Management Strategy in a Large Accounting Firm

Author(s): C. Richard Baker

Source: The Accounting Review, Vol. 52, No. 3 (Jul., 1977), pp. 576-586
Published by: American Accounting Association
Stable URL: http://www.jstor.org/stable/246077 .
Accessed: 26/12/2013 20:18
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .
http://www.jstor.org/page/info/about/policies/terms.jsp

.
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For more information about JSTOR, please contact support@jstor.org.

American Accounting Association is collaborating with JSTOR to digitize, preserve and extend access to The
Accounting Review.

http://www.jstor.org

This content downloaded from 202.185.34.1 on Thu, 26 Dec 2013 20:18:59 PM

All use subject to JSTOR Terms and Conditions

THE ACCOUNTING
Vol. LII, No. 3
July 1977

REVIEW

Management

Strategy

in

Large

Firm

Accounting

C. Richard Baker
ABSTRACT: A participant observation methodology is employed in this paper to investigate the management strategy of a large public accounting firm. The author directly
observed partners and managers of an audit practice office going about their daily tasks
over a 3-month period. A descriptive model of the management strategy was developed
from the observed matrix of daily interactions. The results indicate that there are three
components to the management strategy: Doing, Representing and Being. Doing is
defined as those activities which the firm undertakes to maintain and improve its relationship with its clients. Representing is defined as those activities which the firm undertakes to maintain and improve its relationships with outside parties other than clients.
Being is defined as the image of the firm. The three components work together to manage
the environment in which the public accounting firm operates.
HE concern of this inquiry is with
management strategy in a large,
international public accounting
firm. The large firm must deal with a
variety of difficult problems in its efforts
to grow and remain successful; for example, government regulation of the profession, demands from clients, an increase in
legal liability and the vagaries of a changing technology. Borrowing from the
terminology of Emery and Trist [1969],
the interrelatedness of many of these
problems tends to suggest a "turbulent
field environment. Emery and Trist
observe that organizations which face a
turbulent field environment typically react by changing their values and/or
their management strategies. They arrived at this conclusion through case
studies of industrial and other organizations in the United Kingdom.
If agreement may be reached to the
effect that large public accounting firms
face, if not a turbulent environment, at
least a complex and changing one, then
this question may be posed-Are such
T

firms tending to change their values

and/or their management strategies? Although this would be an interesting research question, it may be more prudent
to ascertain first what the values and/or
management strategies of a large public
accounting firm are since there are so
many firms. This paper examines the
management strategy of one firm using a
participant observation approach.
Emery and Trist define strategy as
"the process of selecting where one
wishes to be at a future time." By implication, the time frame is more likely to
be long rather than short. They distinguish between values and strategies in
the following way: "Values are regarded
as coping mechanisms that make it possible to deal with persisting areas of uncertainty. Values are not strategies; they
have the conceptual character of 'power
fields' and act as injunctions." Thus,
values transcend strategies and probably
C. Richard Baker is Assistant Professor
at Columbia University.
576

This content downloaded from 202.185.34.1 on Thu, 26 Dec 2013 20:18:59 PM

All use subject to JSTOR Terms and Conditions

577

Baker
will determine what strategies will be
chosen. At the management level of an
organization, values and strategies coalesce and act together to propel the
organization towards the achievement of
its goals.
Following the work of Piaget [1970]
and McDonough [1975], the author has
argued in a previous paper that values
and strategies form a "template on experience" which acts to aid individuals in
organizations who are faced with complex decisions and complex environments to structure their everyday lives
[Baker, 1975]. McDonough suggests that
this structuring mechanism remains hidden from the majority of organizational
participants, and that the researcher who
inquires into the strategies of an organization often will be frustrated in any
attempts unless he or she employs an
observation research method combined
with a relational form of analysis [Baker,
1976]. The following section describes
the use of participant observation in the
investigation of the management strategy
of a large public accounting firm.
PARTICIPANT OBSERVATION

