Communication of the External Auditor with the Audit Committee:
Accountability or Impression Management?
Abstract
Purpose – This article proposes to analyze the operationalization of the legally required
accountability relationship between the external auditor and the audit committee (AC) in a
French context. It particularly highlights the way the external auditor communicates with
the AC.
Design/methodology/approach – 53 interviews were conducted with participants in the
AC process of 22 CAC 401 listed companies: external and internal auditors, CFOs, AC
chairpersons and members.
Findings – The external auditor’s communication and accountability are intrinsically
linked to impression management. His communication is painstakingly prepared backstage
in collaboration with the CFO, to ensure consistency in their presentations. The auditor
says little during the AC meetings, leaving the floor to the CFO. Rather than being
accountable, the external auditor seems to provide comfort to the AC regarding the
transparency of the CFO’s report. The auditor thus manages the impressions of two
audiences, working to support both the consistency and transparency of the performance.
He appears to be only loosely accountable to the AC. The various actors seem to perceive
a full accountability relationship between the AC and the auditor as too risky, and therefore
work together to perpetuate a view of the AC situation based on loose accountability.
Originality/value – This study extends the literature on the AC process by highlighting
the role played by the external auditor during this process. One originality of the study is
that it extends the literature on accountability by linking the concept of accountability to
Goffman’s dramaturgical metaphor.
Key words: audit committee process, accountability, dramaturgical metaphor,
communication, external auditor, impression management
Article classification: Research paper
1
The CAC 40 is a benchmark French stock market index consisting of a capitalization-weighted measure of
the 40 most significant companies among the 100 highest market caps on the Paris Bourse (CAC stands for
Cotation Assistée en Continu or Continuous Assisted Quotation).
Communication of the External Auditor with the Audit Committee:
Accountability or Impression Management?
1. Introduction
The audit committee (AC) monitors rather than audits (Walker, 2004), and thus has an
important role to play regarding the external audit. The AC is responsible for appointing
and dismissing the external auditor, overseeing the external audit process, and determining
the auditor’s fees (European Union, 2006). In other words, the AC is expected to act as the
“boss” of the external auditor. Since the AC has broad duties regarding not only external
audit but also internal audit, internal control, risk management and quality of financial
statements, AC members are in a situation of informational dependence. Not being
involved in the company’s day-to-day activity, they do not have direct access to relevant
information to exert their oversight duties; they depend on the CFO, the internal auditor,
the external auditor, the risk manager, and other people to give them the information they
need (Hooghiemstra and Van Manen, 2004; Turley and Zaman, 2007). This is why the
regulators recently issued further directives regarding the external auditor’s
communication with the AC (International Auditing and Assurance Standards Board,
2012; Public Company Accounting Oversight Board, 2012). Extending the external
auditor’s communication duties increases AC members’ information.
The regulators define the relationship between the AC and the external auditor as a twoway relationship: the AC monitors the external auditor, who has a duty to report to the AC.
The wording used by the regulators is somewhat paradoxical. It can look as though the
external auditor is accountable to the AC rather than simply obliged to communicate with
it, since the AC is enshrined in law as the auditor’s “boss”. The interesting question arises
of whether there is a difference for the external auditor between communicating with and
being accountable to the AC. Behind this reflection are two interlinked questions I propose
to answer: How in practice does the external auditor communicate with, and how is he
accountable to the AC? How is this two-way relationship (which could be characterized as
an accountability relationship, as Pomeroy et al. (2011) underline) operationalized in
practice?
In answering such questions, this research makes several contributions to the literature on
the AC process. Previous studies have focused particularly on the (effectiveness of the)
oversight process applied by AC members (Beasley et al., 2009; Cohen et al., 2010;
Fearnley et al., 2011; Fiolleau et al., 2013; Gendron and Bédard, 2006; Gendron et al.,
2004; Salleh and Stewart, 2012; Spira, 2002). The contribution of other participants
(financial officers, external auditor, internal auditor) to this process is rarely analyzed in
depth. One apparent exception is Sarens et al.’s (2009) study of the internal auditor’s
contribution to the AC process. However, Turley and Zaman (2007) clearly demonstrate
that actors who interact with AC members have great influence not only on the information
available to the AC, but also on its organization. Finally, the external auditor’s
communication with the AC is definitely under-researched. To our knowledge, only
Pomeroy et al. (2011) and, to a lesser extent, Pomeroy (2010) deal with such issues. This
study helps to fill gaps in the existing literature by highlighting the role played by the
external auditor during the AC process, examining his accountability and the way he
communicates with the AC.
To understand how the accountability relationship between the external auditor and the AC
is operationalized, I focus on the interactions which take place in official AC meetings, as
it is through these interactions that this accountability relationship is operationalized and
socially constructed (Berger and Luckmann, 1967). To interpret these social interactions,
I rely on the dramaturgical metaphor devised by Goffman (1959). His concepts of
“impression management”, “backstage” and “front stage”, “team performance”,
“discrepant role”, “face”, and “risk of losing face”, appear to be helpful in understanding
the operationalization of the accountability relationship between the external auditor and
the AC. This is not really surprising, since it is well established that accountability is
intrinsically linked to the notion of risk (Butler, 2001; Messner, 2009; Roberts, 2009) and
affects identity (Schweiker, 1993), a concept close to the concept of “face”, which stresses
the interactional dimension of identity. Finally, “impression management” is considered a
direct consequence of accountability pressures (Lerner and Tetlock, 1999; Tetlock, 2002).
Goffman’s work is referred to here as an interesting and relevant frame to grasp
accountability as operationalized in an interactional setting.
To understand this paradoxical accountability relationship in practice, I draw on 53
interviews with people involved in the AC process of 22 French companies listed on the
CAC 40 index: AC chairpersons, AC members, external auditors, internal auditors, and
CFOs. Comparing their points of view, impressions, and experiences leads to answers to
the questions asked here. For instance, the study shows that the financial officers and the
external auditor operate as a team to construct transparency and consistency in
communication. In doing so, they manage AC members’ impressions. During the official
AC meetings, it is the CFO who takes the lead and presents most of the reporting; the
external auditor only acts as a provider of comfort to the AC members. Consequently, the
CFO is actually accountable to the AC, but the external auditor appears to be only loosely
accountable and occupies what he sees as a more valuable role. This view of the situation
is confirmed by the behaviors of the AC members, who direct the majority of complex
questions to the CFO, and only seek comfort from the external auditor. The accountability
relationship between the AC and the external auditor is thus socially constructed through
interactions that involve management. It is the product of the confluence of diverse actors’
motivations in response to perceived risks.
The remainder of the paper is organized as follows. The second section presents the
research questions, which are rooted in a regulatory paradox regarding the nature of the
relationship between the external auditor and the AC; it also provides information about
the French regulatory context. The third section underlines the paper’s potential
contribution to the literature on the AC process. The fourth section explains the conceptual
framework used here to study the operationalization of this accountability relationship. The
fifth section deals with methodological aspects. The final sections present the results,
discuss them and conclude.
