cultural influence on auditing standard setting

Audit and Assurance Conference – 6-7 May 2021 1

Cultural Influence on Auditing Standard Setting

Isabelle Fabioux, University of Angers (Granem UMR49),

[email protected]

Abstract

The purpose of this paper is to identify the cultural influence on the way auditing standards are

set. The analysis builds on an adaptation of the model developed by Gray (1988) and uses an

innovative and qualitative research based on interviews, participant observation and

documentary study. It takes the French context as a case study. The paper shows that French

auditing standard setting is quite confidential and characterized by a strong level of legalism

even if it involves the participation of audit practitioners. The process leads to principles-based

standards which objective are to facilitate a uniform audit practice. This investigation provides

new insights to further understand the activity of auditing standard setting, which is little known

to date.

Key words: standard-setting, audit regulation, culture

Introduction

This paper examines one aspect of the regulation of audit – the auditing standard setting process

by which auditing standards are developed. This aspect is particularly important as auditing

standards contribute to audit quality by defining the procedures to be performed by auditors to

ensure that financial statements are not materially misstated. Thus, these standards provide a

basis for the security of financial information and the trust of users in such information.


The paper deals with the cultural influence: how does culture affect the setting of auditing

standards? This perspective is taken to emphasize an aspect which is underrated in prior

literature and to further a complementary understanding of the set of standards issued. Indeed,

despite the interest this issue attracts, few studies have examined the auditing standard setting

process. So, this area remains little-known today, especially in comparison with the accounting

standard setting process.

Our paper examines not only the auditing standard setting process in itself (preparation,

adoption, approval of draft standards), but also the framework within which this process

operates (legislation and government involvement, implication of the audit profession and/or

professional bodies, role of regulatory authorities).

The objective here is to offer a further perspective of analysis, investigating the cultural

influence. This adds to the literature on auditing standard setting by focusing on a field which

has been little explored and highlights the need for a cultural understanding of the

characteristics of standard setting. This understanding will contribute to a consistent application

of standards and therefore to audit quality and public interest. It can help auditors to design and

implement appropriately their audit work, with a better understanding of the objectives, the

construction and the principles attached to auditing standards.

With this aim, we built an analytical framework for auditing standard setting using the French

context as a basis. First, France has been chosen because research is scarce. Indeed, the majority

of studies take place in an Anglo-Saxon environment. In addition, in France national auditing

standards are maintained. This context allowed us to perform a study on the setting of auditing

standards, rather than examining the adoption of the international standards on auditing (ISAs)

issued by the International Auditing and Assurance Standards Board (IAASB) as other

countries do. Considering that, we adapted the accounting values defined by Gray (1988) to

suggest four subcultural values for auditing standard setting, in a qualitative and innovative

way. This analysis is based on three types of data: interviews, participant observation and

documentary study. We followed an interpretative methodology to obtain an in-depth

understanding.

The remainder of this paper is organized as follows. The first part provides a background on

the research, considering cultural aspects and the French context, with the presentation of the

research methodology. The second part presents the adaptation of Gray (1988) model for the

purpose of cultural influence on auditing standard setting. The third part shows the cultural


characteristics of the French process. Contributions and future research are presented in

conclusion.

1. Towards a cultural approach of French auditing standard-setting

A cultural investigation

The distinct "made in France" appears to come out in many fields, both in the artistic and

audiovisual fields (Chaudron 2011), in food industry (Meunier 2000), in medicine,

peacekeeping, aviation and environment (Cowperthwaite 2010) to give deliberately few

heterogeneous examples.

Cowperthwaite (2010) studied the influence of national culture on the setting and consistent

application of international standards in four spheres of professional activity: medicine,

peacekeeping, aviation and the environment. This review showed that the effect of culture on

the implementation of standards is both pervasive and significant. He pointed out that failure to

understand and take cultural factors into account has resulted in plane crashes, peacekeeping

failures, poor health care, and species extinction (McMahon 2004; Gladwell 2008; Rubinstein

1989; Moran 2006). He took advantage of these analyzes to draw attention to possible

difficulties in the implementation of international auditing standards which are expanding

nationally. Thus, the unintended effects of the implementation of international standards in a

given country should not necessarily lead to the conclusion that the standards or the standard

setting process is flawed but that auditors need training to interpret international standards at

the light of their national culture. He then encourages international standard setters to define

the cultural assumptions underlying the standards they produce and to explain them to bodies

responsible for disseminating these standards at the national level in order to promote consistent

application on a global scale.

This study by Cowperthwaite (2010) built on the cultural dimensions highlighted by Hofstede

(1980) to classify national cultural systems, namely distance from power, control over

uncertainty, individualism and masculinity. It is also these dimensions which served as a

foundation for Gray (1988) at the accounting subcultural level. From a review of the literature

and accounting practice, Gray (1988) identified four accounting values directly linked to

cultural values: (1) professionalism versus statutory control, (2) uniformity versus flexibility,

(3) conservatism versus optimism, and (4) secrecy versus transparency. The first book value


served as the basis for Margerison and Moizer (1996) for their comparative European study on

cultural differences with regard to auditor approval. These accounting values linked to the

cultural values of Hofstede (1980) seemed relevant to us to be retained as a conceptual

background to study in an original way the cultural dimension of auditing standard setting. For

this purpose, these four values were converted into four cultural attributes for the analysis of

the French auditing standard setting process.

The French context

The influence of culture also appears to be significant in the field of auditing. In this regard,

Bédard et al. (2001, p. 58) consider that the French specificities are "pretexts for tailor-made

research". Consequently, we developed research in the French context.

Since the European audit reform1 which came into force in 2016, the French auditing standards

(called NEPs for “Normes d’exercice professionnel”) have been prepared by a commission

composed of four statutory auditors and four members of the H3C. After consultation of the

CNCC, standards are adopted by H3C and then promulgated by the Minister of Justice. The

CNCC, Compagnie nationale des commissaires aux comptes is the national professional body.

