Understanding the Political-Economic Impacts on Inception and Operational Effectiveness of an Audit Oversight Body: Case of an Emerging Economy

Md. Atiqur Rahman, Salah Uddin Rajib, Mahfuzul Hoque

Abstract


This paper aims to analyze the impacts of the political-economic setup of an emerging economy on audit oversight arrangements introduced due to isomorphic pressure. We adopted a mixture of qualitative research methods for the study. Expert interviews and document analyses were conducted. Structuration theory and, more specifically, the institutional relational dynamics framework proposed by Dillard et al. (2004) have been utilized to understand the phenomenon theoretically. We found that the Financial Reporting Council (FRC) was established in Bangladesh in 2016 within the context attributed to relatively ineffective corporate governance in the face of international and local stakeholder pressures. Financial policymakers responded strategically to the coercive pressure from donor agencies. Deviating from global practice, the majority of government nominees instead of experts have been ensured in FRC. Moreover, instead of reactivating six existing financial regulators, the government buffered the creation of FRC for a decade. Low resources have been endowed, limiting the capacity of FRC to bring about structural changes. In line with the field-level norm, the body has already become dormant and susceptible to politicization. There are few studies on audit oversight arrangements in the least Developed Countries (LDCs). Our paper addresses a unique political-economic setup influencing the effectiveness of oversight bodies. Structuration theory assists us in magnifying the scenario further. The study can determine the actual trajectory of enhancing audit quality through the audit oversight body in LDCs. However, instead of generalizing the finding, this study can be considered a case study as LDCs are unique in various characteristics.

Keywords


Audit Quality; Independent Audit Oversight; Least Developed Countries (LDC); Auditing Regulation; Structuration Theory; Bangladesh

Full Text:

PDF

References


Abbott, L., Parker, S., Peters, G., & Raghunandan, K. (2001). An investigation of the impact of audit committee characteristics on the relative magnitude of non-audit service purchases. Retrieved on 10 August 2020 from http://dx.doi.org/10.2139/ssrn.285151

Adhikari, P., Kuruppu, C., & Matilal, S. (2013). Dissemination and institutionalization of public sector accounting reforms in less developed countries: a comparative study of the Nepalese and Sri Lankan Central Governments. Accounting Forum, 37(3), 213-230. https://doi.org/10.1016/j.accfor.2013.01.001

Al-Ajmi, J. (2009). Audit firm, corporate governance, and audit quality: Evidence from Bahrain. Advances in Accounting, 25, 64-74. DOI: 10.1016/j.adiac.2009.02.005

Anantharaman, D. (2012). Comparing self-regulation and statutory regulation: evidence from the accounting profession. Accounting, Organizations and Society, 37(2), 55-77. https://doi.org/10.1016/j.aos.2011.12.003

Bala, S.K. (2017). The new financial reporting regulatory landscape and the accounting infrastructure: the path forward for professional accountants. The Cost and Management, 45(2), 14-24. DOI: 10.2139/ssrn.2964544

Blavoukos, S., Caramanis, C., & Dedoulis, E. (2013). Europeanisation, independent bodies and the empowerment of technocracy: the case of the Greek auditing oversight body. South European Society and Politics, 18 (2), 139–157. https://doi.org/10.1080/13608746.2013.784433

Burns, J., & Scapens, R.W. (2000). Conceptualizing management accounting change: an institutional framework. Management Accounting Research, 11 (1), 3-25. https://doi.org/10.1006/mare.1999.0119

Caramanis, C., Dedoulis, E., & Leventis, S. (2015). Transplanting Anglo-American accounting oversight boards to a diverse institutional context. Accounting, Organizations and Society, 42, 12–31. https://doi.org/10.1016/j.aos.2015.01.001

Carcello, J.V., Hollingsworth, C., & Mastrolia, S.A. (2011). The effect of PCAOB inspections on Big 4 audit quality. Research in Accounting Regulation, 23, 85–96. https://doi.org/10.1016/j.racreg.2011.10.001

Chowdhury, A. (2002). Politics, society and financial sector reform in Bangladesh. International Journal of Social Economics, 29 (12), 963–988. http://dx.doi.org/10.1108/03068290210447003

DeFond, M., & Lennox, C. (2011). The effect of SOX on small auditor exits and audit quality. Journal of Accounting and Economics, 52, 21-40. https://doi.org/10.1016/j.jacceco.2011.03.002

Dillard, J.F. (2001). A responsibility ethics for audit expert systems. Journal of Business Ethics, 30 (4), 337-359. https://doi.org/10.1023/A:1010720630914

Dillard, J.F., Yuthas, K. (2002). Ethical audit decisions: a structuration perspective. Journal of Business Ethics, 36, 49-64. https://doi.org/10.1023/A:1014244109742

Dillard, J.F., Rigsby, J.T., & Goodman, C. (2004). The making and remaking of organizational context: duality and the institutionalization process. Accounting, auditing & Accountability Journal, 17(4), 506-542. https://doi.org/10.1108/09513570410554542

DiMaggio, P. J., & Powell, W. W. (1983). The Iron Cage Revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48(2), 147-160. doi:10.2307/2095101

Elshandidv, T., Eldaly, M.K., & Abdel-Kader, M. (2021). Independent oversight of the auditing profession: A review of the literature. International Journal of Auditing, 25(2), 373-407.

