Asem Sadid
Abstract:
Building on the continuously growing phenomenon of cultural diversity within audit firms, this research adds further on prior studies regarding the influence of cultural diversity within Dutch audit teams, particularly the influence on the collaboration between team members. This study confirms the findings of previous studies like Verkuyten, M. et al (1996); Hurn (2007), and Stahl, G. et al (2010) which state that cultural diversity can have a significant influence on the collaboration within working groups. Sunderland. et al (2017) also states that the influence of cultural diversity within the audit setting must be studied further and more in depth. The audit work is dependent on the collaboration within an audit team. Culturally diverse teams increase the probability of conflicts and inefficiency occurring during the collaboration, but if well managed, it can improve the overall efficiency, creativity of the audit team and cost structures of audit teams. Therefore, this study not only explores the negative influences, but also the positive influences that cultural diversification has on the collaboration within audit teams (Stahl, G. et al, 2010; Cox & Blake 1991; Doz, Santos, & Williamson, 2004; O’Reilly et al., 1998). The data is collected using semi-structured interviews and existing literature and finds that a high degree of cultural diversity has positive as well as negative influences on the collaboration within an audit team. Thus, creating new insights regarding cultural diversification within the auditing literature. Resulting in e.g. creativity, flexibility, efficiencies during the collaboration with the audit team consisting out of a culturally diverse engagement team, which is in line with prior studies (Stahl, G. et al, 2010; Cox & Blake 1991; Doz, Santos, & Williamson, 2004; O’Reilly et al., 1998). On the other hand, when not managed right, conflicts and misunderstandings occur thereby impacting the overall efficiency and audit quality.Keywords:
Cultural diversity, collaboration, audit teams, audit quality, efficiency, audit.Word count:
11.3001 TABLEOFCONTENTS Introduction 2 Theoretical Framework 5 Cultural diversity 6 Individualism vs collectivism 7 Power distance 8 Research methodology 10 Research design 10 Data collection 10 Data analysis 13 Research setting 13 Results 14
The creation of Cultural diversity 14
Teamwork defined 16
Cultural diversity: collaboration within audit teams 18
Power distance 18
Individualism vs collectivism 21
Cultural diversity: competitive strength 26
Conclusion & discussion 30
Contribution 32
Limitations 34
References 35
References from online sources 37
Appendix 38
Appendix 1: Interview guideline 38
1. INTRODUCTION
When we think of the phrase ‘Globalization’, the 21 st century is the main timeline that we
think of. There have been immense technological and economic developments during the past two decades enabling business to expand across their domestic borders (Perera, H.B. et al, 2003). The expansion by providers of audit and accounting services began during the 1980s and kept growing into the twenty-first century. Global business expansions lead to an increase in demand for services provided by audit firms across a broader range of countries, cultures and languages (Carson, E. 2014). This phenomenon is also observed when we look at the hiring data of the Big4 audit firms in the Netherlands. For example, PwC has published that 30% of their new hires possess a different cultural background and this number has been increasing over the years (PwC, 2020). Therefore, the audit industry is being influenced by the ongoing globalization, which brings new challenges for audit firms in terms of increased cultural diversity. (Barrett, Cooper, & Jamal,2005; Detzen & Loehlein, 2018). When the challenge of cultural diversity is managed correctly, it can offer great competitive advantages for the entity and will be pursued by audit firms (Stahl, G. et al, 2010). Moreover, the increasing globalization and expenditure of foreign businesses towards the Netherlands are causing audit firms to attract these new skills permanently to be able to cope with globalization and cultural diversification. The most important source being the hiring of personnel with a different cultural background, trying to overcome the barriers set by globalization of the audit profession (The PwC diversity journey, 2016). The study of Stahl, G. (2010) argues that cultural diversity within working groups can increase creativity during the collaboration; increase the problem-solving ability of the audit team; improve cost structures; and increase the flexibility within working groups. On the other hand, cultural diversity also possesses significant threats during the collaboration within team-based groups, resulting in a decrease of overall team performance and occurrence of inefficiencies (Verkuyten, M., et al. 1996; Hurn, 2007). Within an audit team, team-based performance is of crucial importance. Auditors must build on the work of their colleagues within the audit team, supporting and using the output of team members, with the goal of connecting and assembling the findings of each individual team members in a unified audit report (Rudolph & Welker,
1998). Interdependencies get to exist among the different outputs of team members, making communication key for an effective audit process.
When inefficiencies occur, the audit teams are not able to keep track with the schedule, which results in more hours needed to fulfill their tasks, increasing the general cost-driver of audit firms (B. Pierce & Sweeney, 2004). Once inefficiencies have occurred, the team members suffer by time pressure during the collaboration. Time pressure has a negative effect on the audit quality (Bernard Pierce & Sweeney, 2006). Therefore, it can be concluded that teamwork is of high importance during audit services and it is important to not neglect potential threats to the audit setting due to cultural diversification (Barret, M., 2005). The collaboration within audit teams is the key driver of the audit department of any audit firm. Therefore, the nature of auditing makes communication and teamwork crucial for the effectiveness and quality of the audit. However, the study of Loyd et al. (2010) states that different beliefs are present within a diverse team and are a source for personal conflicts within working groups. In addition, professional skepticism and judgement are key characteristics of an auditor, yet these are subjective and can vary due to cultural background and education (Sim, 2009; Sunderland et al., 2017). A diverse culture does therefore influence the collaboration and communication within audit teams.
