The Construction of a Whistle‐Blowing Protocol for Audit Organisations: A Four‐Stage Participatory Approach

• Date: 01 March 2016
• Author: Mohammad Hudaib,Philmore Alleyne,Roszaini Haniffa
• Published date: 01 March 2016
• DOI: http://doi.org/10.1111/ijau.12058

The Construction of a Whistle-Blowing Protocol for Audit Organisations: A

Four-Stage Participatory Approach

Philmore Alleyne,1Roszaini Haniffa2and Mohammad Hudaib3

1University of the West Indies

2Heriot-Watt University

3University of Glasgow

Although the laws and professional codes encourage whistle-blowing, there is a lack of effective arrangements to

guide external auditors on how to blow the whistle upon discovery of audit-related wrongdoing committed by

audit colleagues. Using a four-stage participatory research method, we explore the professional judgement and

decision-making process that external auditors go through as well as factors influencing their decisions to report

wrongdoing by colleagues. The consensus results from the interviews conducted enable us to construct a

whistle-blowing protocol that can be adopted in audit organisations and the profession.

Key words: Whistle-blowing, participatory research method, decision-making framework, ethically decoupled

organisations, ethically transformed organisations, psychology of professional judgement

INTRODUCTION

One of the hallmarks of the audit profession is

commitment to the ethical code of conduct (e.g., IFACand

ICAEW) and performance of duties with due care, skill

and independence to add value in protecting the interest

of shareholders and other stakeholders (Porter, Simon &

Hatherly, 2008). The numerous corporate scandals and

major audit failures in recent years have raised public

concerns on the statutory roleof external auditors and the

need for greater accountability by audit organisations

(Aguilera, 2005; Alleyne & Howard, 2005; Sikka, 2009;

Maroun & Gowar, 2013). Following those major events,

the audit profession experienced a crisis in public

confidence (Elias, 2006) as trust in the integrity of auditors

was shaken, and regaining the public’s trust will take a

‘gigantic effort’ on the part of the audit profession (Kirk,

2005). The actions of two noteworthy whistle-blowers,

Sherron Watkins in Enron and Cynthia Cooper in

WorldCom, who emerged as Time Magazine’s 2002

persons of the year (Lacayo & Ripley, 2002; Boyce, 2014)

are highly regarded as moral exemplars for accountants

who act in the public interest.

As in other organisations, external auditors may

observe violations of workplace behaviour and may at

some point in their careers face work-related professional

and ethical issues. Based on a survey of practising audit

staff, Taylor, Curtis and Chui (2012) find the most

common wrongdoings to be audit-related issues such as

insufficient audit evidence, inadequate documentation

and review, violations of the US generally accepted

auditing standards (GAAS) and the US generally

accepted accounting principles (GAAP), truncating of

small samples, false or premature sign-offs, failure to do

adequate research, and under-reporting of time. Prior

research has also revealed that wrongdoing in an audit

environment includes accepting weak client explanations

and unacceptable performance of audit work (Kelley &

Margheim, 1990), under-reporting audit time when faced

with management pressures, signing off of misleading

accounts (Ponemon, 1992; Akers & Eaton, 2003) and

fraudulent financial reporting (Arens, Elder & Beasley,

2011). Despite the auditing profession providing

guidance on how to deal with wrongdoing and the audit

organisations establishing appropriate channels for audit

staff to report wrongdoing (whistle-blowing), the recent

financial crisis has raised further concerns on the silence

of external auditors in protecting the public interest.

Although prior studies have highlighted factors

influencing auditors to blow the whistle, they are mostly

conceptual studies and are not based on auditors’ own

views (e.g., Near & Miceli, 1985; Hooks, Kaplan &

Schultz, 1994; Alleyne, Hudaib & Pike, 2013). For

instance, Near and Miceli (1995) propose a theoretical

model identifying five potential predictors, namely

characteristics of the whistle-blower, the complaint

recipient, the wrongdoer, the wrongdoing and the

organisation, that may result in the cessation of

wrongdoing. However, their proposed model fails to

consider the implications of individual and situational

variables and also assumes that all other conditions

remain stable, so that the effects of other variables are

controlled. Prior empirical studies, such as those of

Seifert et al. (2010) and Soni, Maroun and Padia (2015),

only reveal the determinants of whistle-blowing

intentions. In reality, auditors go through various stages

of the decision-making process and are influenced by

different factors at each stage of the process before taking

(or not) action.

Hence, in this paper, we seek to advance the ongoing

debate on whistle-blowing within audit organisations by

focusing our attention on exploring the decision-making

process, and examining factors influencing external

auditors’ judgements at the different stages of the

process using participatory methodology to enable the

construction of a whistle-blowing protocol based on a

consensus view. In developing the initial framework, we

employ Gibbins’ (1984) psychology of professional

judgement (PPJ) propositions and address the external

auditor’s everydayenvironment in the context of Weaver,

Trevino and Cochran (1999a, 1999b) and Johnson’s

(2007) typology of ethically decoupled versus ethically

transformed organisations. Our framework considers the

Correspondence to: Philmore Alleyne, Senior Lecturer in Accounting,

Department of Management Studies, University of the West Indies,

Cave Hill Campus, Barbados, West Indies. Email: philmore.alleyne

@cavehill.uwi.edu

International Journal of Auditing doi:10.1111/ijau.12058

Int. J. Audit.

© 2015 John Wiley & Sons Ltd ISSN 1090-6738

20: 72 86 (2016)

–