The H3C, Haut conseil du commissariat aux comptes is the national audit regulator created by

law in 2003 (the “Loi de sécurité financière”).

Research methodology

In this section, we present the methodological approach retained to answer our research

question by specifying the way used for data collection and analysis.

We seek to understand how culture influences standard setting. In consistency with our research

question, we are therefore part of an interpretative epistemological perspective that gives

understanding a privileged status.

Our understanding is based on a qualitative approach, which aims at describing impressions

and to clarify the meaning of the observed elements. For this purpose, we relied on qualitative

data that allow rich and well-founded descriptions and explanations of processes rooted in a

local context.

1 Directive 2014/56/EU of the European Parliament and of the Council of 16 April 2014 amending Directive 2006/43/EC on

statutory audits of annual accounts and consolidated accounts


Qualitative data were collected through three processes: interviews, a documentary study and

participant observation.

In order to understand the standard setting activity that is the subject of our research, we

conducted 27 semi-structured interviews with the various participants: members from the

CNCC, the H3C, the State, audit firms and other stakeholders. For our sample of interviews,

we learned from our state of the art that it would be relevant to integrate permanent staff (Pong

and Whittington 1994; Glover et al., 2009) and representatives of the State (Sikka 2002), rarely

investigated. We then selected people who had been involved for a long time as well as new

people to have their report of astonishment, people active in the process at the moment of

interviews and previous participants, to limit the bias associated with current participants'

withholding speeches.

The documentary study was based on public information on the auditing standard setting (press

releases and annual reports of the CNCC and the H3C) and internal documents from the H3C

(working documents, minutes of meetings…). We also conducted a documentary study from a

professional review (Revue Française de Comptabilité).

In addition, as we were serving as staff in the French standard setting organization, we also

gathered information from participant-observation. As permanent staff, we attended to

meetings and took part in the setting of auditing standards for six years. This participant

observation allowed an in-depth understanding and analysis of the explored subject.

Following Yin’s recommendation (2014, p. 17), we relied "on multiple sources of evidence,

with data needing to converge on a triangulating fashion".

With data collected, we carried out a content analysis using the NVivo software for interviews

and professional articles.

2. Theoretical background and analytical framework

This section aims at presenting the analytical framework used to study cultural influence on

auditing standard setting. The following standard setting subcultural values, derived from Gray

(1988) model, a review of prior literature and standard-setting practice, are offered for

consideration:


Professionalism versus Legalism – a preference for the maintenance of professional self-

regulation or practitioner’s domination as opposed to application of legal requirements or State

intervention.

Principles versus rules – a preference for principles and general requirements as opposed to

more detailed, prescribed rules.

Uniformity versus Flexibility – a preference for setting uniform auditing standards between

audit firms and with regard to the audited entities and the consistent use of such standards over

time as opposed to flexibility to specific contexts.

Secrecy versus Transparency – a preference for confidentiality and the restriction of

information about standard setting only to those who are closely involved with its process as

opposed to a more transparent, open and publicly approach.

Professionalism versus Legalism

This first axis aims at characterizing standard setting through the maintenance of professional

self-regulation or practitioner’s domination as opposed to application of legal requirements or

State intervention.

This axis is derived from the accounting value proposed by Gray (1988, p. 8) named

“Professionalism versus Statutory Control” and defined as a “preference for the exercise of

individual professional judgment and the maintenance of professional self-regulation as

opposed to compliance with prescriptive legal requirements and statutory control”. The

adaptation made has been inspired from one of the modes of regulation in advanced capitalism

classified by Puxty et al. (1987), legalism.

This axis is proposed as a significant standard setting dimension considering the evolution of

auditing standard-setting. Indeed, for a long time, auditing standards have been produced with

a strong presence and even domination of audit firms (Kinney 1986; Sikka 1992, 2002; Casta

and Mikol 1999; Burlaud and Zarlowski 2003; Ramirez 2003, 2009, 2012; Loft et

al. 2006). This predominance was the source of issues about the independence of the standard

setter (Fearnley and Hines 2003) in its composition and also its funding. These participants

have evolved after the financial scandals of the early 2000’s (Carmichael 2014; Hazgui 2015),

with the creation of independent audit regulators (Pochet 2007; Glover et al. 2009).

In addition, as legalism is concerned, previous researchers highlighted the intervention of the

State in the auditing standard setting process. In this regard, Baker et al. (2001) pointed out that


auditing standard setting, which is part of the regulation of statutory auditors, has been

proceeded in the UK through recognized professional bodies, while in France and Germany

quasi-governmental bodies have been established. Following this intention to identify the

different way of setting auditing standards, Bédard et al. (2002) and then Baker et al. (2014)

showed that pressures have resulted in greater legalism in several countries. To go beyond,

Pong and Whittington (1994) studied the development of several standards and addressed the

intervention of Department of Trade and Industry and ministers. They pointed out that the views

of Department of Trade and Industry representatives on the Auditing Practices Committee were

expressed in a personal capacity and were not statements of departmental policy.

Principles versus rules

This second axis aims at classifying standard-setting rather from a preference for principles and

general requirements as opposed to more detailed rules.

This axis has been adapted from the accounting value proposed by Gray (1988, p. 8) named

“Conservatism versus Optimism” and defined as a “preference for a cautious approach to

measurement so as to cope with the uncertainty of future events as opposed to a more optimistic,

laissez-faire, risk-taking approach”.