There have been some studies investigating the influence of cultural diversity on the audit setting. The focus of these prior studies regarding cultural diversification within the audit setting are on the practical implications of cross-cultural audit groups (Sim, 2009) and ignored the influence that cultural diversification has on the collaboration within an audit team, perceived by the audit team members themselves. The study of Detzen (2018) offers insights on the effect of diversity within multilingual teams that are based in different countries, with a scope on language differences. Culture differences are not only perceived in multilingual audit teams. The increasing number of employees with different cultural roots results in culturally diverse audit teams which cannot be classified as multilingual since these hiring’s largely do speak Dutch and live in the Netherlands. Therefore, they cannot be considered multilingual. The study of Barrett, M et al (2005) shows how globalization affects audit services, arguing that a higher demand of audit services and continuous growth of cultural diversification in a multinational setting is perceived. Yet, the findings of the study of Barret,
M et al (2005) state that coherence and consistency are crucial in coordinating audit teams where cultural barriers are present. Using coherence and consistency, culturally diverse audit teams will be able to perform the audit in an efficient manner. The study of Barret, M et al (2005) includes a broad area of study and does not provide any understanding of the effects of cultural diversity, particularly on the collaboration within an audit team. The existing literature has developed different insights regarding cultural diversification, theoretically explaining why and how firms should engage in cultural diversity (Stahl, G. et al, 2010; Cox & Blake 1991; Doz, Santos, & Williamson, 2004; O’Reilly et al., 1998). The high increase of cultural diversity within audit teams makes it more important to study the exact influence of cultural diversity and define the practical implications. Furthermore, as the study of Sunderland. et al (2017) suggests, it is necessary to further study the influences of cultural diversity within the audit segment. This leads to the following research question:
To what extent does culture diversity influence the collaboration within the audit team during an audit engagement?
The results of this study can have a major contribution for the management of audit firms, since cultural diversification is a relevant topic within the audit firms. Understanding the effects of globalization and increasing cultural diversity will help management to cope with the changing environment in an optimal manner. As Brannen (2000) states, it is of strong importance to find an understanding for cultural interaction between employees in order to enable performance monitoring, measurement and managing the cultural settings within a firm. As such, understanding the effects that cultural diversification has on collaboration, will hand the management tools to create and manage the optimum setting within their organization to cope with the barriers set by cultural diversification.
2 THEORETICAL FRAMEWORK
Managing cultural diversity has become a challenge for present and future organizations. Due to social pressure as a result of globalization and the need of different and unique human-resources, all big 4 firms have set up cultural diversification goals (The PwC Diversity Journey, 2016; Cox, T.H. et al, 1991). Moreover, the cultural diversification within audit firms have been steadily increasing over the last decade, increasing the significant impact of cultural diversity within audit firms. Management of cultural differences has therefore become key in preventing cultural conflicts (Cox, T.H. et al, 1991). To answer the research question, the existing literature is a valuable source to obtain a higher level of knowledge regarding the study.
As stated in the introduction, globalization is a continuous phenomenon influencing the audit profession. This is experienced in the industry structure and, most importantly, accounting and financial reporting standards (Akisik., et al 2009). Moreover, due to international collaborations firms engage in multinational audit teams as the study of Barret, M (2005) states. The usage of international standards instead of national standards, enables firms to create multinational and internationally spread teams. Due to the uniform audit approach, audit firms can standardize their audit approach, which enables the firms to attract expertise from domestic borders (Manson, Sherer, & Wallace, 1998). The labor market has become more ethnically diverse and the educational background of immigrants keeps improving (CBS, 2020). Furthermore, second generation immigrants are achieving a higher attainment of education (Yao, Y., et al 2004; Van Ours, J.C., et al, 2003). The focus of this study will be on the audit teams which consist of employees with a different cultural background and reside in the Netherlands. The Netherlands has been chosen for this study due to its rich information source regarding culturally diverse audit teams. The effects are relevant and valuable for audit firms due to the continuously increasing cultural diversity. In the following section the expected effects of cultural diversification and the reasoning behind these effects are further explained.
2.1 CULTURALDIVERSITY
Prior studies state that the continuously increasing diversity should be investigated more thoroughly (Sunderland et al., 2017). All industries are coping with increased cultural diversity.
Culture differences can have a significant impact within groups (Hofstede, 2015), these differences can be translated within four different dimensions being: individualism, collectivism, large small power distance, masculinity vs. femininity and long- vs-short-term orientation (Hofstede, 2015). Collaboration between employees within the audit industry is of crucial importance. Every output delivered is based on collective input by employees. Based on the type and complexity of the client, a specific number of employees are assigned to every engagement. During the year there is a high rotation within the teams. Employees do not have permanent teams and are forced to adapt to different colleagues across different teams (Rudolph & Welker, 1998). Multicultural teams have a high variety in ways team members prefer to approach tasks and the manner they perform them due to their cultural background. When the adaptation of these work approaches is not embraced by other team members, inefficiencies can arise during the collaboration within an audit team with a high level of cultural diversity (Rudolph & Welker, 1998; Verkuyten, M., et al, 1996; Hurn, 2007). However, this phenomenon is not unique and can also affect audit teams with a low level of cultural diversity or no cultural diversity at all (Rudolph & Welker, 1998; Verkuyten, M., et al, 1996; Hurn, 2007). Exploring how and why the collaboration is being affected is key during this study. This topic regarding work approach is relevant for this research, since different work approaches can be measured reliably (Sunderland et al., 2017).
The dimensions of individualism and collectivism, and large vs. small power distance are in scope of this study, since they have the potential to significantly influence the collaboration during team-based performance, especially individualism and collectivism (Sim, 2009). Since the study measures the influence of cultural diversification, with a focus on ethnic background. Masculinity vs. femininity is not as relevant since the study does not make any separation between gender for example. Moreover, the dimension long- vs. short-term
orientation is also not applicable, since the study focuses on long-term collaboration within the audit setting.
