Conflicting logics within the audit practice: a result of the new regulation regarding sustainability reporting

Abstract: Aim: This study aims at exploring what logics are the key drivers of change within the audit practice due to the new regulation regarding non-financial reporting. The study further aims to see how and why the audit firms have interpreted the legislation the way they have. Methodology: To answer the research questions of this study an interpretative study has been performed in the form of interviews with eight respondents from the six largest audit firms in Sweden. Due to the confidentiality of the documents, the authors could only see the checklist document in some cases, but in most cases just having them described orally. The interviews were held in person with three of the respondents and by telephone with the other five respondents. The interviews were semi-structured and open-ended questions were used to eliminate the possibility of influencing the answers of the respondents. Findings and Conclusion: Three logics have been identified as key drivers of change within the audit practice due to this new regulation. The first two are the traditional audit logic (TAL) and the emerging sustainability audit logic (SAL). This study shows that there is a gap between these two logics which is resulting in different interpretations of the law, but also different levels of requirements in their internal checklists. To bridge the gap between TAL and SAL the financial auditors need more guidance and education regarding sustainability audit. The third identified logic affecting the audit industry is the competitive logic, which is shown by how the audit firms have interpreted the new sustainability law. For instance, two of the interviewed audit firms have higher requirements of what a sustainability report should contain than the Swedish annual reporting law (ARL) has. This is due to the fact that they want to become market leaders within the sustainability audit field and thereby create a competitive advantage against the other audit firms. This is shown through higher requirements in their internal checklists used as guidance and to do lists when checking the sustainability reports against ARL. Contribution: This study contributes to the research area of sustainability audit through its findings of which logics have affected the audit practice due to this new regulation. It is shown by it being a legislation that leaves space for interpretations and thereby the different logics will affect the decisions made when designing the checklists. This can be useful in the future, but also to understand the effect new legislation regarding sustainability can have on the audit practice. This research also fills the gap of a broader research, not only focusing on sustainability accounting but on sustainability auditing as well. In addition to previous accounting and auditing research, this study proposes a wider perspective on sustainability, not only focusing on the environmental matters.