Power Dynamic Impacts on Communications: Auditors and Standard Setting

• In Event: Auditing (External/Internal)

Abstract

We use the PCAOB auditing standard setting to explore the power dynamic in a regulatory setting. The Public Company Accounting Oversight Board (PCAOB) was formed to decrease the practicing auditor’s influence on auditing standards in order to emphasize the independence of the regulator from the profession. With the shift in audit industry representation in audit standard setting, the power dynamic between practicing auditors and the auditing standard setting body fundamentally changed. Based on a theory relating power dynamics to language usage, we test the impact of this power relationship shift on negative language using cross-sectional panel data of 3,280 comment letters. Our findings are consistent with the power dynamic as a determinant of regulated participants’ textual writings. Our findings suggest that while the PCAOB generates input from a broad constituency, differences exist between auditors’ writings and others and the language usage reflecting perceived power has changed over time. Our contribution focuses on one potential determinant of textual language. Regulators and researchers should be interested in these results as studies examining consequences of textual analysis research grows.

Authors

• Colleen M Boland, University of Wisconsin-Milwaukee

• Renee Flasher, Ball State University