2.1.1 INDIVIDUALISMVSCOLLECTIVISM
Some cultures are considered more focused on collectivism and some cultures are more focused on individualism. The Dutch culture can be considered a culture defined as individualistic. During the study of Verkuyten, M., et al (1996) the Netherlands had the lowest score on collectivism when compared to for example Suriname, Turkey, Spain and Morocco, receiving a score of 4,2 out of 10. The study of Verkuyten, M., et al (1996) also shows that people from other cultures, including the Dutch culture, prefer to have contact with other people possessing similar cultures. Individualism among employees results in more difficulties when engaging in teamwork-based efforts, because employees with cultures that focus on individualism will prioritize their own beliefs, work procedures and achievement of personal set goals instead of the goals of the whole engagement team. When the audit team consists of a mix of individualists and collectivists the decision-making process can be significantly prolonged. Further explained, individuals do not seek consensus with the whole engagement team, collectivists prefer to discuss and reach a consensus before making important decisions (Hurn, 2007). These differences can lead to conflicts and inefficiencies which lead to an increase of the total cost of the audit engagement (B. Pierce & Sweeney, 2004). Audit firms must implement strict policies regarding teamwork-based efforts. Once these are in place, monitoring and evaluating becomes crucial in the compliance of these policies. If we take a closer look at the dimension of individualism and collectivism, audit teams which include a high variety of team members with a collectivism and individualism background are significantly influenced, further explained next. As Verkuyten, M., et al (1996) states, the Netherlands has an individualistic culture, conflicts can arise when working together with colleagues with a collectivism background due to misunderstandings between colleagues due to different beliefs and preferences. Thus, resulting in inefficiencies and overall decrease in performance (Verkuyten, M., et al. 1996; Hurn, 2007). Conflicts take time to be resolved and as the study of B. Pierce & Sweeney (2004) states, time is considered as a key cost generator for audit engagements. Thus, increasing the overall cost of an engagement. On the other hand, team members with a different view on collaboration can offer new
insights and increase the overall problem-solving ability and creativity of the audit team (Earley & Mosakowski, 2000; McLeod, Lobel, & Cox, 1996). This results in an improvement of overall audit efficiency by an audit team since less time is required fulfilling task and/or tasks are better performed. Thus, increasing the overall audit quality and efficiency (B. Pierce & Sweeney, 2004; Bernard Pierce & Sweeney, 2006).
2.1.2 POWERDISTANCE
The next dimension of Hofstede (2015) argues that there is a difference in power distance between colleagues possessing different cultures, namely large vs. small power distance. Hofstede defines power distance as the difference between a less powerful person and a more powerful person. Meaning that some cultures possess a clear hierarchy between team members and other cultures where the line of hierarchy is less apparent, the former cultures tend to find a consensus necessary before taking decisions within working groups (Hurn, 2007; Bochner, S., et al, 1994). Moreover, time management is essential in the audit setting, consensus is often reached after several meetings. Thus, increasing the overall cost and decreasing the overall effectiveness of the audit collaboration (Hurn, 2007; B. Pierce & Sweeney, 2004). On the other hand, thoroughly discussed decisions could potentially increase the overall audit quality (Bernard Pierce & Sweeney, 2006; Rudolph & Welker, 1998). The study of Hofstede (2015) also argues that cultures with a high perceived degree of power distance, also prefer a more autocratic manner of collaboration.
A different topic discussed by the study of Hofstede is submissive behavior, namely the unwillingness and or fear to disagree with a person who possesses more power. As such, cultures with a high degree of power distance between employees are believed to behave far more submissively when working within working groups and when the power distance is larger between employees (Bochner, S., et al, 1994).
As prior studies (Earley & Mosakowski, 2000; McLeod, Lobel, & Cox, 1996; Thomas, Ravin, & Wallace, 1996)argue, it is important to develop more knowledge in regards the potential opportunities and threats for the collaboration that come with cultural diversification in an audit team during an engagement (Brett, Behfar, & Kern, 2006; DiStefano & Maznevski, 2000). Further research is necessary to study the extent and influences cultural diversification can possess. Therefore, this study will focus on culturally diverse audit teams and how the 8
collaboration between the different groups is conducted, it will be an extension of existing literature and add new insights to it.
3 RESEARCHMETHODOLOGY 3.1 RESEARCHDESIGN
This study can be deemed as a qualitative research. Interviews and observations are used to obtain the necessary findings to answer the research question properly. The scope is set on primary data, data collected personally during this study. Secondary data, being prior studies, fills a supportive role during the study. The lack of prior studies investigating the influence cultural diversity has on the collaboration within audit teams requires new insight, the qualitative interview approach is therefore the most optimal manner of conducting the study (Edmondson & Mcmanus, 2007). The interview guideline is set up in a semi-structured manner, it contains in advance set-up questions to obtain the primary information in answering the main and sub questions. The interview guideline can be further observed within the appendix. Moreover, when necessary it is possible to adapt accordingly to obtained information during the interview and ask further when interesting topics come to light. (Gugiu & Rodríguez-Campos, 2007; Brinkmann, S., et al 2015) The interviews are a crucial aspect of this research, sensitive information must be obtained regarding the existing culture within an organization and operational processes during an audit engagement. Therefore, questions should be assessed carefully, and the questions are altered and renewed after each interview if the study found that the questions were not suitable (Brinkmann, S., et al 2015). Being an inductive study, the findings will be concluded to the theory after the interviews and observations have been conducted (Hodkinson, P., 2008).
3.2 DATACOLLECTION
This research will be using prior research papers as the base of this research and create the theoretical fundament. Prior research has established what measures an organization must implement to manage cultural differences (Cox, T.H. et al, 1991), but also the effects on different fields and industries (Wellalage, N. H., et al 2013; Subeliani, D., et al 2005; Morrison, A. M.., 1992). This study can be partly considered an ethnographic research. Ethnography is rooted in cultural anthropology where researchers participate within a firm itself and observe and experience every relevant aspect of the research (Richardson, L., 2000). The data is collected during an internship within a Big4 audit firm in the Netherlands.
