Volume 40, Issue 1, March 2016, Pages 29–44
Institutional formations and the Anglo-Americanization of local auditing practices: The case of Greece
- Department of Business Administration, Athens University of Economics and Business, 76, Patission Street, 104-34 Athens, Greece
- Received 16 April 2015, Revised 11 November 2015, Accepted 14 November 2015, Available online 12 December 2015
Highlights
- •
- Formation of institution of auditing in modern Greece.
- •
- Historical analysis of institutional isomorphism at work.
- •
- Coercive, mimetic and normative processes.
- •
- Anglo-Americanization of local practices.
Abstract
Following
influential studies on the operation of the world economic system and
the development of accounting, this paper synthesizes elements of
political economy and institutional theories to illuminate the processes
which have led to the Anglo-Americanization of local auditing
practices. By focusing on the history of modern Greece, this paper
demonstrates how broader politico-economic ties created the backdrop for
the development of coercive, mimetic and normative processes whose
intertwinement gave rise to a professional cognitive basis and
organizational practices conducive to the dominant Anglo-American
models, long before the emergence of influential international
accountancy organizations.
Keywords
- Institutional formation;
- Isomorphism;
- Auditing profession;
- Anglo-American practices
1. Introduction
In
1975, two years after the establishment of the International Accounting
Standards Committee (IASC), Lord Henry Benson (then Chairman of the
Committee), referring to the internationalization of accounting and
auditing practice, stated: “We will see, during the next five years,
great successes, the effects of which will not make themselves felt
until the year 2000”1.
Indeed, facilitated by the increased globalization of business in the
latter half of the 20th century and the catalytic role of supranational
organizations (such as the International Monetary Fund, International
Federation of Accountants, International Accounting Standards Board and
the International Auditing and Assurance Standards Board) and
politico-economic blocs (such as the European Union), the process of
accounting and auditing standardization has intensified, consolidating
the prominence of Anglo-American institutions at the global level (Arnold, 2009, Arnold, 2012 and Power, 2009). This development has captured the interest of researchers who have, inter alia, investigated the impact of such processes on local institutional settings and regulatory arrangements ( Erlend and Nobes, 2010, Guerreiro et al., 2012, Irvine, 2008, Nobes, 2011 and Nobes and Parker, 2008).
However,
influential scholars underscore the importance of exploring how and why
accounting in different localities ever looked similar in the first
place (Arnold, 2009, Arnold, 2012 and Power, 2009),
suggesting that, “we need to redefine the starting point […] for
understanding the development of financial accounting practice” (Power, 2009, p. 325). Acknowledging that delving into history is a way of enhancing understandings of present developments (Carnegie and Napier, 1996, Jones and Oldroyd, 2009 and Walker, 2008),
this paper focuses on a particular episode in the history of the
institution of auditing by bringing to the fore the development of
auditing in modern Greece. Although Greece has a very long and rich
history as an influential civilization, characterized by varying systems
of economic surveillance and accountability at different historical
times2,
this paper focuses on the period from the early 19th century (when it
actually became an independent state) until the end of the 20th century.
By narrowing down the focus to this relatively recent period, this
paper seeks to make sense of the development of auditing as a modern
practice which has been inextricably intertwined with the development
and predominance of capitalism in the aftermath of the industrial
revolution in Western Europe (Armstrong, 1987, Bryer, 1993 and Chiapello, 2007).
The
history of auditing practice in modern Greece is an important case to
examine for two reasons. First, it shows how close ties with influential
Western countries shaped the development of the local institution and
created the background for a particular pro-Western professional
mentality to prevail with concepts such as “modern”, “rational” and
“effective” to be associated with Western institutions, practices and
operations. Second, by delving into the historical details, this case
demonstrates an important historical complexity. While, influenced by
the German tradition, the state initially incorporated the auditing
profession into its own hierarchical system of regulation3 (Caramanis and Dedoulis, 2011 and Dedoulis and Caramanis, 2007), local professionals introduced and applied Anglo-American standards of practice.
To
illuminate this historical complexity, this paper brings elements of
institutional theory to the fore to shed light upon isomorphic processes
(Albu, Albu, & Alexander, 2014; Dillard et al., 2004 and DiMaggio and Powell, 1983).
It is demonstrated that, throughout the 19th century up until the
aftermath of World War II, the coercive role of the Greek state was
predominant, leading to the establishment of a corporatist body of
auditors in the mid-1950s. However, from the 1960s onwards, mimetic and
normative institutional mechanisms started acquiring a dominant
character within the professional context. The uncertainty that
professionals encountered during the first years of the profession's
operation led them to develop strong educational ties and networks with
Anglo-American professional associations. This, in turn, facilitated the
development of particular professional mentalities and orientations in
Greece long before the emergence of powerful international organizations
and professional bodies which standardized accountancy across the
globe.
This historical analysis is located within the broader political-economy paradigm (Arnold, 2009, Arnold, 2012, Hopwood, 2000 and Power, 2009).
The paper builds upon the premise that modern auditing constitutes an
indispensable component of the institutional arrangements that govern
capitalist economies and the world economy as a whole. It brings to the
fore the role of political and economic interactions between states and
influential organizations in creating the backdrop for the emergence of
certain institutional formations at the local level in the realm of
auditing.
Acknowledging
that, due to institutional constraints, externally-induced accountancy
reforms do not automatically translate into concrete benefits in local
contexts (Caramanis, Dedoulis, & Leventis, 2015),
this paper moves beyond an examination of their effectiveness and
attempts to make sense of the historical processes that have given rise
to the diachronic tendency of imitation which characterizes the
operation of local institutions. This paper extends the critical stream
of literature by providing insights into the simultaneous operation of
institutional mechanisms which set the scene for the development of the
institution of auditing. To this end, it pays particular attention to
illuminating the varying degrees of dominance of coercive, mimetic and
normative influences at different historical times.
The study is organized into the following sections: Section 2 discusses the theoretical framework upon which this study is built. Section 3 sketches the political and economic ties between Western nations, politico-economic blocs and Greece. Section 4
provides insights into the coercive attempts and pressures exerted by
the Greek state which led to the establishment of the corporatist body
of auditors. Sections 5 and 6 present the main empirical material regarding the development of auditing practice in Greece. Section 7 contains the summary and discussion.
2. Theoretical framework
Influential
scholars have demonstrated that financial accounting and auditing are
the outcomes of the dissemination of certain norms and practices through
a global system which has developed over the last two centuries and
significantly intensified in the latter half of the 20th century, as a
result of the increased globalization of business (Arnold, 2009, Arnold, 2012 and Power, 2009).
Underlying this process is argued to be the expansion of a
universalistic commercial culture which has also been at work for the
last two centuries. Power (2009)
suggests that key accounting concepts such as income, expenses, assets
and liabilities circulated and became more highly-rationalized at a
transactional level before they were ever an object of explicit national
interest:
These key features give financial accounting statements in different jurisdictions their ‘family resemblance’ and may even be one of the major global accomplishments of the modern period grounded on centuries of diffusion, adaptation, and mobilization as part of empire building and commercial expansion. Indeed, it is this process of development at the non-nation state level which has enabled and conditioned both the increased formal codification of accounting norms by states and recent discussions about the source of national variation. In short, before formal and explicit standardization institutions for accounting took shape from the mid-twentieth century onwards, the key elements of financial accounting had been established as part of a practical and universalistic commercial culture (p. 325).
Hopwood (2000)
attributes this process to the relentless expansion of Western empires
and markets. He maintains that accounting practices and practitioners
have travelled along market routes and followed the expansionist
tendencies of the West: “Much of the contemporary landscape of
accounting reflects these tendencies […]. They also point to
continuities between the past and present as far as the histories of
accounting movement and standardization are concerned” (p. 764). In the
same vein, Power (2009)
suggests that attention should be paid to the effects of patterns of
trade, wars and colonial influences. Particularly with regard to
developing economies, local financial accounting practices are
considered to have been inevitably shaped by international trade,
foreign aid, large consulting firms and banks well before such
technologies acquired a national character.
Arnold (2012) maintains that, although the universalistic and stateless commercial culture of accounting suggested by Power (2009)
constitutes an inspiring starting point for research, a
politico-economic perspective must also acknowledge that the global
system is organized as an inter-state system. That is, a system where
“geo-politics, inter-capitalist rivalries, economic conflicts between
nations at the core and periphery of the world system, and the pivotal
role played by states, such as Britain in the 19th century and the
United States in the 20th century, in organizing capitalism on a world
scale are critical components of this analysis” (Arnold, 2012, p. 363).
