Description
The introduction of accounting and auditing oversight boards (OBs) has been promoted on
a global scale as a key component of the international financial architecture that has
emerged over the past two decades. Such institutions, modeled on the Anglo-American tradition,
are domestically organized and embedded within distinctively diverse institutional
contexts. Their role is to ease agency problems, improve the quality of financial reporting,
and help provide stability in the global financial system.
Transplanting Anglo-American accounting oversight boards
to a diverse institutional context
Constantinos Caramanis
a,?
, Emmanouil Dedoulis
a,1
, Stergios Leventis
b,c,2
a
Department of Business Administration, Athens University of Economics and Business, 76 Patision Street, 104-34 Athens, Greece
b
International Hellenic University, School of Economics and Business Administration, 14th klm Thessaloniki-Moudania, 57 101 Thessaloniki, Greece
c
Aston Business School, UK
a r t i c l e i n f o
Article history:
Available online 14 February 2015
a b s t r a c t
The introduction of accounting and auditing oversight boards (OBs) has been promoted on
a global scale as a key component of the international ?nancial architecture that has
emerged over the past two decades. Such institutions, modeled on the Anglo-American tra-
dition, are domestically organized and embedded within distinctively diverse institutional
contexts. Their role is to ease agency problems, improve the quality of ?nancial reporting,
and help provide stability in the global ?nancial system. We employ an institutional
approach, located within the broader political economy framework of global capitalism,
to examine the establishment and operation of the new regulatory regime in Greece.
Greece, a member of the European Union, exhibits characteristics of a ‘‘delegative’’ democ-
racy, i.e. a traditionally weak institutionalization, reform (in)capacity problems and a cli-
entelistic political system. Our case study shows that the formation and operation of the
newly-established system of oversight is conditioned by local political and economic con-
straints and, thus, does not automatically translate into concrete bene?ts for the quality of
?nancial reporting. We also draw attention to the structural mismatch between a progress-
ing globalized ?nancial integration and the fragmented nature of the system of oversight,
and illustrate that OBs’ independence from local governments is an important but
neglected issue.
Ó 2015 Elsevier Ltd. All rights reserved.
Introduction
Internationally, the history of corporate accounting and
auditing is replete with failures and scandals, followed by
waves of regulation (e.g. Malsch & Gendron, 2011; Zeff,
2003). In the past two decades of advancing globalization,
reforms in the accounting domain have taken place within
what Wade (2007a) calls the Standards–Surveillance–
Compliance (SSC) doctrine, a regulatory framework of
globally-integrated ?nancial markets that aims to provide
stability in the marketplace (Büthe & Mattli, 2011; Davies
& Green, 2008; Wade, 2007a, 2007b). This new dogma
entails the use of comprehensive and universal standards,
as well as codes of good practice, whose application would
be overseen and enforced by a gamut of regulatory institu-
tions and agencies – of?cial or unof?cial, national or global
(Cooper & Robson, 2006; Humphrey, Loft, & Woods, 2009).
A key element of the emerging international ?nancial
reporting infrastructure is the introduction of systems of
oversight for accounting and audit practice, independent
of the profession, which appears to signal an end to the tra-
dition of self-regulation. Accounting and auditing oversight
boards (OBs) serve as a basic mechanism for tackling
perennial problems in corporate ?nancial reporting andhttp://dx.doi.org/10.1016/j.aos.2015.01.001
0361-3682/Ó 2015 Elsevier Ltd. All rights reserved.
?
Corresponding author. Tel.: +30 210 620 3367.
E-mail addresses: [email protected] (C. Caramanis), ededoulis@
aueb.gr (E. Dedoulis), [email protected] (S. Leventis).
1
Tel.: +30 210 820 3453.
2
Tel.: +30 2310 807 541.
Accounting, Organizations and Society 42 (2015) 12–31
Contents lists available at ScienceDirect
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j our nal homepage: www. el sevi er. com/ l ocat e/ aos
auditing, within the broader complex and hierarchical glo-
bal regulatory system (Arnold, 2012; Humphrey et al.,
2009; Wade, 2007a). OBs emerged in the US under the Sar-
banes–Oxley Act (US Congress, 2002), in the EU under the
(new) Eighth Directive (European Commission, 2006), and
in other countries (Malsch & Gendron, 2011). Their estab-
lishment rests on the assumption that they can operate
ef?ciently and effectively to ease agency problems,
improve the quality of ?nancial reporting, and help to
restore the trust of investors and the public (European
Commission, 2001a, 2006, 2010; US Congress, 2002, 2010).
The system of oversight for accounting and auditing is
domestically organized and embedded within distinctively
diverse local political, economic, legal, and cultural con-
texts (e.g. Kaufmann, Kraay, & Mastruzzi, 2013).
O’Donnell (1994) argues that, for historical and socio-polit-
ical reasons, some countries consistently exhibit a marked
weakness in introducing social and economic reforms and
in building strong and functional institutions of horizontal
accountability. These countries, termed by O’Donnell as
‘‘delegative’’ democracies, are characterized by a highly cli-
entelistic political system and state ineffectiveness, stand-
ing in contrast to other countries that have shown a history
of successful reforms and strong institutionalization. Thus,
the effectiveness of the operation of OBs at a domestic level
warrants in-depth empirical evaluation (Arnold, 2012;
Malsch & Gendron, 2011), given their importance for the
stability of the global ?nancial system (Wade, 2007a,
2007b) and the variability of local institutional backdrops
(Dyson & Goetz, 2003; O’Donnell, 1994).
In this article, we adopt an institutional approach
located within the broader political economy framework
of global capitalism (Arnold, 2009b, 2012; Wade, 2007a,
2007b; see also Chapman, Cooper, & Miller, 2009) to exam-
ine the creation and operation of an OB in a local European
setting. We focus on O’Donnell’s (1994) conceptualization
of delegative democracy and supplement our framework
with literature on Europeanization, which indicates that
reform (in)capacity problems and weak institutionaliza-
tion occur even within the EU and the euro area (Dyson
& Goetz, 2003; Featherstone & Papadimitriou, 2008). We
place emphasis on the interaction between global struc-
tural elements, institutions, in?uences and pressures
(namely, the unfolding of the SSC project), and on local
socio-political characteristics that may condition the
establishment and effective operation of OBs at the local
(state) level. Our focus is Greece, which offers a clear van-
tage point for examining the issue at hand for two main
reasons. First, the country is known for its clientelistic
political system and well-documented reform (in)capacity
problems (e.g. Featherstone & Papadimitriou, 2008).
Second, Greece has been in a deep, multifaceted crisis since
2008 (OECD, 2011a, 2011b), illustrating the importance of
each nation to the stability of the new, complex, and inter-
dependent international ?nancial system (International
Monetary Fund, 2013).
With a wealth of empirical material (written evidence
and interview data), our national case study illustrates
the dif?culties and limitations in transplanting
Anglo-American (Arnold, 2012) reforms to a diverse
socio-political local context. Our study shows that the
political practices of clientelism and party patronage, as
well as bureaucratic control by the government and a
widespread mentality of inertia within the broader state
apparatus, have affected ELTE,
3
the Greek OB, since its
inception in 2003. As a result, ELTE has remained essentially
dormant. In this study, we show that ELTE has failed to
become a signi?cant player in Greek accounting and audit
practices and demonstrate that improvements are urgently
needed in the quality of Greek ?nancial reporting and audit-
ing (Caramanis & Papadakis, 2008; Christensen et al., 2013;
Leuz et al., 2003; Osma & Pope, 2011).