The interviews and observations are conducted within a single office of one big 4 firm, targeting the personnel within different levels of the firm, from associates to managers. With the goal of obtaining unbiased answers. Interviewing personnel higher in the hierarchical order will decrease the accuracy of the answers. For example, directors and partners rarely actively participate during audit engagement itself and do not experience the collaboration during the engagement themselves. Since high rank employees have a higher degree of responsibility and stake within the firm, which increases the likelihood that these specific persons create an untruthful image of the reality (Griffee, D.T., 2005). The appropriate interview candidates were found by observation and were asked a set of questions before the candidate was deemed matching with the study. The candidates should have at least one-year experience within the firm and audit services and must have experienced working in a culturally diverse audit team, increasing the internal validity of this study. A total of eight interviews were conducted during the ‘busy season’. Conducting the interviews during the busy season of audit services will increase the accuracy of answers and result in a more reliable form of evidence (Qu, S. Q., et al 2011). Confidentiality is ensured and all transcripts of recordings have been anonymized. The characteristics of each interviewee are mentioned in Table 1. Half of the interviewees possess a Dutch cultural background and the other half consists of interviewees with an Israeli, Turkish and German background. These cultures have been chosen because they are representative for the most common cultures within the entity. Furthermore, it has enabled the study to also compare western cultures with one of each other besides only comparing western and eastern cultures. Thus, improving the understandability of the findings. The variety in cultural backgrounds helps offer insight on both sides of the phenomenon being the influence of cultural background on the collaboration within an audit team. The topics that have been discussed during the interviews were primarily: collaboration, cultural diversity and audit industry in its whole. Following these steps has enhanced the credibility of the results, the internal validity will be on a more than acceptable level.
Interviewee Position Experience in years Date Background 1 Associate 2 17-04-2 020 Israel/Netherlands 2 Senior associate 5 13-03-2 020 Turkey 3 Senior Associate 1 20-03-2 020 Netherlands 4 Senior associate 5 10-04-2 020 Germany 5 Associate 2 3 06-04-2 020 Netherlands 6 Associate 2 3 06-04-2 020 Netherlands 7 Manager 7 17-04-2 020 Germany 8 Junior Manager 7 10-04-2 020 Germany 12
3.3 DATAANALYSIS
Once the data is obtained in the form of interview transcripts, the data is analyzed using the initial coding approach performed with coding software Nvivo. The initial coding approach enables sentences and paragraphs to be summarized in one or two words. These words can overlap, and finally result in specific codes which define a topic or understanding (Weston, C., et al 2001). The coding system enables the study to find similarities in different statements and enhance the accuracy of the evidence.
3.4 RESEARCHSETTING
The research is conducted in a Big4 firm in the Netherlands. Cultural diversity has been massively adopted by the Audit industry in the Netherlands and every Big4 firm publishes their achievement of set cultural diversity goals annually. For example, the diversity journals published by PwC and Deloitte. Furthermore, the study of Verkuyten, M., et al (1996) proved that the Dutch culture can be deemed a culture based on individualism and where there is a high likelihood of group tension within highly culturally diverse groups. The study of Sunderland (2017) also showed that within the audit industry, teamwork is of high importance. Due to these two reasons, it is highly appropriate to conduct the study within a Dutch firm and extend the existing literature with a highly relevant contribution.
To safeguard the internal and external validity of the study, the research is conducted in a firm’s geographical location where a high level of cultural diversity is established. The observations are held accordingly. Intentionally created multicultural teams with temporary international employees are not considered due to the length of the collaboration, being too short to obtain relevant and generalizable findings. Also, expats are also perceived as audit team members who possess a different culture. Expats can be defined as employees who are stationed in a different country but come to work in the Netherlands for a period from three months up until three years. Due to the length of their stay, number of expats in the entity and being part of an audit team for several years in some cases, this study has included expats as colleagues with a different cultural background who are part of an audit team. Safeguarding the internal validity will strengthen the reliability of the findings and safeguarding the external validity will safeguard the relevancy to external parties and researchers.
4 RESULTS
Firstly, the empirical discussion starts with outlining the entities strategy regarding cultural diversification, explaining how and why the firm actively engages in attracting culturally diverse employees. Next, the empirical discussion highlights the existence of culturally diverse audit teams and how the collaboration within these audit teams is influenced by cultural diversity. Providing practical implications on how cultural diversity influences the collaboration within the audit setting.
4.1 THE CREATION OF CULTURAL DIVERSITY
During the interviews it became clear that the firm is chasing cultural diversification targets. The level of cultural diversification keeps increasing over the years. Employees of the firm see a direct connection between the cultural diversification targets and the increase of the level of cultural diversification within audit teams. This has been confirmed by interviewees:
“The recruitment team seems to also be actively targeting to hire potential colleagues with a
different cultural background.” (Interviewee 1)
“Cultural differences, I notice this very much in our department. In recent years I also see a
great growth in this and besides the fact that new colleagues are hired with a different
cultural background, we also work a lot with Expats.” (interviewee 2)
The other interviewees state the same conclusion, audit employees experience a growth in the degree of cultural diversity within their department. When we reflect upon the audit department and overall audit setting, creation of audit teams is a natural occurrence (Rudolph & Welker, 1998). Therefore, the cultural diversity within audit teams has been increasing the past years. In addition, the increase of expats working in the Netherlands for a longer period has also an influence on the level of cultural diversification, in this case increasing the cultural diversification even further. Overall the interviewees have a positive experience with the increasing degree of cultural diversification. Interviewees state that they believe that the firm must reflect the community of Amsterdam, increasing the cultural diversity is helping significantly to do so.
“I think it's very good that these objectives are being pursued. In my opinion, this provides
more knowledge, respect and understanding of cultural norms and values. In addition, I
believe that people with different backgrounds can deal with certain issues in a different way so that issues can be viewed from different angles. Because people are exposed to different
cultures, in my opinion this also provides more insight for the people themselves, making
them more employable.” (Interviewee 7)
“I find working with people from different backgrounds quite pleasant and interesting.
