the comfort theory revised how client types influence
TRANSCRIPT
The comfort theory revised
How client types influence auditors’ comfort levels
Student: Liselotte de Zoete
Student Number: 6042074
Date: 22-06-2015
Education: MSc Accountancy and Control, Accountancy track
Institution: University of Amsterdam, Faculty of Economics and Business
Supervisor: Dr. G. Georgakopoulos
Total words: 15.885
2
1. Statement of originality
This document is written by Liselotte de Zoete, who declares to take full responsibility for the
contents of this document. I declare that the text and work presented in this document is
original and that no source other than those mentioned in the text and its references have been
used in creating it. The faculty of Economics and Business is responsible solely for the
supervision of completion the work, not for the contents.
3
2. Abstract
Purpose: This paper provides empirical evidence on comfort as a ritual as researched by
Pentland (1993). Specifically what influences different client types have on the comfort of the
auditor in a financial audit engagement. The creation of comfort is examined from the
auditors point of view.
Design/methodology/approach: For the purpose of this paper an interpretative case study
was conducted at PwC in the Netherlands. Data was gathered from interviews with 9 auditors
from PwC through participant observation.
Findings: Comfort is still an important factor in a financial audit engagement. Clients play a
large role in the creation of comfort and this differs per industry and size of the client. All
three types of comfort creation, state sense, relief sense and renewal sense, were impacted,
positively and negatively.
Research limitations: The limitations of this research are primarily found in the limited
amount of time and amount of interviews available for research and the difficulty of
generalizing the findings of one specific case study in a specific contextual setting. But it is
also important to keep in mind that there is a language barrier that could influence the results.
Originality/Value: While the comfort theory plays an important role in the audit profession,
it still is largely under-researched and there is a need for more societal research in auditing.
This research aims to fill a research gap, by studying the influence of client types on the
comfort levels of auditors
Key words: Comfort theory, Audit ritual, Pentland, Client types.
4
Table of Contents
1. Statement of originality 2
2. Abstract 3
3. Abbreviations, definitions & list of tables 6
3.1. Abbreviations 6
3.2. Definitions 6
3.3. Tables 6
4. Introduction 7
5. Literature review 11
5.1. Comfort theory 11
5.1.1. Origination of Comfort theory 11
5.1.2. Comfort Theory and legitimacy 13
5.1.3. Comfort framework 15
5.2. Client types 16
5.2.1. What are client types? 16
5.2.2. Client size and their influence on the audit process 17
5.2.3. Client risk 17
5.2.4. Tenure 18
5.2.5. Industry type 19
6. Methodology 20
6.1. Importance of qualitative research 20
6.2. Data collection 21
6.3. Case design 22
6.4. Case analysis 25
7. PwC : the case context 27
7.1. PwC and its client types 27
8. Findings 29
8.1. State sense 29
8.1.1. Size 32
8.1.2. Industry 33
8.2. Relief sense 34
5
8.2.1. Size 35
8.2.2. Industry 36
8.3. Renewal sense 37
8.3.1. Size 40
8.3.2. Industry 40
9. Discussion and Conclusion 42
10. Reference list 45
11. Appendix 1: Interview guide 50
6
3. Abbreviations, definitions & list of tables
3.1. Abbreviations
F.S = Financial Services
CIPS/TICE = consumer product industry
EU & M = Energy, Utilities en Mining
PS/PC = Public sector & private companies
S.A. = Senior associate
3.2. Definitions
EGA = PwC working paper
R.A. = register accountant, Dutch version of CPA
AURA = PwC audit Framework
3.3. Tables
Table 1: interviewee selection
Table 2: coding scheme
Table 3: framework
7
4. Introduction
Auditing has evolved greatly over the course of the last decades: from small offices that
practice bookkeeping to large firms that perform financial and non-financial audits. The non-
financial audit has taken a steep rise in the last couple of years. CSR reporting, integrated
reporting and many more non-financial assurance practices have been introduced and have
given auditing a whole new platform (Ellerup Nielsen and Thompson, 2007). But this does
not mean that financial reporting is of less importance. Even though the world is changing,
financial statements still have to be checked. And even though financial auditing has been
around since Victorian times, this does not mean that all has been researched.
An audit is finished when all the working papers are filled out and the partner signs
the report (PwC guidelines, 2015). But when does an auditor feel that he has given enough
assurance? And what role does team interaction play in an audit? These are all questions that
Pentland (1993) asked himself. That is why Pentland (1993) started his research on micro-
sociological concept of the interaction ritual. Here Pentland focused on the process of
auditing rather than the outcome and this made him one of the first that saw auditing as a
ritual and combining it with the comfort theory. In his research he looked at audit as a ritual.
With ritual he refers to: ‘any collective activity that has the effect of maintaining social order,
no matter how commonplace or mundane it may seem’.
When analyzing rituals it is a question of interpretation, Pentland used Moore and
Myerhoff’s (1977) five layers of rituals for his research. By interpreting auditing as a ritual,
it looks at the social context of the audit. Pentland (1993) concludes that audit rituals produce
comfort, and comfort is used as a commodity within an engagement team and the investment
community as a whole. The audit engagement ends with a signature, which is regarded as
“sacred”, it signifies completion, purity and of course, comfort.
Other researchers used Pentland’s work to review societal view in auditing as well.
Power (2003) for example researched auditing and the production of legitimacy around four
themes: the audit process and formal structure; auditing as a business, working papers and
image management; and new audits. He mentioned that there is very little known about
auditing in practice while accounting and its components (like, standard costing and ABC)
have been researched to every detail. He uses Pentland’s (1993) paper to describe social
construction of the audit process and to illustrate the importance of image management. An
example that Pentland (1993) gives is that who does the work is as important as what is done.
And as Power (2003) concludes: ‘auditing is far from being a self-evident set of techniques
8
which require occasional improvement but it is rather a series of hopes and aspirations
inscribed in its most mundane routines.’
Carrington and Catásus (2007) continue with researching the sociological strand of
auditing. They carry on Pentland’s idea of auditing as a ritualistic process of producing
comfort at the micro-level and investigate the notion of auditing as a comfort producing
activity . They mention different levels of comfort that can be found in Kolcaba and
Kolcaba’s (1991) research in the nursing industry. The nursing industry is where the comfort
theory once all started. They transformed the Kolcaba and Kolcaba (1991) levels of comfort
into a comfort framework for auditing. The conclusion of their study is that the effort to
produce comfort necessitates an effort to find and relate to discomforts. Also the comfort
theory provides a language to discuss achieving maximal assurance.
One of the factors that play a big role in audits is the client. The client hires the auditor
and can be a determining factor on the quality of the audit (Chen et al., 2010). When an
auditor starts auditing a new client, he has to do a lot of research that one does not do at a
former client (Carey and Simnett, 2006).
There has been a lot of research done on the influence clients have on audit quality.
Deangelo (1981) is one of the first that researched auditor independence in combination with
client importance. She found that client importance is related to an auditors incentive to
compromise his independence. This is related to quasi-rents, quasi-rent occur when specific
start-up costs are made. Because of this start-up costs the auditor can ask more for the audit
but at the same time has an incentive to act opportunistic regarding the client. Because he
knows that the client now has transfer costs if switching to another auditor, so this allows him
to ask more for his audit as long as it does not exceed the transfer cost.
Chung and Kallapur (2003) continue on this premise and investigate the economic
theory of Deangelo (1981) by using ratios of client fees and of non-audit fees and divide
these by the audit firm's U.S. revenues or a surrogate for the audit-practice-office revenues as
measures of client importance. They conclude that there is no significance between auditor
independence impairment as a function of different client fee ratios. And this contradicts
DeAngelo’s (1981) research.
Chi et al. (2012) investigated the effect of client importance in a Taiwanese setting
where audit partners are required to sign audit reports to examine whether audit partners
compromise their independence for economically important clients. They made a difference
between Big N audit and non-big N auditors. They concluded that big N auditors did not
comprise their independence but non-big N auditors did.
9
However, the role of the client has not been researched in combination with the
comfort theory before. Also Carrington and Catásus (2007), who did the most recent
research on the comfort theory have suggested this subject explicitly: “It is possible that the
different perspectives on relief, state and renewal relate to what kind of client the seniors
were working with. We did not use this variable and this could be a possibility for future
research.” That is why the research question of this thesis is:
“In what way do client types influence the comfort levels of an auditor?”
The aim of this paper is to provide information if and how clients impact the comfort
levels of auditors and how it differs per client type. To achieve this goal a qualitative case
study is taken where auditors of a Big-4 auditing firm in the Netherlands will be interviewed.
The interviews will be held among public accountants at PwC, who have completed
their studies and have working experience in the auditing field for a number of years. By
engaging auditors in interviews, auditors were given the opportunity to reflect in detail on the
influence of client types on their comfort levels. Also by doing a case study research it
answers to the demand for more qualitative research on accounting subjects (Cooper &
Morgan, 2008).
There has not been a lot of research done on the comfort theory (Carrington and
Catásus, 2007; Power, 2003). However, it can help contributing to not only the sociological
strand of audit research, it may also shed a light on other fields of research (Carrington &
Catásus, 2007). This study will bring a fresh view to the extensive research done on the
impact of clients on audits. This time it will not be the impact of the quality of the audit, or
the audit from a client’s perspective but how the client influences the comfort of an auditor.
The study will research auditors of financial audits rather than non-financial audits
because of the objectiveness of financial auditing. The combination of the objective with the
subjective should ensure interesting results. Also all former comfort theory research
(Carrington and Catásus, 2007; Pentland, 1993; Power, 2003). has been done in a financial
audit setting. So to extend the findings of previous research (Carrington and Catásus, 2007;
Pentland, 1993; Power, 2003) this research also takes place in a financial audit setting.
