Transparency‐generated trust: The problematic theorization of public audit

• Date: 01 November 2018
• Author: David Heald
• DOI: http://doi.org/10.1111/faam.12175
• Published date: 01 November 2018

Received: 31 January 2017 Revised: 28 May2018 Accepted: 13 June 2018

DOI: 10.1111/faam.12175

ORIGINAL ARTICLE

Transparency-generated trust: The problematic

theorization of public audit

David Heald

Professorof Public Sector Accounting, Adam

SmithBusiness School, University of Glasgow,

Glasgow,UK

Correspondence

DavidHeald, Professor of Public Sector Account-

ing,Adam Smith Business School, Gilbert Scott

Building.University of Glasgow, Glasgow G12

8QQ,UK.

Email:david.heald@glasgow.ac.uk

Fundinginformation

LeverhulmeTrust,Grant/Award Number: EM-

2012-078

DavidHeald acknowledges financial support from

theLeverhulme Trust.

Abstract

Public audit has been under-theorized, the existing literature too

dominated by institutional description. Public audit may be inter-

preted as promoting transparency in order to generate trust, thus

leading to legitimacy. Disaggregating transparency and trust, the

article develops a subtler analysis of their role in public audit. By

integrating collibration into the processes of economization, the

governance of public audit and its operational activities are illu-

minated. Expected to be bloodhound, not just watchdog, public

audit space is currently contested and can be forcibly evacuated.

Transparency-generatedtrust might be the outcome, but providing

a well-evidenced transparency should be public audit's mission.

KEYWORDS

collibration, economization, public audit, transparency, trust

This article addresses the under-theorization of public auditing in academic and professional literatures over-reliant

on institutional descriptions rather than theoretical foundations. Where there is a theoretical basis for public audit,

this is largely self-justificatory or drawn from a private audit tradition itself weakly theorized. It attempts to neither

build incrementally on private sector theorization nor construct separate public sector foundations. The objective of

this article is therefore to frame a distinctive theorization of public audit by elucidating the concepts of transparency

and trust in terms of the roles of accounting as economization.

In considering this gap in theorization, several factors are identified. First, the role of public audit raises important

questions about the functioning of states, particularly but not exclusively in relation to the disbursement and use of

‘public money’.Second, significant resources are committed to public audit and, during this period of sustained aus-

terity, it is unsurprising that there are questions about the value-for-money (VFM) of that expenditure. Third, emer-

gent states have tended to copy the institutional arrangements of their former colonial powers, as evidenced by

the widespread existence of Comptrollers and Auditors General (C&AG) in former British colonies and of Courts of

Accounts in francophone and Iberian former colonies. Whereas these models are seen as key elements of democratic

governance in the former colonial powers (White & Hollingsworth, 1999), the terminology has continued in countries

with weak claims to be regarded as democracies.Mimetic isomorphism without recognitionof context is a characteris-

tic of public audit. Fourth, public audit institutions havecontinued, often superficially unchanged, throughout a period

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits

use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or

adaptations are made.

c

2018 The Authors. Financial Accountability & Management Published by John Wiley & Sons Ltd.

Financial Acc & Man. 2018;34:317–335. wileyonlinelibrary.com/journal/faam 317

318 HEALD

during which political attitudes to the state as service provider have significantly changed through privatization and

the application of private sector management practices under the umbrella of new public management (NPM).

Theprint and broadcast media, even more so the internet, carry reports of how there is a crisis of trust in institutions,

particularly regarding governments and politicians:

ONLY40% OF CITIZENS TRUST THEIR GOVERNMENT

Trustin government is deteriorating in many OECD countries. Lack of trust compromises the willingness of citi-

zens and business to respond to public policies and contribute to a sustainable economic recovery.

WHY TRUST IS IMPORTANT

Trust is importantfor the success of a wide range of public policies that depend on behaviouralresponses from

the public. Trust is necessary to increase the confidence of investors and consumers. Trust is essential for key

economic activities, most notably finance. Trustin institutions is important for the success of many government

policies, programmes and regulations that depend on cooperation and compliance of citizens (OECD undated

website).

There are doubts about what well-publicized surveysof trust actually measure and questions about the relationship

betweentransparency and trust. The graphic which the OECD used to support its 40% headline is actually headed ‘Con-

fidence in national governments’.This supposes that trust and confidence are synonymous. Edelman (2015) reports

2015survey trust percentages as average of trust in government, business, media and non-governmental organizations

among the informed public, where 100 =complete trust in institutions. Categorizing 28 countries into three groups,

the six ‘trusters’ are United Arab Emirates (84), India (79), Indonesia (78), China (75), Singapore (65) and the Nether-

lands (64). Among the ‘distrusters’ are the United Kingdom (46), Sweden (45),Ireland (37) and Japan (37). As the most

internationally comparable measure of fiscal transparency, Open Budget Index2015 (International Budget Partner-

ship, 2015) records: United Arab Emirates (not scored), India (46), Indonesia (59), China (14), Singapore (not scored),

the Netherlands (not scored), the United Kingdom (75), Sweden (87), Ireland (not scored) and Japan (not scored). These

trust and transparency indexesgive conflicting signals: the Financial Times headlined how ‘Strongman leaders are more

trusted than democrats in developingworld’ (Johnson, 2016).

This article's exposition is necessarily condensed, so it is useful to indicate where the assembled building blocks

will take the argument. First, trust and transparencyare such essential and complex requirements for public audit that

they require analytical care, scepticism about rhetorical usage, and wariness of summary indexeswhich conflate non-

commensurables. Second, the task of public audit is not to make citizens trust governments and politicians, but this

might be an effect; the trust that should be valued is justified trust in the system of government, which does not nec-

essarily require trust in particular governments. Third, the theoretical framework developed in the article provides a

more secure foundation for public audit, showing how it fits into the broader system of political accountability and

providing guidance on the perimeters of public audit beyond which it is inadvisable for public auditors to tread.

The analysis itself first considers the extant theorization of private audit, before setting out the typology of public

audit institutions developed by Posner and Shahan (2014), which substitutes functional role for the legal basis classi-

fication that dominates the descriptive literature. This is followed by an ‘Optimist'scyclical model of public audit’. This

introduces the idea that the role of public audit is to inject transparency into the financial affairs of government,which

in turn enhances trust in government and hence the legitimacy of democratic political institutions. Although intuitive

and appealing, these mechanisms are based on assertion, and there are reasons not to accept this characterization.

Then the article explores what can be rescued from the notion that, by increasing transparency, public audit

enhances trust and this then leads to legitimacy. It examines the applicability to public audit of Miller and Power's

(2013) concept of economization, with its components of territorializing, mediating, adjudicating and subjectivizing.

Then there is analysis of the detailed meanings of transparency and trust, and how they interact – indeed the circum-

stances under which they can each be expected to be socially beneficial. The concept of collibration (Dunsire, 1990,

2003; Hood, 1996) is integrated into the analysis of economization. This theorization is applied to recent develop-

ments in public audit in relation to institutional structures, governance arrangements and audit scope. The concluding

section examines the practiceand research issues arising from the analysis.