Personally, I’ve learned the most from people from a different background/culture, especially
expats.” (Interviewee 1)
All the interviews concluded that on average every audit engagement consists of teams with more than 60% of members with a different cultural background, this percentage increases if we also take expats into account. The firm attracts expats from many different countries as interviewee 5 states:
“Everybody in the Netherlands speaks English, this is also a reason why many International colleagues are coming to the Netherlands to fulfill their foreign duties. At a certain point you will have to work a couple of years in a different culture to make progress in your career. If you look at countries like Germany or France, they often refuse to speak English, their own language is leading. In the Netherlands we are very easy at that, so the level of expats is also a lot higher.” (interviewee 5)
The Englishization of the audit setting further increases cultural diversification within audit teams, which is a result of the ongoing global Englishization within the audit industry (Detzen & Loehlein, 2018). The entity shows an adaptation of a language absorptive capacity, which is enhanced by the multilingual environment of audit firms. “This usually only applies for
engagement teams on clients with the IFRS setting, which are many at the office in
Amsterdam.” (interviewee 6). As a result, this study argues that the ongoing globalization and Englishization of the audit industry are supporting factors regarding the increase in cultural diversity within audit teams:
“There are audit teams that consist of more than 90% expats, there are teams where I am the only person with a Dutch background and culture. I started at the company 2 years ago, if
you look at my year low, six out of 40 starters have a different cultural background than Dutch culture.” (Interviewee 5)
The ongoing globalization is making it easier for firms to station employees in different countries, especially if those countries are welcoming their international colleagues, which is in line with the study of Detzen & Loehlein (2018), stating that globalization is a supporting factor of increased multilingual audit teams. This study shows that increased multilingual audit teams also translate in a higher degree of cultural diversity within audit teams. The reason why the firm pursues cultural diversity can be divided into two reasons. Firstly, Interviewee 6 states the following:
“During the selection procedure, the company also sends a letter asking you what your origin
is. This is voluntary; however, the company tries to get a picture of the applicant's cultural
background. The company wants to reflect the society regarding cultural diversification and
to attract and retain as many cultures as possible. Cultures that you also see in the society around the firm.” (Interviewee 6)
Thus, indicating that the firm is actively targeting higher levels of cultural diversity. Second, to increase the overall flexibility, problem-solving ability, creativity of the audit teams along with decreasing the overall cost structure (Stahl, G. et al 2010), as interviewee 1 highlights:
“There could also be instances in which the regular “Dutch” approach wouldn’t be efficient.
Someone with a different cultural background might approach this matter from a different
perspective and come with innovative ideas which would benefit the firm.” (Interviewee 1)
Which is also one of the main motivators for audit firms to pursue cultural diversification (PwC diversity journal). However, adopting ad-hoc targets regarding cultural diversification without further analysis and monitoring may have serious unintended implications for the collaboration within an audit team. As the studies of Verkuyten, M., et al. (1996) and Hurn (2007) outline that cultural diversification can have serious negative implication on team-based groups. Next, the study will outline the implication cultural diversity has on the collaboration within audit teams.
4.2 TEAMWORKDEFINED
Due to the nature of the audit setting and increasing cultural diversity within the audit team, the perception of teamwork by auditors with a diverse cultural background becomes highly relevant for this study. When the Interviewees were asked for their definition of teamwork, the following was stated:
“To me teamwork is a way of cooperation in order to reach a certain goal together. Meaning
we are as a team responsible for the result and not just the individual.” (Interviewee 1,
Israeli/Dutch)
“My definition of teamwork is to work together towards a goal. And to achieve that goal as
well as possible with the conditions on which everyone has had a say.” (Interviewee 6,
Dutch)
“I think there should be room for personal development, but that cooperation is part of it. Moreover, you work with several people to achieve a goal. You will have to do this together.
The team has to take the beliefs of every team member into account and make clear
agreements with those beliefs in mind.” (Interviewee 7, German)
From the statements of Interviewee 1, 4, 6 and 7, teamwork is perceived in a collectivist manner. The focus lies on the collaboration as a team in its whole and less on the individualist’s definition of teamwork, which is highly important within the audit setting, since a collective approach is preferred (Rudolph & Welker, 1998). This is explained by their statement when asked whether they believe team members with a different cultural background possess a different definition of teamwork:
“Yes. My guess would be that in western cultures there would be a more individualistic view towards teamwork and eastern cultures would have a more collective view, this is defined by
the different way these cultures perceive hierarchy.” (Interviewee 1, Israeli/Dutch)
“Peoples view on hierarchy makes the difference when looking at the different definitions of teamwork. People who tend to have a higher gap between ranks will have a different view on teamwork, they will not be open for every opinion to achieve a goal as explained in the previous question. At least not on the same level. As I said before there are cultures who think
there should be a higher gap between ranks of team members. The definition of teamwork
changes due to this difference. The part of hearing everybody their needs and views when for
example setting up conditions for the engagement collaboration, does not apply anymore. The
manager will set the conditions and the team must work accordingly.” (Interviewee 6, Dutch)
“I guess so. This could be expressed in partnerships that are more focused on goals that can only be achieved as a team with respect to goals that have to be achieved per individual.”
(Interviewee 7, German)
As such, it is perceived that audit team members with a different cultural background have a different understanding of teamwork. However, the perceptions of the interviewees are contradicting existing literature. The interviewees define teamwork as a collective approach with the objective to achieve the best results. Yet the interviewees are defined as individualists by the studies of Brannen & Salk (2000), Verkuyten, M., et al (1996) and Hofstede (2015) for having a Dutch and German Cultural background (Interviewee 6 & 7). The findings clearly contradict the literature, since the individualistic nature is not perceived on the topic of teamwork. Therefore, it can be concluded that the determinants of team work are not dependent solely on the cultural background of individuals within the audit team. However, the interviewees do perceive that engagement members with a different cultural background have a different perception of teamwork, which is rooted in the differences between collectivistic and individualistic cultures.
4.3 CULTURALDIVERSITY: COLLABORATION WITHINAUDITTEAMS
Culture is therefore partly contributing in the definition that audit team members have of teamwork, influencing the collaboration during the audit engagement.
4.3.1 POWERDISTANCE
Audit teams consist of members with different ranks, ranging from junior associate upwards to director/partner (Rudolph & Welker, 1998). A clear pyramid of hierarchy is created, increasing the relevancy of the cultural ‘power distance’ dimension of Hofstede (2015) for this study. The interviewees experience a direct influence on the collaboration within the audit teams due to different beliefs and preferences team members have on hierarchy. The study finds that audit team members with a Dutch cultural background find hierarchy less important than team members who possess a diverse cultural background.