In this sense, Arnold underlines the importance of the terms
“Anglo-American capitalism” and “Anglo-American accounting” which can be
interpreted as roughly synonymous with international capitalism and
global accounting as they have developed over the past two centuries,
first under British and then under US sponsorship:
From a world system perspective, Anglo-American capitalism is not an expression of US or British national culture, but rather an essentially internationalist project that has been spread by way of colonial conquests, imperialism, and neo-colonial ventures. As a result, the institutional arrangements governing the international economy have been largely shaped by the organizing centres of capital accumulation and often, although not necessarily, reflect norms and practices developed in Britain and America (Arnold, 2012).
In
particular, attention is drawn to the role of influential
Anglo-American professional firms and organizations which were the main
source of expansion for practical accounting norms in the 19th and 20th
centuries. As noted by Power (2009, p. 329),
these organizations have been critical carriers and standardizers, via
guidance and the implementation of “best practice”, in achieving the
promotion and articulation of auditing as “state-independent,
technically neutral norms of procedure”.
Institutional
theory provides insights into how “best practices” are disseminated and
institutionalized, paving the way for the emergence and formation of
institutions4 (DiMaggio & Powell, 1983). It places emphasis on the interactions between entities and their institutional context (Albu et al., 2014, Dillard et al., 2004 and Rodrigues and Craig, 2007; Touron, 2005)
and, in particular, on the role of institutional influences and
pressures in creating the conditions for the development of
organizations and practices characterized by homogeneity rather than
heterogeneity (Carpenter and Feroz, 2001, DiMaggio and Powell, 1983 and Lounsbury, 2008).
The concept of organizational homogeneity results from the idea that
organizations seek to attain, maintain and extend their legitimacy and,
therefore, adopt structures and practices that are socially, politically
and economically endorsed (Ball and Craig, 2010 and Carpenter and Feroz, 2001). Institutional efforts to “morph” with broadly-endorsed patterns were termed by DiMaggio and Powell (1983) as “isomorphism”. The authors identify three mechanisms of institutional isomorphic change: coercive, mimetic and normative.
Coercive
isomorphism captures broader organizational pressures on the focal
organization to behave and structure itself in a certain way. These
external pressures often stem from legislative frameworks introduced by
the state. Mimetic isomorphism concerns the ways in which organizations
mimic the actions of similar organizations in the case of uncertainty,
i.e. when organizations face a problem with ambiguous causes or unclear
solutions: “Modelling, as we use the term, is a response to uncertainty
[…], models may be diffused unintentionally, indirectly through transfer
or turnover, or explicitly by organizations such as consulting firms or
industry trade associations” (DiMaggio and Powell, 1983, p. 151).
Uncertainty is therefore acknowledged to be a driving force for
entities. Hence, when organizations encounter situations where there is
no “clear cut best course of action, they may limit the selection of
structures or practices to those structures or practices that are being
used by organizations who they view as being successful in the
institutional environment” (Carpenter and Feroz, 2001, p. 571).
Normative
isomorphism is associated with professionalization and refers to how a
cognitive base, shared orientations and organizational practices are
disseminated. The mechanism explains how normative pressures affect
individuals and it provides insights into how the “individual is
influenced by the institutions, transferring the preferences from an
exogenous to an endogenous factor […]. This implies that institutions
not only direct human interaction in creating legitimacy, but are
influential on the very shaping of human preferences” (Collin, Tagesson, Andersson, Cato, & Hansson, 2009, p. 152).
The transmission of norms is primarily achieved through formal
education and training and the growth and elaboration of professional
networks. Thus, besides universities, the emergence of professional
associations and training institutions are argued to be very important
as vehicles for the definition and promulgation of normative rules
surrounding organizational and professional norms and attitudes (DiMaggio & Powell, 1983, p. 152).
In
practice, however, the coercive, mimetic and normative mechanisms which
lead to institutional isomorphism may not always be distinguishable (DiMaggio & Powell, 1983).
Two or more of these isomorphic pressures may be operating
simultaneously, making it nearly impossible to identify which form of
institutional influence is more potent in every case (Carpenter and Feroz, 2001 and Dillard et al., 2004).
Additionally, the power of the various institutional isomorphic
pressures may vary over time and may acquire a latent or dominant
character. Hence, institutional methodology prescribes two main levels
of analysis for making sense of influences and pressures (Albu et al., 2014 and Ball and Craig, 2010).
At one level, a focus on the institutional context, both local and
global, is required. Emphasis should be placed on the influences and
pressures stemming from international organizations and states, and
their interactions with and impact upon local institutions. This
interactivity creates the conditions within which entities emerge and
develop. Accordingly, the literature on accounting and auditing has
drawn attention to the role of the International Monetary Fund, the
International Federation of Accountants, the International Accounting
Standards Board, and the International Auditing and Assurance Standards
Board, as well as politico-economic blocs such as the European Union,
and these entities’ interactions with states and local institutions (Albu et al., 2014, Arnold, 2012, Carpenter and Feroz, 2001, Rodrigues and Craig, 2007 and Touron, 2005).
At
another level, institutional approaches draw attention to interactions
within the organizational context, i.e. the interactions between
individuals and organizations which are also considered as critical
motors of causality (Ball & Craig, 2010).
For instance, a number of studies on accounting and auditing have
underlined the importance of examining and understanding the actions of
eminent professionals who, through participating in the supervisory,
administrative and disciplinary institutions of the accounting
profession, formulate the policies, articulate the interests of the
profession and seek to ensure a consistency of behavior within it (Cooper et al., 1989, Sikka and Willmott, 1995 and Willmott, 1986).
The empirical part of this study is based on a mix of data sources and triangulation research methodology (Denzin, 1978 and Jick, 1979).
The data sources include a wealth of published (e.g. laws, ministerial
decisions, articles in the press and professional journals) and
unpublished (e.g. minutes of professional meetings, and professional
reports submitted by eminent professionals and the British Accountants)
material through which institutions and institutionalization processes
are made sense of. The primary and secondary archival material is also
supplemented with 10 semi-structured personal interviews (see Appendix A
for the list of interviewees) which illuminate important aspects of
organizational operations and peculiarities. Specifically, depending on
the interviewee's personal knowledge, the interviews covered a series of
issues relating to the establishment and development of the profession
and professional standards. All interviews were recorded and
transcribed. The interviewees were eminent professionals who had been
recruited during the 1950s and 1960s and who later played key roles in
the supervisory, administrative and disciplinary organs of the
profession. As a result, they were knowledgeable of the processes and
practices of the, then newly-established, profession.
3. The political and economic context of modern Greece
Having being under Ottoman5
rule for nearly 400 years (1453–1820s), Greece sought assistance from
three powerful nations – Britain, France and Russia, the so-called
“Great Powers” – to gain its independence. As a Christian nation
occupied by Ottoman Muslims, Greece relied on these Great Powers as they
were considered natural allies due to religious affiliation. The Great
Powers saw Greece as an emerging force that could limit the expansionist
tendencies of the Ottoman Empire. They openly intervened during the
Greek war of independence, assisting Greece in gaining its autonomy in
1828 and becoming an independent state in 1831 (Freris, 1986, p. 12).
The
establishment of relationships with these Great Powers influenced the
shaping of local institutions. It is indicative that the first parties
to emerge on the Greek political scene were known as the “English”,
“French” and “Russian” parties and were directly guided by these
countries (Loverdos, 2001).
These parties “dominated Greek politics in the first twenty years after
independence and made for a massive, institutionalized and lasting
foreign presence in Greek affairs” (Diamantouros, 1983, p. 49).
Concerned with effectively controlling developments in Greece, the
Great Powers imposed an authoritarian regime when the first elected
governor of Greece, Capodistrias, was assassinated in 1832. The Great
Powers transformed the Greek state from a republic into a monarchy,
managing to control internal developments and inciting a prolonged
period of political instability and turmoil6 (Diamantouros, 1983, Loverdos, 2001 and Mouzelis, 1978).
At
the same time, a “massive importation of Western, liberal political
institutions of primarily British (parliamentary system) and French
(administration) inspiration” took place (Diamantouros, 1993, pp. 2–3).