This paper will hopefully lead to a better understanding of the comfort theory and
increase the importance of acknowledging the comfort theory and other societal audit
research. Furthermore, the present study also intends to close a research gap, as identified in
10
the paper of Carrington and Catásus (2007, p.53) and may also be a trigger for further
research on the comfort theory.
The remainder of this study will be structured as followed. First, the literature review
will go into more detail about the comfort theory and client types. The methodology will
describe the importance of qualitative research and how the research will be conducted. This
is followed by the case analysis and it findings. The findings will be divided in changes
compared to former research and how client types have influenced the comfort theory . The
research concludes with a summary of key findings and contributions, limitations of the
research and some suggestions for future research.
11
5. Literature review
This section will provide an overview of the relevant theoretical insights, extracted from the
existing literature. The first part will discuss both quantitative and qualitative research papers
on creating comfort in auditing. Although the literature review presents the comfort theory in
a variety on contexts, this paper will primarily focus on creating comfort during an audit and
its relation with the client. Subsequently, this literature review will thrive to create a deeper
understanding on client types.
5.1. Comfort theory
5.1.1. Origination of Comfort theory
Pentland (1993) is one of the earlier writers examining the creation of comfort in the
process of auditing. He wanted to give an alternative view on auditing, by offering an
interpretive approach to auditor behavior that emphasizes the social and contextual aspects of
the work. Pentland (1993) did field observations of two audit engagements and used Collins’s
(1981) theory of interaction ritual chains to create a new theory about micro-level
interactions within an audit team and its effect on macro-level of auditing. Pentland (1993)
wanted to contribute to the understanding of the audit ritual on both empirical as theoretical
grounds. This results in a better understanding of the social construction of the audit process.
By focusing on the micro-sociological perspective offers a completely different view of
formatting an audit opinion. Pentland (1993) is of opinion that micro-interactions within the
engagement team create comfort, which makes the order of macro-level of capital markets
and other financial institutions.
Professional auditing standards speak of “risk of misstatement” and obtaining
“assurance”, (Vera-Muñoz, et al., 2014) while according to Pentland auditors speak in terms
of comfort. Numbers do not speak for themselves and auditors give a meaning to them. By
using emotional language for a relatively rational process, auditors give an important layer of
meaning to their work. By using audit rituals the clients data can be transformed into “clean”
data and can make the auditor comfortable (Pentland, 1993).
Pentland (1993) sees auditing as an interaction ritual among auditors to create comfort
for the engagement team, the audit firm and finally the public. Collins (1981) implemented
12
the interaction ritual as an approach to understand macro-level phenomena in a micro-level
way. Collins (1981) is of the opinion that the emotional part, rather than the rational part, is
main process through which social order is constructed. Something which Pentland agrees
upon in the process of auditing.
As mentioned before, Pentland (1993) researched team interactions during an audit.
Within the teams, comfort was traded as a commodity and up the chain of command.
Pentland (1993, p. 610) even mentions that a partner does not achieve comfort by reviewing
working papers but by repeated interactions with members of his team. And comfort is not
only passed on as a commodity but also achieved by team interaction. By discussing certain
discomforts, comfort can be achieved and passed on. Not only to the partner, but also to other
engagement teams, the client and finally the public.
Pentland (1993, p. 612) also mentions the importance of the person performing the
“ritual”. The audit (ritual) is only valid when performed by the auditors of the firm. This is
the case, because auditors are trusted to perform the right steps and the clients management
may act opportunistically and can even be motivated to deceive the auditor. This is amplified
by the strict separation of the auditor and the client during the audit process. This also results
in an enlarged feeling of, us against the rest.
Pentland (1993) thinks that using the word comfort can suggest that auditors trust on
their “gut feeling”. A reaction on a feeling without using ones rationale. Getting a bad
“feeling” about something results in discomfort and vice versa. According to Humphrey and
Moizer (1990) identifying the gut feel is an important factor during the planning of and audit
and the findings of Pentland (1993) even suggest that it is important throughout the entire
audit. As Pentland (1993, p. 619) states: “The essential point is that auditors need to achieve
an emotional state with respect to their work, not just a cognitive one.”
Pentland’s theory (1993) also describes the interaction between the auditor and the
client in the area of validation. Inventory taking for example, is done by the client with
observation of the auditor. Pentland (1993) describes this as ritual purification. Because an
auditor cannot review all systems and procedures, he has to rely on the client to explain how
the business works and he has to trust on his feeling and experience if he deems the
explanation reasonable.
The sacredness of the signature is another subject that Pentland discusses in his
research. He sees it as the key to understanding the audit ritual. Since comfort depends on
others finishing the ritual it is a vital part of “getting comfortable”. So when a partner signs it
can be seen as a symbol for the end of the audit were all auditors are comfortable.
13
And as Pentland (1993) mentions in his conclusions,: “For any given rule, one must
decide when to apply it, which requires more rules, each of which requires more rules.” So
even though auditing is a profession with many rules and regulations, one must also trust on
emotions and their “gut feel”. Auditing is a way to create comfort, for the engagement team,
the audit firm and finally the public.
5.1.2. Comfort Theory and legitimacy
Where Pentland (1993) focused on the ritual of auditing and how it creates comfort, Power
(2003) looks at how legitimacy is created by auditing. Power describes legitimacy in his
paper when financial statements come across as trustworthy because of the audit done by the
auditors. Where comfort is more upon the auditors themselves, legitimacy is more about how
audits come across towards the public. And as Pentland (1993, p. 612) describes, an audit an
audit is only valid and perceived trustworthy when it performed by a certain individual.
Power (2003) looks at legitimacy around four themes: The audit process and formal
structure; auditing as business, working papers and image management; and new audits. With
the focus on legitimacy, he looks more at the societal view of auditing than the common
numerical based research.
When taking the audit process and its formal structure into account one subject
primarily arises: the structure-judgement debate. This examines to what extent the audit
process should be structured and if there should be formal guidelines (Power, 2003). Power
(2003) sees a trend towards more structure in auditing, but papers with a more societal view
argue that more structure and regulations do not improve the audit quality and legitimacy
(Herrbach, 2001; Pentland, 1993; Vanstraelen et al., 2012). Previous literature focused on the
financial background and compared audit quality from US GAAP firms, which have stricter
guidelines and rules, to non-US GAAP firms. They found that audit quality is higher at US
GAAP firms (Bradshaw and Miller, 2008; Holthausen, 2009; Lang et al., 2006). So whether
it is better to implement stricter regulation is not clear. If this increases comfort is also still
the question, and this could be a possibility for future research.
Auditing as business is the second theme Power (2003) describes in his paper. Power
discusses the cost-quality dilemma. Audit firms become more and more profitable businesses,
but it is not clear how this will affect audit quality. Humphrey and Moizer (1990) interviewed
practitioners about the audit planning process. They criticized the gap there is between what
14
officially needs to happen in the audit process and what happens in practice. Audits are meant
to assure financial statements and give comfort to the public, but there is the danger that the
focus is shifting towards making profit instead of the quality of the audit. This could lead to a
decrease in independence, what will lead to a decrease in audit quality (Deangelo, 1981).
Power (2003) continues with image management and working papers where he clasps
back to Pentland’s research (1993). First, Power mentioned how important the image of
auditors is. He uses an example from Pentland’s paper (1993). “working long hours with
short breaks may be needed to get the work done in some technical sense, but this also has an
important social function. The impression of audit is much less of a practice comprised by
careful and considered judgement, as by relentless application and effort. In place of, or at
least in addition to, cool cognition, we see elaborate displays of hard work”(Power, 2003,
pp.385-386). Power (2003) agrees with Pentland on the notion that auditing is a “certification
of the unknowable” (Pentland, 1993, p. 611). To create trust among the public the image of
an auditor is almost just as important as what he really does.
Where different dimensions of an audit emerge is in the production of working papers
(Power, 2003). Van Maanen and Pentland (1994) did research on the role of documentation
in representing practice. Working papers give a script of what has been done in the audit and
can give the public increased trust. But because of the importance of working papers this can
also lead to a too big focus on creating working papers and a decrease in focus in doing the
audit (Francis, 1994). But all of this does confirm Pentland’s notion of the importance micro-
interactions in auditing and their consequences for macro-constructions.
The last theme Power (2003) discusses in his paper is new audits. Till what level do
people want to extent auditing into new areas? By auditing something, it gives people more
comfort but the question is whether everything auditable? Power (2003) sees more and more
new spaces being audited and where this is not possible it still gives an important foothold.
Nowadays you have several types of auditing in new spaces as Power predicted, particularly
in the areas of efficiency auditing and corporate sustainability reporting. Claims are made that
the well-developed global standard and professional ‘independence and ethical requirements’,
made public accountants as ‘higher quality’ assurance providers (DeAngelo, 1981; Simnett et
al., 2009; Watts and Zimmerman, 1986).
Power (2003) is of the opinion that, while auditing seems to be a very technical and
thought-out process, it often is not. Pentland (1993) and Power (2003) agree on this subject,
which implicates that the comfort level of an auditor is more important than it might seem. If
auditors will not follow outset blueprints but rather follow their own instinct, establishing
15
their comfort levels and when they are achieved is very important. But it is important that the
symbol of comfort is created by a credible and independent authority to create any value
(Power, 1999).
5.1.3. Comfort framework
Carrington and Catásus (2007) continue with the research on the comfort theory. Carrington
and Catásus (2007) develop a ‘comfort framework’ based on the work of Kolcaba and
Kolcaba (1991). Kolcaba and Kolcaba (1991) developed the original comfort theory for the
nursing industry. In their research comfort was taken more literal and used to describe the
state of comfort of a patient. Pentland (1993) transformed the theory to make it useable for
describing the audit ritual. Carrington and Catásus (2007) combined both and made a
framework consisting of three types of comfort, namely: The state sense, the relief sense and
the renewal sense.