Participant observation is a method of

research wherein the researcher gathers
data by directly observing persons interacting in a social setting. The researcher
typically has little or no experimental
control over the setting. The adjective,
"participant," indicates that the researcher is physically present in the
setting; it does not necessarily imply that
he or she becomes an actual member.
Participant observation as a research
method was developed by anthropologists in the early years of this century
[Malinowski, 1922; Radcliffe-Brown,
1922]. The method subsequently has
been used in sociology, political science
and organization theory.
The primary subject matter of partici-

pant observation is a single, self-maintaining system. The system may be a

small community, a large society, a
formal organization or an institution.
The procedure under the method is first
to become socialized into an ongoing
social system, to learn a set of roles and
to form relationships. The next step is to
make the implicit knowledge gathered as
an observer in the system more explicit.
The researcher constructs hypotheses
about parts of the system from recurrent
themes that come to his or her attention
and tests these hypotheses against a
variety of data. The data can include
what the researcher sees, what others tell
the researcher, how he or she reacts and
how others react to the questions.
The two phases to an observation study
are data collection and data analysis.
DATA COLLECTION

Site Selection
The site selected for the observation
study was a satellite office of a metropolitan and regional headquarters office of a
large public accounting firm. The satellite office was chosen because it was
typical of medium-sized practice offices
of the firm throughout the country. The
office was located on the top floor of a
modern office building, and had been in
that location for about 6 years. The
firm had a general practice in audit, tax
and management consulting, with a degree of specialization in real estate,
savings and loan, entertainment and
banking. There were four partners in the
office, (three audit, and I tax); there were
twelve managers (six audit, four tax and
two management consulting); and there
were nineteen seniors and twelve staff
accountants. Staff accountants also were
borrowed from the metropolitan office,
so the actual number of professionals
who serviced clients of the office varied
throughout the year.

This content downloaded from 202.185.34.1 on Thu, 26 Dec 2013 20:18:59 PM

All use subject to JSTOR Terms and Conditions

578

The AccountingReview,July 1977

Observation Method
Observation of organizational participants began in mid-Spring because the
firm members were frequently in the
office handling a great variety of problems during a typical day. Audits were
underway, were close to completion and
also were in the planning stages. Tax
return preparation, billing of clients and
negotiations concerning mergers of
clients were observed. In the busiest time
of year (that is, January through April)
much of this activity would have been
curtailed due to the concentration on
auditing. In addition, it was difficult to
obtain permission for an observation
study then because firm members have
sufficient problems during the busy season without having the additional burden
of an outside observer.
Initially, observation arrangements
were made by officials of the firm; after
a short time, the researcher became an
accepted figure in the office and was able
to arrange for observation periods without review by management officials. In
fact, several members of the firm expressed interest in being included in the
study.
The mechanics of observation were as
follows. The researcher would meet the
member of the firm at about 9:00 a.m. in
the accounting member's office. Initially
the researcher elicited information about
the background of the firm member; for
example, where the person attended
college, when the member joined the
firm or when he or she was promoted.
These questions served: (1) to elicit common background information on all
persons observed and (2) to put the persons observed at ease. The firm member
was encouraged to go about his or her
normal work routine.
The Data
More than 600 pages of observation

notes were taken during the course of the

study. Appendix A presents a sample of
notes which have been altered slightly in
three ways: (1) improved grammar and
sentence completion; (2) name changes
to protect confidentiality; and (3) organization of notes into interchanges (a conversation on the phone or in person; a
correspondence via memo, letter or telegram; or a meeting of a group as the
basic unit of analysis). The sample comes
from notes taken during observation of
an audit partner during one full working
day.'
DATA ANALYSIS

A day in the life of an audit partner is

full and varied, ranging front internal
firm matters of administration to complicated merger negotiations and problems
of accounting theory.
A given interchange by a member of a
firm can be representative of one or more
continuing relationships. For example,
Interchange 10 in Appendix A, in which
the managing partner of the metropolitan
office of the firm called to discuss a
request from another CPA firm, constitutes evidence of a continuing relationship between the managing partner and
the partner of the other firm as individuals. It also represents a relationship
between two large CPA firms and indirectly constitutes evidence of the relationship in a legal sense between a CPA firm
and society. The first step in data analysis
is to transform the list of interchanges
into a list of relationships. When this
was done, it was found that 207 observed
interchanges constituted evidence of 241
continuing relationships.
The next step was to categorize the
241 relationships into eight categories:
l This is only one sample interchange out of a total of
207 interchanges observed over an approximate 5-month
period.