2. The accountability relationship between the external auditor and the AC: a
regulatory paradox
The 2001 Sarbanes-Oxley Act in the USA sparked off a wave of regulatory activity on ACs
around the world. Laws and recommendations to make ACs mandatory followed in the UK
(Smith, 2003), Europe (European Commission, 2005; European Union, 2006), and France
(Bouton, 2002; République Française, 2008). The AC’s duties are numerous: monitoring
the financial reporting process, internal control effectiveness, internal audit and risk
management systems; monitoring external audit, the external auditor’s independence, and
in particular, reviewing the fees for non-audit services; and making a recommendation
regarding the appointment of the external auditor (European Union, 2006). Consequently,
one important duty of the AC is to oversee the external auditor, acting rather like his ‘boss’2
in appointing him, monitoring his independence and, more broadly, his work. The AC is
expected to be independent and financially competent (with at least one member who has
financial expertise) in order to be able to fulfill its responsibilities.
These laws also require the external auditor to report the key matters arising during the
audit process to the AC (European Union, 2006). Since AC members are not involved in
the daily activity of the company, they are in a situation of informational dependence on
the management, but also on the external and internal auditors (Hooghiemstra and Van
Manen, 2004). The external auditor has come to be considered a central informant of the
AC, as national and/or international audit profession regulators have increasingly specified
the subjects on which he must report to the AC (International Auditing and Assurance
Standards Board, 2012; Public Company Accounting Oversight Board, 2012).
The relationship between the external auditor and the AC is considered two-way: the AC
monitors the external auditor, who must communicate extensively with the AC. For the
International Auditing and Assurance Standards Board (2012), this two-way relationship
is analyzed as a working relationship: each actor provides something for the other. Like
Pomeroy et al. (2011), we can consider this as an accountability relationship in which the
external auditor is accountable to (must communicate with) the AC. There is a potential
2
Monitoring external audit was the initial duty formally assigned to the AC by the Securities Exchange
Commission in 1940 (Birkett, 1986).
paradox here, since the relationship between the AC and the external auditor can be
considered as both an accountability relationship and a working relationship
simultaneously. This issue is not new, since the external auditor’s duty to communicate
with the AC is long-established, but the recent intervention by the regulators has given it
new importance. I therefore propose to answer these questions through this article: How in
practice does the external auditor communicate with, and how is he accountable to the AC?
How is this accountability (and/or working) relationship between the AC and the external
auditor operationalized in practice? This study was conducted in a specific context: French
companies included in the country’s CAC 40 index. Having an AC has been recommended
for listed companies in France since 1995 (Viénot, 1995). CAC 40 listed companies
decided to introduce ACs around that time, and 36 of the total 40 companies declared they
had one in 1998 (Piot, 2004). The Bouton (2002) introduced recommendations that all AC
members should be non-executive (not part of management), two thirds of AC members
should be independent (under a more restrictive definition of independence than “nonexecutive”) and financially competent, and one member of the AC should be a financial
expert. Today, all French listed companies are required by law to have an AC. French AC
members are generally current or former CEOs/CFOs of other companies in the business
world; it is not unusual to find some from the banking world; sometimes they are former
external auditors. French CAC 40 ACs work in the same way as their better-known AngloSaxon counterparts. They meet regularly (four to ten times a year, depending on the
company) to hear the CFO, the external auditors (in the plural, since the external audit is
performed jointly by two different audit firms in France), the internal auditor, the risk
manager and so on, mostly without the CEO in attendance. They receive written
information before meetings, and the AC chairperson reports to the board of directors after
meetings. The great majority of CAC 40 ACs hold at least one in camera meeting per year,
and there may be informal contacts between the AC chairperson and the internal or external
auditors, depending on the company and circumstances.
The study was conducted between 2006 and 2008, between the issuance of the 8th Company
Law Directive (European Union, 2006) which made having an AC compulsory for all
European listed companies, and the transposition of this directive into French law in 2008
(République Française, 2008). France in 2006/2008 offers an interesting place and time to
explore the paradox surrounding the nature of communication and the relationship between
the AC and the external auditor, for two reasons. First, the French legal system at this
period had a curious feature: while the AC was well-institutionalized, recommended by the
European Commission (2005) and the Autorité des Marchés Financiers (the French
financial market regulator) and in the process of becoming a legal requirement, the external
auditor’s duty of professional secrecy still applied vis-à-vis the AC, to preserve
informational equality between all directors of the board. Although all CAC 40 companies’
boards of directors formally relieved external auditors of their professional secrecy
obligation, exploration of this paradoxical situation suggests that it introduced a legal
dimension into this study’s specific context. Secondly, introduction of the legal
requirement to have an AC generated intense reflection and scrutiny regarding the extent
of the AC’s responsibilities and the nature of its relationship with the external auditors.
Evidence of this is found in the creation of several working groups by several institutions
at this time (Autorité des Marchés Financiers, 2010; Institut Français des Administrateurs,
2008, 2009; Le Club des Juristes, 2009).
The next section describes this study’s positioning in and contribution to the existing
literature on the AC process.
3. Where the literature on the AC process stops
Although many studies examine ACs, few are interested in the AC process (the inside of
the black box) (Bédard and Gendron, 2010; Carcello et al., 2011). The small number
studying the AC process use data collected by interviews and focus primarily on AC
members’ practices, assessing their (in)effectiveness and/or the role of the AC (a
ceremonial and legitimating role versus a monitoring role) as regards: the agenda setting
(Beasley et al., 2009; Gendron and Bédard, 2006; Spira, 2002), the questions asked by the
AC members (Beasley et al., 2009; Cohen et al., 2002; Gendron and Bédard, 2006; Spira,
2002), the process for appointing a new external auditor (Cohen et al., 2010; Fiolleau et
al., 2013), the involvement of AC members in discussions between the external auditor and
management (Cohen et al., 2010; Fearnley et al., 2011; Salleh and Stewart, 2012), or the
informal meetings outside AC meetings (Beasley et al., 2009; Gendron and Bédard, 2006;
Turley and Zaman, 2007). Overall, these studies show that the AC’s oversight of the
external audit is essentially executed at a distance, leaving management considerable space
to shape the relationship with the external auditor to suit its own purposes.
All these studies stress the social and interactional dimension of the AC process. They
analyse these interactions mainly by examining the nature and extent of the AC members’
contribution to this process. The contribution of other attendees is usually treated as a
secondary question, despite its importance. Turley and Zaman (2007) analyse the AC as a
“receiving and responding body”, since the AC members depend on their contacts for
information and the way it is provided. Therefore, directly rather than indirectly studying
the contribution of people who interact with the AC should provide some new insights into
the AC process. Sarens et al’s (2009) pioneering research studies the contribution of
internal audit to the AC, showing that the internal auditor provides comfort regarding the
effectiveness of internal control and risk management systems. This study seeks to
understand how the external auditor contributes to the AC process, by focusing on his
communication with/accountability to the AC members.