In Gray's model (1988), this value corresponds to a conservative approach when evaluating

balance sheet items and determining profit and loss. Being attached to an accounting principle

(principle of prudence, also called conservatism in academic research), this value could not be

applied per se to auditing standard setting. However, the definition given by Gray (1988) led us

to explore this cultural attribute in more general terms of conservatism, prudence, anticipation,

details, and optimism. Therefore, it appears to look like the traditional opposition in standard-

setting between principles-based and rules-based standards (Nobes 2005; Alexander et

Jermakowicz 2006; Benston et al. 2006; Jamal et al. 2010; Henderson et O'Brien 2017).

Uniformity versus flexibility

This third axis aims at characterizing standard-setting as a preference for setting uniform

auditing standards between audit firms and with regard to the audited entities and the consistent

use of such standards over time as opposed to flexibility to specific contexts.

This axis comes from an adaptation of the accounting value proposed by Gray (1988, p. 8)

named “Uniformity versus Flexibility” and defined as a “preference for the enforcement of


uniform accounting practices between companies and for the consistent use of such practices

over time as opposed to flexibility in accordance with the perceived circumstances of individual

companies”.

This cultural axis appears relevant considering prior literature in auditing standard setting such

as Ye and Simunic (2013). They developed a theory of interest group preferences over auditing

standards to help explain the setting and evolution of these standards. The authors assume that

audit standards can be set by choosing two properties of standards: their toughness and their

vagueness. The rigor of auditing standards is defined as the level of audit effort required by the

standards and the vagueness of auditing standards is the uncertainty of the levels of audit effort

that can be considered by different parties as being "in compliance" with the auditing standards

and which depends on the wording used in the standards.

Secrecy versus Transparency

This last axis aims at characterizing standard-setting through the preference for confidentiality

and the restriction of information about standard setting only to those who are closely involved

in its process as opposed to a more transparent, open and publicly approach.

This axis is inspired by the accounting value proposed by Gray (1988, p. 8) with the same name

“Secret versus Transparency” and defined as a “preference for confidentiality and the

restriction of disclosure of information about the business only to those who are closely

involved with its management and financing as opposed to a more transparent, open and

publicly accountable approach”.

This would seem to be a significant standard-setting dimension considering the reform in the

standard setting system at international level. Since the reform of IFAC in 2003, the standard-

setting work of the IAASB has been public. This transparency appears through quarterly Board

meetings and semi-annual public Consultative Advisory Group meetings where anyone can

register to attend. We ourselves were able to attend the meeting of the Consultative Advisory

Group which was held in Paris on March 7 and 8, 2016. We were thus able to observe this

transparency with only few short sessions which took place behind closed doors, and which

were presented as such in the meeting program. For these meetings, documents are available in

advance, publicly, on the IAASB's website and the meeting reports are also freely accessible.

In addition to these periodic meetings, intermediate meetings can take place, in the form of

conference calls in order to advance current projects. These projects are punctuated by the due

process which leads to consultation or discussion papers or exposure drafts. The consultation


documents as well as the responses to the consultations and the analysis of the responses are

also made public on the IAASB website.

At national level, Pong and Whittington (1994) focused their case studies on the four main

criticisms leveled against the Auditing Practice Committee (APC) in the United Kingdom,

namely: the slowness of the process, the inadequate quality of work, lack of independence and

consultation and the secrecy of standard setting work. The three selected cases relates to

analytical review, fraud and other irregularities and the audit of insurance companies.

Regarding stakeholder consultation, the APC followed for the three cases examined a due

process but it was noted the low participation of non-auditors, even for the subject of fraud

considered to be a matter of great public interest. Considering transparency, Pong and

Whittington (1994) did not perceive secrecy as a problem, the "loss" of information from the

public only pertaining to the work of the working group focused on drafting and differences of

fairly fine interpretation. However, this led to long periods of development where the public

was not solicited, which could explain the lack of response to consultations. On the other hand,

it could give the impression of a conspiracy by the auditing profession against the public

interest.

3. Findings

In this section the findings associated with the cultural dimensions are presented.

Professionalism versus Legalism

We defined this first axis as the preference for the maintenance of professional self-regulation

or practitioner’s domination as opposed to application of legal requirements or State

intervention.

As highlighted in prior literature, the trend is towards the end of self-regulation. This is the case

in France. Indeed, since 2003, with the Law of financial security (“Loi de sécurité financière”),

the standard setting process is no longer in the sole hands of the profession. As indicated in the

general presentation of the auditing standard setting process in force in France, this legislation

created the French audit regulator, H3C, which has a growing role in standard setting.

The legalistic imprint is present through several characteristics of the French process, its actors

and the auditing standards.


A strong legalism

First of all, let us begin by the actors since we have just talked about H3C.

Independent public authority, the H3C is composed of 14 members, named the Collège. In this

regard, it should be emphasized that: the H3C College is composed of four magistrates,

including the president, magistrate of the Court of Cassation, the president is appointed by a

decree of the President of the French Republic and the members of the H3C are also appointed

by decree. In addition, the duration of the mandate of members is defined by the Commercial

Code. All these elements highlight the legal framework relating to the composition of the H3C.

It should be remembered that the number of magistrates increased from 3 to 4 following the

European audit reform. In addition, the remuneration of members is also strictly governed by a

principle laid down by the Commercial Code. This important legal imprint was also pointed out

by Baker et al. (2014, p. 384), who highlighted that H3C comprises“ magistrates or

representatives of French Government”. These representatives of French Government are a

representative of the Directorate General of the Treasury , the President of the financial markets

authority (“Autorité des marchés financiers – AMF”) and the President of the prudential control

and resolution authority (“Autorité de contrôle prudentiel et de resolution – ACPR”), which

regulate respectively listed entities and bank and insurance entities.