This content downloaded from 202.185.34.1 on Thu, 26 Dec 2013 20:18:59 PM

All use subject to JSTOR Terms and Conditions

579

Baker
Intrafirm, Firm-Client, Firm-Business
Community, Government-Related, Professionally Related, Other Firms, Educators and Societal. Table 1 presents a
numerical breakdown of the categories.
The bulk of the relationships fell into one
of these four areas: (1) Maintenance of
the firm, (2) Firm-Client Relationships,
(3) Firm-Business Community Relationships and (4) and Firm-Professional
Community-Government Relationships.

FIGURE 1
METHODOLOGICAL
OUTLINE
An ongoing
social system
l

Observation
IObservation
L

-J

II
-

*Observation data

List of social interchanges

List of relationships
Categories of relationships
Reciprocity analysis

TABLE I

A model or theory

CATEGORIES OF RELATIONSHIPS

Categories

Instances

Intrafirm
C1ient-firm
Business Community-firm
Government-related
Professional
Other firms
Educators
Societal

85
96
34
11

7
3
3
2
241

Since the focus of this inquiry is on

the managerial strategy of the firm, the
next step in the data analysis was to ascertain costs and benefits, or perhaps difficulties and pleasures, inherent in maintaining relationships with its principal
constituencies. This step is referred to as
reciprocity analysis. Costs and benefits
were evident in the observation data;
Interviews were used to expand the reciprocity analysis where needed.
The final step in data analysis was to
develop a model of the management
strategy of the firm in an interactive
manner. A descriptive model was prepared and then submitted to members of
the firm for validation or correction. In
the following section, a summary of the
data analysis and model development is
presented.

ANALYSIS SUMMARY

Through the observation and field

work described above, a model of the
manner in which a successful large public
accounting firm manages a complex and
changing environment has been developed. There are three components of the
management strategy-we have called
these "Doing," "Representing" and
"Being."
Doing

Doing may be defined as those activities which the firm undertakes to maintain and improve its relationship with its
client. This strategy is characterized by
an economic contract between the firm
and the client. The contract specifies the
delivery of a tangible product in exchange
for a monetary fee. For the client, the
contract is optimal when the tangible
product takes the form of marginal cost
savings or marginal revenue increases.
Therefore, the client looks to five primary
areas for delivery of tangible product:
1. Tax return preparation and tax
planning
2. Management consultation in regard
to accounting and management
information systems

This content downloaded from 202.185.34.1 on Thu, 26 Dec 2013 20:18:59 PM

All use subject to JSTOR Terms and Conditions

The Accounting Review, July 1977

580

3. Training of and search for qualified

accounting and financial executives
4. Advice and expertise in matters
pending before governmental agencies such as the SEC, FTC, CASB
and others
5. Ready access to the securities and
debt markets via the medium of
unqualified financial statements.
Members of the firm may not fully
comprehend that there is a range of
services contemplated in the concept of
delivering a tangible product; hence,
they may consciously consider only area
five as the principal product of their firm.
Thus, in a questionnaire or interview
they might discuss only their strategy
with regard to audits. A questionnaire or
interview therefore would not uncover
the full range of activities comprehended
by the Doing strategy. It was observed in
four cases, and corroborated by partners,
that clients will move quickly to amend
or dissolve their relationships with a CPA
firm unless they are receiving satisfactory
service in the five areas listed. It is the
responsibility of the audit manager and
audit partner to see that the firm provides
satisfactory service.
Representinhg
Representing may be defined as those
activities which the firm undertakes to
maintain and improve its relationships to
outside parties other than clients. Included in this category would be members of the business community, including bankers and lawyers, governmental
agencies as potential clients or users of
information supplied by the firm, and
professional bodies such as the AICPA
and FASB. The primary strategy designed to facilitate Representing generally is referred to in the firm as "practice development,"' which can include a
variety of activities.