“The most notable difference between people from different cultural backgrounds I noticed has to do with hierarchy within teams. The Dutch culture knows little hierarchy in contrast to
for example the German, American and some of the Asian cultures. This goes noticed in the
amount of questions some colleagues are asking and in how much they ask for my input for
example.” (Interviewee 1)
Interviewee 1 states that the difference in the understanding of hierarchy between the engagement members becomes more visible when working in a culturally diverse audit team. The Dutch culture experiences a small gap between the ranks of engagement members during an audit, where other cultures have a clear separation between ranks. This translates into the amount of initiative taken by audit members in thinking critically and achieving a better individual/team performance:
“(…) Speaking up when they do not agree with a decision for example. Which in the end
prolongs decision making and has a negative influence on the audit efficiency but could
increase audit quality due to the fact more time is spent trying to find the best solution. When I look at my Asian colleagues who believe hierarchy is important, they are less direct. They
hesitate to ask questions or speak up. Which also threatens the audit efficiency since the
probability that work must be redone increases.” (Interviewee 1)
As the studies of Christensen et al. (2014) and Sunderland et al. (2017) state, the ability of audit team members to be skeptical and initiate criticism regarding decisions made is highly important in the audit setting. The differences can possibly be explained by the differences with regards to the power distance in Asian cultures. According to Sunderland et al., (2017) it is not common in Asian cultures to initiate criticism, especially when the power distance can be considered ‘high’. As such, it is perceived that the hesitant and hierarchy focused nature of Asian cultures negatively influences the collaboration during an audit.
Interviewee 3, who possesses a German cultural background, gave an example in how the difference in viewing and defining hierarchy influences the collaboration:
“We often experience problems with colleagues with a Dutch background, often at the
beginning of the collaboration. Because of our cultural background, we are not used to
colleagues with a Dutch background just saying what they think. Even if they have only been
with the company for a short time. For example: you have just been working at the company for a week and if your manager asks you to do something, and you refuse to do so. In Germany and the US, for example, there is a clear hierarchy, in the Netherlands it is a lot less
and everyone can give their opinion. Thinking along is of course always good, but it is
strange for us if a person does not follow your instructions.” (Interviewee 4)
When asked how such a conflict is resolved, the following possibilities were stated by interviewee 4:
“In some cases, we accepted their stand and had somebody else do it later. But in most cases, we had to ask our superior to act and request them to do the task. We had to go even higher up the ladder just to convince someone to do a certain task. In both cases, time is lost, and the
audit becomes less efficient. Especially when we must involve the senior manager in it,
costing us and the client time and money.” (Interviewee 4)
Thus, further explaining that engagement members who possess a Dutch cultural background have less trouble in speaking up and expressing themselves when working in an audit team when compared to different cultures. As the study of Hofstede (2015) also argues that the Dutch culture is deemed to be an individualistic culture, and one of its characteristics is directness. Furthermore, there exists a perceived influence on the efficiency of the audit engagement. It is mentioned that, regardless which option the audit team chooses, it will result in a prolonged audit engagement. The inefficiency occurred by the conflict will lead to an increased total cost of the audit engagement. Moreover, audit teams work with a tight schedule with a hard deadline to finish the engagement. Inefficiencies can lead to a poor time management of the engagement and can create time pressure at the end of the engagement, which has a high possibility to have a negative influence on the audit quality (Bernard Pierce & Sweeney, 2006).
The degree of hierarchy within the firm is low. When the audit team consists of colleagues who believe that the gap between ranks should be high and there should be a clear hierarchy within the audit team, teamwork is perceived differently by the team members and conflicts can occur, threatening the efficiency and audit quality. The effects on the collaboration during
an audit engagement which occur due to the different preferences of hierarchy is explained by Interviewee 6:
“(…) Both definitions of teamwork have good and bad sides to them. Cultures where the gap
between ranks is high can be deemed as bad because not every team member can have his or her say setting up the conditions of the collaboration. Team members will feel excluded and will demotivate them to work within the team. The good side of this is that decisions can be
made much faster and can lead to significant time/cost savings. Increasing the overall audit
efficiency of the collaboration. On the other hand, the Dutch culture where everybody must be
heard and everybody also listens to each other, can be deemed bad because decisions can
take a long time and decrease the overall audit efficiency. On the other hand, it can increase
the audit efficiency, because team members feel comfortable and motivated to put in good
work.” (Interviewee 6)
Therefore, one could argue that the differences in preferences with regards to hierarchy within audit teams, are not grounded solely within the differences between the Dutch culture and other cultures, rather can be explained by the audit setting which audit teams collaborate in. Hence, this contradiction is due to firm specific factors and is explained next.