The missions of the H3C are also defined by the Commercial Code. In particular, the H3C

"adopts, under the conditions provided for in Article L. 821-14, the standards relating to the

ethics of statutory auditors, internal quality control and professional practice" (Article L. 821-

1 I. 2 ° Commercial Code). The role of the H3C in the auditing standard setting is specified in

Articles L. 821-1 and L. 821-14 of the Commercial Code. It is of three kinds: a role of standard

initiative, a role of standard preparation through the participation of some of its members in the

Joint Standard Committee responsible for developing the draft standards, and a role of adoption

of standards.

The legal dimension is also felt through the Joint Standard Committee placed with the H3C.

The institutionalization of the Joint Standard Committee is one of the key points of the evolution

of French auditing standard setting following the audit reform. Legality is thus present with a

consultation group which had existed informally since 2006 and which was formally and legally

recognized ten years later, in 2016.


In addition, it appears important to underline that the Professional body that intervenes in the

auditing standard setting process (CNCC) is also linked to legal environment. Indeed, the status,

composition, organization and missions of the CNCC are also set by the Commercial Code.

Besides, it matches with the findings pointed out by Baker et al. (2001, p. 765) who qualified

these type of organizations as “legally established quasi-governmental bodies”.

As an extension to this governmental consideration, we need to highlight the presence of a

Government Commissioner in the French process. Appointed by the Minister of justice, he sits

on the H3C College in an advisory capacity. While its presence is only required by legal and

regulatory texts at the College level, the H3C wanted the Government Commissioner to also

attend meetings of the Standards Committee and the Joint Standard Committee. Indeed, the

presence of the Government Commissioner is perceived as fundamental in the process: "it is a

role which is rather informal but which is essential because it would be counterproductive in

my opinion for there to be a draft of standards which is drawn up. without the representative

of the Government Commissioner being able to intervene and that when it is presented for

approval, there is a problem of compatibility with other standards that arises and that one

refuses to approve for this reason- the. I think this is the main reason that justifies the presence

of the representative of the Government Commissioner within the standards commission, to

ensure that throughout the process, there will be no problem and that the approval finally, I am

not saying that it is something purely formal, but in any case that we avoid major problems at

the homologation level." (interview).

This presence also appears as a means of information for the ministry. In this sense, we can

report the words of Jean-Marc Sauvé, Vice-President of the Council of State during his

intervention of February 11, 2010 on the independent administrative authorities: “The presence

of a government commissioner within the authorities administrative authorities with regulatory

powers, which make it possible to keep the Minister informed of the decisions taken by the

authority and to assert, if necessary, the Government's position, is also a solution which has

been adopted several times by the legislator” (Sauvé 2010). These words make us the link with

the Minister of Justice who intervenes in the process.

First, the Minister of Justice can make a request for the development of a standard. He is thus

one of the prescribers exhaustively listed by law. Secondly, the Minister of Justice intervenes

to bring legal value to the standard adopted by the H3C and make it applicable and enforceable

against third parties. This action is carried out with the approval of the standard.


This is consistent with the observations of Chaudron (2011, p. 17) who underlines among the

cultural origins of the French exception "a heritage resulting from a long French tradition of

public intervention".

The approval by the Minister of justice constitutes the final stage of the standard-setting

process. It must be underlined that this process is defined by law. The different steps presented

(preparation, adoption, promulgation of standards) are prescribed by article L. 821-14 of the

French Commercial Code. The process has evolved by time due to law and regulations

evolutions, mainly the Loi de Sécurité financière in 2003, the transposition into French law of

the European audit reform in 2016.

Finally, let us specify that the standards applicable for statutory auditors are provided for by a

legal text. Indeed, pursuant to the provisions of Article L. 821-13 of the French Commercial

Code, the statutory auditor complies with the standards adopted by the Haut Conseil du

Commissariat aux comptes and approved by a decree of the Minister of justice to achieve its

mission. The legal and regulatory texts therefore set the general framework for the existence of

French auditing standards. Two legal aspects should then be highlighted: one relating to the

scope of standards, the other relating to their regulatory nature.

The scope of standards is delimited by the texts: since June 2016, the standards applicable to

auditors relate to the ethics of auditors, internal quality control and professional practice

(L. 821-1 Commercial Code). This scope stems from the European audit reform with the

transposition into French law of the 2014 audit directive, especially, its article 26.3 : “in the

area of audit practice, independence and internal quality controls of statutory auditors and

audit firms”. To date, only professional practise standards (NEPs) exist.

The regulatory nature of the standards comes from their approval (“homologation”) by a decree

of the Minister of justice. Thus, auditing standards enter into the hierarchy of standards:

"Approval is really giving a legal value to a standard ”(interview). The hierarchy of standards

is defined as "all the components of a legal system (Constitution, law, regulation.) considered

in their coordination and based on the principle that the standard of one degree must respect

and implement that of the higher degree (overall structure metaphorically called pyramid of

standards)" (Cornu 2011). As the NEPs are approved by decree, they fall within the hierarchy

of French standards. Consequently, and by virtue of the principle of legality, the NEPs must

comply with all the rules in force which have a higher force in the hierarchy of standards, or at

least be compatible with these rules. This fundamental principle in setting auditing standards

was also emphasized to us by interview: “the professional practice standard cannot modify the


content of the higher provisions” (interview). Moreover, the evolution of texts may require to

update NEPs to respect the hierarchy of standards. This was the case following the entry into

force of the European audit reform: “the new regulatory framework for auditing leads to a

review of professional standards because they are not more consistent with the rule of law”

(interview).

So, compliance with this principle requires attention throughout the standard-setting process.

In particular, we can make the link here with the legal dimension underlined and the presence

of the Government Commissioner: “the primary role of the representative of the Government

Commissioner in this process is to ensure that the draft standards comply with the French

regulatory framework, and when I say French regulatory framework, I integrate the European

regulatory framework because the European regulatory framework is part of the law applicable

in France […], ensure that the draft standards comply with the standards of higher rank, that

is to say that they respect the principle of hierarchy of standards” (interview). The legal aspect

of the process is therefore major and it can in some cases prevent the finalization of a standard,

as one of the interviewees explained to us: “legalism can block a standard, the exit of a

standard” (interview).