This article extends prior work on the establishment of
the Greek OB (Blavoukos et al., 2013) and contributes to
emerging international academic literature on accounting
and auditing oversight (e.g. Malsch & Gendron, 2011) on
several fronts. First, our paper employs O’Donnell’s theo-
retical conception of delegative democracies within a
broader political economy framework to create the theo-
retical backdrop for investigating how local socio-political
constraints condition the establishment and operation of
an imported institution – a subject that is currently high
on the global agenda. In particular, we show that the Greek
OB has been stymied since inception by pre-existing local
structures and remains essentially a dormant institution,
providing no concrete bene?ts to ?nancial reporting qual-
ity. Second, whereas the current system of oversight puts
emphasis on ensuring the independence of OBs from the
auditing profession, we illustrate that independence from
government is an equally important but essentially
neglected issue. Speci?cally, we argue that, while existing
arrangements may have saved the oversight system from
the Scylla of professional control, they have sailed too close
to the Charybdis of state meddling.
Thus, our study draws attention to the structural mis-
match between a progressing integration of the interde-
pendent global ?nancial system and the fragmented
organization of accounting and auditing oversight on a
domestic (national) level. This mismatch raises the ques-
tion of the effectiveness of local OBs, given the diversity
of the domestic socio-political contexts within which they
emerge and the rather elementary level of current interna-
tional or regional (e.g. EU) coordination (Davies & Green,
2008, pp. 89–91; Humphrey et al., 2009).
Our study is of relevance to several other countries that
exhibit, albeit to varying degrees, a tradition of party
patronage, clientelism, institutional weaknesses and state
ineffectiveness. The ?ndings have implications for various
actors and stakeholders in ?nancial reporting. For example,
global regulators should realize that independence from
the profession, while simultaneously ignoring local institu-
tional impediments, by no means guarantees the operation
of effective national OBs across the globe. Furthermore, in
the absence of effective oversight, particularly amid a
severe ?nancial crisis, there is a real risk that the quality
of auditing will fall and audit fees will plunge, conditions
that may bring about a major legitimation crisis for the
profession.
3
The full Greek name of ELTE is Episqopg
9
Kocirsijg
9
1 Ntpopoi
9
grg1
jai Eke
9
cvxm – EKNE (Epitropi Logistikis Typopoisis kai Elegchon – ELTE),
which translates as the Accounting and Auditing Committee).
C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31 13
The rest of the article is structured as follows: in the
next section, we discuss the emergence of accounting
and auditing OBs since the early 2000s as a means for reg-
ulating globalized capitalism, with particular emphasis on
institutional aspects, and we present the research methods
employed. We then outline the international and local
institutional settings to demonstrate the environment
from which the Greek OB emerged. Next, we present the
debate in the Greek Parliament to illuminate prevailing
perceptions of independence and clientelism, and to sketch
the context in which the new OB was eventually submitted
to government control. We then demonstrate the inertia of
ELTE through an evaluation of its performance since incep-
tion (2003–2013). Concluding remarks and implications
appear in the last section.
The political economy of OB establishment: an
institutional approach
As accounting scholars have observed, the internation-
alization of accounting and auditing practices is not a
recent phenomenon (e.g. Hopwood, 2000; Power, 2009).
Rather, long historical processes have been at work for cen-
turies, as a result of the expansion of a universalistic com-
mercial culture. Power (2009, p. 331) in particular
highlights the need to understand ‘‘the history and institu-
tional shape of a changing structural coupling between
world-level accounting elements and the preoccupation
of state agencies’’ and calls for a shift of emphasis from
the nation-state to the ‘‘world system of accounting’’.
Arnold (2009a, 2009b, 2012) recognizes Power’s (2009)
position as a useful starting point and argues for an institu-
tional perspective, informed by the political economy of
the contemporary inter-state system, to examine the role
of accounting in the global economic system. Such a per-
spective draws attention to the key role of (historically
changing) hegemonic states (still the US at the current his-
torical juncture), con?icting interests, and power relations
in the governance of global capitalism.
At the turn of the 21st century, a new international
?nancial architecture was under development to provide
urgently-needed stability to a global ?nancial system char-
acterized by recurring crises, the rise of ?nance capital and
inequality among states regarding the power to in?uence
the shaping of emerging regulatory apparatuses (Arnold,
2009a, 2009b, 2012; Humphrey et al., 2009; Wade,
2007a, 2007b). This new architecture was sponsored by
the G7 (G20 since the crisis of the late 2000s; see
Humphrey et al., 2009, p. 812) and other signi?cant actors
in international ?nancial systems. It provided for an
upgraded role of various international organizations (e.g.
International Monetary Fund) and the application of a ser-
ies of global standards and codes of good practice in the
management of the global ?nancial system (Wade,
2007a, 2007b). These standards of good practice (the SSC
system) cover macroeconomic policy and data transpar-
ency, institutional and market infrastructures (including
international accounting as well as auditing standards),
and ?nancial regulation and supervision (Arnold, 2012, p.
367). The key idea was that adherence to these standards
of practice and increased transparency would improve
the quality of ?nancial reporting and access to ?nance,
thus further inducing (in a virtuous circle) the observance
of these standards (Humphrey et al., 2009).
However, Wade (2007a, 2007b) argues that this new
?nancial architecture promotes the interests of Anglo-
American style capitalism and re?ects the increasing
importance of the ?nance industry in global economic
activity. Furthermore, Arnold (2012) contends that reform-
ers have shown eagerness in rapidly promoting the
reforms, regardless of the ability of countries to effectively
introduce and assimilate them. Other options, such as slow-
ing down the pace of reforms to give states some breathing
space (Arnold, 2012) or setting up truly international regu-
lators to match the global nature of the ?nancial integration
(Eatwell & Taylor, 2000), were rejected at the time.
OBs within the SSC system
A key component of the new regime has been account-
ing and auditing OBs, which are meant to operate at the
state level and to occupy a pivotal role in restoring con?-
dence in ?nancial reporting. OBs, modeled on the Anglo-
American tradition, are promoted as a uniform solution
to the need for material improvements in the effectiveness
of global ?nancial market regulation (Arnold, 2012; Büthe
& Mattli, 2011; Davies & Green, 2008).
OBs, local or transnational, are complex, multifaceted
units of analysis, with important and diverse characteris-
tics. They are established as formal political institutions,
operating at the interface between the world of economy
and the world of politics (e.g. Büthe & Mattli, 2011;
Davies & Green, 2008). As actors within the political arena,
OBs are part of the wider decision-making system,
assumed to produce and/or effect mandatory rules within
a given territory (not necessarily con?ned to the borders
of a particular jurisdiction/state) and for a particular
domain (e.g. accounting).
The establishment of accounting and auditing OBs
within the SSC context is considered a means to secure
an adequate level of quality in ?nancial reporting to facil-
itate the operation of globalized ?nancial markets
(Humphrey et al., 2009; Wade, 2007a, 2007b). In this
sense, the establishment of OBs in the 2000s can be under-
stood as a manifestation of the ‘‘accounting international-
ization’’ process, which has a long history (Hopwood,
2000; Power, 2009). However, as Power (2009) notes,
accounting scholars have long voiced caution or skepticism
about the feasibility of eradicating local ‘‘constraints’’ to
the internationalization of accounting practice and regula-
tion, as these constraints are culturally and institutionally
embedded and exhibit remarkable resilience (e.g.
Bromwich & Hopwood, 1983; Hopwood, 2000, 2009;
Puxty et al., 1987).
Other scholars have challenged the suitability of exter-
nally-induced change, modeled on the Anglo-American
tradition, because it disregards local factors crucial for
the project’s success (Arnold, 2012; Wade, 2007a, 2007b).
In particular, scholars have questioned the feasibility of
pursuing the stability of a global, complex and interdepen-
dent ?nancial system through the operation of domestic
14 C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31
OBs across the globe. At the same time, local needs for
reform are ignored, leaving the imbalances and inequali-
ties among states in the global economic system neglected.
