Stakeholders’ approach on government auditing in the supreme audit institutions of Japan and Korea

• Published date: 01 August 2019
• Author: Kiyoshi Yamamoto,Min Jeong Kim
• Date: 01 August 2019
• DOI: http://doi.org/10.1111/faam.12187

Received: 5 January 2017 Revised: 8 May2018 Accepted: 25 June 2018

DOI: 10.1111/faam.12187

ORIGINAL ARTICLE

Stakeholders’ approach on government auditing in

the supreme audit institutions of Japan and Korea

Kiyoshi Yamamoto1,2 Min Jeong Kim3

1AcademicInstitute, Kamakura Women'sUni-

versity,6-1-3, Ofuna, Kamakura, Kanagawa,

Japan

2Departmentof University Management and

PolicyStudies, Graduate School of Education, the

Universityof Tokyo, 7-3-1, Hongo, Bunkyo-Ku,

Tokyo,Japan

3ResearchDivision 3, Audit and Inspection

ResearchInstitute affiliated with The Board of

Auditand Inspection of Korea, 112 Bukchon-ro,

Jongno-gu,Seoul 03059, Korea

Correspondence

KiyoshiYamamoto, Academic Institute,

KamakuraWomen's University, 6-1-3, Ofuna,

Kamakura,Kanagawa, Japan.

Email:k-yamamoto@g00.itscom.net;

ykiyoshi@kamakura-u.ac.jp

Abstract

From a stakeholder theory approach, this paper reports on a com-

parative case study between the Board of Audit of Japan (BOAJ)

and the Board of Audit and Inspection of Korea (BAIK) on how to

balance independence and responses to stakeholders’ needs within

their limited resources. The empirical results show that the BOAJ

maintains its independence partially adapting to political pressure:

neither the Diet nor citizens have a mandate to enforce audits on

requested issues. On the other hand, the BAIK meets citizens’ needs

through screening instruments to maintain independence and polit-

ical neutrality,while responding to audit requests from the National

Assembly.

KEYWORDS

accountability, audit, legislator, SAI, stakeholder model

1INTRODUCTION

A supreme audit institution (SAI) is independent of the government or executivebranch and implements compliance,

financial and performance audits to ensure accountability and improve performance. SAIs havefull discretion in deter-

mining audit subjects and methods, including reporting. This is a ratherprivileged status in democratic control, in which

citizens through the legislature are the highest principal, with the executivebranch as its agent. When SAI is indepen-

dent of the legislature, there is no principal. However,this type of SAI faces difficulty when the jurisdiction to request

audits from the legislature or/andthe public is prescribed. If the SAI prioritizes these requests over its mandatory and

initiated audits, it might postpone or exclude these primary functions, or only slightly examinethem due to resource

constraints.

Accordingly, balancing between responsiveness to stakeholders and independence (Bringselius, 2014; Mohan &

Sullivan, 2007) is quite crucial. It is highly sensitive for SAIs to respond to requests from the legislature. Balance maybe

a new harmonizing dimension aside from the relationship between compliance and performance audits (Pollitt et al.,

1999) in government auditing. However,previous research just indicated the dilemma in a qualitative way.

This paper therefore explores how SAIs responded to this harmonization and the possible conflicts by comparing

the Board of Audit of Japan (BOAJ) and the Board of Audit and Inspection of Korea (BAIK). There are few empiri-

cal studies on audit activities in the East Asian SAIs, although some scholars (Jun & Muto, 1995) insist both nations

have similarities in their institutional designs and influence from Confucian culture. We expect to contribute to our

Financial Acc & Man. 2019;35:217–232. wileyonlinelibrary.com/journal/faam c

2019 John Wiley & Sons Ltd 217

218 YAMAMOTO AND KIM

understanding of government audits in a political and social system that differs from those in Western or Anglophone

nations. Due to their status of independence from the legislature, we use stakeholder theory (Donaldson & Preston,

1995) to develop a model for these SAIs. According to the stakeholder theory, organizations need to recognize the

interests of all stakeholders. Here, stakeholders “canaffect or (are) affected by the achievement of the organization's

objectives” (Freeman, 1984). In our analysis, the main stakeholdersof the SAI are the legislature, the government and

citizens.

Therefore, our main research question is how two SAIs harmonize possible conflicts between their independence

and responding to needs in limited resources. Additionally, we examinewhether stakeholders’ influence would differ

depending on the discretionary power of SAI to respond to audit requests in Japan and Korea. The Diet may request

the BOAJ to conduct an audit, while BOAJ has full discretion to determine whether the requests will be responded. On

the other hand, people haveno mandate to request an audit. By contrast, the BAIK conducts an audit and reports to the

National Assembly,and citizens have the right to request audits in a participatory oversight. The significant difference

in requested audits at both SAIs is another reason to implement a comparative study.

To explorethese issues, the next section reviews the institutional nature of two SAIs and their backgrounds. The

third section provides a literature review and a theoretical framework for the stakeholders, and describes the data

and methods. The fourth section focuses on the BOAJ. Then, the fifth section analyzes the BAIK's activities, especially

citizens’ involvement in audits. The sixth section discusses the findings and results. The paper concludes by offering

some conclusions and future issues.

2BACKGROUND

2.1 BOAJ

The BOAJ was established in 1880, though it experienced some changes in its status. The BOAJ conducted per-

formance audits through regularity auditing since its establishment. The audit activities have focused on examining

whether auditees engaged in improper payments or revenues by transaction and project. From this perspective,the

BOAJ has neverimplemented financial statement auditing for public entities for which auditors express opinions about

the reliability of financial information.

BOAJ has specific features to developperformance audit compared to SAIs in other developed nations. In 1997, the

Board of Audit Act was revised to clearly stipulate the mandate for performance auditing; for example, “The Board of

Audit shall conduct its audit from the aspects of accuracy,regularity, economy, efficiency and effectiveness, and from

other necessary aspects of auditing” (Article 20.3). Evidently,“accuracy” and “regularity” means compliance with rules

and regulations, and “economy,efficiency and effectiveness” indicates the major elements of performance. At the same

time, responding to the Diet Law revision, the Diet may request the BOAJ to conduct an audit on specific matters

(Article 30.3). The BOAJ is independent of the Diet and can decide whether the requested audit shall occur. Also in

2005, the Board of Audit Act revision indicated that the BOAJ may, at anytime, submit requests to the Diet and the

Cabinet on matters on which the BOAJ presented opinions or demanded measures (Article 30.2). Accordingly,the rela-

tions between the Diet and the Cabinet have become closed, in keepingwith its independence. However, the relations

between the BOAJ and citizens are still quite limited. According to Article 35 of the BOAJ Act, when an interested

party requests that the BOAJ examine the conduct of an official handling of the State's financial management, BOAJ

must do so. This means that the general public has no mandate to request BOAJ audits.

The BOAJ is composed of the Audit Commission and the General ExecutiveBureau. The Audit Commission'sthree

Commissioners make the Board's decisions, direct and supervise the General Executive Bureau in conducting audits

and perform other activities. Commissioners hold office for a seven-yearterm, with their status guaranteed during the

term to ensure the Board's independence. The Cabinet appoints Commissioners with the consent of both Houses of

the Diet. The Commissioners elect a President from among themselves. In 2016, the BOAJ had 1,251 employees with

a budget of 16,826 million JPY. The BOAJ is a constitutional organization with a status independent of the Cabinet