Lost in Translation? An Exploratory Analysis of Auditors’ Perceptions of the Firms’ Tone at the Top

Abstract

This study examines public accounting firms’ “tone at the top” with respect to audit quality initiatives from the perspectives of both firm leaders (those who set the tone) and engagement level auditors. Our primary objective is to investigate whether, and to what extent, the tone at the top from leadership regarding audit quality is internalized by engagement auditors as it filters through the firm and the effectiveness of tone at the top communication in conveying the tone throughout the organization. Specifically, we (1) solicit the perceptions of audit firm culture and leadership from the perspectives of audit personnel at the partner and non-partner levels, (2) assess how firm leaders communicate tone at the top through formal and informal communications, and (3) examine the firm work environment and its relation to perceived tone at the top. We employ semi-structured interviews to address our research questions. Participants are from 12 regional and local public accounting firms that audit primarily non-public entities (although some of the firms are also registered with the PCAOB). Each firm provided one audit partner who is considered a firm leader, plus one auditor at rank below partner, for a total of 24 participants. Results indicate that although most firms characterize their tone as being strongly employee- or team-focused (9 of 12 firms in our sample), firm leaders’ communication with and support of employees varies across firms. In addition, firms focus on innovation or other values, such as superior client service. Our results have implications for firms, regulators and academics who are interested in examining the link between tone at the top and audit quality.