First, there is overt marketing. Members of the firm were assigned to investigate and make contacts in a specific
industry. Collateral to this effort was the
establishment of firm-wide industry specialists to act as a clearing house for
information about the industry. Quarterly reports were given at a meeting of
partners and managers regarding the
success of the marketing effort.
Second, there is a publishing effort to
enhance public relations. The firm publishes a variety of documents which are
distributed to clients and potential
clients. Included are magazines, newsletters, industry accounting guides, guides
to computerized accounting systems, tax
guides and guides for doing business
abroad. Additionally, members of the
firm are encouraged, by explicit reference
in performance review forms, to publish
articles in professional journals. The
publishing effort adds to the image of the
expertise of the firm and creates an institutional presence.
Third, there is a service effort. Members of the firm are strongly encouraged
to join professional, charitable and civic
organizations and classify such participation under practice development. We
observed firm members participating in
churches, hospitals, Rotary, the Heart
Fund, the Kidney organization and
others.
Also included in the Representing
strategy is a network of relationships to
the business community comprised of
ties to lawyers, bankers and securities
underwriters. There is a great deal of
reciprocity in these relationships; each
party is able to recommend clients to the
other. The goal of such relationships is
to position the firm as an indispensable
part of the societal infrastructure.
Being

Being may be defined as the image of

This content downloaded from 202.185.34.1 on Thu, 26 Dec 2013 20:18:59 PM

All use subject to JSTOR Terms and Conditions

581

Baker

who are responsible for the maintenance

of the name and the image of the firm.
The manager is responsible for the discipline and training of the professional
staff, the maintenance of expertise and
the completion of the audit routines
which signify competence, confidentiality
and objectivity. The partner is responsible for deciding when the name of the
firm may be signed, for maintenance of
the institutional profile and for developing the image of service to client and
others.

the firm. The goal of both the Doing and

the Representing strategies is to create
dependence on the part of the client or
on the part of the business community
and society. Being is the means whereby
dependence is created. The principal
strategy of Being may be termed "symbolic marketing," which is designed to
control the image and name of the firm.
This strategy is composed of three
elements: Integrity, Expertise and Service. Integrity may be further subdivided
into: Confidentiality, Competence, Objectivity and an Institutional Profile.
The firm strives in all its activities to
achieve these qualities and if it cannot
achieve them in fact it strives to achieve
them in manner. Members of the firm
seem to know intuitively that their image
is most important in their relationships
with clients and others.
The audit manager and audit partner
are the principal members of the firm

CONCLUSIONS

Until recently, the three components

of the management strategy-Doing,
Representing, and Being-were finely
tuned and operated well together.
The observed CPA firm has been well
organized because of these strategies to
deal with its environment. The continuing complexity of the environment

FIGURE 2
THE BALANCED ENVIRONMENT STRATEGY

Doing

Representing

Delivery of the tangible product

Inculcating the infrastructure

Tax
Consulting
Placement
SEC
Capital market

"Practice development"

Being
The image and the name
"Symbolic marketing"

The Environment
The client

Business community

Government

Profession

This content downloaded from 202.185.34.1 on Thu, 26 Dec 2013 20:18:59 PM

All use subject to JSTOR Terms and Conditions

The Accounting Review, July 1977

582
FIGURE3

RESPONSETO A CHANGINGENVIRONMENT
Representing

Doing

Being

/
The Environment

Tactical

Response

1. Audit committees
2.

Peer review

3.