With the state sense, all possible outcomes of comfort are described. It does not
directly mean there is an absence of discomfort, but it is rather determined by the conditions
that build comfort. The state sense suggest that at any given time there is comfort and
discomfort and the state sense is record of all comfort and discomfort. In auditing, this relates
to the situation when enough effort has been invested to come to an opinion. So when the
audit has created a large enough sense of comfort to produce a clean sheet. Therefore this
sense aligns with the view in auditing that 100% assurance of the audit is impossible.
The relief sense refers to the acts that relieve discomfort. By decreasing discomfort,
an non-acceptable level of comfort can be turned into an acceptable level of comfort. Relief
aims in this sense, to eliminating discomfort. In the audit practice this leads to “teasing out
the acts that are obligatory to perform” (Carrington and Catásus, 2007).
And last, the renewal sense of comfort indicates the revitalization on how comfort is
perceived. It is about new views on both the state and relief sense. In auditing this can be
seen as creating new definitions of what is acceptable during an audit. It is possible that an
auditor is comfortable with something at first but this changes over time. It can also been
seen as an example of a pro argument for auditor rotation ( Myers et al., 2003). This is
because the tenure and audit quality relation suggest that the longer an auditor has audited a
specific client, the less likely he is to sign a qualified audit report.
Carrington and Catásus (2007) offer a good analogy to describe the differences
between senses of comfort. “A high jumper may help illustrate comfort theory as applied
16
here. The height of the bar is where the state of comfort is set in every particular audit (or
even account). The auditor has to succeed in attaining this height to attain a comfortable
state. Comfort as relief concerns what it takes the auditor to reach this height and how s/he
goes about doing it. For the high jumper this may imply a certain type of shoes and
a specific distance for the run-up. The changes in the level of comfort can be understood as
changes in the height of the bar. This situation corresponds to the notion of comfort as
renewal.”
Carrington and Catásus (2007) used their framework to give a fresh view on the
comfort theory. “we have made an effort to qualify our understanding of the actors who
influence the level of comfort, how comfort is attained and how the comfort level differs”
(Carrington and Catásus, 2007, p. 39). Even though the comfort theory, as used by Carrington
and Catásus (2007), is created by Pentland (1993), Carrington and Catásus (2007) found that
the auditors do not view auditing as a ritual and see the comfort theory as something else.
The comfort theory is according to Carrington and Catásus (2007) something more
than used rituals. The perspective of their subjects is that the comfort production is much
more than signing the report. The role is according to Carrington and Catásus (2007) much
smaller than described by Pentland (1993). Many actors are involved and an audit is not
finished until all relevant actors are convinced.
5.2. Client types
5.2.1. What are client types?
When speaking about client types in the business of auditing, multiple types can be meant.
First of all, the size of a client is a type, the size does exert influence on the audit and its
quality (Reynolds & Francis, 2000; Francis, 2004; Knechel et al., 2012). Also, there is a
difference in risk between clients and the pressure a client applies to the auditor (Blay, 2005).
The tenure of the auditor also plays a role in auditing and there are contracting results when it
comes to this subject (Deangelo, 1989; Gosh & Moon, 2005).
As can be seen there has been a lot of research on client types and their influence on
audit quality. But almost none of these are qualitative studies. This thesis divides clients in
different industries and therefore answers to the need for more qualitative research in the field
of clients and their influence on auditing.
17
5.2.2. Client size and their influence on the audit process
A lot of research (Chung and Kallapur, 2003; Deangelo, 1981; Reynolds and Francis, 2000)
has been done on the influence of client size on the audit process. But whether there is a
positive or negative influence on the audit quality is not clear. As Chung and Kallapur (2003,
p. 937) mention, there are positive and negative consequences on auditor independence of
having a large sized client. On the one hand, larger firms are more important to the auditor,
which may lead to more pressure from that client on the auditor to deliver a positive outcome
on their audit. But on the other hand, larger clients also have an increased litigation risk
which encourages auditors to be more conservative (Reynolds & Francis, 2000). Reynolds
and Francis (2000) and Chung and Kallapur (2003) could not find significant evidence that
client size influences the independence of the auditor, while Reynolds and Francis (2000) do
find significant evidence that auditors act more conservative. This suggests that reputation
protection dominates auditor behavior.
Besides the pressure a larger client could exert, larger clients are also more complex
and harder to fathom. This can lead to a lower quality audit because it is harder to be aware of
everything in the company (Carcello & Nagy, 2004). However, with bigger clients an audit
firm has more budget and can make more use of industry specialized auditors (Balsam et al.,
2003).
A smaller client has overall a lower quality of financial statements and more work
needs to be done to change the financial statement so that an unqualified opinion can be
handed out (Stein et al., 1994). McKeown (1991) found that larger clients are less likely to
receive a going‐concern opinion, even after controlling for the effect of client size on the
probability of business failure.
The overall opinion is that client size has some influence on the auditor. Whether this
is positive or negative is hard to say. It is also hard to determine, by using previous literature,
whether client size has an impact on comfort creation. More pressure should lead to a harder
to reach comfort level as being conservative would. But using industry specialized auditors
should bring some relief and should increase comfort levels (Balsam et al., 2003).
5.2.3. Client risk
In this thesis, client risk is seen as the risk whether accepting the client will lead to the audit
firm suffer a loss on the engagement through a lack of engagement profitability or future
18
litigation (Johnstone, 2000). This client risk is determined by client-related risk related to
internal control and financial viability (Johnstone, 2000). The risk is based on client
characteristics as: financial condition, levels of accounts receivable and inventory, sales
growth, market value of equity, and variability in the client's stock returns (Pratt and Stice,
1994). By examining client characteristics, a judgement about the client risk can be made by
the auditor. This often consists of two types, “risky and safe”. This judgement leads to the
valuation of the audit fee (Pratt and Stice, 1994). In the “post-enron era” and in times of
increased regulation risk, tolerance of auditors has decreased (Landsman et al., 2009).
Landsman et al. (2009) also found a shift in client acceptance, towards a preference of less
“risky” clients.
5.2.4. Tenure
The tenure of the relationship between client and auditor is something that also exerts
influence. Independence can decrease because of a relationship between the client and
auditor, which leads to lower audit quality and even earnings management in some cases
(Myers and Myers, 2003).
Ghosh and Moon (2005) found that investors and information intermediaries are of
the opinion that audit quality increase with tenure. They found that investors perceive
earnings quality as improving with auditor tenure, this is because by analyzing the earnings
response coefficients from returns-earnings regressions increases with auditor tenure. They
also concluded that financial analysts perceive earnings quality improved when there was a
longer auditor tenure.
Knowledge is something that is also of great importance for an audit, especially
knowledge of the client’s accounting system and internal control structure (Johnson et al.,
2002). This knowledge is client specific. Although auditors use different types of knowledge
(such as general knowledge and industry knowledge) to produce an audit, client-specific
knowledge is needed to conduct an audit (Knapp, 1991). So auditing a new client, this can
result in significant start-up costs (DeAngelo, 1981). Less client-specific knowledge in the
beginning of an engagement may occur in a lower likelihood of detecting material
misstatements, which lead to giving auditors a comparative advantage in detecting errors over
time as they obtain a deeper understanding of the client’s business (Beck et al., 1988).
But even though there are positive points to auditor tenure, there is mandatory auditor
rotation. Myers et al. (2003) for example did not find a significant relation between auditor
19
rotation and the need for identifying restatements and thus found no support for auditor
rotation. Camaran et al. (2014) found even adverse consequences of mandatory rotation. This
is because implementing this regulation and executing it is very costly. And there are almost
no improvements in the quality of the audit.
5.2.5. Industry type
The industry type of a client also has impact on the audit (Cooke, 1992). In some industries,
delivering a faulty financial statement, could have a bigger impact than in other sector. An
example is the financial service industry, which includes banks and insurance companies.
This industry also asks for more industry specialized auditors than a “simple” production
company for example (Balsam et al., 2003).
Stein et al. (1994) also found that the measurement of risk and its impact on audit
production varies across industries. In the financial industry, for example, the fact that a
client is publicly held is not important for the audit while the audit production is affected
when the financial client report a net loss.
Every type of industry has its own specific processes and controls. The risks of an
industry differ and should be accounted for (PwC guidelines). An auditor specializes over
time in a certain industry by retrieving industry specific knowledge and receiving training on
a specific industry (Solomon et al., 1999). The fact that there are industry specialized auditors
only confirms that there are differences between the industry. But how this specifically
impacts the auditor and namely its comfort level is something that is not clear and hopefully
can be answered at the end of this thesis.
Overall, clients differ in many ways, size, client risk, tenure of auditing a client and
the industry of the client. It is obvious that these characteristics have an impact on the audit
but the way this impacts the auditors comfort level is not clear yet.
20
6. Methodology
In this chapter the methodology of this thesis will be described. First, the importance of
qualitative research will be outlined and why this type of research complements the
answering of the research question. This will be followed with how the data of this
researched will be collected. The chapter then will continue with describing the case study
that will be used and the chapter ends with the analysis of the case.
6.1. Importance of qualitative research
Case studies can produce much more detailed information about a few people and cases than
a large-sample study can (Patton, 1990). And qualitative research can offer new insights and
leads to new paths in research that quantitative research cannot. Quantitative research is
based on an artificial setting and its main purpose is to generalize findings, whereas
qualitative research is set in a natural environment and aimed at contextual understanding
(Yin, 2009)
In this case, qualitative research is the right fit because there is limited information
about the comfort theory in relationship with client types. Qualitative data research can offer
more in this case than quantitative research could (Carrington and Catásus, 2007). And even
though there is some resistance towards qualitative research, the pro’s still outweigh the con’s
( Denzin and Lincon, 2009).