It is important to note that, due to the regulatory value of auditing standards, sanctions can be

taken if they are not respected by statutory auditors. This point was emphasised during our

interviews : “you were on something regulated that they could really be attacked on”. In other

words, auditing standards became instruments of a regulatory nature. The approval by a

ministerial decree makes them enforceable against third parties. At the same time, it also makes

their non-compliance likely to lead to possible disciplinary sanctions and liability of the auditor.

A professional consideration maintained

The position of this first cultural value therefore turns towards legalism rather than

professionalism. However, we consider that the cursor is not at the end of the legalistic value

as professionals are maintained in the standard-setting process, at three levels.

At the level of the Joint Standard Committee, it must not be forgotten that statutory auditors are

present, in equal number as members of the H3C. Indeed, as the H3C College could no longer

be composed of auditors due to European provisions, it was supported to maintain the

consultation group that existed between the CNCC and the H3C for the development of

standards. Current practitioners are therefore effectively present during the development of


draft standards: "the counterpart was to involve practicing professionals via the joint

committee" (interview).

Professionals are also present at the level when the professional body, the CNCC, is consulted.

As indicated, the CNCC is organized by law and regulations. However, it represents statutory

auditors and is composed of representatives of the profession so that the standards could be

applicable in practice.

Professionals are also present through the audit regulator who has two people who have

previously exercised the functions of statutory auditors. They can share their experience of audit

with the other members of the H3C.

Principles versus rules

We defined this second axis as the preference for principles and general requirements as

opposed to more detailed rules.

French principles-based standards

According to this axis, the French auditing standard setting seems to stand more towards

principles system: "The H3C was more on the idea that standards should be written like French

law, that is to say truly based on principles, and that they should not contain examples, than

they should not have a practical dimension. It was really a standard of principle [...] it's true

that one of the things of French law is that it tries to state principles, if you will. When you look

at the Civil Code, it is principles and after the modalities it is more the case law" (interview).

And because of this conception of a general standard based on principles, the standards do not

go into too much detail: "Should a standard be ultra precise or should it set a framework,

guidelines, so it's not very French, let's say basic principles that the professional must follow?

That’s the whole debate, well it’s the whole debate between very detailed standards or more

general standards and I think France until now had taken the option of more general

standards." (interview).

Thus, a difference appears between French standards remaining on principles and Anglo-Saxon

standards, detailed standards with application material: "NEPs have the advantage of being very

principle-based, and in doing so being very adapted to the French spirit” (interview). By their

clarity and conciseness, the NEPs appear more specific to French culture: “in terms of form, it

is very different today since an ISA standard will be between 10 and 40 pages on average while

a NEP is do 2 and a half on average” (interview). This cultural imprint, anchored in a legal


conception of standards, influences the writing of French auditing standards. We make here a

link with the absence of material application in the French standards adapted from international

standards. Indeed, international standards on auditing (ISAs) provide the substance that guides

the preparation of NEPs, but this substance does not include the application material of ISAs.

This absence results from the concept of approved standard and their regulatory nature. The

NEPs remain at the level of principles and the application material is considered as modalities

of application which do not fall under the level of an approved standard. We see here the link

with the previous cultural axis, legalism.

A risk of detailed approch?

In other hand, it was mentioned to us that it is in French culture to want to anticipate, to foresee

whereas Anglo-Saxon culture will rely more on jurisprudence. This anticipation is associated

with a search for security. An illustration can be given with the LSF which was promulgated

by inspiration from Sarbanes Oxley Act (SOX), even if in France there were no financial

scandals which resounded in other countries at the beginning of the 2000s: “there were some

scandals, not in France but in all cases abroad” (interview). This quest for anticipation was

underlined during our interviews and appears to be a point of attention so that it does not become

a pitfall: "The other derives from standardization, and that is very present in France, it is is the

pretension of wanting to settle everything and to say I will settle everything everything

everything and that if you want it is not possible. I mean there are goldsmiths in the field who

have experienced this in an entirely different area and that is the tax legislator. The tax

legislator knows very well that anyway, no matter how subtle his text, the guy who wants to

defraud will always be one step ahead" (interview).

Thus, the cultural tendency to want to foresee everything should not lead to standardize

everything in order to maintain an environment of principles and not to orient itself towards too

much detailed rules which could make the objective disappear: "I think that we can never

foresee all the situations and afterwards I think that if you want to understand a standard you

have to stay on the state of mind because, by wanting to unroll questionnaires, cover all

situations, you arrive at something mechanical which sometimes, curiously enough, will be

completely contrary to the spirit of the text" (interview). It was then recommended by one of

our interviewees to take a measured risk: "Good standard setting, from my point of view, comes

from the confrontation of these two requirements: the requirement to deal with risks, and the

requirement to deal with real risks" (interview). This measured risk-approach appears to be in

line with the confidence that emerges from the French standard setting culture and which allows


to stay at the level of principles: "behind, we really apply what is written. Somewhere we still

have this logic in France of the “good pupil”. If it's written, it must be done, we say it, everyone

checks" (interview).

Uniformity versus flexibility

We defined this third axis as a preference for setting uniform auditing standards between audit

firms and with regard to the audited entities and the consistent use of such standards over time

as opposed to flexibility to specific contexts.

The objective of a uniform audit

The general objective of the standards is to ensure the quality of the audit, to "secure the audit"

(interview) and to establish the reliability of the accounts and the confidence of investors in the

annual and consolidated financial statements and in the information disclosed by the company,

"that is all the same the primary objective" (interview). The framework of professional practice

given by the standards makes it possible to guarantee control and opinion regardless of the

auditors who intervene. The standards thus provide a "standard of practice" (interview) in order

to have a homogeneous application and "to do the same audit in New York, as in London, in

Paris" (interview). And this is also why there is an objective of convergence with international

auditing standards.

