Authority
ICAEW - Institute of Chartered Accountants in England and Wales
ICAI - Institute of Chartered Accountants in Ireland
ICAS - Institute of Chartered Accountants of Scotland
ICPAI - Institute of Certified Public Accountants in Ireland
PABs - Professional Accounting Bodies (Ireland)
PCAOB - Public Company Accounting Oversight Board (USA).
PwC - PricewaterhouseCoopers
RGA - Review Group on Auditing (Ireland)
WTO - World Trade Organisation
42
Table 1 – The key formal documents analysed relating to the three stages of the regulatory realignment process
Stage 1 – Proposal to realign the
regulatory space
Stage 2 – Limiting the realignment of the
regulatory space
Stage 3 – Mandate interpretation within a
regulatory space realignment
Report of the Review Group on Auditing (RGA)
(2000)
Companies (Auditing & Accounting) Bill, 2003 (the
Bill)
Consultation Paper CP 1/07 – Draft regulations
governing the conduct of enquiries pursuant to Section
23 of the 2003 Act (IAASA, 2007a)
Submissions to the DETE on the Review Group of
Auditing from:
Submissions to the DETE on the Bill from:




Professional Accounting Bodies
Accounting Firms
Other Accounting regulators
Other constituents
8
5
2
9
24



Professional Accounting Bodies 7
Accounting Firms
6
Other constituents
8
21
Discussions of the Bill before the Houses of the
Oireachtas:
Seanad Eireann:
 First Stage: 12-02-2003
 Second Stage: 16-04-2003
 Committee Stage: 28-05-2003
 Report and Final Stages: 29-05-2003
Dail Eireann:
 Second Stage: 16-10-2003; 5-11-2003
 Committee Stage: 4-12-2003
 Report and Final Stages: 10-12-2003
Returned to Seanad Eireann:


Seanad Bill amended by the Dail
Report and Final Stages: 17-12-2003
Relevant sections of the Companies (Auditing &
Accounting) Act, 2003 (2003 Act)
Submissions to the IAASA on the regulations
governing the conduct of Section 23 Enquiries from:

Professional Accounting Bodies 7
Feedback Paper in response to submissions received on
the Authority’s Consultation Paper CP 1/07 (IAASA,
2007b)
Regulations governing the conduct of Enquiries under
section 23 of the 2003 Act (IAASA, 2007c)
1