Academic journal article Journal of Comparative International Management

Auditor-Client Dependence in the Development of New Accounting Standards in Canada

Academic journal article Journal of Comparative International Management

Auditor-Client Dependence in the Development of New Accounting Standards in Canada

Article excerpt


This study examines constituent participation in the accounting standards setting process in Canada to determine whether the positions of auditors and their clients relative to new accounting standards proposals are independent of each other. Using responses to the ten accounting exposure drafts receiving the highest public responses, the active role of Big Eight (now Big Five) firms is underscored. For all responses, significant agreement between Big Eight/Five auditors and their clients in their respective positions on proposed new accounting standards is found. However, domination of the process by Big Eight/Five firms through indirect influence of their clients' responses to individual exposure drafts is not supported. Disagreements among Big Eight / Five firms and between Big Eight/Five firms and their clients are found. Overall test results indicate that relative to the core issues on which new accounting standards are needed, auditors and their clients generally respond independently, even if there wer e some new proposals on which they had the same views. The findings suggest that independent corporate and audit-firm motivations explain the decision to participate in the accounting standards setting process. The real motivations for the active participation in the process by auditors and corporations are subjects for continued research.


Since the 1970s, the then Big Eight (now Big Five) accounting firms have been perceived to dominate the accounting standards setting processes in the US, Canada and elsewhere through their size, dominance of other accounting firms, and big share of the large corporate clients market. Although the Canadian Institute of Chartered Accountants (CICA) has the sole authority to issue accounting and auditing standards in Canada, it still uses a due process for standard setting, much like that of the Financial Accounting Standards Board (FASB), which is not the final authority on accounting standards in the United States of America. During the 1970s the CICA was mailing out about 40,000 copies of each new exposure draft to its members and subscribers of its Handbook for comments. However, from 1981, distribution was cut by 80% to only about 6,800 people per exposure draft. The reduced distribution was due to the poor response rates to the earlier exposure drafts. It was also not until the 1 980s that the CICA started compiling booklet forms of the exposure draft and its related responses into what it calls the Public Record. The first public record issued was in 1984 for the 1983 exposure draft on Investment Tax Credit. By 1996, 52 public records had been issued. Since then, exposure drafts have received wider circulation through publication in the CA Magazine and on the internet.

Against this backdrop, this study examines participation in the Canadian accounting standards setting process to determine whether auditors influence their clients' responses and positions relative to new accounting standards proposals. It highlights the role of relevant parties which, given the limited distribution environment prior to 1996, were interested in the outcome of potential accounting standards enough to participate in the process. Efforts to increase participation can be directed at areas with minimal participation. Furthermore, an understanding of the various constituents will permit studies on their participation motivations. If the process is being patronized by a limited dominant group, then further examination of their real influences can be examined. Finally, the study extends examination of constituent participation in accounting standards setting in the accounting literature into the Canadian context.


The CICA's involvement in developing accounting principles began in 1946, when it issued its first recommendation in the form of a bulletin. Several bulletins followed until all bulletins were reorganized into the CJCA Handbook in 1968 (Baylin et al, 1996). …

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