The aim is that the same principles apply to statutory auditors, whatever the legal form or the

size of the audited entity they audit or the size of the firm in which they work: "we are obliged

to have standards which are identical , homogeneous, between large companies, small

companies" (interview). This uniformity must, however, be qualified in two respects.

The need for flexibility

First of all, according to NEP 200 on the general principles applicable to audit, the auditor

exercises his professional judgment throughout his work, in particular to decide on the nature,

timing and extent of the audit procedures to be implemented, and to conclude based on audit

evidence. The exercise of professional judgment therefore introduces some flexibility into the

uniform practice of auditing. As a result, "the auditor still has some responsibility for how he

adapts or works, uses the standard in particular circumstances and that logically leads him to

ask himself questions" (interview). This flexibility is perceived as allowing a better application

of the standard through the exercise of professional judgment: "it should not be too much


because the more detail we give, the more it becomes check the box, and less at the limit, we

will intelligently apply a standard" (interview). In addition, regarding the homogeneous

application to all entities, the issue of proportionality has been underlined to us by specifying

that having "proportionate standards is surely the most difficult to do" (interview) but it seems

important to have standards which can be adapted, in practice, to the size of the companies.

Recently, two specific standards have been issued in France relating to small entities. These

standards demonstrate flexibility (proportionality of audit procedures according to the size and

complexity of the entity and its activities) associated with uniformity (audit carried out with the

objective to certify the financial statements regardless of the entity). We should also note, in

sectoral terms, the existence of a specific standard for the certification of the accounts of

national social security bodies (NEP 920). Uniformity is therefore ensured by the same

(reasonable) level of assurance which is achieved by audit procedures adapted to the entities.

Secrecy versus Transparency

We defined this last axis as the preference for confidentiality and the restriction of information

about standard setting only to those who are closely involved in its process as opposed to a

more transparent, open and publicly approach.

A quite secret process

Several characteristics of French standard setting converge towards a confidential process:

meetings and working documents are not public and draft standards are not publicly exposed

through calls for comments. This way of producing standards differ from the international

process. There again, it was explained to us that it was not in the traditions of France: "this is

not our culture, we must admit”(interview). Standards are made " behind closed doors"

(interview) being a matter of a matter of specialists.

At the level of the French process, meetings and working documents of the bodies participating

in French auditing standard setting are not public, whether they concern the standards

commissions or the National Council on the CNCC side, the standards commission or the

College at H3C side, but also the Joint Standard Committee which becomes in the new system

the central body for the development of standards. This is a significant difference from the

international process at the IAASB level. In addition, the lack of public consultation does not

go in the direction of transparency neither. Should the transparency in force internationally be

applied at the French level?


As for the public consultation, the views gathered during our interviews remained on the

restraint . Several elements were highlighted. First of all, it was noted that "the documents that

are presented to the board have already been completed or possibly these are intermediate

stages" (interview). Transparency is therefore not complete at the international level. In

addition, drifts or pitfalls to transparency have been reported: "I don't really like transparency

personally because there again, for everything there is its corollary, the more we talk about

transparency the less it allows to be Express. The more we know that a report will be made

public, the less in a meeting we will really say what we think, say it as we think it is, because

we say to ourselves we will have to put it in the report or we don't say it, it's the worst thing

because I think in the system it is free exchanges that are good so we will self-censor or we will

say it and we will not put it in the account- rendered so anyway it will not be transparent. So

I'm still a little afraid of this transparency aspect" (interview). Thus, a transparency policy

could have the risk of undermining the effectiveness of the standards system. In addition,

beyond transparency per se, its interest remains in question: "Intermediate working documents

frankly I think that would not be of great use but would there be other elements needed? I'm not

sure we can reason in the same way because, we are still very constrained by the legal

framework in which we work. The joint committee is a committee of the H3C. The H3C is a

regulatory authority. The IAASB isn't that at all, it's a private standard-setter, so I'm not sure

how to qualify it, funded by a certain number of stakeholders and therefore we are not at all on

the same level if I may say so, on the same type of organ" (interview).

Tentatives of transparency

However, the cursor does not appear to be positioned entirely at the end of the cultural attribute

of secrecy. Communications are indeed made about the standard setting work and several

illustrations can attest about it. In this context, we will provide three examples of a

complementary nature and relating to the different actors involved in the standard setting

process. Historically, the CNCC regularly communicates on the standard-setting work in

progress or carried out, through publications or conferences. As such, we have been able to

attend, on several occasions, the Assises of the CNCC as well as the EIP Forums organized by

the CNCC. However, communication to people outside the profession remains limited, as

evidenced for example by the access reserved to the profession of all the CNCC guidance. Since

its creation, the H3C has also carried out communications. These take place through

participation in conferences (CNCC EIP Forums for example), roundtables or public speeches

by its President. In general, however, these communications relate to the overall action of H3C


and are not necessarily dedicated to standard setting. We should nevertheless note the annual

publication of H3C reports which notably develop the standard-setting activity and which

moreover largely fed into our documentary study. The officially constituted Joint Standard

Committee has also shown a willingness to communicate with the publication of its three-year

orientation plan and its annual work program. This communication is relayed on the CNCC and

H3C websites.

Thus, the auditing standard setting in France is relatively confidential and tightened between

the actors involved in the process. This practice appears to be the result of both a culture of

closed doors and also of legal constraints with, for example, the secrecy of the deliberations of

the H3C College, because of its status as an independent public authority: “no College has

public debates” (interview). Some would however be in favor of greater transparency: "In

France we are so in hiding everything that suddenly we are a little bit, we ask ourselves the

question of what would be the impacts if we open this to the public? I always tend to think that

sharing information is an excellent way to unite and have more and more input, wealth,

knowledge, so for me that would not be a problem. I don’t see what is secret in shaping all of

this." (interview).

