Question 5 Supervisory Boards Flashcards
Why were Supervisory Boards introduced in the Dutch Big 4 accounting firms?
They were mandated to address declining trust in the auditing profession, improve audit quality, and align auditors’ professional identities with societal and regulatory expectations following scandals and criticisms from the AFM.
What did the AFM criticize about auditors’ behavior?
The AFM highlighted a lack of documentation, insufficient professional skepticism, and a client-centric approach that prioritized commercial interests over public accountability.
What is professional identity in the context of this paper?
Professional identity refers to how auditors define themselves within their profession, often seeing themselves as independent, skilled, and committed to audit quality and public interest.
What is professional identity regulation?
It is the deliberate effort to align employees’ professional identities with organizational or societal goals, often through interventions designed to challenge entrenched mindsets and behaviors.
How does ontological security relate to auditors’ resistance to change?
Ontological security is the deep-seated confidence in one’s professional identity, which led auditors to resist external criticism and deny discrepancies between their self-perceptions and societal expectations.
What role did Supervisory Boards play in derailing discourses of denial?
They confronted auditors’ defensive attitudes and “good enough” mentality by emphasizing the risks of inaction, using alarmist rhetoric to puncture their ontological security, and breaking through entrenched denial.
What structural changes did the Supervisory Boards implement?
They realigned governance by weakening the dominance of equity partners (rainmakers), strengthening the Executive Boards, shifting client engagement to prioritize public-interest-aligned clients, and reforming performance evaluations to focus on audit quality over commercial success.
How did Supervisory Boards address the client-centric focus of auditors?
They encouraged de-risking client portfolios, normalized refusing client demands, and promoted selecting clients based on governance and risk profiles to align with public-interest priorities.
How did Supervisory Boards stimulate public engagement?
They encouraged auditors to interact with stakeholders, respond to societal critiques, and rebuild trust by enhancing the credibility of their professional identity and accumulating public goodwill.
How did Supervisory Boards foster reflexivity among auditors?
They used surveys and monitoring to encourage partners to reflect on their professional identity and adapt to societal and regulatory expectations, aiming to create a learning organization.
What forms of resistance did Supervisory Boards encounter?
Auditors dismissed external critiques, resisted the authority of non-auditor Board members, and maintained a caste-like mindset that marginalized outsiders while reinforcing their own norms.
What tensions did Supervisory Boards face in balancing public-interest goals with firm-level de-risking?
Tightening client acceptance standards created a risk that smaller, riskier clients might have limited access to auditors, highlighting a conflict between societal obligations and practical realities.
What cultural and behavioral changes did the Supervisory Boards achieve?
They shifted audit firms’ focus from commercial goals to public accountability, normalized saying “no” to clients, reformed governance and performance evaluations, and fostered greater public engagement and reflexivity.
How did Supervisory Boards act as conduits for change?
By bridging gaps between audit partners and external stakeholders, facilitating dialogue, and mediating between firm leadership and societal demands, Supervisory Boards created alignment and credibility.
How did Supervisory Boards address discrepancies between auditors’ self-perceptions and societal expectations?
They made auditors confront these discrepancies through professional identity regulation, creating awareness and fostering alignment with public-interest and regulatory goals.