The studies by Pomeroy et al (2011) and Pomeroy (2010) taken together are particularly
interesting here. Pomeroy (2010) analyzes AC members’ reactions to the external auditor’s
communication on negotiations between himself and management. He shows that this
communication can influence the intensity and probing nature of the questions asked by
AC members, depending on the aggressiveness of the accounting outcome, and the degree
of financial expertise of AC members. Then Pomeroy et al. (2011) show that the AC
oversight style influences the level of written communication by the external auditor on the
issues negotiated with management. The fact of being or not being involved in the
negotiation process, and taking or avoiding a challenging attitude during the meetings, puts
different accountability pressures on the external auditor, who adapts his communication
accordingly. These two studies show that the external auditor’s communication with the
AC takes place inside a dynamic relationship between the two actors, which can be
analyzed as an accountability relationship (Pomeroy et al., 2011). This accountability
relationship is socially constructed (Berger and Luckmann, 1967) through their
interactions. This study intends to add to Pomeroy et al’s (2011) study by analyzing how
the external auditor communicates with the AC rather than how much or what he reports.
The next section describes the theoretical framework used to understand how the external
auditor reports to the AC and how his accountability relationship with the AC is
operationalized or socially constructed.
4. Reference to Goffman’s dramaturgical metaphor to study accountability
interactions
Accountability refers to a complex phenomenon. “In its simplest sense, giving an account
is providing reasons, for character and conduct, ones held to be understandable to others.”
(Schweiker, 1993, 234). It thus refers to a relational or social phenomenon. In an
accountability relationship, an accountee explains and justifies his conduct to an accountor
using narration (Boland and Shultze, 1996; Butler, 2001; Messner, 2009; Schweiker,
1993). Giving an account also helps to make sense of the world (by creating a common
understanding), and sustain its reality (Willmott, 1996). In a similar vein, it enacts the
recognition of the accountee by giving existence to his self (Butler, 2001; Lerner and
Tetlock, 1999; Roberts, 1991, 2009; Schweiker, 1993; Willmott, 1996). Consequently, the
practice of accountability creates a social order in which the accountee’s identity is
recognized and socially constructed (Butler, 2001). Accountability relationships frame the
accountee’s subjectivity (Butler, 2001; Lerner and Tetlock, 1999; Messner, 2009; Roberts,
2009; Schweiker, 1993; Sinclair, 1995; Tetlock, 2002).
Being accountable can involve some risks to the identity: judgment and potential sanctions
are both components of an accountability relationship (Butler, 2001; Lerner and Tetlock,
1999; Messner, 2009; Roberts, 2009; Tetlock, 2002), and interplay with the accountee’s
emotions of guilt, fear of humiliation, vulnerability. Positive social identity needs to be
continually reaffirmed and is a precarious construction (Willmott, 1996). In parallel, giving
an account is not simply giving information, but rather performing a narrative which must
be coherent if it is to be considered credible (Boland and Shultze, 1996; Butler, 2001;
Carnaghan et al., 1996). As Butler (2001) underlines, the individual is incoherent by nature,
since the self is opaque to the individual himself. This situation drives him to construct
coherence in a sometimes creative way, to ensure credibility and to defend his self (Butler,
2001; Lerner and Tetlock, 1999; Roberts, 1991, 2009; Tetlock, 2002). Lerner and Tetlock
(1999) and Tetlock (2002) consider impression management as a possible strategy to
defend the social identity under accountability pressures. Identity appears here to be the
dynamic result of the individual’s participation in a dynamic accountability relationship.
Another source of risk for the self is that an individual is not generally involved in only
one accountability relationship, but is at the core of a matrix of several accountability
relationships (Carnaghan et al., 1996; Sinclair, 1995). His different audiences have
differing expectations, and this can create conflicts. The external auditor is no exception;
he reports to different audiences: the client (the auditee or management), the board of
directors, people in general, the audit firm and so on (Gibbins and Newton, 1994). All these
relationships contribute to construction of the external auditor’s self, which is certainly a
conflicted self.
The external auditor can thus be considered as socially involved in various, potentially
conflicted, dynamic accountability relationships. Rather than simply giving information,
the external auditor performs narratives that are constructed to be coherent and intended
for several audiences. This contributes to definition of his identity, not only by creating
social recognition of his self but also by creating risks to that self. Impression management
is one possible strategy to deal with such identity risks. Inside this broad description, I
propose to study here the operationalization of one of the auditor’s accountability
relationships - the relationship with the AC - in a specific context.
My study of the operationalization/construction of this accountability relationship is
mainly founded on the work of Goffman (1959), who used the dramaturgical metaphor to
study face-to-face interactions. He proposed the idea that in every interaction, the self must
be presented to an audience, and the audience forms an impression/a judgment about the
worth of the actor’s self. The actor must thus act to protect his self by managing his
audience’s impressions. In other words, Goffman (1959) considers that an individual
always gives an account of himself during social encounters. Consequently, Goffman’s
dramaturgical metaphor seems relevant for understanding accountability during
interactions.
For Goffman (1959), the actor does not directly expose his self to an audience; he presents
a “front” instead. This “front” is carefully and meaningfully managed during interactions,
and constructed and rehearsed backstage to create a consistent image. This “front” and the
decor in which it is presented work together to define the situation. Goffman (1959) does
not consider this “front” to be cynically created (Schlenker and Weigold, 1992); impression
management is seen as quite natural: “For what a speaker does usually is to present for his
listeners a version of what happened to him. In an important sense, even if his purpose is
to present the cold facts as he sees them, the means he employs may be intrinsically
theatrical, not because he necessarily exaggerates or follows a script, but because he may
have to engage in something that is dramatization – the use of such arts as he possesses to
reproduce a scene, to replay it. He runs off a tape of the past.” (Goffman 1975, p.503504). It can also be considered as a defensive action. The actor wants to protect his own
social image, that is to say his identity, his “face” – “a positive social value” which is built
up through successive interactions (Goffman, 1974). More than the “front”, it is the actor’s
“face” – his most valuable possession – which is at stake. Managing impressions to present
a consistent “front” prevents embarrassment from creating a breach in the definition of the
situation and making the actor lose “face”. Each interaction entails a risk of losing face.
A performance can be collective, involving more than one actor (Goffman, 1959). In such
cases, each actor contributes to the impressions the team makes on the audience, and so the
team members are in a situation of mutual interdependence. The backstage area takes on a
particular importance since the team finds itself alone there, with no audience. It is a special
place where the actors prepare their performance together, and it needs to be away from
the audience’s gaze. But this place of refuge may sometimes be insufficient to construct
performance consistency. For example, an actor with a “discrepant role” (Goffman, 1959)
can compromise the team’s performance credibility by giving “destructive information”.
When the actors have several different audiences, it will be more difficult to manage
impressions since they do not necessarily play the same role to each audience. Finally, a
performance is a fragile thing which also needs the support of the audience (Goffman,
1959). The audience is far from a passive receiver; it actively contributes to sustaining a
particular view of a situation, or alternatively can also choose to create embarrassment and
jeopardize the actors’ face…
Following Goffman (1959), I analyze the external auditor’s communication with the AC
as part of a performance by a team (the external auditor, the internal auditor, the CFO and
his staff) in which the auditor can sometimes play a “discrepant role”. After presenting the
methodology in the next section, the results are discussed in detail.
