What aspects of institutions are addressed by this topic? (e.g., economic progress, market discourse, accountability, political expectations, historical movements and forces, cultural dynamics, etc?)
Audit serves a purpose for the capital markets and in this sense contributes to liquidity. It serves an economic and societal purpose for ensuring the information is reliable. Under this consideration, EU makes auditor rotation requirements to ensure reliability and objectivity of auditors to implement better control of their behaviors. It also requires the transparency report for the audit firms themselves. These rules and regulations, as well as auditing standards, can be regarded as benchmarks to evaluate the work of auditors. Besides, the related norms also play legal and political roles ( Mennicken, 2008) and they help clarify the responsibility of auditors legally.
What are the linkages between accounting and the organizational context? (e.g., did accounting influence the organizational context, did the organizational context influence accounting?)
Auditing as a practice can shape organizations. It monitors the quality of companies’ financial statements and helps prevent the companies manipulating accounting statements (Mennicken & Power, 2012). But more frequently, organizations shape and change auditing. For example, companies and the complexity of business have influenced the audit methodology. At first, audit tracked every transaction. However, as the companies set up their internal controls about accounts balances and the transaction volumes increased, audit methodology changed from a 100% checking of transaction to formal statistical sampling in 1970s(Power, 1992). And auditors could reduce detailed substantive testing if the internal control system within the company was effective. And in 1990s, the business risk audit approach appeared. Under this methodology, a company’s failure in its object can contribute to audit risk.