Assessing a company’s tone at the top : evidence from South African auditing firms

Abstract

PURPOSE: The study set out to understand how auditors assess a company’s tone at the top, as an integral component of audit risk which is a significant part of forming an audit opinion.

METHODOLOGY: The study followed a qualitative exploratory multiple-case research design, using individual semi-structured interviews to collect data from audit partners and a group interview to collect data from inspectors from the audit regulatory body.

FINDINGS: The findings provided insights into the procedures how ethical leadership and an ethical organisational culture, which were deemed central to a company’s tone at the top, were assessed. Despite these assessments being done before and throughout an audit, assessments before an audit seemed to be emphasised. While the audit engagement partner took responsibility for tone-at-the-top assessments, audit files contained limited evidence of such involvement.

ORIGINALITY/VALUE: The insights from this study could be useful to auditing firms in enhancing their audit methodologies and training programmes on assessing a company’s tone at the top and the documentation thereof, specifically during the planning of an audit and to evidence audit engagement partner involvement. The findings may also inform the audit regulatory body in providing best-practice guidelines to auditors on the assessment of a company’s tone at the top. Despite the study’s South African orientation, the findings are globally relevant, given the inclusion of the Big 4 auditing firms and firms adhering to the International Standards on Auditing.