5. Methodology
This section specifies the methodological choices: adopting an interpretive stance, and
using interviews to collect data. The analysis procedures are then presented.
5.1. An interpretive stance in respect of interview data
This study is sociological because of its interest in interactions during the AC process.
More precisely, it belongs to the interpretive stream of accounting research (Ahrens et al.,
2008; Hopwood, 1983). Following Weber’s (1968) understanding of sociology, I seek to
understand the meaning participants assign to the interactions taking place during the AC
process. This is not a ‘romantic’ approach (Alvesson, 2003) aiming simply to understand
attendees’ inner feelings. Instead, I adopt a bird’s-eye view to understand the
operationalization of an accountability relationship through interactions. This explains my
interest in the viewpoints of actors who do not have the same role during, or the same
perception of, these interactions and this relationship. I consider the viewpoints of AC
members, CFOs and internal and external auditors.
Contrary to what the paper’s structure suggests (because it was planned ex post for clearer
understanding), the approach used was inductive. The decision to use Goffman’s (1959)
work was taken during the analysis step. Examination of the data was what drove me to
use the dramaturgical metaphor to explain the operationalization of the accountability
relationship studied. As the study is empirically grounded, the theoretical interpretation
depends on the specific data and constitutes a substantive theoretical understanding
(Strauss and Corbin, 1990). Nevertheless, the results can offer a basis for reflection for
other research in other contexts.
The empirical data was collected via semi-structured face-to-face interviews with
participants in the AC process. This data opens up access to the meaning these people
assign to the studied interactions.3 I used an open interview guide to conduct the interviews.
This type of interview can cover all required themes, but with its loosely-structured
questions it leaves the interviewees freedom to talk about whatever subjects they consider
important and relevant (Fontana and Frey, 2000).
I conducted 53 qualitative interviews with a selection of individuals representing the
system of actors involved in the AC process. First, I listed the firms making up the CAC
40 index. I consulted those firms’ annual reports for the names and addresses of the
independent AC members, CFOs and the internal auditor, and the external audit partners.
I drew up a target list of just over 200 people. Each one was sent a personal letter presenting
the research purpose and requesting a meeting. Between December 2006 and December
2008, 53 actors involved in the AC process of 22 CAC 40 companies answered questions
in face-to-face interviews (see Appendix 1 for a complete list of interviews). Of the total
53 interviews, nine were conducted with AC chairpersons, four with AC members, nine
with CFOs (or Group controllers), ten with internal auditors, 17 with external auditors and
four with representatives of the audit profession or directors’ associations.
After presenting the study to interviewees, I asked questions regarding the nature of
interactions during official AC meetings, the preparation of those meetings, and also
informal meetings. More specifically, the first questions were about the formal
characteristics of meetings (where the attendees sit, frequency of meetings, the atmosphere,
etc.). Then, I asked questions about the sequence of interactions during meetings (who
speaks, when and how, attendees’ attitudes, feelings during interactions). I also asked more
precise questions regarding preparation of the meetings (the sequence of the preparatory
process, the existence of preparatory meetings and so on). I specified to the interviewees
that the questions concerned official AC meetings relating to approval of the annual
financial statements, which also involve a review of external audit work. Interviews lasted
between 30 and 90 minutes, and 45 (of the total 53) were recorded and transcribed. The
transcriptions were then analysed using the procedures presented below.
5.2. Data analysis
3
Direct observation would be an excellent way of accessing reality. Unfortunately, I was not able to attend
an official audit committee meeting for reasons of confidentiality.
Analysis began with transcription of the interviews, which develops a closer connection
between the researcher and the data (Silverman, 2000). After each transcription, a memo
was written specifying the general interview structure, the themes covered, and specific
issues which begged questions or otherwise stood out. Following Mintzberg (1979) I
considered that in an interpretive study, the analysis stage is comparable to an investigation
when questions must be asked to understand the interviewees’ discourses and their general
thrust (Strauss and Corbin, 1990). This analysis took place at two levels, the individual
level (understanding the individual’s view of the AC process) and a transversal level.
The individual-level analysis brought to light the importance of a preliminary step before
official AC meetings: a backstage activity that enables people who are accountable to the
AC to prepare their presentations carefully together. It also highlighted the importance of
not losing face in front of the AC members. Terms like “avoiding the unexpected”,
“coherence”, “backstage”, “performance”, “reputation” (which can be considered as a
professional “positive social value”) regularly came up in the interviews. It was at this stage
that Goffman’s work appeared relevant to understanding what happens during the AC
process.
Next, I undertook a more transversal analysis using coding procedures. I allocated a code
to each paragraph of each transcription, writing it in the margin. The codes used were
strongly influenced by the concepts developed by Goffman (1959, 1974), and his
dramaturgical metaphor. These coding procedures provided a structure for the interpreting
work (Strauss and Corbin, 1990) and to compare the different interviewees’ conceptions,
in order to highlight the nuances of this social reality (Strauss and Corbin, 1990).
6. Insights from the dramaturgical metaphor: loose accountability interactions
between the external auditors and the AC
The external auditors’ communication with the AC is constructed in advance backstage,
jointly with the CFO to create consistency. During AC meetings, the external auditors are
not in the front line; it is the CFO and his team who face the AC and do most of the reporting
and answering questions. The external auditors appear to be loosely accountable. Their
main role is to guarantee the transparency of information given to the AC, and to answer
comfort-seeking questions. This situation is collectively constructed, since it enables the
AC members, the CFOs, and the external auditors to manage their own specific risks.
6.1. Illuminating the backstage area: the external auditors and the CFO act as a
team in preparing their communication with the AC
An AC meeting only lasts a few hours, but its preparation needs much more time:
Interviewer: Does an audit committee meeting take a long time to prepare?
D: It’s very time-consuming for us! We have to summarise the summary report, because
there are summaries for each business unit, each entity, each sector, and at central
corporate level. There are three or four topics… We have to choose three or four slides
per sector. That doesn’t take particularly long, but there are decisions to be made, and
every word is important […]
I: How long does it take?
D: Once we’ve finished the meeting at management level, just the extra part? I think it
takes me 40 hours, easily.
I: 40 hours to prepare for the audit committee meeting! […]
D: You have to choose the themes, you’re very involved. That’s where the 40 hours come
from. Because sooner or later you have to pick up your pen, and every word counts.
(External auditor, interview 56, C12)
The preliminary backstage step appears to be time and energy-consuming. Preparing the
AC meeting entails meticulous selection of words and messages. Some issues are
‘dramatized’ (Burke, 1969; Goffman, 1959); others are omitted (Goffman, 1959). This is
the phenomenon of impression management. It is not necessarily cynical (Goffman, 1959;
Schlenker and Weigold, 1992): the external auditors (like others who report to the AC)
construct the transparency of their communication by choosing specific messages and
words:
“It’s transparency towards the audit committee. But not all the information is given to them
unprompted. If it was, all their channels of information would be full every day.”
(Internal auditor, interview 46, C21)
‘Total’ transparency would not be appropriate for AC members, since there would be too
much information to handle. By focusing on managing AC members’ impressions, the
backstage work helps to build a workable level of transparency. The interviewees told us
that items are selected for presentation based on their importance for finalisation of the
accounts. The idea is that minor points, even if they are problematic, do not concern the
AC.
