The credibility of audit reports is largely questioned after the Irish banking crisis. In the face of intense public scrutiny, what is the response of the Big Four? Neil J. Dunne, Trinity Business School, Niamh M. Brennan, University College Dublin, and Collette E. Kirwan, Waterford Institute of Technology, explore.
Blameless and Powerless: How the Big Four react under public scrutiny. By Neil J. Dunne, Niamh M. Brennan, and Collette E. Kirwan
Threatened
The collapse of Irish banks in 2008 and a bail-out of Ireland by the International Monetary Fund and the European Union in 2010 brought Big Four auditors to the center of public attention. How could these ‘bright young professionals’, as they describe themselves, not have seen the warning signs? How could bank auditors have issued the banks with clean audit reports? And why did Big Four auditors not anticipate what was later called ‘the world’s worst crisis since the 1930s (1)?
The Irish parliament established a banking inquiry to investigate these and other issues, the Banking Inquiry summonsing eight Big Four partners and former partners to appear and answer questions from Inquiry members. This presented a big threat to these four firms, which have an oligopoly, dominating the highly lucrative audit and allied financial advisory market. The Big Four audit almost all publicly listed companies worldwide. The threat was real – that parliamentarians could introduce legislation adverse to the Big Four’s commercial interests.
As such, it is vital to examine how the Big Four approach and respond to public inquiries such as this, to better understand their beliefs, ambitions and concerns.
Big Four performance
We analyzed how the eight Big Four partners/former partners performed at the Irish Banking Inquiry (2). When put under the spotlight, the Big Four had to engage in a ‘performance’ aimed at convincing their ‘audience’ that they were not to blame for the banking crisis. This phenomenon is called impression management. In our case, the ‘impression managers’, i.e., the “performers”, are the eight partners/former partners, supported by their four firms.
Given the sizeable audit and advisory market at risk, the performers and their firms had real economic incentives to stage a convincing performance, and to use effective impression management strategies so as not to lose their reputation and clients. As the proceedings were streamed online, the performance took place before an audience comprised not only of inquiry members, but also society at large.
Performing the show
Many factors may impact the impressions portrayed during a performance and how an audience perceives the performance and the performers – words spoken, intonation, gestures, the surroundings and props. The words spoken – the script – may have a particularly long-term influence. What is said can be cited, written down and re-posted on Twitter.
Like other performers, the Big Four had a wide range of impression management strategies at their disposal. Impression management strategies can be classified as defensive (used to minimize damage) or assertive (used proactively to enhance image). Our evidence suggests that the Big Four prefer defensive strategies to assertive ones when under scrutiny. They used defensive strategies to explain why they did not or could not prevent the banking crisis. In almost 75% of cases, they tried to justify their actions. Justifications included:
- Restrictive accounting standards limited the Big Four’s power to prevent the banking crisis
- Auditing is a backwards-looking, rules-governed activity, an activity so limited that it tied the Big Four’s hands
- That Irish banks, i.e., their clients, played a role in the banking crisis
- The purpose of audit is not to advise financial institutions on lending risks (i.e., denial of responsibility).
The Big Four created the impression of auditors as blameless and powerless victims – narrow, mechanical, well-meaning, but helpless. Our findings indicate that the Big Four conveyed four impressions:
- Their hands are clean (i.e., they are not to blame for the banking crisis)
- Their hands were tied (i.e., they were powerless to prevent the banking crisis)
- Their work was good, and
- Their intentions are good.
The Big Four never apologized. All four firms denied any responsibility for the banking crisis. Rather, they explained why the banking crisis, even though it occurred, must be attributed to someone or something else.
Boring beancounter persona
The Big Four often promote themselves as independent ‘bright young professionals’. But faced with public scrutiny, we discovered that they adopt another persona – a passive, circumstances-driven and short-sighted beancounter.
Their performances were arguably successful in that their evidence attracted little attention in the national press. Their evidence often relied on technical jargon, lacking juicy soundbites for the media. It was also striking that, although the Big Four often present themselves as unique and different from each other, their inquiry ‘performance’ deployed similar impression management strategies, frequently to the same extent. Moreover’, the Big Four’s homogeneity may be influenced by context. For example, in the context of ‘defending themselves’ at the public Inquiry, the Big Four’s behavior converged. In more competitive contexts, their behavior might diverge.
Related research:
- Donovan, D., & Murphy, A. E. (2013). The fall of the Celtic Tiger: Ireland and the euro debt crisis. Oxford: Oxford University Press.
- Dunne, N. J et al., Impression management and Big Four auditors: Scrutiny at a public inquiry, Accounting,
Organizations and Society, https://doi.org/10.1016/j.aos.2020.101170
Useful links:
- Link up with Neil J. Dunne, Niamh M. Brennan, and Collette E. Kirwan via LinkedIn
- Browse their academic profiles and research: Neil J. Dunne, Niamh M. Brennan, and Collette E. Kirwan
- Download this article with key takeaways and food for thought sections in the latest CoBS Publishing book – Responsible Finance and Accounting
- Read a related article China: Accounting firm influence on client conduct
- Discover Trinity Business School, Trinity College Dublin.
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