This case study wants to address the following research question: “In what way do
client types influence the comfort levels of an auditor?” The question was formulated this
way to leave all answer possibilities open. So first of all, do client types impact the comfort
levels at all and if so, in what way. Yin (2009, p. 2) mentions that a good case study ensures
that the investigator has little control over events and the focus of the research is on a
contemporary phenomenon within a real-life context. The researcher has no control on the
outcome of the research and the study focuses on a contemporary phenomenon within a real-
life context. So the case study research method is in line with the purpose of the study.
21
6.2. Data collection
“Qualitative research methods involve the systematic collection, organization, and
interpretation of textual material derived from talk or observation. It is used in the
exploration of meanings of social phenomena as experienced by individuals themselves, in
their natural context.” (Malterud, 2001, p. 483)
The research question was analyzed through semi-structured interviews, documentary
analysis and participant observation. The use of multiple sources of evidence also ensures the
construct validity of the research.
The research of Carrington and Catásus (2007) explicitly asks for further research on
the impact of client types on the comfort production of auditors. That is why information
from their research is questioned in this researched and this dissertation will use the same
characteristics of the interviewees as Carrington and Catásus (2007) did. Using the same
characteristics will increase this research’s reliability. Reliability is namely an important
factor of conducting research, reliability is necessary so that if the research would be
replicated by subsequent researchers along the same steps again that the same results will
show (Gibbert et al., 2008). This is needed to keep errors and biases in the research to a
minimum (Yin, 2009). Yin (2009) describes two approaches to enhance the reliability, the
first is a case study protocol and the second is a case study database. A case study protocol
entails a the documentation of how the entire case study has been conducted (Gibbert et al.,
2008). Therefore, in this research all relevant issues of how the case study is conducted will
be specified. A case study database is put together that includes important case study
documents and the narratives collected such as the recordings of interviews and interview
transcripts.
The interviews were conducted in a semi-structured manner instead of a structured
manner because this allows the interviews to be more flexible and allows the interviewee to
help address the issues he wants to address. Considering that everybody encounters
experiences differently and by keeping the interview not too rigid, there is an opportunity to
play into people’s differences. For a structured interview it is needed to see the interviewee as
a subject and that there is no relationship between both the interviewer and the interviewee
(King, 1994). This is not the case in this research and it is also believed that it is not possible
to stay completely objective in interviews (King, 1994). Because of the familiarity of the
researcher with the company, the interview was tailored somewhat to fit the company
specifics. For example: using the client differentiation that PwC uses.
22
6.3. Case design
The research has taken place at the big four audit firm; PwC in the Amsterdam office in the
Netherlands. Access was granted by a thesis internship, this internship is developed to write
your thesis at their office. This made it possible to not only interview auditors at the company
but also provided the opportunity to observe auditors and their interaction with the client.
This was achieved by following auditors for a week at one of PwC’s clients. During this
week, communication among auditors could be observed, mainly their use of language can be
of interest for this study.
The reason the research is conducted at a big 4 audit firm is that many researchers are
of opinion that big 4 audit firms deliver the best quality audits ( Krishnan, 2003; Francis,
2004; Francis and Yu, 2009). Attaining a state of comfort can be seen as a creating the
highest quality audit. A substantial part of former research (Carrington & Catásus, 2007;
Pentland, 1993; Van Maanen and Pentland, 1994) done on the subject of the comfort theory
is done with big 4 auditors. The reason that the research has taken place at only one of the big
4 firms is to filter out inconsistencies. All the firms work with different frameworks and
different types of titles. By interviewing people only at PwC this all is the same while they do
visit different clients. So the effect the client has on comfort levels is maximized.
In the search for the production of comfort, we targeted non-signing auditors,
that is, the auditors beneath the top in the chain of command of the audit team
(Messier, 2003). The auditors recruited for participating in the interviews have 2 to 8 years’
experience. These auditors are in the midst of the audit team and keep track of the comfort
levels and how to create more comfort (Carrington and Catásus, 2007). Also Carrington and
Catásus (2007) used senior auditors in their research. This way the result of their research
can be applied to this research.
Nine auditors were interviewed, of which one is associate, one is assistant manager,
one is manager and six are senior associates. The associate has the least experience with two
years and the manager has the most experience with 8 years. The author has worked with four
out of the nine interviewees. There were nine interviews conducted in total and that resulted
in three interviews per industry. Table 1 shows an overview of the interviewee records.
23
Table 1. Interviewee selection
Interviewee Function Years’ experience Industry Duration
I1 Associate 2 years FS 00:39:35
I2 Senior Associate 3 years CIPS/TICE 00:42:24
I3 Senior Associate 6 years FS 00:40:33
I4 Senior Associate 6 years PC/PS 00:36:12
I5 Assistant Manager 8 years PC/PS 00:38:34
I6 Senior Associate 6 years FS 00:31:22
I7 Senior Associate 3 years CIPS/TICE 00:37:31
I8 Manager 8 years PC/PS 00:40:51
I9 Senior Associate 4 years CIPS/TICE 00:43:25
The interviews were conducted after the busy season1 during May 2015. This ensured
the auditors still had their clients fresh in mind but were more relaxed than during the busy
season. Furthermore, all the interviewees were available during this period and could almost
all be interviewed at the PwC office in Amsterdam. The face-to-face interviews were held in
private rooms which ensured that the interviewees could answer freely. This also warranted
minimal background noise and distraction. The interviews were held approximately two days
apart so the interviews could be transcribed but when starting a new interview the other
would still be fresh in the interviewers mind.
Before planning dates for the interviews all people were emailed in advance to ensure
they could be interviewed. This email contained a short introduction in the research of this
thesis and what the interview will entail, including how long the interview will last
approximately and where the interviews would be held. By sending this email, the researcher
could warrant that the interviewees would be available and if not had time enough to replace
this person.
The average duration of the interviews is around the 40 minutes, with outliers of 31
minutes and 43 minutes. Nine interviews were conducted and all of them in Dutch. The
interviews were all conducted in Dutch because of the nature of the investigation, namely
comfort levels, which focus on the emotional state of the auditor. All the auditors do their
1 Term used at PwC to describe the busiest season of the year. The period is from December till May where the fiscal years of most companies have ended.
24
day-to-day work in Dutch and Dutch is their first language. So to maximize results, the
research chose to do the interviews in Dutch.
The interviews’ main focus lied on the impact of client types on the comfort levels of
auditors. The types that were differentiated between were the size of a client’s firm, the
industry of the audited firms and the tenure at which an auditor has been auditing the client.
In this case we speak about a “big” client when it has mandatory audits and has somewhat
complex processes. The audit will take several weeks or even months. A “small” client will
be in this context a client that often has voluntary audits, is rather simple and the audit can be
done within a week or two. Of course there a lot of companies that are not containable within
either of these identities but they will not play a role in this research. The industry that were
differentiated between were financial clients, public sector clients and the consumer goods
and production clients.
Of all the interviews, two were conducted by conference call and the others were
conducted face to face. During the interviews an interview guide was used which can be
viewed in appendix 1. To ensure validity of the research respondent validation was acquired
from all the interviewees. The transcripts of the interviews were emailed to the interviewee so
they could give their permission to use the data from the interviews and also to give them the
opportunity to make additional comments when necessary.
Any additional comments of the interviewees were included before analysis was
continued. Additionally, all personal information of the interviewees and their clients were
anonymized. This to ensure all interviewees would answer to all honesty and without any
consequences.
Besides using interviews as data for this research, the researcher also made
observations during several working days at the clients office and working at the Amsterdam
PwC office. This notes were made during the audit and used the contextualize the outcome of
this research. But because narrative data is fairly uncommon to be used in quantitative
auditing research this will be used to assess the validity of the interviews, are the answers the
subjects gave aligning with what the researcher saw? And to provide side notes, were
clarification is needed.
25
6.4. Case analysis
After each interview was finished, the researcher made additional notes on the interview.
These consisted out of the impressions the interviewee made on the researcher, e.g. gestures,
pauses and facial expressions. Also notes were made if anything of meaning was said before
or after the interview. After finishing an interview, it was transcribed immediately to ensure
the atmosphere of the interview could still be recorded.
The transcribing of the interviews led to 58 pages of interview data. This data was
coded in Atlas.ti, while using a predetermined coding scheme, as can be seen in table 2. The
first code has to do with the characteristics of the interviewee. This code allows the dividing
of the interviewees per experience level and industry type.
The following codes were based on the comfort framework as described by
Carrington and Catásus (2007). The first category is interviewee, where the characteristics of
the interviewees are described by either experience of industry. This is followed by the
themes from the Carrington and Catásus (2007) framework. The first is relief sense of
comfort where a financial audit is described and how important cooperation of the client is.
This is followed by the state sense of comfort were is determined when there is enough
assurance acquired by the auditor and how the materiality level is chosen. The last
component of the framework is the renewal sense. Hereby the influence of the experience of
the auditor with the field and client is examined. Each article had its own cluster of codes
(Saldana, 2012) to ensure clarity of all the codes. The last code category is the client
category. Here client differences are incorporated. The outcomes of all the categories can be
cross referenced.
26
Table 2. coding scheme
Category Sub-Category Content
Interviewee Experience The experience of the auditor
Industry The main industry the auditor works in
Relief sense Auditing What do you do during an audit?
Cooperation client Does the client cooperate with the auditor
State Sense Assurance When is enough assurance acquired
Materiality how is materiality determined?
Renewal sense Tenure How much experience does the auditor have?
And how does that impact his audit
Client Size Small vs. Large firms
Industry The type of industry of the client
Tenure How long is the auditor auditing the client?