This selective disclosure, which is an exercise in impression management, is not unilateral.
During the financial statement preparation period, meetings take place between the CFO
or group controller and the external auditors. The presentations to the AC are not always
the main purpose of these meetings, but they are often discussed:
“The auditors give the committee a presentation of their audit work, and I see and validate
that presentation beforehand. Well yes. It’s a bit awkward if they raise points in the audit
committee meeting that haven’t been discussed earlier with management. It would be
awkward for them, for the audit committee and very, very awkward for us. So we discuss
all that beforehand when the accounts are being prepared. Then there are no surprises for
us. That doesn’t mean we agree on everything, or that they never raise any issues, quite
the contrary, I would say. They raise matters, of course they do. But those matters are…
defined in advance.”
(CFO, interview 44, C6)
“First, they vet my presentation. So if they don’t agree, they would have a chance to say
so! And I also have a look over what they intend to say, to make sure that the way they say
it matches our shared understanding of the situations. That prevents unpleasant surprises!
It really is joint work. Each side has its own responsibilities, of course, and there’s no
question of restricting them.”
(Group controller, interview 49, C8)
“Telling the financial officers “Don’t forget to talk about this, will you, because we’re
going to talk about it anyway! You mention it first! That will look better”, that’s part of
preparing for the audit committee meeting.”
(External auditor, interview 1, C1)
Before the official AC meeting, the CFO and the external auditors check each other’s
slides. The CFO checks that his report is coherent with the external auditors’ presentation;
the external auditors check the transparency of the CFO’s report. At this point, discussions
relate to the points selected for disclosure (not actual accounting treatments), and the
message associated with the disclosed issue (“this has now been dealt with”, “this is still a
problem”, etc.). The group controller in the second interview extract above considers that
this is joint work. The CFO and external auditors act as partners, not only during the audit
process and the financial reporting process (Richard, 2006) but also during the exercise of
financial communication with the AC. As partners, they define the message to be conveyed
by both sides to preserve overall consistency in the performance before the AC. Even if
they have different opinions, to maintain the CFO’s credibility they jointly plan their
presentations so that, for example, the company presents the issue first and thus displays
its concern for transparency (if the external auditors are the first to raise a problematic
issue, the AC members might think that management intended to say nothing about it).
Coordination prevents unpleasant surprises during AC meetings and enables the CFO to
“maintain face”. The CFO’s “face” is important for the external auditors since he is their
partner (Richard, 2006):
“You know, it’s almost good manners. You’ve been working for months and months with
the financial management people. In the end you turn up with your conclusions. There are
points on which you’ve agreed, all well and good. There are other points on which you
perhaps disagree. And I think that before walking into a meeting with a third party, I think
the least you can do is say to the financial officers, “Right, tomorrow I’m thinking of raising
such and such a matter, with such and such a message.”
(External auditor, interview 17)
Thus, communication with the AC results from a partnership between the external auditors
and the CFO.
6.2. Understanding what is happening onstage: the external auditors’ conflicting
role
Whereas the external auditors are expected to communicate intensively and be accountable
to the AC, they appear to say little during AC meetings, leaving the main role to the CFO.
Far from an accountability role, they seem to play their traditional auditors’ role of
providing reassurance to the AC. Moreover, the external auditors’ position appears very
close to discrepancy since they have two audiences (the AC and the CFO), and their roles
towards those audiences conflict.
6.2.1. Loose accountability interactions between the external auditor and the AC
All interviewees agreed that time constraints significantly restrict interactions during
official AC meetings. Meetings last three or four hours on average, and during that short
time the attendees tackle all the issues on a crowded agenda. As a result, meeting time is
primarily devoted to presentations about the issues on the agenda. This does not mean that
AC members do not ask questions to fulfil their duty, but if they ask questions, the time
constraint limits the extent of discussion and investigation:
“Opposite each item on the agenda, we have: this item, ten minutes; this item, twenty
minutes, etc. So the meeting is planned. So afterwards, well, if some matter turns out to be
absolutely gripping, well of course we can overrun, but not a lot.”
(AC Chair, interview 53, C12)
Presentations about year-end issues and the financial statements are given firstly by the
CFO (or his team) and secondly by the external auditors (reporting the results of their
audit):
“Once the financial officers have presented the financial statements, the auditors are asked
to give their conclusions which are… well, it can take ten minutes or it can take an hour
and a half. It all depends on the way roles are distributed between the financial officers
and the auditors. In some cases, the financial officers simply cover the accounting aspects
and present the accounts mostly from a financial standpoint. In which case, the auditors
will talk a little longer, because they’ll go into specific operations, what’s happened in
other countries, etc… In other situations, the financial officers cover all aspects! And the
auditor only comments on what was said earlier. There are no rules!”
(External auditor, interview 9)
This interview extract indicates that the extent of the external auditors’ communication
during these interactions varies depending on the company. This results from the way roles
are distributed between the CFO and the external auditors before the meeting. The
following arrangement appears fairly standard: the CFO gives an extensive presentation of
the accounts, and the external auditors simply add comments that explain some of the finer
points. As accounting is an imperfect means of depicting a socially constructed reality, it
is always possible for the auditors to provide some nuance to complement the CFO’s
presentation. In doing so, they contribute to the consistency of the overall performance.
“Most speaking time is allotted to the company’s management, which presents a certain
number of matters. […] Which are matters, I would say, that are on the audit committee
meeting agenda. The financial officers cover those points. The audit committee members
then respond to them through question-and-answer sessions or further comments. They
may if they wish ask the external auditors or any other audit committee participant for their
opinion.”
(External auditor, interview 43, C20)
In practice, some external auditors seem to speak for a very short time, with no illustrating
slides; others speak a little longer and show a PowerPoint presentation. The distribution of
roles between the CFO and his team and the external auditors does not appear to be static.
When I interviewed people from company C12, I learned that there had been long
discussions between the external auditors and the CFO because the auditors considered
they had too little time to give a proper report, and in the end the CFO had agreed to allocate
more time to the external auditors’ presentation. No AC members were involved in these
discussions. This underlines the fact that the CFO and his staff, and the external auditors,
form a team which excludes AC members.
Moreover, most AC members’ questions are for the CFO rather than the external auditors.
Some auditors even consider that it is not their duty but the CFO’s to answer AC members’
questions:
“And then we’re open to questions from the audit committee, but we won’t answer directly.
We let the company answer, because it’s the company’s responsibility to finalise the
accounts and give explanations. And, where necessary, to confirm the facts described by
the company’s representatives.”
(External auditor, interview 47, C9)
To a certain extent, the external auditors think that the CFO and his team are more
accountable than themselves to the AC, seeing themselves as only loosely accountable to
the AC. The AC members’ behaviour confirms and helps to construct this particular view
of the situation (Thomas, 1969) since they put fewer and different questions to the external
auditors. The CFO is asked probing questions, but the external auditors receive more
comfort-seeking questions, that is to say questions asked by the AC members to confirm
the transparency of the CFO’s accounts. The external auditors thus play the role of
providers of comfort.