However, this confidentiality would also stem from the technical aspect inherent in the process,

which leads to interest only a small world. The value of greater transparency thus remained in

doubt during our interviews: "what would it be really useful to externalize? So beyond the

notion of transparency, there I am more about the usefulness of the information made available

to the public in quotes, there is not a lot of things, perhaps notes of text analysis by example,

but it is not the job of the joint committee to outsource that. So it could be ... It's more ultimately

the Company that does it vis-à-vis professionals. What could there be more? Frankly, the

successive versions of the NEP have no interest and you really have to be in the discussions to

understand why such and such a comma has moved, such a phrase has moved, it is still very

detailed" (interview). In addition, transparency relating to the international process is

interpreted by some as a search for legitimacy: "They are so undemocratic that they have to

have that to give the impression of" (interview).


Criteria for evaluation of cultural influence Cultural attributes associated with French

auditing standard setting

Intervention of the State in the process

Process defined by law and regulation

Compulsory and regulatory standards

Intervention of auditors

Professionalism

Yes

Legalism

Yes

Yes

Yes

Search for anticipation and security

Principles-based standards

Wish to standardize everything

Detailed standards with application material

« Good pupil » consideration

Rules

Yes

Principles

Yes

No

No

Yes

Objective of harmonization

Principles-based standards

Importance of Professional judgment

Standards applicable to all contexts

Specific standards

Uniformity

Yes

Yes

Yes

Limited

Flexibility

Yes

Yes

Public meetings

Public documents

Exposition to public consultation

Issuance of standard setting work plan

Communication on standard setting activity

Secrecy

No

No

No

Limited

Transparency

Yes

Table 1: Cultural attributes for French auditing standard setting

Conclusion

This paper focused on the influence of culture on the setting of auditing standards. Although

this topic has not been examined with care attention by the past, auditing standard setting


appears to have a cultural fingerprint. Our paper highlighted the different cultural dimensions

that can be raised, derived from a review of literature and case study.

The “French exception” as it is called testifies of a cultural dimension. The France has a strong

legal culture related to the weight of the State and its historical intervention. It has a culture of

Roman tradition (principles-based) that differs from the Anglo-Saxon culture with standards

based on rules. This difference (rules/principles-based) constitutes a first sub-axis for cultural

dimension and would be relevant for future comparative studies. Adaptation of Gray (1988)'s

preferential attributes allowed for a cultural approach to standard setting under four

vectors: professionalism or legalism, principles or rules, uniformity or flexibility, and finally

secrecy or transparency. We suggested using these four preferential attributes as sub-axes for

the study of cultural influence. This cultural imprint shapes the auditing standard setting process

and may even be the source of national standards with no correspondence in the international

framework but related to national specificities or national law or regulation. For instance, the

promotion of the French joint-audit model has given rise to a NEP relating to the audit

conducted by several auditors (NEP 100).

Given their promulgation by a ministerial vehicle, French auditing standards have a binding

legal value and are part of the hierarchy of texts. Therefore, they must respect the principle of

hierarchy of standards and be compatible with the texts having a higher legal force, whether

national or European. In consistency with the studies carried out by Baker et al. (2001), Bédard

et al. (2002) and Baker et al. (2014), legalism take a prominent place in the auditing standard

setting process with a strong presence of the State (example of the promulgation of standards

in France but also of the presence of a representative of the Government Commissioner at H3C)

and / or govern the functioning of the participants or the standard setting process. The fact that

the participants are prescribed by law gives us a legal legitimacy.

Our theoretical exploration has led us to adapt in an innovative way the accounting values of

Gray (1988) to the auditing standard setting process. Through an interpretive and qualitative

adaptation, we suggested preferential cultural attributes that allow an alternative cultural vision

to be established to the analysis, distinguishing between continental and Anglo-Saxon

approaches, traditions of common law or civil law. This innovation also stands out from the

differentiations which are made between principles-based standards and ules-based standards.

In addition to this theoretical contribution, our research has a managerial contribution. It

provides new insights on the auditing standard setting process and importance of considering

cultural factors to understand the objective of standards. It is also important for statutory


auditors to apply adequately standards when they perform their audit. Thus, our research

contributes to audit quality and public interest.

Our proposal also opens future avenues of research. Indeed, the proposed analytical framework

could be implemented in other contexts (other countries or other areas of standard setting) or

for a comparison objective.

References

Alexander, D., & Jermakowicz, E. (2006). A true and fair view of the principles/rules debate. Abacus,

42(2), 132-164.

Baker, C. R., Bédard, J., Prat dit Hauret, C. (2014). The regulation of statutory auditing: an institutional

theory approach. Managerial Auditing Journal 29 (5): 371-394.

Baker, C. R., Mikol, A., Quick, R. (2001). Regulation of the statutory auditor in the European Union: A

comparative survey of the United Kingdom, France and Germany. European Accounting Review 10

(4): 763-786.

Bédard, J., Baker, R. C., Prat dit Hauret, C. (2002). La réglementation de l’audit : une comparaison entre

le Canada, les États-Unis et la France. Comptabilité - Contrôle – Audit 8 (3): 139-168.

Bédard, J., Gonthier-Besacier, N., Richard, C. (2001). Quelques voies de recherche françaises en audit.

In Faire de la recherche en comptabilité financière (Eds, Dumontier, P., Teller, R.). FNEGE, Paris:

Vuibert, 55-83.

Benston, G. J., Bromwich, M., Wagenhofer, A. (2006). Principles‐versus rules‐based accounting

standards: the FASB's standard setting strategy. Abacus 42(2): 165-188.