27
7. PwC : the case context
PwC is the second largest professional services network in the world and the organization
was formed in 1998 by a merger between Coopers & Lybrand and Price Waterhouse and
experienced a name change to PwC in 2010. Its main service is assurance which contains 45
% of its total operations. In this thesis the focus will be on the audit component of the
assurance services at the Amsterdam offices (PwC internal portal, 2015).
The Amsterdam offices of PwC offers employment to over 2,000 people and consist
of two buildings, Westgate I and II. All of the assurance practices are done in Westgate I
where every industry has its own floor. The financial services branch is only accessible with
an exclusive pass only provided to the employees of the F.S (PwC Guidelines, 2015). All
other auditing departments are accessible to all auditors to make discussions and
brainstorming as easy as possible.
Everybody starting at PwC begins with the associate academy, a traineeship
consisting out of two years were beginning auditors can experience all audit types and
industries. After these two years one becomes senior associate until he obtains his R.A., then
the auditor moves on to assistant manager and then some will move on to manager, director
and partner. The reviewing of other employee’s work already starts at the senior associate
level but on the other hand, everybody has a coach until director level (PwC internal portal,
2015). So the people interviewed both have a supervisor and are a supervisor as reviewing
and being reviewed.
The PwC auditors do spend most of their time at the client. This way the client can be
asked about inconsistencies at all time. This also ensures that the auditor can experience non-
financial matters as internal control mechanisms but also the companies ambiance. Only
when the client is not available or certain tasks that only can be done at the office, the
auditors will be at the office, this comes down to about once a week (PwC guidelines, 2015).
7.1. PwC and its client types
PwC divides their clients by means of industry types. There are five categories of clients:
TICE, Financial service, Public sector, EU&M and private companies. TICE is an
abbreviation for technology, entertainment and media and telecommunications. The TICE
industry is an extremely dynamic industry with companies that are presented with daunting
28
challenges to business models, supply chains, marketing operations, infrastructure, service
delivery and customer experience due to the impact of the ongoing digitization.
Financial services, often named F.S., consists out of five segments itself, namely:
Banking, Insurance, Pensions, Asset Management, Real Estate. This industry type often asks
for a more specialized audit. It is an industry that has extra risks because of the large public
interest in this sector.
The Public Sector audits companies in the public sector, hospitals and schools for
example. It can be very complex because the public sector differs a lot from the commercial
sector. Not only in information but also in way of working. Also the internal auditors are
often people with less financial experience as F.S internal auditors for example.
Energies, utilities and mining, or abbreviated EU&M, is also a very specific industry.
It is an industry that changes quickly and is not always the most stable industry (Bradford,
2006).
The last industry type is private companies, or P.C.. These companies have voluntary
audits and are not listed. These companies can have multiple reasons to want to be audited,
for example the owner/manager asks for an audit because the bank wants to review the
company or the owner/manager can use an audit as an extra control measure.
29
8. Findings
As Eisenhart (1989, p. 763) states: “Analyzing data is the heart of building theory from case
studies, but it is both the most difficult and the least codified part of the process”. So to
enhance the findings in quality and clarity the findings are organized by using the framework
as described by Carrington and Catásus (2007).
The first subchapter will be comfort as relief, where the process of creating comfort
and the cooperation of the client will be discussed. This is followed by the state sense of
comfort, when is enough assurance acquired? This will be the primary question to be
answered. Also the difference between materiality levels per client will be presented. And the
final subchapter will be the renewal sense of comfort. Here the role of experience with the
client will be discussed and how this can influence the audit. All of the elements of the
Carrington and Catásus (2007) framework will mention how client-, size tenure and industry
play a role. To make the above information more clear all of it is summarized in the
following table.
Table 3: framework
Comfort type Components Client types
State sense Materiality
determination
1. Size
2. Industry
When is maximal
assurance achieved
Relief sense Cooperation of
client
1. Size
2. Industry
Renewal sense Experience with the
same client
1. Size
2. Industry
8.1. State sense
The state sense suggest that at any given time there is comfort and discomfort and the state
sense is record of all comfort and discomfort. (Carrington and Catásus, 2007). In auditing,
this relates to the situation when enough effort has been invested to come to an opinion. So
when does an auditor feel comfortable enough to give out an opinion?
30
An audit itself consist out of a kick-off meeting, the checking of posts, the reviewing
of this checking and a final meeting where the opinion is determined and all the findings are
discussed with the client (de Zoete, observation, 14-04-2015). An audit is done when:
“we have acquired enough reliable information to give an opinion on the financial
statements” (I2, S.A.)
“We link the qualitative with the quantitative, so linking the processes to the numbers
in the financial statements, so when that is all clear and done you sign off and make
sure all mistakes are out of the financial statement for the users of that financial
statement.” (I7, S.A).
But when the researcher asked more in depth about when do you have enough reliable
information, it was apparently harder for the interviewees to answer.
“it stays hard to determine, but at a certain point we can say, the risk that there still
is a material mistake in the financial statements is almost zero. So then we have done
enough to get that 95 % assurance. But after all, it is a feeling, a consideration you
have to make also about the conversations you had with the client. But then you get to
a point and you can say, now it is good, but of course it is a grey area.” (I3, S.A.)
“you are finished when you and the client are comfortable with the results.”(I5,
Assistant Manager)
So, it is not only important for an auditor that all information that needs to be acquired is
acquired but also to obtain a sense of comfort. And also that not only the auditor feels
comfortable but also that this comfort can be passed on to the client.
Messier (2003) States that the amount of work put into an audit should correspond to
the risk level of the client. This means that every audit differs in work needed and this is
confirmed by the auditors.
31
“Every client is different and has its own specifics. A bank for example has a lower
threshold for risks but that is also mandated by AURA2. And there are also difference
between PC and PS clients compared to larger firms. This leads among other things
to different materiality levels.”(I4, S.A)
As mentioned by the interviewee all clients have different materiality levels. Materiality is
determined by the team during the kick-off meeting and certain criteria play a role during this
determination. Examples are; How has the client performed in the past, are there certain
specific risks and how is the quality of the internal controls? This leads to a materiality level
whereby the team feels comfortable that they will find all material mistakes in the financial
statement.
“When starting with an audit you look at the inherent risk. What are the risks and
what does management do to minimize these risks? So as auditor you judge the
internal controls at the client. And after judging these controls you have to stand still
and determine what they mean for you as an auditor. What do we have to do to
acquire enough information? And this steps are mentioned in the PwC audit guide
and this is based upon the ISA guidelines. (I4, S.A.)
“At PwC we use 3 types of materiality that we determine at the beginning of the audit.
The 3 levels are: overall materiality, the highest level, performance materiality and
sum materiality, obviously insignificant. We almost never discuss anything under sum
because it is statistically determined that anything beneath that line will not lead to a
material mistake in the financial statement and will affect our opinion. Things that
are of performance materiality do not have to be changed by the client but we advise
them to do so. And if they don’t we will make a note of it and take it with us in
determining next year’s materiality. (I1, associate).
Even though determining the materiality is a carefully thought out process there are still
instances whereby an auditor looks at a post under materiality. The main reason the
interviewees gave was to increase understandability and as mentioned before,
2 See abbreviation and definition page, p. 3
32
understandability is key for a good quality audit. One of the interviewees gave the following
example for looking at posts under materiality:
“an example for looking at a post under materiality is at real-estate clients you will
look at the valuation of real-estate but also at some provided services. And I always
want to look at what exact service is delivered? Services are a superficial term and if
you do not comprehend it fully you do not get a feeling of what is playing at the firm.
That is not something that you have to do because of regulation but it comes forth out
of my on critical perspective, that I understand what is happening.” (I6, S.A.)
“ normally you follow Aura when performing your tasks but sometimes you want to
look into something a bit deeper and this is a feelings issue. When your speaking with
the client or you see something and it’s not clear, you want to figure out how and
what it is. Of course it still is a consideration if you look at it because it is probably
not material. It is something that is more of a personal interest then something
mandatory.”(I5, Assistant Manager).
This confirms the importance of the comfort theory because the feeling of an auditor after an
audit is important for him. An auditor does not just want to follow the rules and come to an
opinion but want to achieve a feeling of comfort too. But this makes it harder to determine
when enough assurance has acquired. As the interviewees state: “it is a feeling”.
8.1.1. Size
The first type differentiated in this paper is if the size of client impacts the state comfort level
of an auditor. As mentioned before, materiality is determined ahead of time by the quality of
internal controls. In large companies internal controls are more extended, which makes it
harder to make a judgment of the quality. The internal controls are more complex and harder
to keep up to code.
“During the interim control we can form a picture of the company’s internal controls
which can help us determining the materiality. Larger companies are more complex
33
and this can lead to a lower materiality because their controls are not sufficient for
their company size.” (I3, S.A.)
But on the other hand, smaller companies often have 1 or 2 members in their accounting
team, this can make fraud easier for example. Also by speaking to more people about their
decisions and how the company works a better picture can be formed on the company.
“At the bigger client you speak to more people because everything at the firm is
bigger. While at smaller companies you often speak to 1 controller and that is it. This
sometimes give you an insufficient picture of the clients’ whole company.” (I7, S.A.)
Concluding, size does impact the state comfort of the auditors. To achieve enough
assurance and comfort materiality has to be determined. This is done on basis of internal
controls and other information. And while a smaller company is easier to fathom, they also
have smaller accounting departments what could increase fraud and decrease the overall
picture of the company.
8.1.2. Industry
As mentioned before, the industry types that this thesis focusses on are financial clients,
public sector clients and the consumer goods and production clients. When creating comfort
as a state, especially the F.S industry differentiated compared to the other industries. First of
all this can be found in the PwC guide as mentioned by interviewee 4. The PwC guideline
mandates lower risk thresholds at F.S clients.
