Legitimacy theory or something else? The audit of environmental matters: a New Zealand study
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The research presented in this paper examined the audit of „environmental matters‟ and asks the question whether legitimacy theory provides an explanation for the observed audit phenomenon. This task is important because, as members of the accountancy profession, auditors are expected to act in the public interest (ICANZ, 2003, Code of Ethics, paragraphs 14 and 15) and environmental matters are issues of public interest. The evidence for this study was collected using semi-structured in-depth personal interviews with twenty-seven auditors: eighteen were financial auditors in chartered accounting practice (FA); seven were public sector auditors (PS) and two were from the office of the Auditor General (OAG). The interviews which were guided by a small number of broad open-ended questions were conducted in the interviewees‟ offices by the researcher. The research findings indicated that legitimacy theory does not provide the appropriate explanation for the audit of environmental matters in accordance with Audit Guidance Statement (AGS) 1010: The consideration of environmental matters in the audit of financial reports. The introduction of AGS-1010 by the New Zealand Institute of Chartered Accountants (NZICA) was due to a necessity to maintain equivalence with global partners. Public Sector Auditors‟ explicit focus on environmental matters for every public sector and government entity is in compliance with the legislated mandate as required by the Auditor General and the Local Government Act 2002. On the other hand, the financial auditors‟ consideration of environmental matters is no different from their consideration of other audit issues. At the present time, there is no apparent tension between the New Zealand public and there is no public outcry which causes the organisation to perceive that its reputation or legitimacy is threatened, thus the notion of legitimacy theory would not come into play in regards to environmental matters, i.e. business is as usual. Findings from this study substantiate and explain more clearly the underlying concepts in legitimacy theory. Very obviously, organisational survival must be present (Bansal & Roth, 2000). Something drastic must also have happened that impacted detrimentally on an organisation‟s reputation or legitimacy (Patten, 1991) and social pressure had caused management to perceive that there is a legitimacy crisis that led to a legitimacy gap. Only in such circumstances would legitimation strategies be considered for narrowing the gap.