Quality Control through Venetian Blinds: Regulating the Swedish Auditing Industry

Abstract

In this paper I attempt to gain an understanding of the regulatory processes in the auditing industry by studying the development of quality control in Sweden between 1977 and 2004. The paper starts with the observation that the audit industry is multilayered and that regulatory processes occur on different levels: between the state and the profession at large and between the professional association and the individual auditor or auditing firm. The focus is on the interaction between the different levels. Through developing a framework built on regulation theories from political science and the field of accounting research, three aspects of the regulatory processes important for the interaction between the levels are defined: the substantive, the justifying and the material. These aspects are later used to analyse the case study, leading to a specification of the characteristics and content of the couplings between the different levels where regulation is occurring.

Acknowledgements

I would like to thank Gudbjörg Erlingsdôttir, Lund University, Göran Andersson, Växjö University, Claus Holm, Aarhus University, and two anonymous reviewers for their support and comments during the development of this paper. The research was funded by the Swedish Council for Working Life and Social Research.

Notes

FAR used to be the acronym for the Association for Authorised Public Accountants. However, in 2000, a decision was made to organise all experts employed by auditing firms, for example, accountants, auditors and lawyers. Thus, the Association for Authorised Public Accountants was no longer a suitable name for the organisation, so it was dropped in favour of its acronym.

Complemented by e-mail conversation, October 2004.

In 1990, at least Australia, Belgium, Ireland, Canada and the USA had implemented peer reviews, and Denmark, England/Wales, Scotland and Germany were considering implementation (Tidström, 1990).

The issue of professional secrecy was not raised as an argument in the debate in Balans, but was mentioned as the reason why the peer review programme was stopped in the early 1980s and implicit in the arguments at the beginning of the 1990s. According to interviews (auditor 1, 14 January 2002; auditor 2, 14 January 2002), this was a big concern among the auditors.

Interviews with officials of FAR, September 2002; auditor 1, 14 November 2002; auditor 2, 14 November 2002.

Internal material, FAR.

Interviews with FAR's general secretary 11 September 2002, 29 May 2003; auditor, 1 November 2001; auditor 1, 14 January 2002; auditor 2, 14 January 2002.

The points summarise the discussion in Balans, interviews with the most active critics (auditor, 2 November 2002; auditor 2, 14 January 2002), advocates of the reform (auditor, 1 November 2001; auditor 1, 14 January 2001), an official at FAR and speeches from the extraordinary annual general meeting. In addition to the points mentioned in the text, the origin of the recommended quality control model was put to the question. The advocates of the proposal claimed that one reason for implementing the model was to harmonise with the EU. The model was, however, inspired by the Norwegian model for quality control. Norway is not a member of the EU, which undermined the harmonisation argument.

From a speech at FAR's extraordinary AGM, 3 February 1977, translation.

Interviews with the general secretary of FAR, 3 April 2002, and the chairman of the SRS quality committee, 15 October 2002. There were two cases in FAR and an unknown number of cases, but ‘very, very few’, in SRS.

Interviews with a middle manager at the Supervisory Board, 20 May 2003; an administrator at the Supervisory Board, 20 May 2003; the general secretary of FAR, 20 May 2003; the chairman of the SRS quality committee, 24 April 2002.

Interviews with FAR's general secretary, 20 May 2003; a middle manager at the Supervisory Board, 20 May 2003; an administrator at the Supervisory Board, 20 May 2003; the chairman of the SRS quality committee, 24 April 2002.

This came about as a result of negotiations with the USA concerning its implementation of the SOX Act and the possibility for the EU to claim ‘equivalence’ with the US system for quality control of auditors.

Interview with the general director of the Supervisory Board, 3 March 2004; Andersson et al. (2004).

E-mail conversation with Barbro Andersen, Revisorsforeningen (Norwegian Association for Auditors), 2 January 2008.

Additional information

Notes on contributors

Karin Jonnergård

Paper accepted by Salvador Carmona.