Audit model

places some doubt on the future stability

of these strategies.
There has always been an incipient
conflict between the delivery of a tangible
product, through the economic contract
with the client, and the delivery of social
value, through the social contact with
government and society. In the past, the
Being strategy has been able to manage
this conflict through integrity, expertise
and service. Seemingly, however, the
Being strategy is either not sufficient to
deal with the complexities of the environment, or, perhaps what may amount
to the same thing, there is quite a different
concept of the social role of public accountants on the part of juries, courts
and the government than that held by
accountants. It is evident that the construction of reality in these matters, on
the part of the members of the firm, is
quite different from that of others who
may choose to sue the firm.
Several tactical, if not strategic, re-

sponses seem to be evident. One such

response is the advent of audit committees on a widespread basis. In discussions
with partners of the observed firm, we
learned that the motivation behind establishing such committees is to create a
buffer between the firm and the client.
Therefore the firm would prefer that
audit committees be composed only of
nonemployees of the client. The conflicts
between social value and tangible product
then could be mediated by third parties.
Another response is peer review. The
observed firm instituted an internal peer
review system which is a process whereby
partners and managers from one practice
office review the work of partners and
managers from another practice office of
the firm. In discussions with partners,
several drawbacks to the peer review
system were raised; for example, what is
the enforcement mechanism? Also, the
system seems to be largely ex post rather
than a more preferable ex ante.

This content downloaded from 202.185.34.1 on Thu, 26 Dec 2013 20:18:59 PM

All use subject to JSTOR Terms and Conditions

Baker

583

A third response of the observed firm

is an attempt to restructure the standard
audit model by moving from what may
be termed an "audit of the books" to an
"audit of the business The advantage of
this response is that it produces audit
results that are typically more congruent
with the delivery of social value (that is,
business success or failure may be more
predictable), while providing the client
with a tangible product.
The purpose of these responses seems
to be to restore an equilibrium condition
among the Doing, Representing and
Being strategies and the changing en-

vironment by establishing buffers that

will act to reduce potential conflict. The
basic management strategy of the observed firm is to maintain this equilibrium condition. This strategy has not
changed in the face of a complex environment; rather,tactical responses have
been employed to restore the equilibrium.
Other large firms seem to be responding to a complex environment in a manner similar to the observed firm. Virtually
all the large firms favor the creation of
audit committees [the Wall Street Journal, 1976].

REFERENCES
Baker, C. R., ''Structure As a Construct in Accounting Research,' Research Paper No. 93 (Columbia
University, Graduate School of Business, 1975).
"Participant Observation As a Method of Accounting Research," Proceedings ofthe 1976 Amneri-

can Accounting Association Mid-Atlantic Regional Meeting (1-3 April 1976).

Buckley, J. S., In Search of Identity (California Certified Public Accountants Foundation, 1973).
Diesing, P., Patterns of Discovery in the Social Sciences (Aldin-Atherton, 1971).
Emery, F. E. and E. L. Trist, "The Causal Texture of Organizational Environments,
in F. E. Emery, ed.,
Systems Thinking (Penguin, 1969).

Glaser, B. G. and A. Strauss, The Discovery of Grounded Theory: Strategies Jor Qualitative Research
(Aldine, 1967).
Malinowski, B., The Argonauts of the Western Pacific (Routlege, 1922).
McDonough, J., "One Day in the Life of Ivan Denisovich: A Study of the Structural Requisites

of

Organization," Human Relations (1975).