“The external auditors say, “yes, that’s the right rate”. End of story, it’s the right rate.
The financiers say “We calculated that with such and such a rate.” The auditors say, “Yes,
that’s the right rate.”And wham! everyone agrees on the figure, and so it’s time to move
on to the next one. That’s how it goes.”
(AC Chair, interview 53, C12)
This role of providing comfort (here, to AC members) is a traditional role for external
auditors (Power, 1997). The focus of interactions is thus the CFO (together with his team);
he is the person who is primarily accountable to the AC. The external auditors are only
indirectly accountable; they say little, and act more as guarantors of transparency in the
accounts. This distribution of roles, which can vary, is agreed backstage between the CFO
and the external auditors to avoid giving discrepant impressions to AC members, who
would express their suspicion by asking more questions. The AC members help to sustain
this view of the situation by putting probing questions to the CFO and simple comfortseeking questions (“Do you agree?”) to the external auditors. This specific view of the
situation is also reflected in the physical place occupied by each attendee during meetings.
In all but two committees studied, there is no formal seating plan, but people always sit in
the same places. Spira (2002) understands this situation as providing reassurance. Beyond
reassurance, choosing a seat is a meaningful social behaviour (Mead and Morris, 1962); it
reflects the (more or less conscious) perception of the role played by the actors during these
interactions. The interviewees described an accepted habitual seating pattern at AC
meetings (except in two companies where the AC participants sat around a round table).
Generally, AC meetings take place in the boardroom and participants sit around a
rectangular table. The CFO and his team sit opposite the AC members, and some
interviewees also specified that the CFO sits directly facing the AC chairperson. These two
groups occupy the two long sides of the table. I was also told that the external auditors do
not generally sit along a long side of the table, but at the end that is not reserved for the
projection screen:
“The financial officers sit opposite the audit committee to talk to them. Which seems
sensible to me. The auditors tend to sit on the side. Let’s say the CFO is generally facing
the audit committee chairman. That makes sense! One of them talks and the other listens.”
(External auditor, interview 29, C16)
Sitting opposite the AC members puts the CFO and his team in a position of physical
accountability. This does not apply to the external auditors, who are to one side, occupying
some of the space between the other two groups. This makes them look like an intermediary
between the AC members and management, providing comfort to the AC and consistency
for the CFO. The physical organization of a typical AC meeting can be schematized.
(Insert Schema 1 here)
6.2.2. The discrepant role: power and risk for the external auditor
Being in the middle, between the AC members and the CFO and his team, is also a
precarious position for the external auditors. It means they have two audiences and
therefore have to manage impressions for two different groups: the CFO and team (their
partners) and the AC members (who consider them the guarantors of transparency in the
management’s report). These audiences have potentially different expectations of the
external auditors. Whereas the AC members expect them to provide comfort by giving
information, the CFO expects them not to alarm the AC members by giving “destructive
information” (Goffman, 1959) which threatens the consistency of the performance and
creates suspicion in AC members – a situation that one group controller considers
inconceivable in practice:
“I’ve never seen it happen that I was presenting something and the auditors raised new
points. That would be really appalling! If we’ve had discussions, we distribute the roles so
we don’t get repetitive in a meeting! But I can’t imagine that a point my auditors consider
important would be omitted from my presentation, or vice versa.”
(Group controller, interview 49, C8)
This potentially destructive situation is generally dealt with beforehand, backstage. The
external auditors and the CFO act as a team, presenting
a united front to the AC
members and managing their impressions. Once again, this does not mean that the external
auditors will agree to hide anything from the AC; what generally happens is that their
communication is carefully prepared to maintain the face of the CFO and his team, who
are given the opportunity to present the difficult issue first. Several interviewees expressed
the idea that the external auditors are skilled communicators, able to say what they have to
say without threatening the CFO’s face. This preserves the dual impression of transparency
and consistency, the two things that the external auditors are expected to support.
But there is always the possibility that the external auditors may deviate from the “script”
prepared backstage and play a “discrepant role” (Goffman, 1959). This situation sometimes
arises, as for example in company C12:
“Sometimes they [the external auditors] don’t behave particularly well. […] I mean when
they use their allotted time to speak in a way not agreed in our briefing, that’s what I would
call a slight abuse of power. […] The auditors only have one weapon - making things
public. This makes them extremely powerful, but also extremely frustrated, because they
spend their time saying they’re going to use that power but they never do. […] They have
an enormous amount of power! They’re a real partner. And they need to accept that. So
sometimes, when they aren’t as conscientious in their duty as they should be, and take
liberties that we wouldn’t have, then that can annoy us.”
(Group Controller, interview 55, C12)
C12 is not a unique case. Similar situations were described by other interviewees but
remain fairly unusual. What the group controller (who is also a former external auditor)
says above is very interesting. He considers the external auditors as his partners, and that
such a position gives them a duty towards him: they should protect rather than threaten the
management’s face, by sustaining a consistent performance. Because of this duty, they
cannot use their power of disclosure (the only power they hold) as they wish. This is a
source of frustration for them, and occasionally they will actually use it.
Another way for the external auditors to create discrepancy is to be indiscreet and let the
AC chairperson have a ‘peek’ backstage. None of the interviewees described a situation
where an external auditor asks to talk to the AC chairperson outside the AC meeting.
However, they did tell me that some chairpersons regularly invite the external auditors to
meet privately before an official meeting. As there is only one audience at such preliminary
meetings, the external auditors can speak more freely:
“For us, they’re important [private meetings with the AC chairperson], partly because
they allow us some freedom of expression, it means we can discuss subjects with doubtless
a little less restriction than might have been the case, I mean perhaps… if the management
had been there.”
(External auditor, interview 15, C10)
In practice, it seems that during this preliminary private meeting the external auditors only
really tackle issues they plan to raise during the official meetings. As several chairpersons
stressed, the external auditors are simply giving their messages in advance in such
situations, although more directly; the messages are more easily understandable. These
meetings are thus a means for the AC chairpersons to prepare their questions for the
following official meetings.
Finally, it is also interesting to underline that even when the external auditors do not choose
to play a discrepant role, the simple fact that they could do so influences discussions
between the external auditors and the CFO. The possibility of disclosing “destructive
information” can shift the CFO’s position on a difficult issue:
“Audit committees still have quite a significant effect on situations when opinions diverge
between managers and auditors. […] …it would be practically unthinkable to present
accounts that haven’t been approved by the auditors. Which means that the influence of
audit committees is more dissuasive than intentional.”
(External auditor, interview 24, C22)
Consequently, even if the external auditors are only loosely accountable to the AC, the
possibility of institutionally communicating “destructive information” to an audience
reinforces their independence. Without directly monitoring the external auditors, the AC
appears to have a positive effect on their independence.
The next section deals with the motivations that drive AC members, the CFO, and the
external auditors to perpetuate this particular view of the situation in which the external
auditors say little at AC meetings, work together with the CFO to manage the AC members’
impressions, and are so only loosely accountable to the AC.