Wade (2007b) suggests that the effectiveness of the sys-
tem of global oversight should not be taken for granted,
and he captures the need for a thorough investigation of
OBs in practice thus:
At ?rst glance, transparency, standards and surveillance
are as desirable as motherhood and apple pie. To go
beyond the ?rst glance we have to ask whether national
regulatory authorities have complied with the stan-
dards, and whether their compliance makes a difference
to the behavior of private market participants (p. 80).
To examine OBs at the local level more closely, we turn
to the literature on politico-economic reforms and institu-
tion building. O’Donnell (1994) recognizes strong institu-
tions, such as OBs, as key factors for the smooth
functioning of the political and economic process and he
maintains that the effectiveness of such institutions is con-
tingent on the wider socio-political context (see also
Acemoglu & Robinson, 2012; Schmitter, 1974; Streeck &
Schmitter, 1985). More speci?cally, O’Donnell (1994) sug-
gests that, for various reasons, including long-term histor-
ical factors and the intensity of their socio-economic
problems, some countries have failed to develop a state
of consolidated, institutionalized democracy, or what he
terms ‘‘representative democracy’’. These countries,
dubbed ‘‘delegative democracies’’, in contrast to their rep-
resentative counterparts, tend to have weak institutions
(e.g. OBs), often due to intentional strategy. Such countries
tend to lack or have weak horizontal accountability mech-
anisms (i.e. a nexus of relatively autonomous institutions
that operate as a system of checks and balances to the ?ow
of power). In delegative democracies, institutions that
make horizontal accountability operational in practice are
often considered ‘‘unnecessary encumbrances . . . and
strenuous efforts [are made] to hamper the development
of such institutions’’ (O’Donnell, 1994, pp. 61–62).
Furthermore, the enforcement of a clear distinction
between the public and the private interests of of?ce-hold-
ers in delegative democracies is cursory, if not absent. In
other words, in these countries, whoever wins the elec-
tions is in a sense ‘‘entitled to govern as he or she sees
?t, constrained only by the hard facts of existing power
relations and by a constitutionally limited term of of?ce’’
(O’Donnell, 1994, p. 59). In addition, delegative democra-
cies are typically omnipotent in introducing spectacular
policy reform packages and in setting up various institu-
tions that often imitate successful examples from
advanced countries but are in fact highly impotent, or
maybe indifferent, in effectively implementing those deci-
sions in practice (O’Donnell, 1994). In short, delegative
democracies tend to exhibit characteristics such as: low-
quality public administration with limited independence
from political pressure; low commitment to sound policy
formulation and implementation; limited con?dence in
and abidance of the rules; weaknesses in contract enforce-
ment, and regulatory capture by elites and private interests
(O’Donnell, 1994; see also Kaufmann et al., 2013).
One quali?cation is warranted with regard to
O’Donnell’s (1994) ideal typology of democracies. Repre-
sentative and delegative democracies should not be con-
sidered polar opposites; rather, they differ only in the
degree, albeit often signi?cant, to which they exhibit their
particular characteristics, and it is not always easy to make
a sharp distinction between them.
Building strong institutions and effectively introducing
material reforms in member states is critical for the EU,
given the political objectives of economic and political
integration (European Commission, 2001b). Yet the dif?-
culties involved show remarkable resilience (e.g. Balkir,
Bolukbasi, & Ertugal, 2013; Falkner & Treib, 2008;
Falkner, Treib, Hartlapp, & Leiber, 2005). EU reform initia-
tives are, in practice, imposed on states exhibiting distinc-
tively diverse social, political and institutional
backgrounds (e.g. Dyson & Goetz, 2003). Dyson and
Goetz (2003) maintain that the peripheral, or less central,
states in southern Europe (e.g. Portugal, Italy, Greece,
Spain) exert considerably less in?uence than core coun-
tries on the formulation of EU policy. As they convincingly
argue, the Europeanization project is highly likely to be a
mere ‘‘top-down’’ process for peripheral southern member
states and may produce variable and contingent outcomes
due to social, political and economic differences among
various member states.
Studies have shown that the implementation of EU-
inspired reforms by member states is often associated with
signi?cant gaps between the intended purposes and the
actual effects of the Europeanization project
(Featherstone & Papadimitriou, 2008; Radaelli, 2003). In a
sense, when change is imposed from above (Mouzelis,
1995), the complex, multifaceted and interdependent
domestic system of economic and political power illus-
trates a form of social ‘‘homeostasis’’ (Simon, 1962, p.
467). Reforms are internalized in such a way that the sys-
tem essentially maintains its ex ante equilibrium. Material
change is minimized, delayed, postponed and even averted
(Mouzelis, 1995; Pagoulatos, 2003). Blavoukos et al. (2013)
examine aspects of the function of the Greek OB within the
context of the Europeanization process – which, inter alia,
involves the curtailment of a member state’s policy-mak-
ing role and the disempowerment of domestic technoc-
racy. The authors use Radaeli’s (2003) conceptual model
to illustrate that domestic policy adaptation to EU-induced
reforms is often shallow and a mere façade.
Other prior literature in the ?eld of politics has identi-
?ed links between this reform gap and the particular fea-
tures of the local political system. For example, in
delegative democracies the operation of formal institutions
is eroded by non-formalized but strongly-operative prac-
tices, such as clientelism (O’Donnell, 1994), which ‘‘cut
across the divide between public and private’’
(Christiansen & Neuhold, 2012b, p. 1). The issue of cliente-
lism, and more generally the existence of informal prac-
tices, is certainly not limited to delegative democracies
(Christiansen & Neuhold, 2012a). Key aspects of the pro-
cess and outcomes of political and economic reform initia-
tives can be explained using the ‘‘party patronage’’
approach (Hopkin, 2006; Kopecky & Scherlis, 2008;
Piattoni, 2001; Roniger, 2004). In broad terms, party
C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31 15
patronage refers to the actions of political parties in power
to put appointees in key positions (in the civil service as
well as various commissions and regulatory bodies), so
that government policies and objectives are best served
(see Piattoni, 2001). Party patronage constitutes a critical
organizational and governmental resource employed by
political parties across Europe and elsewhere (Kopecky &
Scherlis, 2008).
However, the scope of party appointments, as well as
the rationale behind it, may vary signi?cantly. In countries
with well-established institutional traditions (representa-
tive democracies), party patronage may be narrow in scope
and political appointments are usually limited to ministe-
rial positions, only to secure the mere existence of party
government (Kopecky & Scherlis, 2008, p. 362). In contrast,
in countries with weak institutionalization,
4
in addition to
the control of top-ranking positions, a large number of jobs
are supplied as a clientelistic exchange for political support:
‘‘this type of patronage is primarily employed . . . for more
far-reaching clientelistic exchanges . . . [W]hat matters, how-
ever, is that jobs are primarily utilized as a reward for party
or factional allegiance, rather than for any other purposes’’
(Kopecky & Scherlis, 2008, p. 363; see also Hopkin, 2006).
A clientelistic political system in delegative democra-
cies means that institutions such as OBs, which in principle
should be autonomous organizations, in practice lack inde-
pendence from the state apparatus, which itself is a pris-
oner of political parties (Featherstone & Papadimitriou,
2008; Lyrintzis, 1984; Papakostas, 2001). Party patronage
in delegative democracies systematically undermines the
operation of OBs as independent horizontal control mech-
anisms (O’Donnell, 1994). Lack of independence implies
limited ability for an OB to express an objective opinion
within its jurisdictional domain, to the extent that such
an opinion could be interpreted as undesirable or disad-
vantageous for the government. In addition, institutions
in delegative democracies run the risk of being caught in
the cogs of clientelism, state indifference, ineffectiveness
and red tape. These interrelated factors might even prevent
an institution fromdealing with basic organizational issues
and developing into a functioning organization.