Miller, D. W. and M. K. Starr, The Structure of Human Decisions (Prentice-Hall, 1967).
Piaget, J., Structuralism (Harper, 1970).
Radcliffe-Brown, A. R., The Andaman Islanders (The Free Press, 1922).
Schatzman, L. and A. L. Strauss, Field Research: Strateqies for a Natural Sociology (Prentice-Hall, 1973).
The Wall Street Journal, "Big Board Plan to Require Audit Panel for Each Listed Firm is Slated for Vote,
(23 September 1976), p. 4.
"Made Public the Findings of Arthur Young & Co., Hired to Assess Marwick's Auditing Standards and Performance" (24 November 1975) n 10

APPENDIx

Interchange 1. The partner arrived at

his office at approximately 8:45 a.m. He

began to sort through a large stack of
mail. In the mail was a copy of a memo
he had written concerning an agreement
with a local university graduate student
to do some editorial work for the firm.
From time to time the firm prepares
accounting and auditing manuals per-

training to particular industries and intended for the use of staff members of the
firm. The partner felt that the material in
this manual might be of some benefit to
decision makers in the entertainment industry. He therefore arranged to have an
outside person, the student, reedit the
manual into a form more appropriate to
clients and others.

This content downloaded from 202.185.34.1 on Thu, 26 Dec 2013 20:18:59 PM

All use subject to JSTOR Terms and Conditions

The Accounting Review, July 1977

584

Interchange 2: The partner recalled

that he had been asked by the managing
partner of the metropolitan office to move
from that office to the satellite office.
The partner complied even though it was
a considerably longer distance from his
home. Partners are owners, but they are
also employees.
Interchange 3. The partner asked a
manager to come into his office. The
managing partner had asked all partners
to provide him with some current billing
information. The partner must contact
the managers under his or her supervision
to get such data. This is an inconvenience.
The partner stated that he felt that the
designated administrative partner of the
firm should handle such matters.
Interchange 4. While the above manager was in the partner's office, the
partner asked him to handle a confidential matter. A prominent financier, who
owns a controlling interest in two major
corporations, had contacted the partner.
The contact occurred because one of the
partner's clients, which was also a major
stockholder of one of the companies that
the financier controls, had asked the
partner to negotiate for it in an attempt
to sell its block of stock to the financier.
The financier was not interested in purchasing the block of stock from the
minority stockholder, but he was interested in an alternate and potentially
complicated transaction. If the partner
could design an effective method to
consumate the transaction, his firm would
receive substantial remuneration. Several
difficulties were involved. First, the transaction might not be feasible. Second, it
might not be in the best interest of the
original client (i.e. the minority stockholder.) Third, the financier's companies
were audited by another CPA firm. The
partner asked the manager to sort out the
details and the options and come up with
a proposed solution.

Interchange 5.- The partner talked on

the phone to a manager in another office
of the firm. The conversation concerned
another large CPA firm. The other firm
has a client. The principal stockholder of
this client owns 20% of the stock of a
company which is a client of the partner
and the manager who are talking on the
phone. The principal stockholder also
owns another company. He wants to
merge the 200 0-owned subsidiary and this
other company. Since the two smaller
companies are, in effect, subsidiaries of
the larger company which is audited by
the other CPA firm, there must be coordination between firms. In its audit
opinion of the parent company, the
other CPA firm included a limitation as
to scope of audit. The partner believes
that the SEC will disallow the merger due
to the scope qualification.
Interchange 6. The partner went to
lunch around 11:45 a.m. Contrary to
lunch time activity of many partners,
which consists of business meetings, this
partner goes jogging at a local school.
Several seniors from the tax department
accompany him.
Interchange 7: After lunch, the partner
called a manager to remind him that the
partner, the manager, and another manager are supposed to attend a conference
on the entertainment industry sponsored
by the local CPA society.
Interchange 8: The partner has several
colleges as clients. He recalled attending
a conference of a college and university
financial officers' association. He reviewed a memo that he wrote about the
conference in which he discussed the
potential of such meetings for practice
development. Practice development is a
term used in the firm to indicate marketing of the firm's services.
Interchange 9: Another partner in the
office (the designated managing partner
of the office) came in to ask if the partner