4.3.2 INDIVIDUALISMVSCOLLECTIVISM
When we take a closer look at the difference between the collectivist eastern culture and individualistic western culture as the study of Hofstede (2015) states, we find an interesting development within the Dutch culture. The study of Verkuyten, M., et al (1996) defines the Dutch culture as an individualist culture. According to the study of Hurn (2007), cultures with an individualistic character tend to make fast decisions where consensus within the audit team is deemed as not necessary in decision making. Cultures which possess a collectivist character tend to need a consensus before a decision can be made. However, the following was stated by interviewee 4 when asked about the differences regarding decision making:
“For example, teams who consist of multiple Dutch colleagues, I really experience that
decisions that can be decided within a meeting of one hour, are often still not decided after 4 or 5 follow-up meetings and so we can't continue. In this case it was about responsibility, who is responsible for point A and who for point B. It sometimes goes so far that a colleague has
indicated that he would leave the audit team if no decision is made. And this is also reflected in our work, everyone is asked for her/his opinion and it takes a very long time before a decision is made. Sometimes 3 or 4 managers sit down for a week to discuss a decision. It all costs money too.” (Interviewee 4)
The German Interviewee perceives that the Dutch culture tends to demand a consensus regarding decision making even though the culture is classified as an individualistic culture. The quote indicates that this phenomenon has a negative impact on the audit efficiency, audit engagements are prolonged and time is unnecessary lost. Furthermore, due to the prolonged audit engagement, this may also lead to time pressure if the audit schedule is not maintained and likely to result in a negative influence of the audit quality (Bernard Pierce & Sweeney, 2006). Moreover, such conflicts where a manager threatens to leave the audit team if a decision is not made, increases the tension within the audit team and can lead to a negative impact on the audit effectiveness and quality (Rudolph & Welker, 1998). The following statement of Interviewee 6 strengthens the connections between decision making and efficiency of the audit:
“For example, if you look at decision making, international colleagues are a lot more focused
on hierarchy and the manager quickly cuts the rope and the team can continue immediately. If
I compare this with other teams where there are no international colleagues, there is a big
difference. In other teams we sometimes have several meetings to discuss things properly and reach a consensus before we get to work. This ensures that a lot of time is lost, while in the
end the teams almost always choose the same path” (Interviewee 6)
Another difference in decision-making which influences the collaboration within the audit team is rooted in overtime and working hours. Interviewee 3 gave the following example regarding this topic:
“Another difference I experience, for example, is that family is very important within certain cultures. If, for example, when a colleague must choose between work and family, the choice is often very difficult. I have experienced that people in my team don't work overtime quickly when they have a family evening or something similar. If I look at myself, colleagues and I think perhaps also at the general Western culture, this is often a less difficult choice. For
example, if I had to choose between work, sports and family, I would quickly think 'I'll see my family a week later'.” (Interviewee 3)
This quote indicates that team members with an eastern culture tend to have a high priority for family-time in comparison with western cultures. This is also in line with the individualism character of western cultures and collectivist character of eastern cultures as indicated by Hofstede (2015). Within the audit branch, overtime occurs on a regular basis, especially during the busy season (Sweeney J.T. et al, 2002). In the case of team members deciding to not participate in overtime during an engagement, inefficiency arise with regards to the allocation of the workload during an engagement, which is perceived as unfair: “Of course, I
myself don't stay late working overtime while the rest of the team isn't present and isn't
working either.” (Interviewee 3) However, the study finds that other audit team members tend
to make more overtime to compensate for these inefficiencies regarding workload allocation. Interviewee 5 (Dutch culture) acknowledges that colleagues with a Dutch background tend to make less overtime, however when the audit efficiency is threatened other audit team members try to neutralize the inefficiencies by making more overtime: “It makes the
engagement take longer. If everybody did put in the work, there would be less pressure on the
deadline of the engagement. Therefore, time and cost reduces. When inefficiencies become
visible or when the team believes that the deadline is threatened, other team members tend to make more overtime to compensate for the lack of overtime of other colleagues. In the end it remains a team effort.” (Interviewee 5)
As such, cultural preferences regarding overtime could potentially influence the overall audit efficiency. However, the other audit team members tend to collectively contribute to compensate for any inefficiencies afflicted by certain team members. When the interviewees were asked how they feel when the audit team does not engage in overtime fairly, a motivational issue came to light.
“Personally, I'm quick to do something extra or pick up unassigned tasks. And I think a lot of teams make agreements about this, for example to work together 1 or 2 evenings a week and
make overtime. Because of this, colleagues work about the same amount and it's fair. Of
course, it remains a collaboration and if a colleague starts 8 hours and goes home at 4 on the
dot and doesn't want to work anymore. Then of course it stops, this is also not motivating for the rest of the team.” (Interviewee 3)
When the interviewee was asked how such motivational problems affect the collaboration within the audit team, the following was stated:
“Better cooperation makes my work more enjoyable. A bad feeling about cooperation leads to
less openness, less the feeling of togetherness which would lead to less teamwork, but more
emphasis on my own development. A positive feeling about the cooperation will have the
opposite effect.” (Interviewee 7)
Motivational issues are highly relevant within the audit setting, a collective approach is deemed highly important during the collaboration within audit teams, since demotivated team members can threaten the overall audit efficiency (Rudolph & Welker, 1998). It can be concluded that motivation is deemed as important and can have the following effect on the audit engagement itself:
“Yeah, I think so. In the world of accounting and audit you always hear and learn that
collaboration is very important, and it certainly is. You must do it together during an engagement sometimes for one week, but sometimes also for two months. If I notice that I or teammates are less motivated, this translates into a less efficient audit. You just don't go for it
100% anymore, tasks that normally could have been completed in one go, are prepared in
two or three times, which in the end all costs extra. You see the opposite if the motivation of the team is good.” (Interviewee 7)
Thus, resulting in a negative impact on the team spirit and decreasing the motivation of other team members. The interviewee explains that the behavior of one team member can have a domino effect and influence the behavior of the other team members. When an audit team member does not act in the team’s interest but has only their own interests in mind, an unpleasant feeling is created which influences the work of other team members. These effects are intensified due to the nature of the audit setting, collaboration is crucial during the audit engagement (Rudolph & Welker, 1998). Extending the overall time needed to complete the engagement Therefore, negatively influencing the overall audit efficiency.
Building further on the dimension collectivism vs individualism of Hofstede (2015) The study finds that there is a clear separation between private and work life when we compare the Dutch Culture, being an individualist culture, with collectivist cultures. Interviewee 1 states:
“Dutch people seem to attach a lot more value to a work-life balance. Making a clear
separation between their private life and work life. When I compare this with colleagues with
whom I do spend time during informal hours, it benefits the bond we have and has a positive influence on the collaboration.” (Interviewee 1)
It is perceived that spending time together during informal hours can have a positive impact on the collaboration during the audit engagement. The separation of the private life and work life is a characteristic of the individualism culture and therefore, in line with the study of Verkuyten, M. et al (1996). The following example was given by Interviewee 4, her audit team has informal meetings during which team members can talk about non-work-related matters and get to know each other in a different way. When asked whether all team members participate during these meetings, the following was stated:
“It's not mandatory. There are colleagues, who keep work and private life separate. That is
why it is not compulsory, but it is recommended because you will work with each other more
often. This way you can build a bond and it will also have a positive influence on the
cooperation, increasing the overall efficiency of the audit in the long run.” (Interviewee 4)
When interviewee 1 was asked whether he had experienced the effects himself during an audit engagement, the following was stated:
“I don’t know if having no bond with audit team members has a negative influence, because
everybody does focus on their work even when they are more focused on the work rather than
bonding. But I do believe that a bond can improve the collaboration during the audit, since
auditing is so focused on team performance.” (Interviewee 4)
As such, the interviewees do not experience a negative influence on the collaboration due to the clear separation of the work and private lives of team members with a Dutch cultural background. However, it must be noted that the interviewees do believe that the overall collaboration can improve when the audit team members are more connected with each other,
translating into a motivational benefit. Thus, spending time together during informal hours improves the collaboration within an audit team. When team members spend time with each other, a bond is created and helps team members increase the understanding of preferences of other team members, improving the collaboration.
