The Rhetoric and Reality of Auditor Independence : An Historical Analysis

Watts and Zimmerman (1979, 1986) portray the external audit as a natural consequence of an agency model where shareholders demand reliable information and managers respond by arranging for an independent audit to make credible the financial statements whose contents they control. Independent, professional auditors are assigned a central role in this process because, according to the UK Auditing Practices Board (2010, 9), they are “objective and provide impartial opinions unaffected by bias, prejudice, compromise and conflicts of interest”. In recent decades, professional auditors have been the subject of criticism for both lack of independence and susceptibility to conflicts of interest, and the purpose of this paper is to provide an historical perspective for these contemporary concerns by revealing that such failings date from the naissance of the professional audit in mid-nineteenth century Britain. Further, it is contended that such problems were habitually masked by a rhetorical discourse. This notion of rhetoric – the use of language as a means to persuade – provides the theoretical guidance for the paper, with the nineteenth century notion of a “continuous audit” identified as an exemplar of auditing rhetoric. Similarly, while the professionalization project mounted by qualifying associations in the late-nineteenth century successfully nurtured the idea of accountants as disinterested professional gentlemen, this claim to independence from management is also exposed as largely rhetorical. The reality of the directors rather than the shareholders as the true client continued and publicly reasserted itself in the late-twentieth century as a self-confident occupational group prioritised the commercial over the professional