Auditors provide independent assurance for the reliability of the financial reporting of public and private companies for various purposes, such as loan contracts with banks, raising equity capital from stock markets, etc. As business transactions become more and more complicated, specific expertise on complex accounting estimates is strongly demanded for auditors to complete their work. Interestingly, audit firms, as modern knowledge-intensive organizations elsewhere, employ project teams to organize their work, and auditors are typically assigned to multiple teams as their work continues. (This phenomenon is generally referred to as Multiple Team Membership (MTM) [1]).

Getting the right expertise to the problem at hand is critical to deliver high quality audit services. So, what are the factors that influence auditors to seek that expertise from colleague-auditors? Part of my PhD project concerns the emergence of advice networks, involving auditors who have been seeking expert knowledge from other auditors. To explore how auditors seek expertise from colleagues serving on the same and other teams, academic work has identified the important interplaying role of social status and social capital in an organizational setting [2].

Social status typically indicates that employees tend to seek advice from advisors with higher status, and advisors gain prestige by sharing their knowledge. In contrast, social capital perspective suggests that advisors may reciprocate to advisees with lower status as well, perhaps either because organizations have built the sanctions and norms, or because they are good friends. Scholars consistently find this pattern of internal organizational advice network: social status plays a dominant role, but social capital can mitigate the (potentially negative) effect of social status, so that employees can correctly identify expertise to solve their working problems.

In my PhD project, we test the interplay of social status and social capital and how both factors determine the knowledge seeking behaviors of auditors. Academic studies suggest that the interplaying effects of both elements are very likely to be influential. One the one hand, audit teams usually are organized in a hierarchical way, consisting of partners, managers, seniors and juniors with different experience and expertise. Thus, social status can play a role in this respect, as advice seeking will likely follow this hierarchical structure. On the other hand, for each team they have served on, they share a common goal to deliver high quality audits. To reach this goal, it is necessary to exchange knowledge among each other, given the huge litigation risk if auditors deliver a deficient audit. Moreover, serving on multiple teams exposes employees to a wide variety of information, knowledge and skills. In this way, auditors can easily identify who has specific knowledge and how to obtain this knowledge. The social capital perspective has accessing and gaining the necessary knowledge resources to complete work as an important governing principle.

Now, how to compile (audit) teams that are effective and efficient in collating the best information and expertise knowledge for the task, and also optimize the use of expertise across teams in the organization? Exploiting the interplaying role of social status and social capital may be a leading principle in this. This means, creating social capital within and across each team to facilitate the process of seeking expertise. There are several (complementary) ways to achieve this. One is to arrange that employees get to know each other’s expertise better by exposing their expertise in a safe setting with simulated scenario’s. Another method is using informal activities to stimulate interactions and enhance inter-person communications. A third method to build friendship networks within and across teams using popular technologies.

Deju (James) Zhang (james.zhang rug.nl) is a PhD candidate at Faculty of Economics and Business, the University of Groningen. He works with Prof. Dr. Floor Rink at Department of HRM & OB, and Prof. Dr. Reggy Hooghiemstra and Dr. Dennis Veltrop at Department of Accounting. His research is largely related to Multiple Team Membership and Audit Quality.

References:

[1] O'leary, M. B., Mortensen, M., & Woolley, A. W. (2011). Multiple team membership: A theoretical model of its effects on productivity and learning for individuals and teams. Academy of Management Review, 36(3), 461-478.

[2] Agneessens, F., & Wittek, R. (2012). Where do intra-organizational advice relations come from? The role of informal status and social capital in social exchange. Social Networks, 34(3), 333-345.