In short, clientelism and other features of delegative
democracies (e.g. poor government effectiveness, regula-
tory quality and rule of law) limit the possibility of build-
ing strong, operative institutions of horizontal
accountability, such as OBs, which are nonetheless a key
component of the global ?nancial infrastructure that
emerged in the 2000s. From a more general viewpoint,
these countries lack the ability to produce and apply coher-
ent and consistent policies, thus they exhibit, to varying
degrees, poor records of implementing major reforms. This
conceptualization of the state is certainly in contrast with
the role of the state in advanced, institutionalized democ-
racies (O’Donnell, 1994).
This theoretical conceptualization, drawn from litera-
ture on politics, of the varying ability of states to deliver
on key functions has received broader empirical support
in global surveys. For example, Kaufmann et al. (2013)
report signi?cant variation in key governance indicators,
including government effectiveness, regulatory quality
and rule of law. More importantly, signi?cant variation
also exists in these indicators even among EU member
states.
In summary, the theoretical threads on which this arti-
cle is based suggest that the establishment and develop-
ment of Anglo-American in conceptualization, OBs should
be examined in relation to the dynamics of the political
economy of the global economic system. OBs are promoted
by the G7/G20 and other powerful global actors as a uni-
form solution to improve the quality of ?nancial reporting
and to help instill stability in a crisis-prone and interde-
pendent global ?nancial system. This need has been so
profoundly exposed during the current ?nancial crisis
which has shaken the world economy. The proliferation
of OBs in the early 2000s rests on the assumption that
every country has the capability to successfully establish
and operate accounting institutions molded on Anglo-
American governance regimes.
However, the ef?cacy of local OBs should not be taken
for granted, since countries differ in their historical, social,
cultural and economic traditions, and these differences, in
turn, may condition their ability to introduce systems of
effective oversight and related reforms. Thus, the operation
of emerging domestic OBs warrants close examination.
Countries with a tradition of weak institutionalization
(delegative democracies) tend to exhibit signi?cant dif?-
culties in importing reform measures developed in coun-
tries with a tradition of strong, operative institutions. The
former tend to lack a nexus of horizontal accountability
mechanisms, which thus hampers the development of
strong OBs. Clientelism, a particular version of party
patronage, is a widespread characteristic of political sys-
tems in certain European countries (and elsewhere) and
is associated with the institutional weaknesses of delega-
tive democracies and their inability to build strong, opera-
tive OBs.
Research methods
This study follows a case study research design (Babbie,
1998; Hussey & Hussey, 1997; Yin, 2002) and its empirical
part, which spans the period 2003–2014, is based on a mix
of data sources and triangulation research methodology
(Denzin, 1978; Jick, 1979). The data sources includea wealth
of publically-available archival material (e.g. minutes of
parliamentary debates, parliamentary reports, laws, minis-
terial decisions, articles inthe press andinprofessional jour-
nals, as well as a small number of letters, memoranda and
reports submitted by interested parties to the Minister of
Economy
5
). The written evidence is supplemented with 10
focused, semi-structured, face-to-face interviews. The inter-
views covered, depending on the interviewee’s personal
knowledge, a series of issues related to the establishment
and performance of ELTE. Semi-structured interviews
were recorded and professionally transcribed. Interviewees
4
Kopecky and Scherlis (2008) identify a third group of countries in
which the number of posts ?lled by the party is higher and, therefore, the
potential control exercised would also be higher.
5
All empirical sources are available on request from the authors.
16 C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31
requested their names not be disclosed in the paper (apart
from Minister Alogoskou?s, who made no such request), but
agreed to disclosing the description of their post. Further-
more, three interviewees requested that the interview not
be recorded and notes were taken instead. Interviewees
included: the Minister of Economy (2004–2008); the Secre-
tary General to the Ministry of Economy (2004–2007); the
two chairmen of ELTE (2003–2009 and 2009–2014, respec-
tively); the President of the Institute of Certi?ed Auditors–
Accountants of Greece (1993-present), who is also a partner
in a large local audit ?rm; one local, small audit ?rm partner
and two Big-Four audit ?rm partners; one senior public ser-
vant at the Ministry of Economy; and one member of ELTE’s
Disciplinary Council.
Our study shares limitations inherent to a qualitative
methodology. In addition, we acknowledge that one of
the authors (referred to in the paper as ‘‘Academic’’) served
as a member of ELTE’s accounting arm for two years
(2005–2007). To reduce the risk of subjectivity and bias,
we note that the paper is mostly based on publically-avail-
able written evidence, unrelated to the Academic. In addi-
tion, all semi-structured interviews cited herein have been
conducted by the other co-authors.
The interaction between global and local institutional
settings
The global landscape
In Europe, public oversight of accounting and auditing
emerged as a policy matter in the late 1990s, when the
EU embarked on a review of the corporate external audit
function, in light of further integration (European
Commission, 1998). This review resulted in the issuing of
the Recommendation of 15 November 2000, which viewed
the creation of an effective system of public oversight at
the state level as an integral part of a single internal market
(European Commission, 2001a). Although the Recommen-
dation was non-mandatory, it provided a clear indication
of the EU’s preference for a system of oversight indepen-
dent of the profession. It envisaged that such a system
would be run by non-professionals, including representa-
tives from the industry, securities regulators and other
stakeholders. These EU measures intensi?ed in the early
2000s and eventually culminated in the issuing of the
(new) Eighth Directive in 2006 (European Commission,
2006). This piece of EU legislation requires member states
to install or upgrade systems of accounting and auditing
oversight.
These EU measures re?ected developments on the other
side of the Atlantic (Davies & Green, 2008; Malsch &
Gendron, 2011). In the US, following the infamous Enron
scandal and the collapse of Arthur Andersen in 2001, the
Sarbanes–Oxley Act (US Congress, 2002) led to the creation
of the Public Company Accounting Oversight Board
(PCAOB), which heralded the end of self-regulation for
the accounting profession in the US (e.g. Anantharaman,
2012; Lennox & Pittman, 2010). The new regulator was
charged with audit quality inspections, ending the
peer-review system run hitherto by the US profession
(Anantharaman, 2012; Lennox & Pittman, 2010).
It is within this international context that domestic OBs
began mushrooming in the early 2000s across the globe, as
one means of regulating crisis-prone globalized capitalism
(Büthe & Mattli, 2011; Davies & Green, 2008; Wade,
2007a). Although the argument that integrated economies
require integrated systems of regulation and oversight has
received support (Davies & Green, 2008), OBs are set up
and operate at the local, domestic level. Thus, the structure
of these emerging systems of oversight, i.e. dispersed OBs
embedded within diverse local contexts, is incongruent
with the ever-growing integration of the global ?nancial
system.
The need to coordinate diverse OBs was recognized in
2006 when national OBs from 18 separate jurisdictions
set up a representative organization, the International
Forum of Independent Audit Regulators (IFIAR). Member-
ship has only grown to 49 as of 2014, so most UN member
states have not yet joined. IFIAR is meant to operate as a
platform for coordination, knowledge sharing and dialogue
among bodies, with no enforcement power over its mem-
bers
6
regarding audit quality inspections. At the moment,
coordination of national OBs through IFIAR remains rather
elementary (Davies & Green, 2008, pp. 89–91; Humphrey
et al., 2009). IFIAR issued seven non-binding
7
core principles
for its members in April 2011. Similarly to IFIAR, the Euro-
pean Group of Auditors’ Oversight Bodies established by
the European Commission in 2005 lacks enforcement
power,
8
since it is limited to an advisory and coordinating
role within the EU.
The local politico-economic and professional context
As a member of the European Economic Community
since the early 1980s, Greece’s position within the global
politico-economic system has been conditioned by Euro-
pean policies. With regard to accounting and auditing in
particular, relevant regulation and practice in the past
three decades has largely been shaped by European direc-
tives (Caramanis & Dedoulis, 2011). During the past three
decades, successive governments
9
have pursued further
integration of the country into the EU. This effort has
entailed a series of liberalization reforms since the early
1990s, among them the liberalization of the Greek audit
market in 1992 (Caramanis, 1999), and culminated in
Greece’s entry to the euro zone
10
in 2001.
