Accountability and Risk Management

Seminar 1

Prof. Dr. Brendan O’Dwyer

Seminar outline

1. Structure and content of seminars

2. Group homework assignments
3. Qualitative research methods
4. Seminar paper review: Spira and Page (2003)
Course preamble
• Please see Lecture 1 and the Course Outline on Canvas for course
requirements and objectives

• You are expected to know everything included in the course outline

• All required information relating to the course and the final exam
(including a mock examination) is included here
Reminder: Core course objectives

• Develop knowledge of research and related practice in accountability and

risk management

• Develop knowledge of social and organizational theory in accountability and

risk management

• Develop the ability to read and critique qualitative academic accounting

research
Seminars

• Each seminar will review and discuss two academic papers using qualitative
research methods

• Student groups are required to submit homework prior to each seminar in Weeks
2 to 6
• each group will review one academic paper covered in each seminar
• the paper for review is selected by the student group
• Groups are set up under the People folder in Canvas – allocation will be
complete at the end of week 1

• Seminars are designed to develop the knowledge and reflection required to

answer open-ended essay-style questions in the Final Examination
Characteristics of Seminar papers

• Contextually and theoretically develop the issues addressed in the

lectures
• Combine theoretical concepts with practical insights
• Qualitative methods adopted - frequently focus on processes
• A variety of concepts/theoretical frameworks used to help
understand and explain findings
• Cannot be studied in a superficial manner
• Can be studied in an efficient, stimulating manner … with my help
Homework Assignments
• Commencing in Week 2
• Groups are assigned on Canvas – the Groups are fixed for the entire Block
• Submit weekly Assignment through Assignments folder in Canvas under the
relevant weekly assignment (and in relevant full-time group folder)
• Group selects one of the two seminar academic papers to review
• Group answers four questions related to the chosen paper (see next slide)

• For detailed instructions on the Weekly Assignment, please read page 5 of the Course Outline
• Follow these instructions carefully
Homework Assignment – Four questions related to paper
selected
1. In your own words, outline the key findings and/or storyline of the paper.

2. Clearly explain why the paper makes a contribution to the academic literature.

3. Clearly explain the theory and/or core concepts used to interpret/frame the paper’s
findings.

4. Clearly evaluate how the theory and concepts adopted in the paper help us to
understand the paper’s empirical findings.

• Seminar papers for each week are outlined in Section 7 of the Course Outline and
posted in the relevant weekly materials in the Module folder on Canvas
Final Examination
• See Section 10 of course outline
• See Canvas folder:

• Detailed study and revision guidance

• Mock examinations and prior year examinations
• Essay-style questions on papers covered in the course
How to review the seminar papers (1) …
• Start by reading the Abstract of the paper (where available)
• this will give you an overview of the key issues covered in the paper

• Then read the Introduction … now pause and reflect and try to get the ‘Big Picture’ of the paper
• Seek out the research objectives/ research questions
• You should also now have some idea of the paper’s contribution

• Now read the Discussion and Conclusions …now you should know the paper’s essence

• Review the theory used in the paper broadly

• Proceed to enter and slowly read the main body or story of the paper in the findings/case
analysis/ case narrative

• Read Introduction and research methods sections of Canning and O’Dwyer (2006)
 How to review the seminar papers (2)…
• Each paper will contain issues/concepts that you have not seen before and that you
will not always fully comprehend:
• Do not worry about this and do not get slowed down by the detail
• Simplify the key concepts/theory used to explain the findings
• Aim for a broad overview
• Summarise the paper in your own words
• but beware … simplification does not imply superficiality

• The papers are designed to stimulate thought and discussion and impart context-rich,
theoretically informed knowledge – focus is on learning … think of Flyvbjerg (2006) in the
lecture

• It is okay if you cannot fully follow some concepts – focus on the contextual ‘story’
Your ‘to do’ list
• Carefully read the Course Outline on Canvas (and emailed to you)
• Keep up with the reading, week-by-week. This is crucial.
• Check which Assignment Group you are in on Canvas at the end of this
week - go to the People folder
• Make contact with your fellow Group members
• Read the weekly Homework Assignment requirements and guidance
carefully
• See pages 5 and 16 of Course Outline
• One Group member submits the assignment via the Assignments folder in Canvas
• Make sure you use the correct folder – Full-time Group
• Read the Final Examination and study guidance on Canvas
Core Methods in the Research Papers:
Qualitative Research Methods
 Qualitative Research Methods