4.3.3 CULTURALDIVERSITY: COMPETITIVESTRENGTH
The study of Stahl, G. et al (2010) summarizes multiple benefits of cultural diversity within working groups. For example, managing cultural diversity when attracting, retaining and motivating employees with a different cultural background can lead to a competitive advantage regarding cost structures, creativity, problem solving, and flexible adaptation to change (Cox, T.H. et al, 1991). Therefore, managing cultural diversity is key when engaging in cultural diversity goals to obtain advantages from it. The results obtained from the interviewees show an active engagement in managing cultural diversity. Quoting interviewee 3:
"What I do notice is that many more events are being organized with regards to
understanding and experiencing other people's culture. For example, every year you can join
a day of fasting with colleagues during Ramadan. That way you really get to know other
people's culture and you can talk about it, I think this really helps the cooperation at the office.” (Interviewee 3)
Stating that the entity is actively engaged in the management of cultural diversity which improves the overall collaboration within audit teams. Understanding the differences between different cultures has a positive influence on the collaboration within the audit team. When the interviewee was asked how this positively influences the collaboration, the interviewee gave the following follow-up answer:
“If colleagues accept each other regardless of the cultural background, conflicts regarding
different views and values are prevented. Increasing the overall efficiency and quality of the
audit.” (Interviewee 3)
Thus, improving the efficiency of the audit team results in less time acquired for the engagement. Personal conflicts are avoided, which is highly important within the audit setting since the study of Chadwick, J. et al (1997) shows evidence that personal conflict may
decrease performance. As such, preventing conflicts improves the overall audit quality and efficiency during the collaboration of an audit team. The management of cultural diversity within audit teams is further explained by the cultural grouping phenomenon introduced by Verkuyten, M., et al (1996) and Sunderland (2017). Moreover, the study argues that a high degree of cultural diversity can create cultural groups which have a negative influence of the collaboration within working groups. When this phenomenon was presented to the interviewees, the following results were found:
“I do note that people from the same cultural background tend to be drawn to one another. However, I wouldn’t say they are closed off and find it logical that this is happening, since a lot of times they have the same views, religion and interests. Thus far I also only saw this happen in free time or during breaks. Within teams I haven’t noted a division yet in ethnicity or some sorts.” (Interviewee 1)
The interviewees do believe that cultural groups are formed but are not present during a collaboration within an audit team. The collaboration is not influenced by the creation of cultural groups and this belief is also supported by the statement of other Interviewees:
“I think that this can be said in any setting. This happens on the work floor but also on a
vacation. You search for something which is familiar for you. I do not experience any
negative side effects due to this phenomenon. The persons in questions do not ignore other
colleagues. During the engagement itself every team member is committed to the team and
nobody gets excluded.” “(…) With some cultures this phenomenon occurs more often. For
example, I have had a colleague originally from South Africa. This person planned all his
engagements with colleagues also originated from South Africa. And this can also be said
from colleagues who originated from Morocco.” (Interviewee 6)
It can be said that the example of interviewee 6 is a perfect form of cultural grouping. The manager in question scheduled colleagues with the same cultural background on the same audit team over multiple engagements. When asked whether this phenomenon influences the collaboration within that specific audit team, the interviewee responded as followed:
“No not really. They do tend to get together with colleagues with the same cultures, but
during an engagement when there are also different team members with a different
background, they are able to adapt accordingly. It is almost like that the cultural background
is not of importance anymore when working on an engagement. I believe the phenomenon
especially occurs during informal gatherings and conversations.” (Interviewee 6)
Therefore, it can be concluded that the entity is managing and preventing the form of cultural groups within audit teams and the phenomenon of ‘cultural grouping’ is not perceived within the audit setting. During the audit engagement, every team member is treated as equals regardless of their cultural background. This is achieved by the cultural events which the entity organizes regularly as stated before. Thus, the entity is managing the cultural diversity effectively regarding this manner which also, according to the study of Stahl, G. et al (2010), results in improved collaboration.
Furthermore, creativity is highly relevant within the audit setting. Improving the ability to tackle issues and performing tasks in new manners to increase the overall audit efficiency (Cox, T.H. et al, 1991; B. Pierce & Sweeney, 2004). The improvement of creativity within audit teams with a culturally diverse team is supported by the following statements of Interviewee 1 and 4:
“I believe a more diverse team could have a positive influence in our understanding of
different cultures and gives us the learning opportunity to better work together with team
members with different cultural and ethnic backgrounds. (…) There could also be instances in which the regular “Dutch” approach wouldn’t be efficient. Someone with a different cultural
background might approach this matter from a different perspective and come with innovative
ideas which would benefit the firm.” (Interviewee 8)
“If you look at, for example, the way of working and documentation of my colleagues in the US, these are far ahead of the way we do things in the Netherlands. They try to bring it with
them and implement it with us. (…).” (Interviewee 4)
When asked how the collaboration within the audit engagement is affected when colleagues do bring in new ideas, the following was stated:
“Yes, I am even sure that it would improve the overall audit procedure. The ideas that my
colleagues in the United States bring up would improve the overall efficiency, I have
experienced it myself. Audits in which we implement an idea of a colleague who is from the
states, have a better overall efficiency than other audit engagements” (Interviewee 8)
These findings imply that cultural diversity indeed does bring a form of creativity within audit teams. Obtaining new insights in work procedures and best-practices, helps the audit team to increase the overall efficiency and audit quality during the collaboration.