6
Seehttps://i?ar.org/About-Us.aspx.
7
Seehttps://i?ar.org/IFIAR/media/Documents/General/Final-Core-Prin-
ciples.pdf.
8
Seehttp://ec.europa.eu/internal_market/auditing/egaob/index_en.htm.
9
From 1981 to 2012, the country had been governed by either the
socialist PASOK party or the center-right New Democracy party. New
Democracy was in power for eight of these years (1990–1993 and 2004–
2009). In October 2009, PASOK returned to power against the background
of an intensifying economic crisis. A coalition government has been at the
helm since 2012.
10
It has been argued, however, that entering the euro zone in 2001 was,
to a certain degree, the result of political considerations at the EU level, as
well as of creative accounting practices in Greece’s ?nancial statistics (e.g.
Financial Times, 11 and 30 November 2009).
C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31 17
However, despite improvements in certain ?nancial
indicators, concerns have remained about the real growth
and development of the economy. For example, Greece
has consistently been the worst performer in terms of
the criteria set out in the Lisbon Programme (e.g. World
Economic Forum, 2004, 2006). Clear signs of an economic
slowdown had been apparent before the 2008 ?nancial cri-
sis erupted and the country eventually entered into a deep
(and still ongoing) recession in 2009, amid widespread rec-
ognition that the ?nancial crisis was a symptom of more
serious, structural socio-political problems (e.g. OECD,
2009, 2010, 2011a, 2011b, 2012).
Greece’s lingering economic problems are certainly
related to the country’s reform capacity problems, result-
ing from its weak institutionalization and clientelistic
political system (e.g. Featherstone & Papadimitriou,
2008). An OECD report (2011b) explicitly ties Greece’s
problems to the widely-acknowledged weakness of the
state apparatus:
Strong measures . . . to improve the effectiveness,
accountability and integrity of the public administra-
tion so that it is ‘‘?t for purpose’’ are a priority, perhaps
even the ?rst of the reform priorities facing Greece. Fail-
ure to implement a major and integrated public gover-
nance reform in Greece is likely to jeopardise the
broader reforms required to put Greece back on the
path to sustainable growth.
[Featherstone & Papadimitriou, 2008, p. 3]
The weakness of the Greek state apparatus and its role
as an impediment to progress has been recently high-
lighted by Jean-Claude Triche, head of the European Cen-
tral bank (2003–2011), in the context of an inquiry led
by the European Parliament into the handling of the Greek
crisis by the ‘‘troika’’ (the European Commission, the Euro-
pean Central Bank, and the International Monetary Fund).
As Trichet (2014, trans.) states: ‘‘The state in Greece does
not operate the way it should . . . [W]hat Greece should
do is to continue trying to build a solid state. This is a pre-
condition for the country to succeed . . . and for the econ-
omy to operate’’. Kaufmann, Kraay, and Mastruzzi (2013)
also capture the weakness of Greek public administration
in a global survey, in which Greece ranks at or close to
the bottom of EU member states in key governance indica-
tors, including government effectiveness, regulatory qual-
ity, and rule of law.
The international developments in accounting regula-
tion of the late 1990s and early 2000s have been repeat-
edly and explicitly acknowledged by the Greek
government as a signi?cant factor in formulating policy
regarding the establishment of ELTE (e.g. Greek
Parliament, 2003a, 2003b, 2003c). For example, the Minis-
ter of Economy Christodoulakis (2001–2004) stated that
the government was trying to bring Greece closer to the
global SSC system of ?nancial regulation: ‘‘We are creating
a new institution in order to be in a position to deal with
the complexity of corporate audits . . . [W]e use the formu-
lae that are available internationally to improve the con-
text in which the markets operate and investors make
decisions’’ (Greek Parliament, 2003c, p. 4.269, trans.). Sim-
ilarly, the Deputy Minister of Economy Fotiadis openly
acknowledged the role of international developments:
‘‘[T]he Enron experience has led most countries to initiate
reforms in order to improve the quality of audits and pro-
vide adequate assurances to the investing community . . .
and this is what we are doing’’ (Greek Parliament, 2003a,
p. 1083, trans.).
However, in addition to international developments,
local-level events and conditions in Greece provided fur-
ther impetus to the introduction of public oversight. As
such, these conditions hastened the establishment of ELTE
before it actually became an EU legal requirement through
the issuing of the new Eighth Directive in 2006. One such
major event was the Athens Stock Exchange (ASE) scandal
of the late 1990s, which eroded public con?dence in
?nancial reporting and the role of the auditing profession.
An unprecedented growth in the ASE, which had created
market euphoria and involved hundreds of thousands of
Greek households, was followed by an intensive down-
ward spiral. The General Index fell from 6355 to 1800
points within the space of a few months in the last quarter
of 1999 (ASE, 2001). Soon, allegations appeared in the
press and in public debates
11
about the role of key
politicians, even of the Prime Minister himself, in the affair
and such claims were even raised in the Parliament
(Greek Parliament, 2003c; see also Papadimitriou, 2001;
Staikouras, 2001).
It is evident that the ASE episode created a legitimation
crisis for the government. Under such conditions, tighten-
ing regulation or introducing more structural changes has
been a state’s main response to crisis at various times
and locales (Hancher & Moran, 1989; Malsch & Gendron,
2011; Zeff, 2003). Indeed, a senior public servant has
linked the establishment of ELTE with the ASE affair, sug-
gesting that the creation of the Greek OB ‘‘was apparently
brought forward by the scandal’’ (interview, 26 September
2013). During the debate in Parliament on the establish-
ment of ELTE, the sponsor of the bill emphatically sug-
gested that the new regulation was: ‘‘an answer to those
who argue that the government is somehow related to
sleaze and scandals’’ (Greek Parliament, 2003a, p. 1069,
trans.), and Deputy Minister of Economy Fotiadis stated
that the government sought to ‘‘strengthen transparency’’
(Greek Parliament, 2003a, p. 1083, trans.) as public con?-
dence in the operation of the market had evaporated.
The ?nal local factor to consider is the division within
the Greek auditing profession regarding the introduction
of independent oversight, which primarily emanated from
a lingering intra-professional con?ict. This con?ict initially
erupted in the late 1970s between SOL,
12
a quasi-state
auditing organization, and SELE, an aspiring occupational
group representing local branches of the big international
accounting ?rms that had been campaigning for access to
the statutory audit market (Caramanis, 1999). The
profession was eventually liberalized in 1992 through legis-
lation (Caramanis, 1999). This audit reform entailed the
11
The ASE scandal was a major political issue in the elections of March
2000.
12
SOL is the English abbreviation of the Greek Rx
9
la Oqjxsx
9
m
Kocirsx
9
m – ROK (Soma Orkoton Logiston – SOL), which translates as
the Body of Sworn-in Accountants.
18 C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31
introduction of competition between auditors and the for-
mal uni?cation of the profession as members of interna-
tional accounting ?rms gained professional recognition.
The reform also abolished SOL and established SOEL,
13
a
new professional association, largely organized as a self-
regulated professional institute. However, the formal
uni?cation of the profession in 1992 failed to end this
intra-professional con?ict which continued,
14
overtly or
covertly, around the issue of the control of SOEL’s adminis-
tration. Related to this con?ict, the profession stood divided
regarding the proposal for the establishment of ELTE, and
particularly regarding the transfer of regulatory and over-
sight powers from SOEL to the new OB. The Big-Four and
international second-tier ?rms openly supported the reform,
while resistance mostly came from SOL SA, the largest (local)
audit ?rm, supported by the Economic Chamber of Greece
(OEE
15
), a legal, compulsory trade association of all gradu-
ates in the broader ?eld of economics, including business
accountants. Thus, the divided profession, apparently
involved in the stock exchange scandal, had a signi?cantly
reduced capacity to resist reform (Caramanis, Dedoulis, &
Leventis, 2010).
