Organizational Learning: The Role of Third Party Auditors in Building Compliance and Enforcement Capability

• DOI: http://doi.org/10.1111/ijau.12026
• Published date: 01 November 2014
• Date: 01 November 2014
• Author: Christopher Walker

Organizational Learning: The Role of Third Party Auditors in Building

Compliance and Enforcement Capability

Christopher Walker

University of New South Wales

Effective compliance programs rely on firms and regulators being engaged in a continuous process of interaction

involving the exchange of information, learning and adjustment. This paper examines the contribution of third

party auditors to organizational learning that occurs within the context of a unique compliance program in the

Australian trucking sector. While not always self-evident, this study finds that auditors can be important

contributors to the level of organizational learning that occurs within regulatory programs, both enhancing the

compliance capability of firms as well as broadening enforcement options for regulators. Drawingfrom interviews

with industry participants, this paper examines how to engage auditors and the audit function under voluntary

compliance schemes to further enhance organizational learning around key compliance objectives. Such an

approach is considered particularly pertinent in an environment where regulatory agencies continue to restrain

their involvement in direct command regulation and promote self-regulation and third party review processes as

supplementary strategies.

Key words: Organizational learning, compliance programs, voluntary self-regulation, truck industry, audit

INTRODUCTION

This paper aims to examine the role of third party

auditors and their contribution to organizationallearning

that occurs through participation in regulatory programs.

The analysis draws on a qualitative studythat investigates

the experiences and understandings of auditors, firms,

industry associations and regulators involved in a

voluntary compliance program in theAustralian trucking

sector. The primary research question addressed in this

paper is: What role do auditors and the audit function

play in contributing to the learning processes of firms as

they engage in the tasks of self-assessment and

self-evaluation? The interest here is on how regulatory

programs might be structured to more purposefullydraw

on the role of third party auditors to accelerate and

formalize the learning function within compliance

programs. The relationshipbetween audit, regulation and

learning is not immediately self-evident; however, the

evidence from this study suggests auditors do play an

important role in facilitating organizational learning

around regulatory obligations, enhancing the compliance

capability of firms. This appears particularly relevant in

sectors like trucking that are dominated by small and

medium-sized enterprises (SMEs) that generally face

resource constraints limiting their ability to investigate

and consider innovative responses to regulatory

requirements. Auditors are also an important source of

knowledge and information that can be drawn on by

inspectors and regulatory managers to help better

understand how regulatory requirements impact on firm

behaviour. Engagement with auditors helps broaden and

deepen the compliance influence of regulatory programs,

enabling regulators to extend their reach in a cost-

effective manner. Neoliberal influences and broader

demands for austerity measures continue to restrain the

involvement of the state in direct inspection and

command regulation and so this paper asks if a focus on

organizational learning under compliance programs, and

the contribution that third party auditors may make

towards this process, is a cost-effective option for

regulatory agencies as they endeavour to build and

monitor the compliance capability of industries?

This paper is structured into seven sections. Following

this introduction there is a brief review of the literature

that examines organizational learning, how this process

can be observed within regulatory systems and the role of

audits in this process. Here, theoretical explanations of

organizational learning and regulation are linked with

audits and their function within compliance programs.

While not essentially new in practice, conceptual

frameworks for understanding organizational learning

within the context of self-regulatory compliance

programs and audits have only received limited attention

in the literature (see, e.g., Parker, 2002; Mills & Reiss,

2013) and this discussion aims to more explicitly

highlight the relationships. In discussing the literature

the research objectives of this study are further clarified.

The third section details the research methodology, the

fourth provides an overview of the regulatory program

under analysis and the fifth presents the qualitative

findings and an analysis of the data. The sixth section

provides suggestions on what might be done to help

improve compliance and regulatory practice by

promoting learning and making more effective use of the

auditing contribution and conclusions are drawn in the

final section.

ORGANIZATIONAL LEARNING,

REGULATION AND AUDITS: A BRIEF

LITERATURE REVIEW

The management and organization literature identifies

knowledge, learning and innovation as central to the

success of contemporary organizations (Kennedy &

Burford, 2013, pp. 158–9). Acquiring information and

learning new ways of doing things is an important

function of organizational practice. Organizations are

absorptive and have a capacity to recognize, assimilate

and exploit new knowledge and the extent to which this

occurs is significantly shaped by organizationalculture. A

Correspondence to: School of Social Sciences, Facultyof Arts and Social

Sciences, University of New South Wales,Sydney, NSW 2052, Australia.

Email: c.walker@unsw.edu.au

International Journal of Auditing doi:10.1111/ijau.12026

Int. J. Audit. 18: 213–222 (2014)

© 2014 John Wiley & Sons Ltd ISSN 1090-6738