Despite the organized state effort to import Western institutions,
during the 19th and first half of the 20th century, Greece remained an
underdeveloped economy, characterized by an industry in infancy (Fotopoulos, 1985, Mouzelis, 1978 and Sakellaropoulos, 1991). Mouzelis (1995) argues that:
[W]henever there has been a serious developmental challenge—like the need to modernise the country's agriculture in the late nineteenth and early twentieth century, or the need for intelligent and selective import-substitution industrialisation during the interwar period […] its rigid, overpoliticised and particularistic orientations have made the country act in ways that simply consolidate Greece's semiperipheral status within the world economy (pp. 25–26).
It
is indicative that, in the first half of the 20th century, 2095
“industrial” establishments were recorded, 90% of which were small
family-owned entities, employing one to four workers using
non-mechanized production processes (Mouzelis, 1978).
Under these circumstances, Greece was unable to accomplish sustained
growth and sought economic and technical assistance from Western
economies (Mouzelis, 1978 and Nikolinakos, 1976).
Greece's
difficulty in achieving political and economic stability was further
aggravated in the 1940s. The German occupation (which lasted from 1940
to 1944) and the Civil War that followed, raging on until 1949,
devastated the local infrastructure (Freris, 1986).
Economic exhaustion was accompanied by deep social and political
divisions which made reconstructing the shattered social fabric an
extremely difficult feat. Eventually, Greece was incorporated into the
Western sphere of influence, as a result of bargaining between Britain
and the Soviet Union. The negotiations culminated in the famous
“Percentages Agreement” between Stalin and Churchill, according to which
Greece was to come under British influence (Couloumbis, 1966, p. 17).
The financial aid offered by Britain, and later the US, encouraged the
gradual reconstruction of the Greek economy and consolidated the
establishment of strong political and economic ties with the West (see Dedoulis & Caramanis, 2007, pp. 399–400
for a detailed account). This development sealed the country's
trajectory and, to a significant extent, shaped the formation of local
institutions.
In the
late 1950s, Greece's political forces directed their efforts toward
achieving incorporation into the newly-established and influential
economic bloc: the European Economic Community (EEC). In the early
1960s, Greece became an associate member of the EEC which involved its
gradual transformation into an emerging Westernized economy.
Incorporated into the European trade zone under favorable conditions,
the Greek economy exhibited growth rates and some signs of capitalist
transformation (Kalamotousakis, 1980, Nikolinakos, 1976 and Tridimas, 1996).
It grew “about one-and-a-half-times as fast between 1955 and 1975 as
the European Community, despite the lower levels of investment in
manufacturing” (Duchene, 1980, p. vii).
Between 1955 and 1961, the real Gross National Product (GNP) increased
annually by 6.6%, while the share of GNP devoted to fixed investment
rose from 13% to 18%. The industrial contribution to the Gross Domestic
Product (GDP) increased from 14% to almost 20%, whereas the share of
agriculture in the GDP decreased from more than 26% to 14%. However,
“although the structure of the GDP changed, the contribution of each
sector to its growth did not necessarily reflect the sector's relative
position” (Freris, 1986, p. 156).
The industrial sector still exhibited signs of underdevelopment. At
this point, 50 firms were providing nearly half of the exports and over a
third of manufacturing exports were represented by textiles, clothing
and footwear, while all forms of engineering contributed to only 9% of
total exports (Duchene, 1980, p. vii–viii).
In this sense, the economy's “innate structural weakness continued to
be evident: […] dependence on the agricultural sector was still high,
absolute industrial production remained low” (ASE, 2001, p. 119).
However, despite these inherent difficulties, Greece's incorporation
into the EEC played a determining role in bringing local organizations
and practices in line with Western institutions.
4. Coercive pressures: The gestation of auditing and the establishment of the corporatist profession in Greece
Scholars have argued that institutional developments and arrangements in Greece can be described by “corporatism”7 (Charalambis, 1989 and Legg, 1969). Mouzelis (1986, pp. 73–76)
introduced the concept of “incorporation”, an essential element of
corporatism pertinent to Greece and other emerging economies.
Incorporation is the process according to which the state inhibits the
formation of autonomous professional organizations; this phenomenon is
observed to vary according to the degree of political development. It is
mostly associated with societies in transition from a relatively
underdeveloped economic and political context to an advanced,
Western-European type of growth (for an analytical discussion of this
transition from a corporatist perspective see Donnel, Schmitter, & Whitehead, 1986).
In
corporatist contexts, the state constitutes a key player in shaping the
development of the institution of accounting through legislative
intervention (Puxty, Willmott, Cooper, & Lowe, 1987).
The state leans on the accounting profession to realize public agendas,
i.e. to smooth out the operation of the market, reduce tax-evasion, and
detect and report fraud. To ensure that the membership of corporatist
bodies achieves the aforementioned aims, the state is actively involved
in supervising the accounting profession's activities and operations:
The state does not simply license the existence of organised interest groups but incorporates them into its own centralised, hierarchical system of regulation. In doing so, the state simultaneously recognises its dependence upon these associations and seeks to use them as an instrument in the pursuit and legitimation of its policies (Puxty et al., 1987, p. 284).
In
the 19th and first half of the 20th century, the demand for external
auditing as an institutional mechanism for ensuring the reliability of
public corporate financial reporting was almost non-existent, primarily
due to the weakness of the local Greek economy and its fragmentation
into small family-owned firms (Mouzelis, 1978 and Nikolinakos, 1976).
Through legislative interventions, the state sporadically attempted to
import accountancy practices based on Western institutions in order to
facilitate the modernization of the economy; however, these attempts met
with limited success before the second half of the 20th century (ASE, 2001, Caramanis, 1996 and Dedoulis, 2004).
The
first attempt took place in 1835, when the Napoleonic Commercial Code
was translated into Greek and was introduced as the Greek Commercial
Code8 (Anagnostopoulos, 1937).
The Code instituted the legal form of the joint-stock company and basic
principles and concepts of commercial activity—including merchants,
merchandize and bankruptcy (Anagnostopoulos, 1937).
However, according to Ministerial Circular 1824/2/21-1-1920, until the
late 1910s, no other significant legislative intervention took place
and, therefore, accountancy matters “remained in an anarchic state” as
“many companies had never taken inventory, never estimated depreciation,
had distributed fictitious profits, or had presented misleading
financial statements” (Caramanis, 1996, p. 42).
In
1918, the state enacted Legal Decree 1348/1918 entitled: “On the
Supervision of the Joint-Stock Company”. Acknowledging that the
activities of the joint-stock companies should be accounted for, state
officials enshrined basic accountancy principles. The legislation
regulated important issues such as the estimation of accounting profits.
Most importantly, however, following the continental tradition, the law
brought all joint-stock companies under close state control by
assigning state accountants to oversee their operations (preamble to Law
2190/1920). The basic objective of the Legal Decree was to protect the
public from profiteering and fraud by establishing rules relating to the
preparation of financial statements (Anagnostopoulos, 1937, p. 27).
However,
in 1920, Law 2190/1920 “On Joint-Stock Companies” was introduced, under
which Legal Decree 1348/1918 was abolished. In the preamble to Law
2190/1920, state officials criticized Legal Decree 1348/1918 on the
grounds that it placed joint-stock companies under the guardianship and
tutelage of the state (see Caramanis, 1996).
Influenced by the British accountancy tradition of the time, the newly
established Law 2190/1920 stipulated that the balance sheet of the
joint-stock company should be checked by at least two independent
auditors (article 36), whose main duty would be the “verification of the
accuracy and legality of the statements” (article 37). The Law left it
up to the discretion of shareholders to appoint the persons appropriate
for conducting audits, without determining qualification, knowledge or
experience standards (preamble to Law 2190/1920). Auditor appointment
and fees were to be determined by the shareholders in the General
Meeting. Commentators underscored that, in an underdeveloped economy
fragmented into small family-owned firms, most companies appointed
auditors just to meet the legal requirements (Anagnostopoulos, 1937, Grigorakos, 1964 and Tsirintanis, 1960). Managers appointed friendly persons as auditors who merely signed the reports that the managers themselves had prepared (Grigorakos, 1964).