The deep divide and the power relations within the pro-
fession were summarized in a letter to SOEL’s Supervisory
Council, sent by a partner of a second-tier international
audit ?rm shortly after the government announced its plan
to set up ELTE:
[T]he Greek profession is characterised by an extreme
concentration of power in very few audit ?rms . . . in
practice, two blocks have been formed in the profession.
The one that has all the power in the organs of admin-
istration and the other that is seeking to bring it into
balance. It is this antithesis that has created many prob-
lems in the internal operation, status and the public
image of the profession.
[Second-tier ?rm partner, 2002, trans.]
Following the 1992 reform, the great majority of SOL
members established the audit ?rm SOL SA
16
under the
leadership of ‘‘Unileader’’ (Caramanis, 2002) – the most
important of the dramatis personae in the Greek accounting
profession in the past two decades. Unileader, a charismatic
ex-trade unionist of SOL and middle-to-senior member of
PASOK, also served as Secretary General (1996–2000) of
the Ministry of Economy and, for two terms, was President
of the OEE during the late 1990s and early 2000s. The formal
uni?cation of the profession, however, did not end this intra-
professional con?ict. It continued, explicitly or implicitly, as
SOL SA attempted to reverse liberalization following
PASOK’s return to power in October 1993 (Caramanis,
2002, 2005). Eventually though, the intra-professional con-
?ict seemed to abate, and a modus vivendi between the con-
?icting groups was achieved, subsequent to SOL SA’s utterly
unsuccessful attack on liberalization in the late 1990s. Fol-
lowing this development, Unileader focused on consolidat-
ing his control over SOEL, which is funded through a
legally-sanctioned 2% annual membership charge on audit
fees. Taking advantage of the one member-one vote system
of the profession, he has uninterruptedly been the elected
President of SOEL since the early 1990s (he was re-elected
in April 2012 for another three-year term of of?ce).
In summary, global in?uences and pressures (i.e. the EU
guidelines and the precedent set by the PCAOB) along with
local events (the ASE scandal and intra-professional con-
?ict) created a unique trajectory, conducive to the emer-
gence of a local accounting and auditing OB independent
of the profession, well before it became a legal EU require-
ment. However, the delegative characteristics of Greece
created a rather gloomy outlook for the prospect of a truly
effective and independent accounting and auditing OB.
The parliamentary debate: rhetoric on independence
and concerns about clientelism
The debate in Parliament on the establishment of
ELTE
17
began in spring 2003 (Greek Parliament, 2003a,
2003b, 2003c). The minutes of this debate provide useful
insights into the clientelistic nature of Greek politics, the
prevailing perceptions among politicians and the institu-
tional impediments to the independence of ‘‘independent’’
authorities. The proceedings reveal that the risk of creating
an impotent institution under government control in Greece
was neither unforeseeable nor unforeseen, as shown during
the debate on the bill in Parliament.
The need to ensure that ELTE would not fall victim to
party clientelism and ineffectiveness, a quintessential
characteristic of the Greek public sector, was openly
acknowledged by Christodoulakis (Minister of Economy
2000–2004) during the debate in Parliament: ‘‘[O]ur pur-
pose is only one: to make the system for overseeing ?nan-
cial audits more transparent, more rigorous and to bring it
away from the operation of the state, so that it will be
able to adapt to international developments and will be
capable of overseeing companies and inspecting auditors’’
(Greek Parliament, 2003c, p. 4269, trans., emphasis added).
Yet he insisted that the Ministry maintain overall control
13
SOEL is the English abbreviation of the Greek Rx
9
la Oqjxsx
9
m
Ekecjsx
9
m Kocirsx
9
m – ROEK (Soma Orkoton Elegkton Logiston – SOEL),
which translates as the Institute of Certi?ed Auditors – Accountants.
14
There was also an abortive attempt to reverse liberalization when
PASOK returned to power in 1993 (see Caramanis, 2002, 2005).
15
OEE is the English abbreviation of the Greek Oijomolijo
9
Epi-
lekgsg
9
qio Ekkdo1 – OEE (Economico Epimelitirio Ellados – OEE), which
translates as the Economic Chamber of Greece. OEE was established by the
(PASOK) government in the early 1980s as a state-corporatist institution
and has traditionally been an arena for party competition and clientelism.
All practicing statutory auditors, business accountants and tax consultants
must have OEE membership. Other membership comes from tax of?ce and
banking sector employees. OEE is still capable of exercising some political
power, emanating from its membership, which amounts to around 90,000
individuals. However, it has failed to have any signi?cant impact on
accounting and related matters (Caramanis, 1999, 2005).
16
SOL SA is by far the largest audit ?rm in Greece, at least in terms of
staff. As of 2010, it accounted for almost one-third of SOEL’s membership
(all ranks included) which, in the highly-politicized Greek context, is widely
believed to give SOL SA signi?cant bearing in the political centers of power.
17
The government had announced its plan to establish an accounting and
auditing OB and end self-regulation in July 2002, when it published a draft
bill for the creation of ELTE (Kerdos, 2002; Ministry of Economy, 2002). A
long consultation period ended in March 2003 when the bill was
introduced to Parliament, amid ?erce and concerted protest from SOEL
and OEE. Nhe bill was eventually voted for in May 2003 (Government
Gazette, 2003).
C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31 19
over the new institution, even on technical accounting
matters: ‘‘[T]he deliberations of ELTE shall be signed by
the Minister of Economy’’ (Greek Parliament, 2003c, p.
4.269, trans.).
Several speakers in the parliamentary debate, across the
political spectrum, emphasized ELTE as being under the
direct control of the incumbent Minister of Economy. The
Member of Parliament (MP) and Shadow Minister of Econ-
omy Alogoskou?s
18
expressed concerns that the creation of
ELTE was an opportunity for the government to create posts
for its political friends and allies (Greek Parliament, 2003b).
Moreover, MPs from political parties on the left argued that,
though the law secured independence from the profession,
‘‘ELTE lacked even a semblance of independence from the
government’’ (Greek Parliament, 2003c, p. 4259, trans.),
underscoring the lack of accountability to Parliament
(Greek Parliament, 2003b, 2003c). These MPs, however,
extended their criticism to New Democracy: ‘‘[W]hile PASOK
is seeking full government control over accountancy, New
Democracy is essentially supporting the bill, as they expect
to take political advantage of the new institution if they
return to power’’ (Greek Parliament, 2003a, p. 1077, trans.).
Overall, the debate in Parliament revealed a more gen-
eral lack of trust in public authorities (which are normally
presumed to be independent of government and party-
political in?uences and pressures) as a precondition for
the smooth functioning of the free market economy
(O’Donnell, 1994). It is indicative that, when the Chairman
of the Standing Committee of the Chamber announced that
the heads of the Capital Markets Commission and the ASE
(traditionally devoted government appointees) had been
invited to express their views on the establishment of
ELTE, MP Alogoskou?s a priori discredited their testimony
and suggested that there was no need to invite them
because ‘‘on the basis of past experience [they] come to
the Parliament only to support the government’s views.
We shall not learn anything more than what the govern-
ment and the Minister will tell us’’ (Greek Parliament,
2003a, p. 1068, trans.). He also explicitly recognized the
issue of state ineffectiveness:
The question of the credibility of ?nancial audits is not
only a matter of institutions and legislation . . . [W]e
already had [institutions that did not work and] ade-
quately strong legislation which was not enforced in
practice and this resulted in the serious problems of
the Athens Stock Exchange [the 1999 scandal] . . .
[W]e shall vote for the bill because we want to indicate
that . . . there is a need for more effective audits and
more reliable ?nancial statements . . . particularly in
state-controlled organizations.