“The F.S sector is very specific, it has more rules and regulations and the subject is
not as tangible as a production company for example. This can be harder to fully
comprehend especially when starting out as an auditor.” (I6, S.A.)
Because the F.S sector can be harder to understand it can acquire some extra work and
information to create the same amount of comfort as in the other sectors. This can also differ
between auditors, as Carrington and Catásus (2007) mention: “what may be comfortable for
one person may not be for another.” But the experience and expertise of other auditors can
take these insecurities away and increase comfort.
34
“ You can learn a lot from your team and specialist when auditing with them,
everybody has their strengths and weaknesses but you can learn a lot from each
other”. (I6, S.A.)
And as Pentland (1993) mentions in his work, it is a team effort. “A cohesive, tightly
knit audit team is essential to the creation of a coherent set of working papers and a
successful engagement.”(Pentland, 1993, 614).
8.2. Relief sense
“The concept of comfort as relief is about the acts that enable attaining a state of
comfort” (Carrington and Catásus, 2007). In the previous subchapter is was discussed when
enough assurance and comfort is created. In this subchapter the main question is: How to
achieve this comfort?
As mentioned before, acquiring enough information to come to an opinion is the key.
During an audit the financial statement and related information is provided by the client (de
Zoete, observation, 14-04-2015). So auditors are highly dependent on the input and
involvement of the client. They are involved during the whole process:
“the client is in a big way involved during the whole process. The client understands
the business and knows what is going on. He should provide me with information and
that is why it is important to have a good relationship with your client. They should
know what we expect from them and what they can expect from us.”(I6, S.A.)
To achieve comfort the client must cooperate to great extent with the auditor. Not
only does the audit depend on the information given by the client but the client also needs to
use this information to adjust the necessary in the financial statements.
“a client cooperation is important for an audit because in the end you need enough
information to grant an opinion. And when you get your information delivered
untimely or of low quality it will take you longer. Also this impacts the view of me on
35
the client, when mistakes arise again and again, you are expecting the worse to come.
But when everything is organized and well substantiated, the risk that there is
something wore declines.”(I3, S.A.)
As indicated by interviewee 3 it is important for an auditor to receive timely and high
quality information of the client. This otherwise could increase the risk and this in turn will
lead to a decrease of comfort. As Pentland (1993) mentions, an auditor does not have the time
to do test every process and item himself so it is important that an auditor can rely on the
client to explain how the business works and what accounts are used for.
Also the way a client reacts to questions can determine the comfort levels of the
auditor. When a client reacts very hostile regarding questions this could indicate that
something is wrong and lead to a decrease in comfort.
“Alarms bells start ringing when a client acts very hostile. Why would he react in
such a way? When he reacts in such a way, I get a feeling that I need to do some extra
ground work to ensure that nothing is wrong and get comfortable with the audit. (I9,
S.A.)
8.2.1. Size
According to the interviewees, there is a big difference in the quality of information provided
by the clients and that there is a relation to the size of the firm.
“I have the feeling that smaller clients do not fully comprehend what we are doing
and that they are paying us to audit them. I think that leads to not giving us the right
documents on time. While at a big firm they understand the necessity of an audit and
that we are there for them and that they better work along. Also they have the
capacity to hire real financial people while smaller firms have not what also leads to
in a difference of the quality of delivered information.”(I7, S.A.)
“the quality of the information delivered is less at smaller clients.” (I9, S.A.)
On that account, smaller clients deliver lower quality information. Also, they deliver the
information less timely then the larger firms do. One could blame this on the fact that bigger
36
firms have a bigger budget to higher financial professionals and have bigger internal audit
teams. Also the smaller clients do not completely understand the necessity of the audit and
therefor deliver lower quality information in a less timely manner. As one of the interviewees
states:
“Sometimes smaller clients see us as a company that comes in and correct their
mistakes, ‘do not worry about it, the auditor will come and correct our mistakes’
while larger clients just want us to confirm the quality of their performed work and
that all their finances are in order, so our real job. Therefor the quality sometimes is
lower at smaller firms.” (I6, S.A.)
Concluded can be that in the relief sense of comfort size of the client matters. The quality and
timeliness of the delivered information is lower at smaller clients. Therefore more measures
have to be taken to create comfort.
8.2.2. Industry
When taking comfort as relief into regard there are primarily differences between financial
clients and clients from the public sector. As mentioned before, it is probable that the
financial industry has more specialized personnel that handle their accounting. This leads to
provision of higher quality information.
Rules and regulations are also stricter in the F.S industry compared to the other
industries. So while the information is often timely acquired and of good quality and can be
hard to fully comprehend the information. The F.S industry audits also hire specialized
auditors because of this reason.
“The financial services sector is a specific sector with extra rules and regulation. This
can make it harder to fully comprehend what is going on.” (I6, S.A.)
“A production company is easier when it comes to acquiring the right information
and understanding it. Valuation of real estate for example is an art by itself and needs
more judgement than a cash post. So that is one of the reasons we use internal
specialist to be more certain and to get comfortable. (I3, S.A.)
37
Acquiring comfort as relief differs per industry, especially in the F.S industry it asks
for a specialized eye. But on the other side the F.S industry does deliver high quality
information and understands what is asks from them. So comfort creation is different per
industry but the auditor should be comfortable at the end of every audit, only the journey
differs.
8.3. Renewal sense
The renewal sense of comfort focusses on how changes can impact comfort. The primary
question for this sub chapter therefore is : How does the relationship with client and audience
change and how does it impact the auditors comfort level?
The tenure of the relationship with the client is something that has been discussed
extensively in the last couple of years with the implementation of mandatory rotation
between audit firms. The auditors that were interviewed for this research all agreed that an
increase in tenure lead to an increase in comfort.
“When you visit a client a second time you are more comfortable. You know where
you are going and you the client. You have seen a portion of the posts and understand
specifics of that client. The audit will take up less time and energy.” (I7, S.A.)
By revisiting a client you can base your audit on the ones from the previous years. The
materiality have been tested and also in what way the client cooperates is known. During the
first year of an assignment everything is new and it takes a lot of time away from the audit
and into understanding the business.
A longer relationship between the auditor and the client leads to a better
understandings of what they can expect from each other. When an auditor is auditing a client
for a longer time he can raise the issues on the delivery of information for example.
“how longer you are auditing a client, how better the quality of the audit gets.
Because you increase your knowledge and experience of that particular client. Also
your insight in the clients risks increases, you also get to understand the industry
38
better and better. I think the more time you are auditing a client, the better your audit
gets.”(I8, manager)
“You know where you are going, you know the client and have seen a large part of
the posts. You know the specifics, so auditing takes less time and energy.” (I7, S.A.)
By knowing the client more time can go into the auditing itself instead of the process of
understanding the business of the client. As Pentland (1993) mentions in his research,
auditing consist of acts providing complicated functional rituals in response to uncertainty. If
this uncertainty decreases by tenure, comfort will rise.
But tenure can also negatively impact the audit, it can decrease independence and
increase taken-for-grandness.
“I notice that how longer I am auditing a client, the faster I take something for
granted. So it is always great to get someone new on the team, to give a fresh perspective.
When you are auditing a client for a long time you say to yourself, this is how it goes. But a
new person can say; ‘hé, wait a minute, why do we not do it this way?’ and then you start to
see something that is far more efficient and you change your approach.”(I4, S.A.)
And while a decrease in independence and increased taken-for-grandness can lead to a lower
quality audit, it is not something that auditors are aware of and therefore leads to a lower
comfort. However when, as interviewee 4 states, a new person joins the team they can make
aware of their mistakes and change their ways. This can lead to an increase of comfort.
Tenure has its pros and cons, especially regarding the audit quality. But when it
comes to comfort it almost always increases comfort. The time spend on the job decreases
and the understanding between the client and the auditor increases. And while it also can
decrease independence and increase taken-for-grandness, this will not immediately lead to a
decrease of comfort. The arrival of a new team member on the other hand can lead to an
increase of comfort because the other auditors are made aware of their faults. By changing
their mistakes and making the audit process more efficient, the comfort levels of the auditors
increase.
Not only the tenure of the client can impact the comfort levels of the auditor. The
recent changes in regard to the crisis affected the comfort created through legitimacy. Banks
especially are in the public eye and the public have a very high expectancy regarding the
39
quality of the financial statements. As Power (2003) states, the public trusts the legitimacy
created by the auditor. This has led in some cases to a “expectancy gap”.
There is something as an ‘expectancy gap’ between us and the public. The public uses
the financial statements with the idea that there are no mistakes anymore. But we only
have a little amount of time and only look at stuff above materiality. In some cases
materiality can go up to above a million. If somebody from the public notices a
difference of a million he will see that as a big mistake.”(I4, S.A.)
This ‘expectancy gap’ can be tedious for the auditors because one of the reasons they are
auditing is for the public.
“ as an auditor you have a trustworthy appearance towards the public. I have clients
that are regularly on the news and I do not want to find out that there are still
mistakes in the financial statements. Especially when a large group of people trust on
you for delivering a good financial statement.” (I3, S.A.)
“we do this for the user of the financial statements, so we are particularly cautious
that we do not send out the wrong idea.”(I1, associate).
Because of the trust the public has in these financial statements that are provided to
them, PwC has extra review boards that review the larger firms, whom financial statements
are used widely by the public. These review boards do give the auditors extra pressure.
“When we are auditing big important client the engagement leader does put extra
pressure on us. There is a bigger risk that we will fall in an extra review. If the review
board finds a mistakes this can have big consequences so you really want to be
comfortable with your work. This can lead to some more pressure from your partner
but also from yourself.”(I8, Manager)
The legitimacy an audit creates is an important factor for the auditors. They feel extra
pressure to provide a good quality audit which can lead to a higher threshold of comfort they
want to achieve.