6.3. Behind a co-constructed loose accountability relationship: some motivations in
response to perceived risks
As Hooghiemstra and Van Manen (2004) and Turley and Zaman (2007) underlined, the
AC members are in a situation of informational dependence, and largely reliant on the good
faith of the people they talk to. The external auditors are considered the most trustworthy
of these because of their duty of independence. But if the AC members cannot trust the
external auditors, who will provide comfort about the transparency of the accounts?
“If there’s collusion between the management and the auditors, an audit committee, even
with competent members, hasn’t a chance in a thousand of putting their finger on what
they’re trying to hide. Remember, we manage companies with 150,000 people in 140
different countries, with different standards, using different currencies, with different laws.
So if there is any collusion, it’s practically certain that it won’t be spotted.”
(AC chairperson, interview 6, C4)
The AC members have no option but to trust the external auditors. It is their only way to
deal with the risk that something might have been concealed. They therefore only consider
the external auditors as loosely accountable to them, and act accordingly.
As for the CFO and his team, they clearly run the risk of losing face during AC meetings.
This is typically reflected by an avalanche of probing questions from AC members, and the
possibility of the AC chairperson reporting on a problematic issue to the board of directors.
“You also realise how we’re constantly walking on a razor’s edge. And it’s not a very
comfortable feeling. I mean, in fact you’re telling yourself… I’ve got 5 minutes to tell my
story. If I tell it well, then everything will be fine and I won’t have… and if I tell it badly,
I’ll find myself on the wrong side of the razor and I’ll be cut into pieces, for something
where in the end, the only problem will have been that I didn’t have enough time to explain
it properly perhaps. So in my case, personally as a finance man, I spend an enormous
amount of time preparing for these committee meetings to make sure! that I’ve thought my
story over, that I’m well prepared for all the potential questions, and “I cram”. So I spend
a lot of time, you see, fine-tuning my message because you don’t get much time, with the
people you’ve met, 57 and 53, they’re anything but stupid. They catch on very fast. So you
have to be very careful not to let them go off on a tangent. Because afterwards, you see, it
all gets very heated and then in a split second you’ve lost all control. And that’s the risk I
see in these audit committee meetings.”
(CFO of a line of business, interview 59, C12)
The risk perceived by this CFO of a particular business line is clear. He associates this risk
with giving a false/bad impression to the AC members, explaining that he has to manage
these impressions properly. Similarly, “destructive information” (Goffman, 1959) given by
the external auditors, who act as a provider of comfort to the AC, is a threat for the CFO’s
face in the sense that it will create an impression of discrepancy. Collaborating backstage
with the external auditors and being the first to give an account enable the CFO to have
enough control over the impressions created. However, he is always at the mercy of the
external auditors, who can still deviate from the “script”…
Contrary to management, the external auditors do not (or refuse to) perceive such a direct
risk of losing face in front of the AC, since they clearly consider themselves only loosely
accountable.
“Hold on, I don’t think we should believe the auditors are grilled at audit committee
meetings… The audit committee wants to hear an opinion or get information. And it’s an
opportunity for us to give a professional viewpoint.”
(External auditor, interview 27, C3)
The auditors consider that they remain unimpeachable professionals, even in relations with
the AC. Their professionalism still offers protection against the possibility of criticism by
the AC. When this idea was alluded to during interviews, some external auditors also
referred to the fact that professional secrecy remains a legal requirement vis-à-vis the AC
in France to justify that they did not have to be accountable to the AC.
“You know that in theory we aren’t allowed to answer the audit committee, for one thing.
So the meeting is already a breach of professional secrecy.”
(External auditor, interview 15, C10)
They expressed the idea that AC members cannot legitimately ask for and receive
information from the external auditors. Others expressed this same idea of illegitimacy,
arguing that the AC members are less competent and less independent than them anyway.
“But they [the independent directors] aren’t [independent] either because it’s true that…
for them, the fact that the stock market price is rising, etc, that’s seen as a good sign. Fine.
For us, that isn’t one of the criteria. You see what I mean. We have no reason to be
particularly pleased that the share price of the company we audit is going up. The reason
we’re there is to certify that the accounts being released do indeed reflect reality.”
(External auditor, interview 31, C17)
“Because yes, there is independence but there isn’t a massive amount of competence on
accounting subjects, even though good practices (the Bouton or whatever report and so
on) require that at least one committee member should be an expert. The problem is, what
is financial competence? Because when you look, on C9’s audit committee there’s the audit
committee chairman, he’s the former boss of C [a bank]. So he’s a financier. There’s Mr
D., former president of E. [a bank]. You can’t say there’s no financial competence around
the table. Except that when it comes to accounting, they haven’t a clue (laughs).”
(External auditor, interview 34, C9)
The interviewees referred to the two professional qualities traditionally attributed to
external auditors to justify their view that being directly accountable to the AC would be
inappropriate. Such accountability would be prejudicial for their professional status,
damaging their auditor’s identity and professional reliability, as being accountable to the
AC could suggest that they are unable to remain independent. It would undermine their
definition of the self, put their face at risk. Being monitored would cast doubt on their role
as rightful monitors. They also perceived a risk that the AC members might take their place
and their role as rightful monitors, leaving them with a simple role as auditors who need to
be monitored. This risk is materialized in the possibility of receiving even a minor comment
from an AC member. As a result auditors may seek to demonstrate their independence by
distancing themselves from the CFO’s messages during the AC meetings through giving
“destructive information”. An alternative response to this situation is to build on their
partnership with the CFO by hiding some awkward point from the AC, to avoid being
criticised for agreeing to an aggressive accounting outcome:
“For example, we have a short debate with the company on the complicated technical
matters that have come up. They don’t really like us talking about those in the audit
committee meetings because they’re always afraid that poorly-informed people will start
contradicting decisions or subjects on which we, the auditors and the company, had
reached agreement. Because they don’t understand properly, because, I don’t know,
because they don’t think we should have gone about things the way we did. That’s a bit
awkward because… It seems to me that both of us, the company and the auditors, should
feel that if at a given moment we’ve discussed a complicated matter and found a technically
satisfactory solution, we should feel strong enough… That paradox could happen. In the
end the audit committee kind of gives itself greater rights than the auditor because it frames
and supervises our work. And so they say “I don’t understand why you agreed to the
company’s request”. And then, well then, we’d be in a slightly complicated situation. This
makes the company reluctant to take the time to explain the main technical matters that
we’ve covered during the year, because that’s what they’re afraid of.”
(External auditor, interview 34, C9)
This position enables the external auditors to maintain both their working relationship with
the CFO and their professional identity. Finally, some interviewees mentioned other
existing legal rules which can help them to maintain their independence: the joint audit (a
French specificity) and the criminal sanctions for obstructionism. What emerges is that
French external auditors do not want to be considered as accountable to the AC. They
consider such a position as a threat to their face as competent, independent professionals.
Consequently, the AC members, as well as the CFO and the external auditors in particular,
are wise to sustain a view of the situation in which the external auditors are loosely
accountable to the AC and their professionalism is unquestionable. To maintain face, the
external auditors must simultaneously help to maintain the CFO’s face and guarantee
transparency for the AC, which means taking on a conflicting role.