This content downloaded from 202.185.34.1 on Thu, 26 Dec 2013 20:18:59 PM

All use subject to JSTOR Terms and Conditions

585

Baker
would take a visitor from the executive
office of the firm to lunch the next day.
The partner said that he would. The
visitor was from the "'research""department of the firm. The function of the
research department is to aid the practice
offices when they have technical problems. It is also to establish uniformity in
the practice of the firm throughout the
country.
Interchange 10. The managing partner
of the metropolitan office called to state
that he had received a request from
another CPA firm (the same firm as was
involved in the Interchange 5 above.) The
other firm requested assurance in regard
to the financial statements of the 20%owned subsidiary mentioned in Interchange 5. The other firm wants to
safeguard itself against any unforeseen
disclosures in regard to the subsidiary.
The partner felt that it would not be
appropriate to give such assurance without doing further audit work and charging a fee. This is because the last audit was
completed several months previously.
Interchange 11. The partner received a
phone call from a manager. The manager
stated that an acquaintance of his, who
was a financial analyst, had asked if he
could be introduced to some financial
executives of a client company. The
manager had told the analyst that he
would have to ask permission from the
partner. The partner did not think it was
a good idea to allow the analyst to trade
on the name of the firm.
Interchange 12: The controller of one
of the partner's clients called on the
phone. This discussion was in the nature
of a friendly chat. The topic centered
around a potential merger candidate for
the client. The controller was calling to
check out the general feasibility of the
merger and to keep the partner informed.
Interchange 13. The partner read a
letter from a client. The letter was com-

plimentary of the work that a manager

had done for the client. The researcher
asked the partner if such letters were
common. He replied that they are not
common, but occasionally they are received.
Ititerchatige 14. The partner read
another letter. This one was from a securities underwriter. Underwriters typically buy some or all of the stock of the
company they are working with. Since
this is a risk-laden business, the underwriter often turns to the auditor for
additional information and assurance,
especially pertaining to events transpiring
since the last audit. Public accounting
firms have developed a standard letter
which they send to underwriters in such
circumstances. The letter is referred to
as a "comfort letter." The underwriter in
this case was asking for greater assurance
than the standard comfort letter. The
partner was not willing to give such
assurance without further audit tests and
charging a fee.
Interchange 15. The partner began
reviewing a tax memo prepared by the
office's tax department. The memo was
detailed and lengthy. The partner said he
did not like to read such memos. He
prefers to obtain the same information
by reviewing the working paper files. He
stated that he thinks the lengthy tax
memo is somewhat of a wasted effort.
Initerchanige16: The partner received
a phone call from the treasurerof a client.
The treasurer was concerned about the
disclosure of director compensation for
an Australian subsidiary. The partner
indicated that he did not immediately
know the answer, but he said he would
contact the Sydney office of the firm to
find out. He considered the best means to
do this and decided to send a telex. He
drafted the telex message and had his
secretary read it to the telex operator in
the metropolitan office.

This content downloaded from 202.185.34.1 on Thu, 26 Dec 2013 20:18:59 PM

All use subject to JSTOR Terms and Conditions

586

The Accounting Review, July 1977

Interchange 17: The partner began

reviewing the working paper file for the
audit of a client. The working paper file
represents the evidence of an audit. It is
physically a sheaf of legal sized papers
held together by a brass brad. The papers
are prepared according to a relatively
standard formula within the firm. Different firms apparently have slightly
different procedures. According to the
partner the style of working paper preparation has not changed dramatically in
the 20 years the partner has been with the
firm. Staff accountants initially prepare
the working papers. Then they are consolidated and reviewed thoroughly by a

senior accountant. Some sections are

prepared by a senior. These as well as the
other, more routine sections, are also
reviewed by the manager. The whole
package is more cursorily reviewed by
the partner, with certain problem sections attracting more of his attention.
The partner also attempts to catch any
points in the papers that might cause
difficulties or embarrassment in the event
that the papers would ever come to be
evidence in a court of law. The partner
continued reviewing the papers until
about 6:00 p.m. at which point he prepared to leave the office for the day.

This content downloaded from 202.185.34.1 on Thu, 26 Dec 2013 20:18:59 PM

All use subject to JSTOR Terms and Conditions