2020B02 – Management control in auditing firms and its implications for managing competing objectives

In almost all companies, an important task for management control is to manage organisational tensions. These tensions come in many forms For example, a dilemma implies that only one option can be chosen thereby excluding the other (such as a make-or-buy decision). Other tensions are more subtle and allow for a continuous balancing of objectives. This latter category includes tensions arising from balancing professional objectives and commercial objectives. Studies on the role of management control in this context focus predominantly on commercial companies such as manufacturers or wholesalers. For these companies, both the commercial and the professional output is more or less visible and thoroughly evaluated by different parties. For example, shareholders might evaluate profits (the commercial element) and consumers the quality of the product (the professional element). A sector in which this professional element is often ambiguous and invisible is the auditing sector. Auditing firms do not provide a product that clearly conveys something about quality. The only end product of auditing firms is the auditor report containing (or denying) a reasonable assurance that the financial statements provided by client company management are free from material misstatement and in accordance with accounting principles. Although these reports can be inspected for deficiencies, assessing the quality of this reasonable assurance is a complex task. Only in the exceptional case where judicial investigations may find serious shortcomings in auditing firm procedures (following a client company bankruptcy) can audit quality be unambiguously assessed.