7. Discussion
The results of this study add to the idea put forward by Pomeroy (2010) and Pomeroy et
al. (2011) that the external auditor’s communication with the AC is a complex social
phenomenon. Pomeroy et al. (2011) demonstrate that the AC can influence the extent of
communication by the degree of accountability pressure exerted. This study underlines that
management also has an influence. The external auditor’s reporting seems to be the object
of discussions/negotiations between the CFO and the auditor. Finally, the exercise of
selecting items to report is not very different from the exercise of defining an appropriate
accounting treatment; it is a question of judgment and open to debate. The external
auditor’s communication with the AC is thus a social construction, resulting from complex
social interactions between participants in the AC process. More broadly, the external
auditor’s (but also the CFO’s) accountability relationship with the AC is also the result of
the confluence of participants’ motivations in response to different risks. The
accountability relationship is thus relatively loose, to leave the external auditor freedom to
play the expected role: managing the AC members’ impressions regarding consistency and
transparency. In playing a conflicting role that treads a line between discrepancy and
transparency, the external auditor can provide comfort to the AC and credibility for the
CFO. This conflicting role also gives him bargaining power vis-à-vis the CFO.
The nature of the accountability interactions between the external auditor and the AC
revealed here confirms the idea that the AC does not entirely play the role the regulators
expect. This study supports the image of the AC as a monitor, supervising from a distance,
as previously illustrated by Fiolleau et al. (2013), Fearnley et al. (2011), and Cohen et al.
(2010). This situation is often analyzed as the consequence of the AC members’
informational dependence on other people, following Turley and Zaman (2007).
The beginning of the article highlights a regulatory paradox regarding the nature of the
relationship between the AC and the external auditor. Are they connected by a working
relationship or an accountability relationship? The results of this study are themselves
paradoxical, in the sense that this relationship is seen to be complex and relies primarily on
impression management. What is definite is that the role played by the external auditor
during the AC process is conflicting (a balancing act between sustaining consistency and
transparency), as it is during the audit process (Richard, 2006).
I fully recognize that these results may be strongly influenced by the specific context of
the study: the nature of interactions and relationships described here is perhaps specific to
the French corporate governance environment. This setting may also be an extreme case,
but extreme cases can be ideal to spotlight features found less markedly elsewhere.
Appendix four of Auditing Standard 16 issued by the PCAOB (2012) reports the comments
received in response to an earlier draft of the standard, and one comment in particular
attracts the attention: “Many commenters suggested that the standard should recognize that
management has the primary responsibility for reporting to the audit committee and that
the auditor’s responsibility should be to confirm that management appropriately
communicate.” (p.A4-24). This comment suggests that some consider the external
auditor’s primary role vis-à-vis the AC, even in the USA, to be a confirmation role, that is
to say the auditor’s traditional role of provider of comfort. Moreover, they consider that
accountability is primarily for management. This simple comment suggests that this study
can be useful even in an “Anglo-Saxon” or other environment.
8. Conclusion
This article proposes to analyse the operationalization of a legally required accountability
relationship. It draws a theoretical link between the concept of accountability and the
dramaturgical metaphor of Goffman (1959), which appears useful in understanding faceto-face accountability interactions. Most specifically, it adds to the literature on the AC
process. It highlights the way the external auditors communicate with and/or “are
accountable” to the AC. Communication and being accountable appear here to be a matter
of managing impressions, which needs intensive, collective preparation backstage. The
external auditors are the partners of the CFO and collaborate with him (and his team) to
support the consistency of the messages given to the AC members. But even as the CFO’s
partners, the auditors still play their traditional role of providing comfort as to the
transparency of the CFO’s reports to the AC. This means the external auditors face two
audiences and have to manage the impressions of these two different audiences, sustaining
both the consistency and the transparency of the performance. They are in the middle,
which is a precarious position. What is certain is that the external auditors (contrary to the
CFO and his team) are only indirectly accountable to the AC members. The different actors
seem to perceive a full accountability relationship between the AC and the external auditors
as too risky, and so work to sustaining the view of a situation involving loose
accountability. This is an exploratory study, and while direct generalization may be
problematic because its results are grounded in a specific context, the findings reported can
inform future research.
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SCHEMA 1 – ORGANIZATION OF THE AC MEETING
AC member
AC chairperson
AC member
External
auditors
They listen
and form
impressions
They
guarantee
A TEAM
OF
PARTNERS
Internal
auditor
Group
controller
CFO
Legal advisor
They are directly accountable
Other
APPENDIX 1 – LIST OF INTERVIEWS
N°
Company
Audit
Firm
Length
(min)
Recorded/Notes
F1
40
Recorded
F2
50
Recorded
F4
F5
F6
F4
F4
F4
F5
F6
F6
F4
F6
F6
45
45
60
45
45
40
40
75
40
30
45
60
Recorded
Notes
Recorded
Recorded
Recorded
Recorded
Recorded
Recorded
Recorded
Recorded
Recorded
Recorded
F5
45
Recorded
F6
F5
60
60
Recorded
Recorded
Audit Committee
Chairperson
Chairperson
Chairperson
Member
60
30
60
40
Recorded
Recorded
Recorded
Recorded
Member
30
Recorded
Chairperson
Member
Chairperson
Chairperson
Chairperson
Chairperson
Chairperson
Member
Company
Head of internal audit
Head of internal audit
Head of internal audit
CFO
40
50
45
60
45
75
90
35
Recorded
Notes
Recorded
Recorded
Recorded
Notes
Recorded
Notes
50
45
40
35 – 45
Notes
Notes
Recorded
Recorded
External auditor–Partner
1
8
15
18
24
26
27
29
31
34
35
42
43
47
50
56
58
C1
C6
C7
C10
C11
C22
C13
C3
C16
C17
C9
C4
C19
C20
C9
C6
C22
C12
C12
23
30
32
33
38
52
53
57
C2
C3
C4
C8
C1
C13
C14
C15
C1
C17
C14
C10
C20
C12
C12
7
12
16
19
C5
C4
C10
C12
2
3
6
10
20
21
22
37
39
40
41
44
45
46
48
49
51
54
55
59
9
13
17
25
53
C9
Head of internal audit
45
Recorded
C7
Head of internal audit
60
Notes
C18
CFO
60
Recorded
C2
CFO
30
Recorded
C2
Head of internal audit
40
Recorded
C13
Head of internal audit
60
Recorded
C6
CFO
40
Recorded
C6
Head of internal audit
45
Recorded
C21
Head of internal audit
45
Recorded
C7
CFO
45
Recorded
C8
Group controller
40
Recorded
C16
CFO
40
Recorded
C12
Head of internal audit
90
Notes
C12
Group controller
60
Recorded
C12
CFO of a line of business
30
Recorded
Representatives of the audit profession or directors’ associations
/
F3
Audit Committee Institute
50
Recorded
French institute of internal
/
/
30
Recorded
audit and control
Institute of the French audit
/
F5
40
Recorded
profession
/
French Institute of directors
40
Recorded
Total
43 hours
10 min
45 recorded
interviews
Interviews n°4, 5, 11, 14, 28 and 36 were not taken into consideration because they were too short
for analysis.