Gerboth, D.L. (1973). Research, intuition, and politics in accounting inquiry. The Accounting Review, 48 (3), 475-482. http://www.jstor.org/stable/245144

Giddens, A. (1976). New Rules of Sociological Method. Hutchison, London.

Giddens, A. (1979). Central Problems in Social Theory: Action, Structure and Contradictions in social analysis. Macmillan, London. https://doi.org/10.1007/978-1-349-16161-4

Giddens, A. (1984). The Constitution of Society: Outline of the Theory of Structuration. University of California Press, Berkeley, CA. DOI: 10.1086/228358

Habib, A., & Islam, A. (2007). Determinants and consequences of non‐audit service fees. Managerial Auditing Journal, 22 (5), 446-469. https://doi.org/10.1108/02686900710750748

Habib, A. (2019, March 12). Financial Reporting Council not fully ready. The Daily Star. Retrieved on 13 july 2019 from https://www.thedailystar.net/business/news/financial-reporting-council-not-fully-ready-1713802

Hazgui, M., & Gendron, Y. (2015). Blurred roles and elusive boundaries: on contemporary forms of oversight surrounding professional work. Accounting, Auditing & Accountability Journal, 28 (8), 1234-1262.

Hilary, G., & Lennox, C. (2005). The credibility of self-regulation: Evidence from the accounting profession’s peer review program. Journal of Accounting and Economics, 40 (1-3), 211-229. DOI: 10.2139/ssrn.698701

Ho, J.L., & Kang, F. (2013). Auditor choice and audit fees in family firms: Evidence from S&P 1500. Auditing: A Journal of Practice & Theory, 32(4), 71-93. DOI: 10.2308/ajpt-50533

Huque, A.S., & Rahman, M.T. (2003). From domination to alliance: shifting strategies and accumulation of power by the bureaucracy in Bangladesh. Public Organization Review: A Global Journal, 3, 403-418. https://doi.org/10.1023/B:PORJ.0000004817.33343.a5

ICMAB (2017). Interview with Mr. C.Q.K. Mustaq Ahmed, Chairman of the Financial Reporting Council (FRC), Government of Bangladesh. The Cost and Management, 45(5), 9-11. Retrieved on 13 November 2018 from http://www.icmab.org.bd/wp-content/uploads/2019/12/Journal-Sept.-Oct-2017.pdf

Islam, M.M. (2013). The Toxic Politics of Bangladesh: A Bipolar Competitive Neopatrimonial State?. Asian Journal of Political Science, 21(2), 148-168. https://doi.org/10.1080/02185377.2013.823799

Ismail, H., & Theng, U.C. (2015). Auditing the auditors: has the establishment of Audit Oversight Board affected audit quality?. International Journal of Economics and Financial Issues, 5(Special), 360-365.

Jahan, F., & Shahan, A.M. (2008). Politics-bureaucracy relationship in Bangladesh: consequences for the Public Service Commission. Public Organiz Review, 8, 307-328. https://doi.org/10.1007/s11115-008-0061-8

Karim, A.W., & Zijl, T.V. (2013). Efficiency and opportunism in auditor quality choice in emerging audit services market: The case of Bangladesh. International Journal of Accounting and Information Management, 21(3), 241-156. https://doi.org/10.1108/IJAIM-08-2011-0027

Kleinman, G., Lin, B.B., & Palmon, D. (2014). Audit quality: a cross-national comparison of audit regulatory regimes. Journal of Accounting, Auditing & Finance, 29(1), 61-87. DOI: 10.1177/0148558X13516127

Kumar, A. (2018). Auditing the auditors: an Indian perspective. International Journal of Accounting and Financial Reporting, 8(40), 384-398. https://doi.org/10.5296/ijafr.v8i4.13920

Lamoreaux, P.T. (2016). Does PCAOB inspection access improve audit quality? An examination of foreign firms listed in the United States. Journal of Accounting and Economics, 61(2-3), 313-337. https://doi.org/10.1016/j.jacceco.2016.02.001

Lewis, D. (2011). Bangladesh: Politics, economy, and civil society. New York: Cambridge University Press. https://doi.org/10.1080/00220388.2014.893678

Llewellyn, S. (1998). Boundary work, costing and caring in the social services. Accounting, Organizations and Society, 23(1), 23-47. https://doi.org/10.1016/S0361-3682(96)00036-0

O’donell, G.A. (1994). Delegative Democracy. Journal of Democracy, 5(1), 55-69. DOI: 10.1353/jod.1994.0010

OECD (2019). Auditing and Accounting in Southeast Asia- OECD. Retrieved on 17 May 2020 from https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.oecd.org/corporate/ca/Auditing-Accounting-Asia-2019.pdf&ved=2ahUKEwjb95PX0sPrAhWRX3wKHfuEAjoQFjAAegQIARAB&usg=AOvVaw23igIRu3rpHwgB8691M3sI.