Vast area: ▪Typical Methods include:

• Field/case studies – our focus

• Documentary analysis
• Ethnography
• Action research

1,104 pages summary text

Three key types of qualitative data
•In-depth Interviews
• People’s experiences, perceptions, opinions, feelings and knowledge
• Data: verbatim quotations with sufficient context to be interpretable

•Observation
• Activities, behaviours, actions, conversations, interpersonal interactions
• Data: field notes: rich detailed descriptions including details of context

•Documents
• Correspondence, contracts, reports, official publications, personal diaries, written responses to
open ended surveys
• Data: excerpts from documents captured to record and preserve context

• All three types are evident in the seminar and lecture papers
Nature of Qualitative Methods
• Enable deep understanding
• Can reveal how the social world is:
• interpreted
• understood
• experienced

• Primary focus is on explanation/in-depth understanding as opposed to prediction

• answer “how” and “why” questions
• provide insights into the framing of practice in context
• depth of analysis versus breadth of analysis
• sensitise academics to the realities of practitioners
• aim for theoretical, not statistical generalisation

• Making ‘sense’ of (social) processes as they unfold over time

Some processes studied in the course papers …
• How institutional contexts reduce accountability and allow corporate illegality to thrive
• How internal controls can be circumvented to enable fraud
• How Enterprise Risk Management (ERM) has emerged and been diffused
• How ERM is interpreted and implemented in different organizational contexts
• How Integrated Reporting has enabled broader forms of corporate accountability
• How climate change risks have become embedded in risk management reporting
• How Sovereign Wealth Funds (SWFs) are held accountable for managing human rights
risks
• How auditors experience the accountability processes of regulators
• How professional accounting bodies’ accountability is reconfigured by regulators
The role of theory in qualitative research
Theory in qualitative research (1)

• Variety of theoretical perspectives embraced

• Role of ‘theory’ varies:
1. Contextualise, understand or explain (actors’ perceptions regarding) a
phenomenon

2. Data analysis may:

• build theory about a phenomenon
• develop theory about a phenomenon
• expand theory about a phenomenon
Theory in qualitative research (2)

• “Theory is simply a way of imposing conceptual order on the empirical

complexity of the phenomenal world” (Suddaby, 2014)

• It provides a framework within which social phenomena can be understood

and research findings can be interpreted
• it allows a researcher to see his or her world with new eyes
• a vehicle for understanding and communication (Ahrens and Chapman, 2006)
• a sensemaking device to guide and frame ‘second order’ data analysis (Radcliffe, 2010)

19
 Evaluating Qualitative Research

• Bryman, A. (2008), Social Research Methods, Oxford University Press, 3rd

Edition. Chapter 16: The Nature of Qualitative Research

• “Tool-kit” that you can draw upon as required to support your reading,
understanding and analysis of seminar and lecture papers.

• A reference source
Seminar 1 paper review: Spira and Page (2003)
Keep this question in mind …
Drawing on the paper by Spira and Page (2003), critically discuss the
following statement:

‘Risk is a fixed concept. Its fixed nature has ensured that internal
control and risk management have remained completely separate
activities.’
Spira and Page (2003): Summary

• A conceptual, exploratory paper

• No new empirical insights, but claimed new insights

• Offers an analysis that partly frames our focus in the course on

accountability and risk management

• Seeks to explain: how internal control (and internal audit) came to be

closely aligned with risk management
Key paper ‘storyline’ (1)

• Risk has become central to corporate governance

• Corporate governance has evolved to embrace a broader range
of risks

• Risk is now managed within the corporate governance

framework through accountability mechanisms
• such as: internal control and internal audit

• Internal control is now explicitly linked to risk management

Key paper ‘storyline’ (2)

• The nature of risk and responses to risk continually evolve

• This is evident in the way that:

• Risk management has become closely aligned with internal

control
Risk management as a form of accountability
• Risk management (RM) is now a form of accountability
• part of the accountability process
• aimed at demonstrating accountability
• not just a mere response to risks

• But
• Focus is actually on blame avoidance as opposed to enhancing accountability – masking
responsibility

