Knowledge that Transforms

ABSTRACT National office consultations (NOCs) are a mechanism intended to enhance audit quality, consistent with the logic of professionalism inherent in the audit profession. Yet research indicates that the competing logic of commercialism has become institutionalized in audit firms. We examine how the coexisting and conflicting logics of professionalism and commercialism manifest themselves in the current NOC dynamic. Specifically, we interview 22 highly experienced Big 4 audit firm partners to investigate how key actors engage in institutional work that creates, maintains, and disrupts the influence of professionalism and commercialism in NOC practices. We observe a swing of the pendulum: in the wake of SOX, audit firms adopted professionalism‐based practices which involved creating a more authoritative, “Oz”‐like national office identity, while in recent years key actors' institutional work reconfigured NOC practices and placed a renewed focus on commercialism. Our findings bring to light a number of implications that offer opportunities for future research. Although the new client‐inclusive culture aims to improve audit outcomes by encouraging consultations and fostering open dialogue with clients, it also exposes the national office to relationship‐management pressures and client‐service demands. Thus, practices developed to uphold professionalism also created a channel for commercialism‐focused practices, leading to unintended second‐order effects.

ABSTRACT We investigate whether audit fees and auditors' opinions on internal controls are associated with whistleblowing allegations externally filed to regulatory agencies. We find that firms subject to whistleblowing allegations have significantly higher audit fees, regardless of the substance of these allegations, whereas an auditor is more likely to issue an adverse opinion on internal controls when the allegation is substantiated, rather than frivolous. Further, our findings suggest that auditors are involved in the auditing of whistleblowing when the allegation is still in an internal stage. We also show that firms subject to external whistleblowing allegations have a lower likelihood of restating financial statements prepared in the allegation year when greater audit effort is made in that year. Our study is among the first to demonstrate the role of auditors in the context of whistleblowing.