Burlaud, A., Zarlowski, P. (2003). Crise de confiance et normalisation. Entretien avec René Ricol. Revue

française de gestion 147 (6): 145-148.

Carmichael, D. R. (2014). Reflections on the Establishment of the PCAOB and Its Audit Standard-

Setting Role. Accounting Horizons 28 (4): 901–915.

Casta, J. J., Mikol, A. (1999). Vingt ans d’audit : de la révision des comptes aux activités multiservices.

Comptabilité - Contrôle - Audit 5 (3): 107-121.

Chaudron, M. (2011). L’exception culturelle, une passion française ? Eléments pour une histoire

culturelle comparée. Paris: Harmattan.

Cornu, G. (2011). Vocabulaire juridique. Association Henri Capitant, Paris: Presses Universitaires de

France.


Cowperthwaite, P. (2010). Culture Matters: How Our Culture Affects the Audit. Accounting

Perspectives 9 (3): 175 – 215.

Fearnley, S., Hines, T. (2003). The regulatory framework for financial reporting and auditing in the

United Kingdom: the present position and impending changes. The International Journal of

Accounting 38: 215–233.

Gladwell, M. (2008). Outliers: The story of success. New York: Little, Brown.

Glover, S. M., Prawitt, D. F., Taylor, M. H. (2009). Audit Standard Setting and Inspection for U.S.

Public Companies: A Critical Assessment and Recommendations for Fundamental Change.

Accounting Horizons 23 (2): 221-237.

Gray, S. J. (1988). Towards a Theory of Cultural Influence on the Development of Accounting Systems

Internationally. Abacus 24 (1): 1-15.

Hazgui, M. (2015). Dynamique de pouvoir dans l’espace régulatoire de l’audit légal en France (2003-

2012). Comptabilité - Contrôle - Audit 21 (1): 11-43.

Henderson, D., O’Brien, P. C. (2017). The standard-setters’ toolkit: can principles prevail over bright

lines?. Review of Accounting Studies 22(2): 644-676.

Hofstede, G. (1980). Culture’s Consequences: International Differences in Work-Related Values.

London: Sage.

Jamal, K., Bloomfield, R., Christensen, T. E., Colson, R. H., Moehrle, S., Ohlson, J., Penman, S., Stober,

T., Sunder, S., Watts, R. L. (2010). A perspective on the Canadian Accounting Standards Board

exposure draft on generally accepted accounting principles for private enterprises. Accounting

Horizons 24(1): 129-137.

Kinney Jr, W. R. (1986). Audit Technology and Preferences for Auditing Standards. Journal of

Accounting and Economics 8: 73-89.

Loft A, Humphrey C., Turley S. (2006). In pursuit of global regulation: changing governance and

accountability structures at the International Federation of Accountants (IFAC). Accounting,

Auditing and Accountability Journal 19 (3): 428-451.

Margerison, J., Moizer, P. (1996). Auditor licensing in the European Union: a comparative study based

on cultural differences. European Accounting Review 5 (1): 29-56.

McMahon, G. T. (2004). Coming to America: International medical graduates in the United States. New

England Journal of Medicine 350 (24): 2435-2437.

Meunier, S. (2000). The French exception. Foreign Affairs 79 (4): 104-116.

Moran, E. F. (2006). People and nature: An introduction to human ecological relations. Malden, MA:

Wiley.

Nobes, C. W. (2005). Rules-based standards and the lack of principles in accounting. Accounting

Horizons 19(1): 25-34.

Pochet C. (2007). La régulation de la profession d’auditeur en France et aux Etats-Unis : Une étude

comparée du H3C et du PCAOB. Revue Française de Gouvernance d’Entreprise 1: 93-111.


Pong, C., Whittington, G. (1994). The Working of the Auditing Practices Committee – Three Case

Studies. Accounting and Business Research 94 (24): 157-175.

Puxty, A. G., Willmott, H. C., Cooper, D. J., Lowe, T. (1987). Modes of Regulation in Advanced

Capitalism: Locating Accountancy in Four Countries. Accounting, Organizations and Society 12 (3):

273-291.

Ramirez, C. (2003). Du commissariat aux comptes à l’audit : les Big 4 et la profession comptable depuis

1970. Actes de la recherche en sciences sociales 146/147: 62-79.

Ramirez, C. (2009). Sociologie de la comptabilité. In Encyclopédie de Comptabilité, Contrôle de

Gestion et Audit (Ed, Colasse, B.). 2ème édition, Paris: Economica, 1269-1277.

Ramirez, C. (2012). How Big Four audit firms control standard setting in accounting and auditing. In

Finance: The Discreet Regulator: How Financial Activities Shape and Transform the World (Eds,

Huault, I., Richard, C.). London: Palgrave Macmillan, 40-59.

Rubinstein, R. A. (1989). Culture, international affairs and multilateral peacekeeping. Cultural

Dynamics 2: 41-61.

Sauvé, J. M. (2010). Les autorités administratives indépendantes, Intervention du 11 février 2010 de

Jean-Marc Sauvé, Vice-président du Conseil d’Etat. https://www.conseil-etat.fr/actualites/discours-

et-interventions/les-autorites-administratives-independantes.

Sikka, P. (1992). Audit policy making in the UK: the case of the auditor’s considerations in respect of

going concern. The European Accounting Review 1 (2): 349-92.

Sikka, P. (2002). The politics of restructuring the standard setting bodies: the case of the UK’s auditing

practices board. Accounting Forum 26 (2): 97-125.

Ye, M., Simunic, D. A. (2013). The Economics of Setting Auditing Standards. Contemporary

Accounting Research 30 (3): 1191–1215.

Yin, R. K. (2014). Case Study Research: Design and Methods. 5th edition, London: Sage.

cultural influence on auditing standard setting

Documents