[Greek Parliament, 2003c, p. 4264, trans.]
The issues of clientelism and lack of true independence
of OBs from the government were most explicitly captured
by MP Lafazanis thus:
The independence of ‘‘independent’’ authorities is a
mockery . . . You appoint hangers-on to various posts,
you name them independent, and then [when things
go wrong] you come to say that they have failed and
put the blame on them so that you remain protected
from criticism. I would prefer, Mr. Minister, that you
personally have the political responsibility [for oversee-
ing corporate auditing].
[Greek Parliament, 2003c, p. 4259, trans.]
However, regardless of any arguments during the
debate in Parliament, senior politicians (at least when in
power) showed clearly negative attitudes toward truly
independent authorities outside the control of the political
system, an observation in congruence with O’Donnell’s
theorization of delegative democracies (1994). As the Sec-
retary General (2004–2007) put it in an interview well
after he left of?ce: ‘‘Ministers tend to have the view that
independent authorities should be at an arm’s length . . .
[They] should be independent but not too much so’’ (inter-
view, 14 July 2010, trans.). That is, ministers want to main-
tain control over independent authorities. The way the
Minister of Economy (2004–2009) under New Democracy
rationalized this attitude against truly independent bodies
is illuminating:
There are two kinds of risks associated with indepen-
dent authorities. Either they will not do the job they
are established for, or they will be overactive, causing
problems for the operation of the market . . . [in Greece
and] . . . they are in a position to hold the Minister to
ransom . . . and blackmail the government . . . because
they have all the information and the Minister is very
vulnerable to adverse publicity (interview, 14 July
2010, trans.).
The establishment of ELTE: subjugating the new OB to
government control
The Greek OB was eventually established by Law 3148/
2003 (Government Gazette, 2003), in May 2003 (Appendix
presents the time line of major events in the history of
ELTE since July 2002, when the government announced
its decision to establish an accounting and auditing OB).
Following the international trend (EU guidelines and the
PCAOB precedent), the Law secured the independence of
ELTE from the profession.
Formally, ELTE was set up as a public sector legal entity
and its mission is to ‘‘promote transparency in the opera-
tion of business enterprises through accounting standardi-
zation, and to ensure the quality of corporate audits’’
(article 1 of the Law, trans.), and to act as the government’s
formal advisor on accounting and auditing matters. ELTE is
funded by audit ?rms through a 1% levy on total audit
fees,
19
which secures the availability of necessary ?nancial
resources.
As Fig. 1 shows, ELTE is headed by a chairman and two
vice-chairmen, who constitute its powerful Executive
18
Alogoskou?s became Minister of Economy when New Democracy won
the 2004 elections. He played a key role in the developments in Greek
accountancy in the late 2000s, as we explain subsequently.
19
This, as of 2010, amounted to almost € 2 m per annum in total revenue
for ELTE.
20 C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31
Committee. The chairman and one vice-chairman are
selected by the Ministry of Economy and the second vice-
chairman is nominated by OEE,
20
whose leadership at the
time was controlled by the governing PASOK. All appoint-
ments require con?rmation from Parliament. ELTE’s admin-
istrative structure is supplemented by a seven-member
Administrative Council, comprising three members of the
Executive Committee and four other individuals nominated
by the Bank of Greece, the Hellenic Capital Markets Commis-
sion, the Confederation of Greek Industries, and the account-
ing profession
21
(SOEL).
Under the umbrella of ELTE, two organs were created.
The ?rst is SLOT
22
(Accounting Standardization Committee),
which comprises four accounting experts appointed by the
Ministry of Economy and is headed by one of ELTE’s two
vice-chairmen. The second is SPE
23
(Quality Inspections
Committee), which is a seven-member committee headed
by the second vice-chairman of ELTE. The remaining mem-
bers of SPE include a senior judge, one member of SLOT
and four other individuals nominated by the Bank of Greece,
the Hellenic Capital Markets Commission, SOEL, and the
Ministry of Economy. SPE’s main responsibility is the man-
agement of a peer-review-based quality inspection system
that was to be introduced.
In addition to directly appointing the three heads of
ELTE and the members of SLOT, the nominations for mem-
bership of ELTE’s Administrative Council (four) and of the
Quality Inspections Committee (?ve) require formal
approval from the Ministry of Economy. Furthermore, the
Ministry of Economy exercises oversight of ELTE’s opera-
tions, determines the remuneration of its senior staff, and
approves the appointment of administrative personnel.
Even ELTE’s regulatory decisions on technical issues are
subject to approval by the Ministry of Economy. Finally,
Law 3148/2003 removed the disciplinary power of SOEL
and provided for the establishment of a new system of dis-
ciplinary arrangements,
24
independent of the profession,
which would operate in parallel with ELTE. The members
of the Disciplinary Council were to be appointed by the gov-
ernment. Furthermore, auditor independence was to be
strengthened through the introduction of provisions on var-
ious issues (e.g. auditor rotation, employment of audit staff
by the client, consulting services to audit clients).
The formal passing of Law 3148/2003 and the establish-
ment of ELTE as the ?rst OB in the history of Greek
accounting and auditing naturally created expectations of
much-needed improvements in Greek ?nancial report-
ing.
25
However, given the deeply politicized nature of the
Greek state and the lingering ineffectiveness of public
administration, the close control of ELTE by the government
apparently gave cause for concern from the outset, and
called into question whether ELTE as an institution would
in practice play the vital role for which it had formally been
established. We turn to this issue in the next section.
ELTE in a state of inertia
ELTE was envisaged to play a key role in ensuring
much-needed transparency and con?dence in ?nancial
reporting. This would be achieved by improving the quality
of corporate audits through the introduction of a system of
audit quality inspections. However, since its inception in
May 2003, ELTE has, in practice, fallen into an essentially
dormant state with regard to improving transparency
and con?dence in ?nancial reporting. ELTE’s situation
Chairman
Execu?ve Commi?ee
(chairman and two vice-chairmen)
Administra?ve Council
(chairman, two vice-chairman and four other members)
SLOT – The accoun?ng standards se?er
SPE – The audit quality inspec?ons unit
(one vice-chairman and six other members)
Disciplinary Council
(three members)
(one vice-chairman and four experts)
Fig. 1. The administrative structure of ELTE.
20
The OEE gained the right to nominate one vice-chairman of ELTE as a
result of its electoral power and effective political mobilization during the
debate in the chamber (see Greek Parliament, 2003a, 2003b, 2003c).
21
The initially-submitted Law did not provide for representation of the
profession in ELTE. However, political pressure during the discussion in
Parliament gave SOEL one seat on ELTE’s Administrative Council (see Greek
Parliament, 2003a, 2003b, 2003c).
22
SLOT is the Greek acronym of Rtlbot9kio Kocirsijg
9
1 Ntpopoi
9
grg1
– RKON, which translates as the Accounting Standardization Committee.
23
SPE is the Greek acronym of Rtlbot9kio Poiosijot9 Eke
9
cvot – RPE,
which translates as the Quality Inspections Committee – SPE). The
appointment of SPE members is controlled by the Minister of Economy.
24
The bill initially provided for severe monetary ?nes for errant auditors
and audit ?rms, but these penalties were signi?cantly softened in the ?nal
text of the law, as the profession stood united against them.
25
According to academic research, Greece has a leading position in
earnings management internationally (Christensen et al., 2013; Leuz et al.,
2003; Osma & Pope, 2011).
C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31 21
was acknowledged by its chairman (since 2009) in an
interview with the in?uential quarterly Accountancy
Greece, issued by SOEL for its membership:
As you know, since its establishment in 2003, ELTE has
been in a state of inertia . . . understaffed, without
[proper] of?ces, incapable of performing its duties
and, most importantly, unable to conduct the audit
quality inspections required by legislation since 2003
. . . It is imperative that the Authority be staffed with
quali?ed personnel as a matter of urgency.
