The Case of BP
In June 2010, a class action lawsuit citing the oil and gas company BP's "history of safety lapses, cost cutting and workplace disasters" was lodged in the U.S. District Court for the Eastern District of Louisiana on behalf of BP shareholders. The suit alleged that BP "misled investors before the April 20, 2010 Deepwater Horizon oil spill in the Gulf of Mexico" by claiming that the company "had the technology to safely conduct' ' operations in the Gulf - a region that was "a primary economic driver" of its financial performance. The suit cited "BP's long history of spills, fires and explosions at its facilities" and alleged that "BP violated the Securities Exchange Act of 1934 by issuing false and misleading statements about safety, technology, inspections and precautions at its offshore oil facilities." (See www.prnewswire.com/ news-ieteases/bp-sbarehdders-file-lawsuitover-gulfoü-spill-960373 19 .html.)
Other major oil companies have been responsible for some sporadic major safety-related incidents (e.g., the grounding of the bulk oil tanker Exxon Valdez in 1989). But BP has been associated with a pattern of major safetyrelated incidents in the past decade. These point to BP being an industry outlier in terms of safety consciousness and safety performance.
It is not surprising mat major legal proceedings were commenced against BP on the grounds of operational safety negligence. Indeed, research the authors completed two years before the explosion of BP's Deepwater Horizon oil drilling platform called into question BP's tone at the top and ambient operational safety culture (Joel Amernic, Russell Craig, and Dennis Tourish, Measuring and Assessing Tone at the Top Using Annual Report CEO Letters, Institute of Chartered Accountants of Scotland, CA House, 2010. Available from: wwwicas.org.uk/site/cms/content viewamcle.asp?article=6836). We were far from alone in our concerns. Many observers of BP - such as industry analysts, journalists, academics, and representatives of labor unions - had been conscious of the company's cost-cutting mentality prior to the Deepwater Horizon explosion. Loren C. Steffy, a business journalist for the Houston Chronicle, concluded that such a mentality was "pugilistic" and "relentless," and had "spawned a culture of disaster" Drowning in Oil: BP and the Reckless Pursuit of Profit, McGraw-Hill, 2011, pp. 117 and 258).
Our viewpoint is that CPAs should acknowledge the strong potential effect that a company's culture and tone at the top can have on a company's reported financial performance. We contend that auditors need to broaden the notion of audit to assess the operational risks emanating from a company's culture and its tone at the top. They should take these matters into consideration in assessing whether ensuing financial statements constitute "fair presentation" or whether - as we contend is the case with BP - they materially understate liabilities. The Deepwater Horizon explosion and BP's prior financial reporting and auditing provide a strong illustrative case of the need for such an expanded role.
We have provided guidance and practical examples of how to measure and assess tone at the top in our previous work (Amernic, Craig, and Tourish 2010). There, we argued that insight to the tone at the top of a major corporation can be obtained by analyzing the text of a CEO's letter to shareholders. We demonstrate two complementary methods for doing so. The first involves use of the Diction text analysis software package; the second involves the close reading (or forensic deconstruction) of those letters. Speeches by corporate leaders also provide good source material for discerning a company's tone at the top.
Operational Audit and Financial Audit
Accountants and auditors should have stronger regard for the link between a company's accounting and its operations. In particular, it would seem highly desirable to nurture a closer dialogue between financial auditors and operational auditors, whose responsibilities include assessing safety-related aspects of the operational control systems of entities. …