Who is Watching the Watchdog? Organizing Independence in the Audit Society

There is a widespread notion that organizations cannot be trusted. Organizations that audit other organizations claim to have a solution: through audits we may expect transparency of organizations that we assume we cannot fully trust. Auditors’ image as independent parties acting without outside influence, is however threatened by the fact that the auditor has a business relationship with the auditee. This project examines how auditing organizations work to convince relevant stakeholders about their independence.

Background and research questions:

Accounting scholars have for long researched the role of the audit profession in defining and legitimizing independence within financial auditing. However, auditing as well as independence as a cherished value, have spread to other areas, such as quality system certification, eco-labeling and accreditation, where there is no clear audit profession. Instead we find a variety of organizational solutions used to install trust in auditing as an “independent” business. The purpose of this research is to theorize the organization of independence and thereby contribute to literature on the audit society and organization theory on organization outside and among organizations. Two main research questions are addressed:

How is independence organized in various auditing contexts?
How can differences and similarities be explained?

Guiding the search for answers, is the observation that to create independence the auditing organization becomes dependent on other organizations that assure its independence. A paradox follows: independence cannot be fulfilled unless the audit organization becomes dependent on another organization, in turn implying that the construction of independence involves extensive organization among organizations.

Research approach:

In our selection of cases, we have searched for variation between and within various auditing contexts, such as: certifiers working with ISO 9001 certification and organic labeling with accreditation versus civil society organizations performing eco-labeling and LGBTQ certification without accreditation; state (EU) versus non-state accreditors (US) accrediting certifiers; and meta-organizations for certifiers and accreditors at national, regional and international levels. Through interviews, observations of work meetings and document studies, of contemporary and historical audit contexts, we investigate how representatives of various organizations problematize independence, and how perceived problems of independence are managed organizationally.

Key findings:

Independence is socially constructed and context-dependent; what is perceived as independent in one context, may not be so in another, thus there are contradictory principles of organization. Read more in this journal article.
Efforts to organize independence may lead to escalating layers of control following the logic of who is watching the watchdog. Read more in this journal article.
Escalating organization may sometimes generate a global organized order – a “macro-organization” – which may very much resemble a formal organization without being one and where responsibility is diluted. Read more in chapter 9 of this book.

Further information:

The project has been funded by:

Handelsbankens Forskningsstiftelser: Trust for sale. Legitimizing strategies on the Swedish certification market 1970–2020: before and after the EU’s New Approach (P2017-0140:1), 2018–2020.

The Swedish Research Council (VR): Who is watching the watchdog? (2017–01284), 2018–2020.

Handelsbankens Forskningsstiftelser: The (im)possible independence – the practice of accreditation auditing (P2016–0017:1), 2017–2021.

Researchers

Kristina Tamm Hallström is an Associate Professor at the Department of Management and Organization at SSE and Research Director at the Stockholm Centre for Organizational Research (SCORE). She is interested in questions about authority, legitimacy and power within standards-based governance; specifically about the complex organizational structures that often develop around this type of governance with involvement of standard-setting organizations, certification and accreditation organizations, and a number of meta-organizations – all connected and ordered through various forms of organization.

Cecilia Fredriksson is a PhD Student at the Department of Management and Organization and an Affiliated Researcher at the Stockholm Centre for Organizational Research (SCORE). Her research interests revolve around centralized homogenization and harmonization efforts (from e.g. the EU) and how organizations deal with such efforts while preserving their autonomy, particularly in the context of accreditation and similar control functions.

External researchers involved in the project:

Professor Nils Brunsson
Uppsala University

Postdoc Ingrid Gustafsson
Stanford University

Associate Professor Martin Gustavsson
Stockholm University