Thus, auditing practice under Law 2190/1920 was viewed as an act of
deception toward the state, shareholders and third parties (Anagnostopoulos, 1937 and Grigorakos, 1964).
In
the early 1930s, acknowledging that external auditing under Law
2190/1920 had failed, state officials sought to establish a
state-regulated Institute of Auditing (Anagnostopoulos, 1937, Campalouris, 1969, Grigorakos, 1964 and SOL, 1976). Caramanis (1996) explains:
It appears that there were at least two different views in the parliament: those who favored tight state control, and those with a clearly liberal attitude, supporting no or minimal state involvement in corporate matters. The government decisively stood somewhere in the middle and shifted attention from close intervention to external regular audits […]. [T]he arguments in the parliamentary discussions were very well advanced and made extensive use of the mode of regulation, the corporate legislation, and the experience gained in countries such as Germany, Britain, France and the USA (pp. 48, 49).
Following
the parliamentary debate, the state enacted Law 5076/1931 which set up a
Body of Auditors whose organization, function and administration, along
with the qualifications and incompatibilities of auditors, were to be
prescribed later by Legal Decrees 23-3-32, 28-4-32 and 17-9-32. Caramanis (1996) argues that this Institute had four distinct characteristics:
First, the appointment of corporate auditors from the institute was to be obligatory, but this was anticipated to become in the future. Second, the new Institute would be governed by a supervisory council appointed by the state on which representatives of audited companies would participate. Third, audit fees would be determined by the supervisory council using objective criteria. Finally, the number of certified accountants was to be determined by Law (p. 49).
In practice, however, the Institute of Auditors never functioned and remained dormant (Campalouris, 1969, p. 79; SOL, 1976). Ballas (1999, p. 354)
argues that the Institute did not function because of the “intense
lobbying on the question of membership qualifications” in the
parliament. However, Caramanis (1996) provides a different insight into the reasons that prevented the Institute from functioning:
[S]ome adverse political developments took place. Venizelos (Prime Minister during the discussion and enactment of Legal Decree 5076/1931) lost the national elections held in 1932, and the administrations which followed did not pursue the implementation of the new institution. As a result, the Institute did not operate before World War II (p. 50).
In
the aftermath of World War II, the military aid and financial
assistance offered by Britain and the US to Greece for the
reconstruction of the local infrastructure was accompanied by
systematic, technical assistance to improve local accountancy practices (Dedoulis & Caramanis, 2007).
In 1946, in the context of this arrangement, the British Government
asked partners in accountancy firms in London to set up a costing
section within the British Economic Mission to Greece (Brugge, 1963 and Mattingly, 1964b).
H. Butler (partner in Moores, Carson and Watson), R. Castle (partner in
Tansley, Witt and Company) and K. Smith were entrusted with this task:
“A small section consisting of six or seven British Chartered
Accountants and Cost Accountants was accordingly established and did
valuable work in helping to fix prices for staple commodities” (BAAG, 1959a, p. 1).
The firm “British Accountants Advisors to Greece” (BAAG, hereafter) was
established in 1949 and entered into a three-year contract with the
Greek Government. The objectives of BAAG were: first, to examine the
Greek state accounting procedures and conditions and to advise on their
improvement; second, to review and investigate applications for
industrial establishment loans; and, thirdly, to assist in the
establishment of a Greek institute and a public accounting profession (Brugge, 1963 and Mattingly, 1964b).
BAAG
operated until the mid-1950s, when state officials decided to direct
their efforts toward setting up a local institute of auditing which
would undertake the tasks of detecting and reporting fraud, controlling
the activities of joint-stock companies and limiting tax evasion in an
underdeveloped economy where the demand for external audits was very
limited (Dedoulis & Caramanis, 2007).
The auditing profession (SOL is the Greek acronym, “Σώμα Oρκωτών
Λογιστών” or “Body of Sworn-in Accountants”) was established in 1955,
under Legal Decree 3329 (Government Gazette, 1955). SOL was organized to operate as a professional body and audit firm which would house local auditors (Caramanis & Dedoulis, 2011).
SOL was assigned several tasks: first, to carry out the statutory
audits of economic entities which were assigned projects of public
interest; second, to provide an expert opinion on administrative and
accountancy issues ordered by state departments or courts; and, thirdly,
to perform management audits of state organizations, public utilities
and social security funds (Dedoulis & Caramanis, 2007).
The
main organizational feature of SOL was that state officials were
involved in monitoring and supervising its activities. State officials
were appointed as members of the Supervisory Board by joint decision of
the Ministers of Co-ordination, Finance and Commerce (Article 6, Law
3329/1955), and dealt with examinations, promotions and the issuance of
professional bylaws and regulations. Furthermore, these members of the
Supervisory Board controlled the operation and work performed by SOL and
exercised disciplinary power over the membership. Within this
legislative arrangement, audit fees and auditor appointments were
determined by the Supervisory Board. This corporatist mode of
organization was a policy specifically aimed at ensuring that SOL would
limit the diachronic problem of tax-evasion, contribute to the
development of the Athens Stock Exchange and support the broader economy
by providing independent financial audits (Caramanis and Dedoulis, 2011 and Dedoulis and Caramanis, 2007).
5. Uncertainty and mimetic and normative isomorphism at work: The emergence of a westernized cognitive basis
A
major problem facing SOL in the first years of its operation was that
its original members were totally inexperienced. Specialized university
education or professional training in auditing was almost nonexistent at
that time in Greece (Aggelidis, interview (1), 2003; Grigorakos,
interview (3), 2003; Petridis, interview (6), 2003; Protopsaltis,
interview (7), 2002; Sakellis, interview (8), 2003—all translated from
Greek). In a report entitled “The Accounting Profession in Greece:
Suggested Plans for its Future Development”, Mattingly, a member of the
BAAG, clarified the severity of the situation:
There are numerous private schools and “colleges” in Greece offering specialised tuition in accounting and related subjects. The quality of tuition offered varies considerably between one school and another. These schools do not prepare students for any national examination set by recognised independent bodies, mainly for the simple reason that there are no national institutes to set such examinations […] The general syllabus of courses appropriate for accountants in these schools covers a wide range of subjects, but includes relatively few lessons in accounting. There has been practically no training in auditing theory and practice. There is no provision for students to “major” in accounting (Mattingly, 1964a, p. 9).
Mattingly also provided insights into the level of auditing knowledge that individuals had in Greece:
At that time there were not many Greeks who had the required high standards of practical experience in public accounting. Before 1955 most of the auditing in Greece was restricted to the issue of a formal certificate stating that the balance sheet, etc. were in agreement with the principal accounting records. In making this comment I acknowledge the high standards of work maintained by personnel of the Taxation authorities, but their type of audit is not the same as independent auditing (Mattingly, 1964).
In
the same vein, Spiliopoulos (then Chairman of the Supervisory Board of
SOL) publicly acknowledged that the newly-recruited members were
“inexperienced and essentially unaware of the difference between
accounting and auditing practice” (Spiliopoulos, 1961, p. 2, trans.). Two of the originally-recruited members of SOL admitted:
When we first came here [recruited as the first members of SOL], we had no idea what an audit was about. At that time, there was no audit tradition in Greece. Audit textbooks and manuals simply did not exist (Grigorakos, interview (3), 2003, trans., parenthesis added).
We, the first members of SOL, had never practiced the Chartered Accountancy profession. This created huge problems. Few of us had an understanding of accounting and absolutely nobody had knowledge of auditing. There was no bibliography on auditing, nor was there a relevant tradition at that time. Indicative of the situation was that the first textbook on auditing was written by the British Chartered Accountant Lesley Mattingly in 1963 (Petridis, interview (6), 2003, trans.).
Mattingly
underlined an additional problem in that no legal framework of auditing
practice existed to stipulate the tasks and duties involved in auditing
practice:
The existing Laws did not explain comprehensively the extent to which an auditor should verify his statements or the quality of workmanship expected of him. Furthermore, […] there had been no Court decisions or interpretations regarding auditors’ duties and responsibilities (Mattingly, 1964b, p. 1000).
He also argued that:
As Greece directs its economy towards participation in the European Common Market, the reorganisation of its business becomes of paramount importance. It is apparent that properly trained accountants will be required to perform duties of ever increasing value to the economy. There is a great need for organising, training, examining, etc. those accountants (Mattingly, 1964a, p. 8).