• Previously, risk management was the focus of accountability

• a response to risks through risk management systems

• In sum: risk management is now part of the accountability process

• internal controls are central to that process
• distinction between RM as response to risk and RM as accountability for risk is blurred
Historical development of Risk: Changing notions of risk
Risk conceptualisation - Risk responses - Accountability for Risk
Pre-modern phase

• Risk management was absent: risk considered not manageable

• Risk was associated with ‘acts of God’
• misfortune that is beyond human influence

• Acceptance
• make amends for ‘sin’ committed

• Blame placing
• attack individual adversaries for misfortune
• punish enemy groups for misfortune
Modern phase Reward for risk
avoidance

• Risk concept:
• Risk became associated with unanticipated outcomes of human action
• Techniques for prediction and calculation of risk evolved – risk was made calculable

• Risk response:
• Focus on blame remained – but focus now on blame prevention or avoidance
• Not as easy to blame external parties as risk now deemed avoidable

• Accountability for risk:

• Move from blame placing to offering compensation for risk avoidance
The ‘risk society’ phase

• Risk is now deemed manageable – risk management offers comfort

• Advances in science and technology offered risk protection but also created new risks

• Response to adverse consequences of risk:

• Blame the system not individuals given increasing complexity
• Risk responses are planned in advance – as are Public Relations responses
• Seek blame avoidance - system focus protects individuals from blame for adverse
consequences – masking responsibility and offering immunity from blame
• Does not protect organizations from the consequences of risk

• Accountability through amending the system

• Risk management reduces accountability by hiding responsibility for adverse consequences
 How internal control became risk management
• 1980s and 1990s - major change in internal control of companies
1. Growth of information technology
• ERP systems and real time processing
• Poor systems documentation

2. Changes in audit methods

• Business risk audit approaches – reduced systems testing and detailed (substantive) testing

• Rigidly enforced compliance with policies and procedures replaced with

rhetoric of risk
• Upper organizational levels focused on the risks deemed to be important
How internal control became risk management
• Emergence of COSO (1992) - see also Lecture 2 next week
• Definition of internal control (IC):
• Linked internal control with effectiveness
• But how do I know how exactly an IC process contributes to achieving business
objectives?
How internal control became risk management

• Evolution of corporate governance codes in the UK

• Gradual coupling of internal control with risk management
How internal control became risk management
• The scope of internal control (IC) was broadened
• Reporting requirements became less stringent
• IC as RM = links to strategy formulation and IC as promoting enterprise
• Is RM now part of IC or is IC a subset of RM!?
• … Does anyone now know exactly what the IC system is!?
Who benefits from IC being conceptualized as RM?
• Directors - more concrete focus on ‘risk management effectiveness’ as
opposed to vague meaning of ‘a sound system of internal control’

• External auditors - aligned with marketing of business risk approaches to

audit common in the early 2000s - ‘added value’ audits

• Risk management consultants

Redefining internal control – the impact on internal auditors
• Internal audit – traditionally a monitoring function
• No attachment to major corporate objectives
• Outsourced – cost reduction motives

• Seeking a value adding role

• From controller to controller-advisor
• Advising and controlling
• consulting versus independence = role conflict?

• Redefining (extending) internal audit

• Adding value and improving risk management and governance processes
IIA revised Internal Audit definition
• “Internal auditing is:

• an independent, objective assurance and consulting activity

designed to add value and improve an organization’s operations.

• It helps an organization accomplish its objectives by bringing a

systematic, disciplined approach to evaluate and improve the
effectiveness of risk management, control, and governance
processes
Redefining internal control - the impact on internal auditors

• Response to financial scandals in 1990s:

• Increased demands for accountability regarding corporate governance practice
• Broader approach to internal control advocated (‘Turnbull’)
• Internal audit as part of the solution - align with risk management trends

• Not clear if complete elevation of internal audit as enabling corporate objectives

around risk management was achieved

• But evidence suggests a positive trend

 The complete coupling at
Vopak?

• The focus of key aspects of Week 2 and Week 3

Back to the question:
Drawing on the paper by Spira and Page (2003), critically discuss the
following statement:

‘Risk is a fixed concept. Its fixed nature has ensured that internal
control and risk management have remained completely separate
activities.’
Questions?