40
8.3.1. Size
Size plays an important role in the creation of comfort. Currently, the rules mandate rotation
only for partners at US GAAP companies (SOX, 2015) and per the first of January 2016 for
Dutch listed companies (NBA, 2015). This regulation thus only affects larger companies. As
mentioned, auditors prefer a client with longer tenure. Because of the familiarity with the
client this increases the comfort of the auditor at the start of the audit. Because the auditor
knows what to expect, the comfort is created more easily than an audit at a new client.
Also the pressure from the public and PwC is higher when a big and therefore
important client is audited. Which can lead to a decrease of comfort when auditing. But
again, an audit has to be done and get a ‘passing grade’ no matter the size of the client.
“An audit, is an audit. At the end there should not be any mistakes left in the financial
statements regardless of who the client is. But when I am feeling pressure because we
are auditing a large and important client I might take it to the extra level. But in the
other hand we often get more time for those clients so this probably also leads to a
more extended report.”(I8, Manager).
So while during an audit more pressure can lead to discomfort, at the end it can lead
to a higher level of comfort than at the end of an audit with less pressure. The auditor wants
to ensure that there are not any mistakes left and therefor set his own standards higher.
8.3.2. Industry
The private firms will not fall under the rotation regulation, so tenure will be higher at those
firms. The same conclusions about tenure as in the previous paragraph can be made. So the
PC industry will lead to higher comfort in that respect.
Because of the recent bank crisis the pressure in the F.S. industry is higher according
to the auditors.
“Since the crisis, the focus has increased on our work, you really do not want to make
any mistakes.” (I3, S.A.)
41
The comfort is higher for the smaller firms because longer tenure will still be possible with
them. Also comfort is created more easily. And because of the recent higher pressure auditors
in the F.S industry feel this will lead to an initial lower comfort and in the end to higher
comfort. The risks are higher which lead to the initial lower comfort but because the pressure
leads to a higher standard regarding comfort, the comfort in the end will be higher.
42
9. Discussion and Conclusion
While the comfort theory has been around for more than two decades there is still little
research on the subject. Pentland (1993) researched audit team behavior and described
auditing as an ritual. The audit ritual transforms the “ untrustworthy” state of financial
statements into a form that auditors, the client and the public are comfortable with (Pentland,
1993). This is more commonly known as the comfort theory. Power (2003) used this theory
in combination with legitimacy around four audit themes. Power (2003) found that “auditing
is far from being a self-evident set of techniques which require occasional improvement,
but is rather a series of hopes and aspirations inscribed in its most mundane routines.”
Carrington and Catásus (2007) have developed a comfort framework for researching
the comfort theory. This framework consists out of three types of comfort: State sense, relief
sense and renewal sense. Their ambition was to shed a light on the production of comfort
further than the ritualistic approach.
The choice for a qualitative case study led to the development of a comprehensive
discussion of the influence clients have on the comfort level of auditors. Furthermore, it
created the opportunity to research the different types of comfort in a different setting. The
empirical evidence needed for this discussion was provided by interviewing auditors that are
in the midst of their careers. These interviews provided the opportunity to discuss these types
in greater detail and depth compared to survey or data research. In addition, this paper offers
an additional view on the comfort theory in a more recent perspective. Last, the case study
created the opportunity to research whether the theoretical grounds upon which the comfort
theory is based, help explain the auditing practice. In doing so, this paper provides new in-
depth empirical evidence on the comfort theory.
This paper argues that the client plays are large role in the production of comfort. The
state sense of comfort is the first comfort type of the Carrington and Catásus (2007)
framework. The main issue with this comfort type is defining the point when enough comfort
and assurance is acquired. Materiality determination is one of the ways this point can be
determined. Materiality is determined during the start of an audit by the whole team. This is
determined by inter alia, the internal controls and the tenure of the client. The internal
controls are more comprehensive at larger companies, this leads to a higher risk. Higher risks
lead to a lower initial comfort and more information needs to be acquired to reach an
adequate level of comfort. The risks are also higher at the F.S. industry, so there the same
43
case plays a role. Thus by acquiring the state sense of comfort client types play a role, both
the size and the industry.
The framework (Carrington and Catásus, 2007) continues with the relief sense of
comfort. The primary question that needs to be answered to acquire the relief sense of
comfort is: How to achieve comfort? When using the client perspective the most important
measure is the cooperation of the client. To achieve comfort, information needs to be
delivered by the client. The better the quality of this information and the better the timeliness,
the easier the production of comfort. When taking the interviews into account it was apparent
that larger firms have better quality information. The internal audit teams are often bigger and
better educated in accounting, this leads to better information compared to smaller firms. The
F.S. industry also delivers higher quality information. This because the internal audit team is
more well-known with finances than a P.S. industry for example. But the information
acquired at F.S. clients can be more difficult to fully comprehend by the cause of stricter and
different regulation than other industries. Thus, also in the relief sense of comfort the client
types play an important role in producing comfort.
The final type of comfort described in the framework of Carrington and Catásus
(2007) is the renewal sense of comfort. The central question that needed to be answered was
how the relationship with the client impacts the creation of comfort of the auditor and the
public? The interviewees all agreed that tenure increased their comfort levels. They knew the
risks and the client and the auditor know what to expect from each other. But they are also
aware that tenure can lead to a lower quality audit. The impact that tenure has on comfort
does not differ per client type, not in size or industry. Except for mandatory rotation, but
these only affect companies that use U.S. GAAP and listed companies per January 2016.
The recent crisis has also led to new renewal comfort levels. Financial professions are
more in the public eye as before and expectancy from the public has increased. This led to
more pressure for the auditor and to lower initial comfort. Bigger clients have more influence
on this pressure that leads to a decrease in comfort. They are more important for the firm and
it would have a bigger impact if PwC would lose those clients. The firms that fall into the
F.S. industry also form a bigger risk for the auditor. There is a bigger risk that they will fall
into an extra review and there is more pressure from the public. This also leads to a lower
initial comfort level.
In the introduction of this paper the question was asked in what way client types
influence the comfort levels of auditors. They do influence the comfort of auditors in a big
way and also different per client type. It cannot be said that bigger firms lead to more comfort
44
or that F.S. client decrease initial comfort overall. But size and industry do affect the initial
comfort and the comfort production of the auditor. Pentland (1993) originally noticed that
client affect comfort but not in which way. Carrington and Catásus (2007) found that
cooperation of the client play an important role in the audit. Also that the comfort levels are
influenced by the risk of a client and the tenure of the relationship with the client, but whether
this differed per client type was not researched.
This study adds to the existing literature on the comfort theory. These thesis used
former research in combination with new acquire information about client types and how this
influenced comfort. By doing this research, it should have closed the research gap, as
identified in the paper of Carrington and Catásus (2007, p.53) somewhat. By providing more
information on the (under) researched subject of the comfort theory, it could trigger more
research. The thesis should also provide more information on the societal view of auditing in
general.
In light of my results there are still some limitations to keep in mind. An important
limitation of this research is the number of participants interviewed. A greater number of
participants would allow for studying between level differences and will improve analytical
generalization. This is in line with Chenail’s (2011, p. 255) article, that states:
“Instrumentation rigor and bias management are major challenges for qualitative
researchers employing interviewing as a data generation method in their studies.” Also all
the interviews were held in Dutch, this is because Dutch is the mother tongue of the
interviewees. It is important that the interviewees could answer directly without thinking how
they should say it. But this could mean that some of the meaning was lost in translation.
A suggestion for further research is to examine the relationship between recent
regulation changes and the comfort of auditors. This could be especially interesting when
mandatory rotation has be implemented in the Netherlands. This is because tenure plays a
large role in creating comfort for auditors. Another interesting way of using the comfort
theory is to look at cultural differences. Comfort is something that is not rational and
impacted by the auditors emotions. This is something that differs among cultures, especially
in a professional environment. As one of the interviewees also mentions:
“I notice a lot of differences between people from different ethnicities. In some
cultures hierarchy is very important and then it can be hard to have a lively discussion as a
solely Dutch team has.” (I5, assistant manager.)
45
10. Reference list
Balsam, S., Krishnan, J., & Yang, J. S. (2003). Auditor industry specialization and earnings
quality. Auditing: A Journal of Practice & Theory, 22(2), 71-97.
Beck, P., T. Frecka, and I. Solomon. 1988. A model of the market for MAS and audit
services: Knowledge spillovers and auditor-auditee bonding. Journal of Accounting
Literature 7: 50–64.
Blay, A. D. (2005). Independence Threats, Litigation Risk, and the Auditor's Decision
Process*. Contemporary Accounting Research, 22(4), 759-789.
Bradford, T. (2006). Solar revolution: the economic transformation of the global energy
industry. MIT Press Books, 1.
Bradshaw, M. T., & Miller, G. S. (2008). Will harmonizing accounting standards really
harmonize accounting? Evidence from non-US firms adopting US GAAP. Journal of
Accounting, Auditing & Finance, 23(2), 233-264.
Carcello, J. V., & Nagy, A. L. (2004). Client size, auditor specialization and fraudulent
financial reporting. Managerial Auditing Journal, 19(5), 651-668.
Carey, P., & Simnett, R. (2006). Audit partner tenure and audit quality. The Accounting
Review, 81(3), 653-676.
Carrington, T., & Catasús, B. (2007). Auditing stories about discomfort: Becoming
comfortable with comfort theory. European Accounting Review, 16(1), 35-58.
Chen, S., Sun, S. Y., & Wu, D. (2010). Client importance, institutional improvements, and
audit quality in China: An office and individual auditor level analysis. The
Accounting Review, 85(1), 127-158.