This
lack of skillful indigenous auditors, and of guidelines relating to
auditing procedures, led the Supervisory Board to reemploy two British
Chartered Accountants who had previously assisted in setting up the
Greek profession. The main purpose of the Supervisory Board was,
“firstly, to make sure that audits were exercised according to
international practices and, secondly, that auditors were adequately
trained and had obtained the necessary skills” (Petridis, interview (6),
2003, trans.). Thus, two members of the BAAG, Patrick Preston and
Lesley Mattingly, were reemployed as advisers to SOL in order to assist
local auditors in the first years of practice. The preamble to Law
3329/1955 suggested that, “the employment of British Accountants is
necessary for guiding the institution of auditing during the first years
of its operation owing to their experience and special skills”
(Preamble to Law 3329/1955, p. 1393, trans.; see also Legal Decree
3329/1955, Article 17). In fact, their assistance was so vital to the
operation of the newly-established institute that, a few years later,
the extension of their employment was considered imperative: “[I]t is
necessary to immediately approve the Legal Acts determining the
reemployment of the British Chartered Accountants until 1964” (Grigorakos, 1989, p. 97, trans.). Hence, according to the Legal Acts issued, the British advisers served SOL until 1964:
The Institute of Sworn-in Accountants that was set up under the L.D. 3329/1955 still needs the technical assistance and guidance of experienced British Chartered Accountants, especially in view of the anticipated expansion of the work of the Institute and the resultant increase in the number of S.I.As [Sworn-in Accountants, auditors and members of SOL] […]. It approves the employment for two years, commencing from the 1st of July, 1959, of up to three British Chartered Accountants, to be used as technical advisors of the Institute of Sworn-in Accountants […], participation in the Supervisory Board […] of a British Chartered Accountant as member will be effective for as long a time as British Technical Advisors will be with the Institute (Act No. 100, 2nd July, parenthesis added, BAAG, 1959; see also Act No. 1328, 10th July in BAAG, 1957).
The
services provided by the British Advisers were argued by eminent
British Chartered Accountants in the UK to be of major importance:
[T]he British Technical Advisor […] maintains a close cooperation with the professional personnel and discusses with them their work on all assignments. All reports and certificates of opinion on audits are signed by the members of the institute but are submitted to the clients by the Supervisory Board. In each case the Technical Advisor is required to initial the covering letter indicating that he approves of the report to be submitted (Brugge, 1963, p. 599).
A
detailed account of the work conducted by the British Advisers is given
by the BAAG archival records. All auditor reports had to be translated
into English and were then screened by the British Advisers (BAAG, 1957, p. 4; see also BAAG, 1959a).
In most cases, audit reports “were very lengthy and could be up to 30
or 40 pages long […] thus they were fundamentally altered and condensed
by the British Advisors” in order to be “meaningful and specific”
(Mattingly, interview (5), 1999). After this, audit reports had to be
translated back into Greek to be submitted to clients:
As we had no previous experience, the Supervisory Board decided that audit reports and certificates would be discussed with the British Advisors […] to make sure that no mistake was made and no deviation from international practices occurred […]. When we went to the British Advisor, he asked for the audit file, the balance sheet and the working papers for specific accounts […]. We explained what we had done […]. Then he asked for the audit report and certificate, requiring us to justify our opinion (Petridis, interview (6), 2003, trans.).
The British Advisors came and built the institution from scratch […] and they were very strict […]. Every afternoon, they came into our offices and checked on our work. They were so strict that if there was no task for us to perform they required us to read relevant books. When we completed the audits, we went to the British Advisors to discuss them (Maroulis, interview (4), 2003, trans.).
However,
the Greek auditors perceived that this arrangement “considerably
limited their professional autonomy” (Mattingly, interview (5), 1999).
Petridis argued that “auditors wanted to be independent from any
supervision and, when the British Advisers suggested something, they
considered it as interfering in their work. The original auditors did
not like this arrangement” (Petridis, interview (6), 2003, trans.).
Similarly, Grigorakos argued that:
The Chairman and the other members of the Supervisory Board had made a mistake. Instead of assigning the British Advisor to train us, through seminars and practice, they made him responsible for examining all audit certificates and everything else we prepared […]. We had many problems because, in particular, one of the British Advisors, Patrick Preston, just limited himself to an examination of what we did without providing the necessary guidance (Grigorakos, interview (3), 2003, trans.).
In
a similar vein, Tsekouras, a senior member of SOL, pointed out that
“there were serious disagreements […], we considered that the British
Advisors were employed to teach us the auditing process and to train us
and not to tell us what to write in the audit reports. It was important
to teach us how to do things” (Tsekouras, interview (10), 2003, trans.).
According to the British Advisers too, their supervisory role provoked
resentment in the auditors:
Auditors resented much of the work of the British Advisors in these fields—or rather they would like the British Advisors to do as they wish, i.e. to be Lecturers on technical subjects and available for information and assistance only when asked for but without any of the functions of office management, job allocation, etc. and without the control rightly insisted on by the Chairman on all work done and, in particular, on reports. Much of the criticism on the latter is no more than the usual reaction from anyone whose work has been altered. But for the absolute necessity for this supervision one has only to refer to the old reports themselves to see the fundamental changes which have been made in nearly every one of them. The Chairman, too, has pressed for the strengthening of the conclusion of the reports (BAAG, 1957, p. 4).
Auditor opposition to the British Advisers’ role had been slowly accumulating, however:
[I]t was accentuated and brought to a head by (i) the request of the Chairman for greater supervisory discipline—in short, that the auditors should be made to work more […] and (ii) the election of Hasapis as head of the Administrative Council in place of Athanasiades. Whilst the latter is of the ‘elder statesman’ type, able to discuss matters quietly and capable of arbitration and compromise, Hasapis has all the qualities of a demagogue. His method is to canalise dissatisfactions and inflate them into complaints as a means of advancing himself. In ignorance, financial and otherwise, of the real longer-term interests of the Institute and its members, he seeks to cause trouble largely for the sake of it and certainly for his own benefit as leader of the dissentients. By so doing, he persuades the other auditors […] into following him regardless of their better interests (BAAG, 1957, p. 4).
Grigorakos
explained that auditors also turned against the Supervisory Board
because “according to Law (3329/1955), the Supervisory Board was obliged
to organize the auditing profession according to international
standards, thus, it supported the British Chartered Accountancy methods.
This created tension between the auditors and the Board” (Grigorakos,
interview (3), 2003, trans.). Mattingly argued that the situation became
aggravated when:
auditors maintained that it was wrong to have a British person looking into the accounts, because he could act as a commercial spy. As a result of this, for a little while they did not want anything to do with the British Chartered Accountants […]. They also expressed their dislike for the strict control imposed by the Chairman of the Supervisory Board and they wanted to be on their own, to have their own independent offices (Mattingly, interview (5), 1999).
In
1959, the situation between auditors and the Supervisory Board was so
tense that the British Advisers suggested that, “if immediate steps are
not taken […] the Institute may well come to an untimely end” (BAAG, 1959b, p. 4).
6. The Anglo-Americanization of auditing practice
As
a response to the mounting tension and uncertainty, Spiliopoulos, the
Chairman of the Supervisory Board, requested that the British Adviser,
Lesley Mattingly, instigate the introduction of a standardized auditing
process. Specifically, Spiliopoulos asked Mattingly “to conduct an
investigation into international sources in order to prepare a process
[…] which would present a uniformity of general understanding of audit
work and responsibilities” (Mattingly, 1963, pp. 17–18, trans.). In carrying out the Chairman's request, Mattingly considered that:
[A]ll the auditing institution needed was standards of practice backed up with a code of ethics which would show the quality of the people carrying out audits […]. Auditors should operate under the same discipline and the code of ethics would draw the context of professional conduct required (Mattingly, interview (5), 1999).
Mattingly
looked at the frameworks established by the UK professional accountancy
body, the Institute of Chartered Accountants of England and Wales, the
French L’ Ordre des Experts Comptables et des Comptables Agrees Conceil Superieur, and the American Institute of Certified Public Accountants. He maintained that:
The British did not have, at the time, written rules. However, there were a number of laws and court decisions which went back almost a century. They constituted a valuable source and a framework of practice for British Chartered Accountants. The French had well-codified rules, the ‘Code des Devoir Professionnels’ which, however, deviated from the auditing tradition in English-speaking countries. In the United States, the standards of auditing practice had been codified under the title ‘Generally Accepted Auditing Standards’ by the American Institute of Certified Public Accountants. Thus, when an auditor signed the report, the interested users knew that the audit had been conducted in accordance to the accepted standards by the Institute (Mattingly, 1963, p. 19).