Oliver, C. (1991). Strategic responses to institutional processes. Academy of Management Review, 16(1), 145–179.

Parry, M., & Khan, F.A. (1984). A survey of published accounts in Bangladesh. ICAB and UN Department of Technical Co-operation for Development, Dhaka and New York, NY.

Rajib, S.U., Adhikari, P., Hoque, M., & Akter, M. (2019). Institutionalisation of the Cash Basis International Public Sector Accounting Standard in the Central Government of Bangladesh: An example of delay and resistance. Journal of Accounting in Emerging Economies, 9(1), 28-50. https://doi.org/10.1108/JAEE-10-2017-0096

Rajib, S. U., Kumara, E. S., & Fan, L. (2016). Investigating the Failure of State-Owned Enterprises (SOEs) of an Emerging Economy: A Comparative Case Study. Studies in Business and Economics, 11(2),115-129. DOI: 10.1515/sbe-2016-0026

Riaz, A. (2014). A Crisis of Democracy in Bangladesh. Current History, 112(751), 150-156. DOI: 10.1525/curh.2014.113.762.150

Sakib, N.H. (2020). Institutional Isomorphism of Anti-corruption Agency: The Case of Anti-corruption Commission in Bangladesh. Chinese Political Science Review, 5, 222-252. https://doi.org/10.1007/s41111-020-00143-4

Rudra, N. (2007). Welfare states in developing countries: Unique or universal?. The Journal of Politics, 69(2), 378- 396. doi. https://doi.org/10.1111/j.1468-2508.2007.00538.x

Sakib, N.H. (2019). One size does not fit all: an analysis of the corruption preventative approach of the Anti-Corruption Commission (ACC) in Bangladesh. Asian Journal of Political Science, 27(2), 211–234. https://doi.org/10.1080/02185377.2019.1642773

Sen, D.K., & Bala, S.K. (2002). Tax audit: Bangladesh panorama. Managerial Auditing Journal, 17(8), 464-477. https://doi.org/10.1108/02686900210444806

Siddiqui, J. (2010). Development of corporate governance regulations: the case of an emerging economy. Journal of Business Ethics, 91(2), 253-274. https://doi.org/10.1007/s10551-009-0082-4

Siddiqui, J., Nasreen, T., & Choudhury-Leema, A. (2009). The audit expectation gap and the role of audit education: The case of an emerging economy. Managerial Auditing Journal, 24, 564-583. https://doi.org/10.1108/02686900910966530

Siddiqui, J., & Podder, J (2002). Effectiveness of bank audit in Bangladesh. Managerial Auditing Journal, 17(8), 502-510. https://doi.org/10.1108/02686900210444833

Siddiqui, J. (2018, February 3). Making Financial Reporting Council functional. The Financial Express. Retrieved on 28 May 2018 from https://thefinancialexpress.com.bd/views/making-financial-reporting-council-functional-1517669468.

Sobhan, R. (2004). Structural dimensions of malgovernance in Bangladesh. Economic and Political Weekly, 39(36), 4101-4108. DOI: 10.2307/4415512

The Financial Reporting Act, 2015. Retrieved on 26 May 2019 from https://mof.gov.bd/site/page/7f72f7d3-8572-41e7-bb73-f7fae168a43b/Financial-Reporting-Act-2015

World Bank (2003). Bangladesh- Report on the observance of standards and codes (ROSC): accounting and auditing (Unit Report No. 35016-BD), Bangladesh Country Management. Retrieved on 09 January 2021 from https://openknowledge.worldbank.org/bitstream/handle/10986/13854/350160BD0Accounting0rosc1aa1bgd.pdf?sequence=1&isAllowed=y

World Bank (2015). Bangladesh- Report on the observance of standards and codes (ROSC): accounting and auditing (Unit Report No. 96307-BD), Bangladesh Country Management. Retrieved on 12 February 2022 from https://openknowledge.worldbank.org/bitstream/handle/10986/25727/96307-ROSC-P149852-OUO-9-Box391449B-ACS.pdf?sequence=1&isAllowed=y




DOI: http://doi.org/10.33312/ijar.670

Refbacks

  • There are currently no refbacks.


-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Indonesian Journal of Accounting Research (IJAR)

Ikatan Akuntan Indonesia
Graha Akuntan, Jl. Sindanglaya No.1 Menteng, Jakarta Pusat 10310

Editorial Secretariat

CP : Farinza
Phone  : +62 812-2848-2829
Fax    : +62 274 524606
Website: http://ijar-iaikapd.or.id/
Email  : sekretariat@ijar-iaikapd.or.id

Marketing and Sales Office

CP : Reza Fauzi
Divisi Pelayanan, Keanggotaan dan Mitra IAI.
Grha Akuntan, Jl. Sindanglaya No.1, Menteng.
Telp.021-31904232 Ext.324/321

 

-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ISSN 2086-6887 (Print)
ISSN 2655 - 1748 (online)

-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

 

----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------