Chenail, R. (2011) ‘Interviewing the investigator: Strategies for addressing instrumentation
and researcher bias concerns in qualitative research’, The Qualitative Report, Vol. 16,
No. 1, pp. 255-262
Chi, W., Douthett, E. B., & Lisic, L. L. (2012). Client importance and audit partner
independence. Journal of Accounting and Public Policy, 31(3), 320-336.
Chung, H., & Kallapur, S. (2003). Client importance, nonaudit services, and abnormal
accruals. The Accounting Review, 78(4), 931-955.
Collins, R. (1981). On the microfoundations of macrosociology. American journal of
sociology, 984-1014.
46
Cooke, T. E. (1992). The impact of size, stock market listing and industry type on disclosure
in the annual reports of Japanese listed corporations. Accounting and Business
Research, 22(87), 229-237.
Cooper, D. J., & Morgan, W. (2008). Case study research in accounting. Accounting
Horizons, 22(2), 159-178.
DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of accounting and economics,
3(3), 183-199.
Denzin, N. K., & Lincoln, Y. S. (2009). Qualitative research. Yogyakarta: PustakaPelajar.
Eisenhardt, K. M. (1989). Building theories from case study research. Academy of
management review, 14(4), 532-550.
Ellerup Nielsen, A., & Thomsen, C. (2007). Reporting CSR-what and how to say it?.
Corporate Communications: An International Journal, 12(1), 25-40.
Francis, J. R. (1994). Auditing, hermeneutics, and subjectivity. Accounting, Organizations
and Society, 19(3), 235-269.
Francis, J. R. (2004). What do we know about audit quality?. The British accounting review,
36(4), 345-368.
Francis, J. R., & Yu, M. D. (2009). Big 4 office size and audit quality. The Accounting
Review, 84(5), 1521-1552.
Gibbert, M., Ruigrok, W. & Wicki, B. (2008) Research Notes and Comentaries. What Passes
as a Rigorous Case Study? Strategic Management Journal, 29(13): 1465-1474
Ghosh, A., & Moon, D. (2005). Auditor tenure and perceptions of audit quality. The
Accounting Review, 80(2), 585-612.
Herrbach, O. (2001). Audit quality, auditor behaviour and the psychological contract.
European Accounting Review, 10(4), 787-802.
Holthausen, R. W. (2009). Accounting standards, financial reporting outcomes, and
enforcement. Journal of Accounting Research, 47(2), 447-458.
Humphrey, C., & Moizer, P. (1990). From techniques to ideologies: An alternative
perspective on the audit function. Critical Perspectives on Accounting, 1(3), 217-238.
Johnson, V. E., Khurana, I. K., & Reynolds, J. K. (2002). Audit‐Firm Tenure and the Quality
of Financial Reports*. Contemporary accounting research, 19(4), 637-660.
Johnstone, K. M. (2000). Client-acceptance decisions: Simultaneous effects of client business
risk, audit risk, auditor business risk, and risk adaptation. Auditing: A Journal of
Practice & Theory, 19(1), 1-25.
47
King, N. (1994). Qualitative methods in organizational research: A practical guide. The
Qualitative Research Interview.
Knapp, M. 1991. Factors that audit committees use as surrogates for audit quality. Auditing:
A Journal of Practice and Theory 10 (1): 35–52.
Knechel, W. R., Krishnan, G. V., Pevzner, M., Shefchik, L. B., & Velury, U. K. (2012).
Audit quality: Insights from the academic literature. Auditing: A Journal of Practice
& Theory, 32(sp1), 385-421.
Kolcaba, K. Y., & Kolcaba, R. J. (1991). An analysis of the concept of comfort. Journal of
advanced nursing, 16(11), 1301-1310.
Krishnan, G. V. (2003). Audit quality and the pricing of discretionary accruals. Auditing: A
Journal of Practice & Theory, 22(1), 109-126.
Landsman, W. R., Nelson, K. K., & Rountree, B. R. (2009). Auditor switches in the pre-and
post-Enron eras: Risk or realignment?. The Accounting Review, 84(2), 531-558.
Lang, M., Raedy, J. S., & Wilson, W. (2006). Earnings management and cross listing: Are
reconciled earnings comparable to US earnings?. Journal of accounting and
economics, 42(1), 255-283.
Malterud, K. (2001). Qualitative research: standards, challenges, and guidelines. The lancet,
358(9280), 483-488.
McKeown, J.C., Mutchler, J. and Hopwood, W. (1991), “Towards an explanation of auditor
failure to modify the audit opinions of bankrupt companies”, Auditing: A Journal of
Practice & Theory, Vol. 10, Supplement, pp. 1‐13.
Messier, W. F. (2003) Auditing & Assurance Services: A Systematic Approach (Boston, MA:
McGraw-Hill).
Moore, S. F., & Myerhoff, B. G. (Eds.). (1977). Secular ritual. Uitgeverij Van Gorcum.
Myers, J. N., Myers, L. A., & Omer, T. C. (2003). Exploring the term of the auditor-client
relationship and the quality of earnings: A case for mandatory auditor rotation?. The
Accounting Review, 78(3), 779-799.
NBA, regulation (28-05-2015) retrieved from: https://www.nba.nl/Documents/Tools%20
Vaktechniek/nba-1alerts/NBA%20Alert%- %2027%20jan13.pdf
Patton, M. Q. (1990). Qualitative evaluation and research methods . SAGE Publications, inc.
Pentland, B. T. (1993). Getting comfortable with the numbers: auditing and the micro-
production of macro-order. Accounting, Organizations and Society, 18(7), 605-620.
Power, M. (1999). The audit society: Rituals of verification. Oxford University Press.
48
Power, M. K. (2003). Auditing and the production of legitimacy. Accounting, organizations
and society, 28(4), 379-394.
Pratt, J., & Stice, J. D. (1994). The effects of client characteristics on auditor litigation risk
judgments, required audit evidence, and recommended audit fees. Accounting
Review, 639-656.
PwC, PwC guidelines (9-6-2015) retrieved from: https://ews.eurad.ad.pwcinternal.com/nl/
Winning%20Work/Proposal- support/Proposal%20toolkit/Checklists-links-en-
tips/Bestpracticeproposals/Documents/Executive%20Summary%20Tuberculosefonds
%20audit%20(EN)%20januari%202011.pdf
PwC, PwC internal portal (26-05-2015) retrieved from: https://ews.eurad.ad.pwcinternal.com/
nl/Pages/Pulse.aspx
Reynolds, J. K., & Francis, J. R. (2000). Does size matter? The influence of large clients on
office-level auditor reporting decisions. Journal of Accounting and Economics, 30(3),
375-400.
Saldaña, J. (2012). The coding manual for qualitative researchers (No. 14). Sage.
Simnett, R., Vanstraelen, A. and Chua, W. F. (2009), "Assurance on sustainability reports:
An international comparison", The Accounting Review, Vol. 84 No. 3, pp. 937-967.
Solomon, I., Shields, M. D., & Whittington, O. R. (1999). What do industry-specialist
auditors know?. Journal of accounting research, 191-208.
SOX, The Sarbanes-Oxley Act 2002 (16-5-2015) retrieved from:
http://www.soxlaw.com/
Stein, M. T., Simunic, D. A., & Keefe, T. B. (1994). Industry differences in the production of
audit services. Auditing, 13, 128.
Van Maanen, J., & Pentland, B. T. (1994). Cops and auditors: The rhetoric of records. The
legalistic organization, 53-90.
Vanstraelen, A., Schelleman, C., Meuwissen, R., & Hofmann, I. (2012). The audit reporting
debate: Seemingly intractable problems and feasible solutions. European Accounting
Review, 21(2), 193-215.
Vera-Muñoz, S., Gaynor, L., McDaniel, L., & KINNEY JR, W. R. (2014). Do Procedures
Matter when Communicating Assurance? An Experiment Applying New IAASB
Standards. Working paper, University of Notre Dame, University of South Florida,
University of Kentucky, and University of Texas at Austin.
Watts, R. L. and Zimmerman, J. L. (1986), Positive Accounting Theory, Prentice Hall,
49
Englewood Cliffs, NJ.
Yin, R.K. (2009) Case Study Research. Design and Methods. Applied Social Sciences
Research Methods Series. Sage Publications, London
50
11. Appendix 1: Interview guide
Interviewer: Liselotte de Zoete
Interviewee:
Place of interview: PwC Amsterdam office
Duration of interview: …. minutes (from…….. to ………)
Introduction
I would like to first introduce myself and tell where this interview will be about. I am the
Liselotte de Zoete and I am a student accountancy & control at the University of Amsterdam.
I am now completing my master with my thesis and that is where this interview is for. The
questions I ask relate to my subject; the comfort theory and the influence client types have on
it. The comfort theory implies that accountants speak much more in terms of comfort than in
terms of risk etc. as you may know from laws and legislation. I research to what extent
customers affect your comfort level or stop exercising and that each customer is different. All
the answers you give me are completely anonymous. Just like your name and other data. If
you will allow me I will record this interview. To these recordings have only my supervisor
and I access. Gives you give me permission?
The interview will take between the 30 and 45 minutes. In case you do not feel comfortable
with answering a question or if you do not understand the question and you want me to
formulate a question differently, please let me know and I will do my best to comply with
your request. Before we start, do you have any questions?
The interviewee
What is your function and at which department do you work at PwC?
How look have you worked at PwC?
51
The work
What is it what you exactly do at the client?
At which point do you have the idea you are done with the audit?
When do you and your team achieve the point an unqualified opinion can be given?
What factors contribute to increase your comfort on financial statements?
The client
What is the role of a client during an audit?
Does a client influence you during an audit? And if so, how?
Concluding
Are there any other issues that you would like to highlight which have not been discussed
during the interview? Thank you for your time and input