The
American Institute of Certified Public Accountants had indeed codified
their standards of practice and procedures in a booklet entitled
“Generally Accepted Auditing Standards: their Significance and Scope” (AICPA, 1954) and had constructed a self-contained Code of Professional Conduct (for instance see Carey, 1956).
In drafting the framework, Mattingly (interview (5), 1999) admitted
that he was significantly influenced by the Generally Accepted American
Standards and Code of Ethics. Mattingly's framework, which comprised of
standards of practice and professional ethics, was translated into Greek
and submitted to the Supervisory Board for approval. The Supervisory
Board approved it in January 1961. At the same time, Mattingly (1963)
started preparing analytical models and forms of certificates,
technical guidelines and working papers in order to provide insights
into auditing procedures and the extent of investigations.
The
Greek and American frameworks of practice were almost identical. In
fact, the Greek standards constituted a condensed version of the
standards of the American institution. The similarities can be
identified by comparing the “Index to Auditing Standards Accepted by the
Institute of Sworn-in Accountants of Greece” (BAAG, 1960, p. 1)
and part of the Contents section of the “Generally Accepted Auditing
Standards” issued by the American Institute of Certified Public
Accountants (AICPA, 1954). The following Table 1 shows the similarities in terms of content:
- Table 1. Similarities between the Greek professional standards and the American professional standards.
Auditing Standards Accepted by the Institute of Sworn-in Accountants of Greece Generally Accepted Auditing Standards: Their Significance and Scope Basic standards
Personal qualifications
Attitude of impartiality
Reasonable skill and diligenceGeneral standards
Training and proficiency of the auditor
Independence of auditor's mental attitude and approach
Due care in the performance of workStandards of performance
Planning
Audit workStandards of field work
Adequacy of preparatory planning
Proper evaluation of the examinee's existing internal control for reliance thereon by the auditor
Competence of evidential matterStandards of reporting
Principles of reporting
Application of reporting principlesStandards of reporting
Adherence to generally accepted accounting principles
Observance of consistency in their application
Adequacy of informative disclosures, whether in the financial statements or in the auditor's report or “certificate”
References to Standards in accountant's report or “certificate”- Sources: BAAG (1960, p. 1), AICPA (1954, p. 3).
Mattingly
created a framework of practice whose underlying definitions, concepts
and language reflected the style of the American Standards. For
instance, the definition of the objective of the auditing standards
bears a significant resemblance:
The purpose of Auditing Standards is to state the basic principles which determine the type and extent of evidence to be obtained by means of auditing procedures and to present a uniformity of general understanding of audit work and responsibilities (BAAG, 1960, p. 1).
Auditing standards […] may be regarded as the underlying principles of auditing which control the nature and extent of the evidence to be obtained by means of auditing procedures (AICPA, 1954, pp. 12–13).
Moreover,
in order to introduce, clarify and explain various concepts, Mattingly
incorporated direct quotations from influential Anglo-American textbooks
of the time. Indicatively, he included a quotation to provide insights
into what constitutes reasonable skill and diligence from Cooley's book
on torts9:
In all those employments where peculiar skill is requisite, if one offers his services, he is understood as holding himself out to the public in the same employment, and if his pretentions are unfounded, he commits a species of fraud upon every man who employs him in reliance on his public profession. But no man, whether skilled or unskilled, undertakes that the task he assumes shall be performed successfully, and without fault or error; he undertakes for good faith and integrity, but not for infallibility, and he is liable to his employer for negligence, bad faith, or dishonesty, but not for losses consequent upon mere errors (BAAG, 1960, pp. 6–7).
Similarities can also be found between the Greek code of ethics and the American code. These are depicted in the following Table 2:
- Table 2. Similarities between the Greek standards of ethics and the code of the American profession.
The standards of ethics Relevant rules in the American code of ethics (2a) A member will not enter into partnership with, or employ for professional assistance, a person who has not been approved by the Institute of Sworn-in Accountants of Greece (1) A firm or partnership, all the individual members of which are members of the Institute, may describe itself as “Members of the American Institute of Accountants,” but a firm or partnership, not all the individual members of which are members of the Institute, or an individual practicing under a style denoting a partnership when in fact there be no partner or partners, or a corporation, or an individual or individuals practizing under a style denoting a corporate organization shall not use the designation “Members of the American Institute of Accountants”
(2) A member shall not allow any person to practise in his name who is not in partnership with him or in his employ(2b) A member will not engage in any business or activity which is incompatible or inconsistent with his professional work (4) A member shall not engage in any business or occupation conjointly with that of a public accountant, which is incompatible or inconsistent therewith (2c) A member shall not audit the accounts of a concern for which he is, or has been during the period covered by such an audit, an official or employee of that concern, neither should he audit the accounts of a concern in which he, or his dependents, have a financial interest which is material either in relation to the capital of the concern or to his own family wealth. While acting as an auditor he shall not directly or indirectly be a party to the purchase of shares or any similar form of participation in the client's concern. He should also avoid any financial relationship with officials or employees of his client such as lending or borrowing (13) A member shall not express his opinion on financial statements of any enterprise financed in whole or in part by public distribution of securities, if he owns or is committed to acquire a financial interest in the enterprise which is substantial either in relation to its capital or to his own personal fortune, or if a member of his immediate family owns or is committed to acquire a substantial interest in the enterprise. A member shall not express his opinion on financial statements which are used as a basis of credit if he owns or is committed to acquire a financial interest in the enterprise which is substantial either in relation to its capital or to his own personal fortune or if a member of his immediate family owns or is committed to acquire a substantial interest in the enterprise, unless in his report he discloses such interest (2d) A member shall not advertise his professional attainments or services in any way excepting formal notice in small print of any change of address or partnership and a small name plate outside his office. Such notices should indicate only the names and professional qualifications held by the Sworn-in Accountants in addition to the names of its members which constitute the name of the firm (10) A member shall not advertise his professional attainments or services:
a. The publication of what is technically known as a card is restricted to an announcement of the name, title (member of American Institute of Accountants, CPA, or other professional affiliation or designation), class of service, and address of the person or firm, issued in connection with the announcement of change of address or personnel of firm, and shall not exceed two columns in width and three inches in depth if appearing in a newspaper, and not exceed a quarter of a page if appearing in a magazine or similar publication
b. A paid listing in a directory is restricted to the name, title, class of service, address and telephone number of the person or firm, and it shall not appear in bold type, box, or other form of display, or in a style which differentiates it from other listings in the same directory(2e) A member shall not enter into competitive bidding for professional work, neither shall he solicit clients in any way not warranted by the degree of his personal relations with such clients (7) A member shall not directly or indirectly solicit clients by circulars or advertisements, nor by personal communication or interview, not warranted by existing personal relations (2f) A member upon dependence shall not encroach upon the practice of another Sworn-in Accountant (7) He shall not encroach upon the practice of another public accountant. A member may furnish service to those who request it (Gi) A member may be held guilty of an act discreditable to his profession if, he is materially negligent in conducting his work upon which his opinion is based (5c) He is materially negligent in the conduct of his examination or in making his report thereon (Gii) He fails to disclose in his statement of opinion any material fact known to him, which is not disclosed, or is mis-stated in the financial statements, the omission of which, or mis-statement thereof, he knows to be of such importance as to render the statement misleading (5a) He fails to disclose a material fact known to him which is not disclosed in the financial statements but disclosure of which is necessary to make the financial statements not misleading (Giii) He fails to obtain all the information and explanations which to the best of his knowledge and belief were necessary for the purposes of his audit, but expresses an unqualified opinion on the financial statements (5d) He fails to acquire sufficient information to warrant expression of an opinion, or his exceptions are sufficiently material to negative the expression of an opinion (Giv) He fails to disclose in his statement of opinion that he has deviated in any material respect from the auditing standards prescribed herein (5e) He fails to direct attention to any material departure from generally accepted accounting principles or to disclose any material omission of generally accepted auditing procedure applicable in the circumstances (Gv) A Sworn-in Accountant and his professional assistants shall not violate the confidential relationship between themselves and the client of the Sworn-in Accountant (16) A member shall not violate the confidential relationship between himself and his client - Sources: Mattingly (1963, p. 26), Carey, (1956, pp. 213–216).
The
framework which was introduced constituted a context of practice and
its importance was widely recognized and acknowledged by eminent members
of the local profession. They considered it indispensable and publicly
expressed their gratitude to the British Advisers who had set the
backdrop for Greek auditing practice. For instance, the Chairman of SOL
stated that, “the work conducted by the British Chartered Accountant,
who served as an adviser and systematically observed the manner with
which auditing was conducted in our country, has covered an undisputed
gap” (preface written by Spiliopoulos in Mattingly, 1963, p. 3).
Similarly, in a pamphlet for the 20th anniversary of SOL's foundation,
the employment of foreign (British) Chartered Accountants, was
characterized as being of great importance as, “they significantly
supported the institute with their experience and specialization” (SOL, 1976, p. 31, trans).
The
auditing framework which was introduced smoothed inter-professional
relationships and reduced uncertainty. Most importantly though, the work
conducted by Mattingly created a cognitive basis which made the
establishment of links with professional accounting institutes in the UK
and the US possible and paved the way for the introduction of
Anglo-Americanized professional training and educational programs
(Petridis, interview (6), 2003, trans.). By the early 1960s, seven
members of SOL had been sent abroad for professional training in
reputable professional institutes, while there was a plan for the
remaining members to be sent at a later stage (SOL, 1961, p. 16).
In the mid-1970s, the Greek profession reported that, apart from
sending members abroad for specialized training in the offices of big
audit firms, it was in constant contact with the Union of European
Accountancy Students (SOL, 1976, p. 31). Moreover, it emphasized that:
In line with internationally-accepted principles, SOL has developed questionnaires for assessing the internal control system of audited companies and audit procedure programs, as well as a great number of guidelines and documents to make sure that audits are conducted according to the aforementioned principles. Furthermore, taking into consideration that such methods and procedures are constantly improved and standardized at an international level, SOL follows the work conducted by foreign Institutes of Chartered Accountants, participates in international and European conferences, and continuously makes sure that members familiarize themselves with any new professional literature in order to improve the quality of services provided (SOL, 1976, p. 32, trans.).
At
the same time, SOL became a member of the International Accounting
Standards Committee and played a prominent role in the translation and
dissemination of the International Accounting Standards within the Greek
industrial and commercial context (SOL, 1976, pp. 32–38).
Finally, in the late 1970s, SOL adopted the first set of International
Auditing Standards, issued at that time by the International Federation
of Accountants (Government Gazette, 1979, pp. 9666–9680, trans.).
Interestingly, there was an important clarification in the text: the
newly-introduced standards “constituted a continuation and expansion of
those accepted by SOL in 1961” (Government Gazette, 1979, p. 9666, trans.).
The 1979 standards were dealt with in four sections. The first section
was entitled “100. Basic Standards” and prescribed the objective of an
audit as well as the necessary qualifications of auditors and their
responsibilities. The second section was entitled “200. Standards of
Performance” and determined how audits should be conducted. The third
was entitled “300. Standards of Reporting” and referred to audit
reports. The last section was entitled “400. Standards of Professional
Conduct” and contained the rules/code of conduct. The profession
continued to conduct audits on the basis of the International Auditing
Standards in the 1980s and 1990s (Dedoulis, 2006) and it adopted the latest version in 2005.
At
the end of the 2000s, the Greek accounting profession had
systematically invested in building networking programs and joint
educational training and examination programs with
internationally-reputable organizations. For instance, it signed an
agreement with the Association of Chartered Certified Accountants
(ACCA), according to which successful trainees acquire professional
titles from both institutes (see the Greek profession's website www.soel.gr).
In 2014, the Greek profession and the Institute of Chartered
Accountants in England and Wales (ICAEW) announced a new joint
Accredited Membership Program, according to which “students registering
with either SOEL10
[the local institute] or ICAEW may pursue membership of both bodies,
with examinations from the respective bodies being awarded credits for
prior learning. It will also mean there are clear routes for members of
both the respective bodies to become auditors registered in Greece and
the United Kingdom.” (SOEL, 2014,
parenthesis added). The statements of the eminent professionals
responsible for the creation of the joint scheme are revealing. Martin
Manuzi, Regional Director of ICAEW Europe, declared:
We are delighted to be launching this initiative with SOEL, which demonstrates the extent to which our two bodies recognize the quality and rigor of each other's training. ICAEW has been working closely with SOEL and the oversight authority, ELTE, in Greece for a number of years now. The AMP [Accredited Membership Program] marks another step forward in this close cooperation (SOEL, 2014, parenthesis added).
Charilaos Alamanos, SOEL's President, stated:
ICAEW is recognized as a leading global accountancy body with a long and distinguished history. The Accredited Membership Program opens up new routes for students, and members who qualify through the scheme will have access to excellent support. SOEL is also committed to working more broadly with ICAEW to advance the accountancy profession in Europe. For this reason, I am also delighted that ICAEW's innovative Accountancy Profession Strategic Forum will take place in Athens in 2015, in cooperation with SOEL (SOEL Press Release, 2014).
This
has been characterized as a great achievement for the Greek profession
which now claims to be an internationally-recognized professional body
(Alamanos, interview (2), trans., 2012; Samothrakis, interview (9),
trans., 2012).
7. Conclusion
Responding
to calls by influential scholars who have urged researchers to redefine
the starting point of the recent rapidity of financial reporting
internationalization (Arnold, 2009, Arnold, 2012 and Power, 2009),
this paper sheds light on the historical processes of the
standardization of the institution of auditing in Greece. This
historical episode is interpreted by employing a synthesis of elements
of political economy and institutional theories. Within this theoretical
framework, auditing practice is conceptualized as an essential
component of the expansionist tendencies of capitalism and its
consumerist values. Geo-politics and alliances between core and
peripheral nations of the world system, as well as the pivotal role
played by dominant institutions, organizations and eminent
professionals, are brought to the fore of the analysis.
At
a broader institutional level, this paper illuminates how, throughout
Greece's modern history, dependency relationships with influential
Western nations had a catalytic effect on the development of the Greek
institution of auditing. It shows that, inspired by Western
institutions, the state took important initiatives to establish auditing
principles and practices. However, these efforts had only modest
effects and, thus, auditing remained a rather underdeveloped institution
until the first half of the 20th century. In the aftermath of War World
II, it was the establishment of strong political and economic ties with
victorious Western nations, namely Britain and the US, which led to the
creation of institutionalized mechanisms of financial control. This
task was initially assigned to a British accountancy firm. However, it
was soon made clear that a local institution of auditing had to be
established to facilitate the operation and growth of the war-ravaged
Greek economy. The state established a corporatist organization.
Interestingly, to facilitate the profession in the first years of its
operation, the state hired British chartered accountants and assigned
them with very important advisory roles. The involvement of the British
Advisers set the course for the development of mimetic and normative
pressures which shaped the institution of auditing in Greece according
to Anglo-American lines.
At
the organizational level, this paper demonstrates the predominant
character of mimetic and normative mechanisms in the aftermath of the
establishment of the Greek profession. The early years of the profession
were characterized by uncertainty, which was mainly the result of the
lack of auditing tradition, education and established patterns of
practice to guide the, then newly-recruited, members. To overcome this
difficulty, the leadership assigned the British Advisers to standardize
professional activities and practices. The set of rules, norms and
practices which were introduced bore significant resemblance to the
dominant Anglo-American models and created the backdrop for the
emergence of a professional cognitive base and shared orientations and
understandings with regard to the role of auditing. Professional
attitudes and practices were further consolidated through professional
training and networking with globally-influential professional bodies.
Hence, the mimetic and normative processes at work led the local
auditing practice to morph with internationally-dominant models.
This
paper extends the critical branch of the literature by synthesizing
elements of political economy and institutional theories to make sense
of the processes of auditing standardization in a non-Anglo-American
context. It draws attention to how geo-political and technological
dependencies develop and give rise to coercive, mimetic and normative
isomorphic processes, according to which local practices are formed in
line with dominant models and practices. Additionally, it illuminates
how institutional isomorphic pressures often operate simultaneously,
making them practically indistinguishable while their intensity varies
over time, acquiring latent or dominant characters. The historical
analysis of the Greek case provides insights into how the
internationalization of Anglo-American standards was made possible
within the broader dynamics of the world economic system in the second
half of the 20th century. Auditing standardization does, in fact, have
lengthy historical roots and constitutes the result of complex
institutional intertwinements and transformations. Researchers could
adopt similar theoretical frameworks to illuminate the lengthy
institutional processes at work in other non-Anglo-American contexts.
Furthermore, additional research could assist in providing: first,
explanations of the processes which have led to the worldwide dominance
of Anglo-American practices; second, insights into how local
professions’ technical dependency on Western organizations started and
developed; and, thirdly, how concepts such as “modern”, “rational” and
“effective” have come to be associated with Western institutions and
operations.
Acknowledgments
We
acknowledge helpful comments by Costas Caramanis and Stergios Leventis.
The paper has also benefited from the comments of participants at the
51st British Accounting and Finance Association, Manchester 2015. The
author would also like to thank the Institute of Certified Public
Accountants of Greece and especially the Chairman, Charilaos Alamanos,
for providing access to the historical records and material.
Appendix A.
- Table A1. List of interviewees1.
Name of interviewee Year the interview was conducted Date recruited and/or position held in the profession 1 Aggelidis, Evaggelos 2003 Entered the profession on 5/6/1962 and later became a member of the Disciplinary Council of the profession 2 Alamanos, Charis 2012 Chairman of the Board of Supervisors of the profession 3 Grigorakos, Theodoros 2003 Entered the profession on 15/1/1957 and became Vice President of the Scientific Council in the period 1994–2002 4 Maroulis, Ioannis 2003 Entered the profession on 5/2/1962 and became Chairman of the profession from 1988 until 1991 5 Mattingly, Lesley 1999 British Adviser to SOL from 1955–1964 6 Petridis, Charalambos 2003 Entered the profession on 20/9/1961 and became Chairman of the profession from 1982 until 1985 7 Protopsaltis, Nicolaos 2002 Entered the profession on 5/6/1962 and became a member of the Scientific Council of the profession from 1994 until 2002 8 Sakellis, Emmanouil 2003 Entered the profession on 5/6/1962 and became Chairman of the Scientific Council of the profession from 1994 until 1997 9 Samothrakis, George 2012 Member of the Board of Supervisors of the profession 10 Tsekouras, George 2003 Entered the profession on 3/1/1958 and became Chairman of the profession from 1984 until 1989 -
- 1
- Eight interviews were conducted in the context of the author's PhD and took place between 1999 and 2003 (Dedoulis, 2004), while two were conducted in 2012. The eight interviews were revisited in the context of institutional theory and extracts were employed to illuminate aspects relating to the mimetic and normative processes that emerged in the profession.
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- 1
- Quoted in Michel Prada's 2013 “Chairman of the Trustees” speech at the Financial Accounting Standards Foundation in Tokyo, Japan: “À la carte accounting will not deliver globally consistent standards” available at http://www.ifrs.org/The-organisation/Members-of-the-IASB/IASB-speeches/Pages/IASB-speeches.aspx.
- 2
- Ballas (1994) illustrates that auditing and accounting techniques, in various forms, had been invented and were employed in various eras throughout the Greek civilization. There is evidence to suggest that, as early as the Minoan era, accounting techniques were introduced to facilitate commercial and other economic transactions. More sophisticated techniques were developed in the 5th century BC and later during the dominance of the Byzantine Empire. However, these techniques bore little resemblance to modern accounting and auditing practices.
- 3
- The profession was established in 1955 and operated as a corporatist institution until the early 1990s. In the 1990s, the profession was reorganized into an associationist body (see Caramanis, 1996; Caramanis and Dedoulis, 2011; Dedoulis, 2006).
- 4
- Dillard et al. (2004, p. 508) provide the following definitions with regard to the terms “institution” and “institutionalization”: “An institution is an established order comprising rule-bounded and standardized social practices. Institutionalization is the process whereby the practices expected in various social settings are developed and learned”.
- 5
- The Ottoman Empire remained the predominant power in the geographical area of south-eastern Europe, Asia Minor and beyond between 1299 and 1922. It had introduced and developed a sophisticated accounting and auditing method, the “Stairs (Merdiban) Method”, which, however, bore no resemblance to modern accountancy practices (Elitas et al., 2008, Güvemli and Güvemli, 2006 and Mert, 2013). The Stairs Method was primarily aimed at serving state purposes, inter alia, the collection of taxes and the distribution and allocation of state funding for payment of employee salaries and military campaigns and, therefore, particular focus was placed on keeping careful records of the components of tax revenues ( Elitas et al., 2008, Güvemli and Güvemli, 2006 and Mert, 2013). The same system was used by all economic entities within the Ottoman Empire which were considered the property of the Ottoman Emperor ( Elitas et al., 2008, Güvemli and Güvemli, 2006 and Mert, 2013).
- 6
- The Crown was offered to Prince Otto of Bavaria. King Otto was assisted by Western advisers in how to govern Greek affairs while the Greek army was comprised of Bavarian soldiers. However, the influence of Britain and France was also catalytic. For instance, during the Crimean War in the 1850s, Britain and France occupied the port of Piraeus for three years (1854–1857) to prevent Greeks from fighting against the Turks on the side of Russia (Loverdos, 2001). Moreover, the British incited a revolt against King Otto, who had supported Greece's participation in the Crimean War (ibid.). As a result, King Otto was dethroned in 1862 (Freris, 1986). The Western powers offered the Crown to the Danish prince, George the First. Surrounded by Western advisers, George the First was the prince who unconditionally accepted the British position on various political issues (Loverdos, 2001, p. 59). The Monarchy created great governmental and political instability in Greece throughout the 19th and first decades of the 20th century. Numerous governments were forced into resignation because of the Crown's disagreement with their policies. Indicative of the political instability was that, during the periods 1832–1862 and 1864–1875, 44 governments were forced into resignation (Loverdos, 2001). Great political instability incited by the Crown was also evident during the period of World War I. King Constantine the First and the monarchists thought that alliance with Germany could assure victory in the war, whereas Prime Minister Venizelos, leading the Greek republicans, believed that the war was to be won by the Entente. Under pressure from the King's opinions, the government was forced to resign. However, the resignation of the government provoked a national schism, which led to the creation (for a very short period) of two states with two separate governments, one under the influence of the King and another headed by Venizelos. Couloumbis (1966, p. 12) illustrated how the role played by the West incited this national division: “The year [1916] was one of a series of limitations for Greece- of the ENTENTE's interference in the internal affairs of a neutral country becoming more fragrant- of German propaganda casting cloud over Athens – of German and Allied spies competing against each other in sensational discoveries – of agitators touring the countryside and inciting the peasantry against their opponents. Every semblance of freedom was taken away. Anyone in Athens during 1916 might have legitimately wondered who was ruling Greece. The German Embassy owned three quarters of the daily papers. The French Embassy, through its agents, was organising demonstrations against the government, or attacks upon Allied citizens in order to force the Allies into action. Greek ships were stopped and searched on the high seas. Cargoes were confiscated. There was the fictitious scare of German submarine bases round the Greek coast, deliberately engineered by the French Embassy”. The Entente's victory was accompanied by strong pressures exerted by Britain and France to dethrone the King who had adopted a pro-German stance during the War. Due to these Western pressures, in 1917 King Constantine the First left Greece and his brother, Alexander the First, was offered the crown. This interference in the Crown was also significant in the second half of the 20th century. Greece became a republic in 1974 as a result of a national referendum.
- 7
- Corporatism is conceived of as a set of socio-political ideas which explain how conflicting opinions between increasingly organized interest groups are accommodated and to whose benefit.
- 8
- The main principles and concepts of the French Commercial Code remained in effect well into the 20th century.
- 9
- Cooley, T. M. “Cooley on torts”, 4th ed., Vol. 3, Gallahan & Co., No. 61412, Cicero Avenue, Chicago 46, IL, USA, p. 335.
- 10
- The profession was renamed SOEL, the Body of Sworn-in Auditors-Accountants (in Greek ΣOEΛ: Σώμα Oρκωτών Eλɛγκτών-Λογιστών), in 1992 (Caramanis and Dedoulis, 2011).
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