[Refenes, 2011, p. 29, trans.]
The poor state of ELTE was documented in an academic
survey of auditors and corporate ?nancial executives
(Caramanis & Papadakis, 2008). The survey, which
attracted signi?cant media attention, revealed that Greek
oversight authorities were in need of signi?cant improve-
ments in several respects, including: reliability, transpar-
ency, staf?ng, and independence from political and
economic centers of power (e.g. Kerdos, 2008; Kourkouta,
2008; Naftemporiki, 2008). The headline of the newspaper
Kerdos (2008, p. 14, trans.) read: ‘‘The de?ciencies of the
oversight authorities cast doubt on the bene?ts of the
introduction of IFRSs’’. ELTE’s poor state of affairs was also
evidenced by its development of a web page as late as
spring 2009, six years after its establishment; a web pres-
ence had been agreed on early in 2005, since it was consid-
ered a key factor in effecting change and ensuring
transparency and accountability (SLOT, 2005).
The failure of ELTE to perform its duties over the years
has been indicated in internal documents prepared by the
Academic member of SLOT and a retired senior judge-
member of the SPE and submitted to the Ministry of Econ-
omy (Academic, 2006, 2007, 2008; Retired Judge, 2006a,
2006b). ELTE’s deplorable position has also been high-
lighted in two parliamentary questions raised by MPs
Tatoulis (2009) and Katseli (2009). In her question, Katseli
particularly stressed that ‘‘ELTE . . . with a leadership
appointed by the government has fallen victim to the path-
ogenesis of Greek public administration’’ (Katseli, 2009, p.
2, trans.). The Secretary General 2004–2007 and the Minis-
ter of Economy (2004–2008) also both acknowledged that
ELTE had failed to improve Greek accounting and audit
practice and, in retrospect, implicitly expressed their regret
for not taking appropriate measures while in power (both
interviewed on 14 July 2010).
ELTE’s inaction is most evident with regard to quality
inspections. Following the ?lling of the SPE posts in March
2006, ELTE initiated the organization of the ?rst audit qual-
ity inspections in the history of Greek auditing in July 2006,
three years after its establishment. However, this attempt
utterly failed: ‘‘t became clear that we did not have a safe
legal framework to proceed, we did not have our own audit
quality inspectors . . . it would be a mockery to perform
inspections under such conditions’’ (interview with the
Chairman of ELTE 2003–2009, 26 September 2013, trans.).
Two years after this incident, the government eventually
passed Law 3693/2008, which, inter alia, abolished the
peer-review system and provided that ELTE would appoint
its own audit quality inspectors. However, ELTE did not
have the authority to proceed with ?lling the posts of
quality inspectors, as recruitments were subject to the
Ministry’s approval. It took one year (July 2009) for ELTE
to receive permission from the Ministry of Economy to
appoint ?ve quali?ed members of staff for the audit quality
inspections on a one-year employment contract (ELTE,
2009). Using the limited human resources available, ELTE
was eventually able to complete the ?rst audit quality
inspections as late as April 2010, seven years after its
inception (ELTE, 2010). The main ?ndings of these inspec-
tions were presented at a public event on 14 April 2010.
ELTE’s chairman publicly admitted in his speech that ELTE
had adopted a largely ‘‘educational’’ approach and no disci-
plinary action was taken. He made clear though that ELTE
would exercise disciplinary action against any deviant
auditors in the next round of inspections.
However, the work contracts of ELTE’s inspectors
expired in spring 2010, and, as no permission for new
appointments had been granted by the Ministry of Econ-
omy, ELTE had insuf?cient human resources even for min-
imum operations. Yet Greece still needed to comply with
the requirement of the Eighth Directive for audit quality
inspections on a regular basis (interview with the Chair-
man of ELTE, 2009–2014, 26 July 2013). To deal with this
problem, shortly thereafter an arrangement was made
between ELTE and SOEL, with the permission of the Minis-
try of Economy, according to which SOEL appointed two
inspectors who were then seconded to ELTE (interviews
with the President of SOEL, 19/07/2013; Chairman of
ELTE 2009–2014, 26/07/2013). The two individuals would
mainly deal with urgent investigations ordered within
the context of judicial procedures, following major, or
sometimes more minor, auditing scandal (interview with
the Chairman of ELTE 2009–2014, 26/07/2013).
Nevertheless, ELTE’s performance eventually came
under legal scrutiny. On 5 April 2012, the public prosecutor
for economic affairs ordered an investigation into ELTE’s
apparent inaction by the Internal Audit Service of Public
Administration (Kousoulos & Vlachoutsakos, 2012). The
judicial investigation was provoked by written allegations
by individuals (investors claiming ?nancial losses as a
result of ELTE’s inaction) that had been submitted to the
Ministry of Economy and various judicial authorities
(Kousoulos & Vlachoutsakos, 2012). The report of the Inter-
nal Audit Service of Public Administration found that ELTE
had in fact failed to perform its responsibilities, but attrib-
uted this to lack of staff (interview with the Chairman of
ELTE 2009–2014, 26 July 2013).
In January 2013, ELTE received permission from the
Ministry of Economy to outsource the implementation of
audit quality inspections, since public sector appointments
had essentially been banned since 2010 due to the ?nan-
cial crisis. The contract was awarded to SOEL, the profes-
sional organization representing the auditing profession,
which appointed six individuals from the relatively junior
staff of audit ?rms on ?xed-term contracts (interview with
the Chairman of ELTE, 26 July 2013). The arrangement was
in clear violation of core principle 5 of IFIAR (2014), of
which ELTE is a member. According to Principle 5:
Audit regulators should have arrangements in place to
ensure that inspection staff members are independent
22 C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31
of the profession. These arrangements will, as a mini-
mum, include ensuring that staff members should not
be practicing auditors or employed by or af?liated with
an audit ?rm, and that the arrangements are not con-
trolled in any form by a professional body.
The problem with the IFIAR requirement was acknowl-
edged by the Chairman of ELTE who explained that ‘‘in the
prevailing political circumstances, there was no other
option . . . this was as far as we could go’’ (interview with
the Chairman of ELTE, 26 July 2013, trans.). Furthermore,
questions have been raised as to the technical ability of
the staff appointed to perform effective quality inspections
of the audit ?les of large and complex organizations such
as banks and insurance companies (interviews with two
Big-Four audit ?rm partners, 6 and 7 September 2013).
This is another violation of IFIAR’s principle 5 that inspec-
tion staff be of appropriate competence. The Chairman of
ELTE 2003–2009 voiced his concerns thus: ‘‘I do not know
the inspectors personally, so I cannot comment on their
technical competence. But there is an obvious question as
regards the credibility of inspections performed by staff
members appointed by the profession . . . at the very least
they lack the appearance of independence’’ (interview, 16
September 2013, trans.).
The performance of audit quality inspections had the
backing of the profession, in an attempt to deal with an
acute drop in audit fees in the middle of the ongoing
?nancial crisis (interviewwiththe President of SOEL, 27 July
2013). Even before the advent of the crisis in 2008, a survey
found that a signi?cant majority (two-thirds) of auditors
supported quality inspections as a means of maintaining
audit fees at a satisfactory level (Caramanis & Papadakis,
2008, p. 47). A senior partner in a Big-Four ?rm put it thus:
‘‘We do believe that audit quality inspections are in the
interests of the profession . . . to improve credibility and as
a safeguard against unfair competition’’ (interview, 6
September 2013, trans.). No such inspections had yet been
completed as of July 2013, and ELTE still appears to remain
in an essentially dormant state ten years after its
establishment.
The inertia of ELTE has been complemented by
inaction on the part of the profession’s Disciplinary
Council, in which ELTE plays a de facto coordinating role.
During the past decade, four cases (alleged audit scan-
dals) have been referred to the council by ELTE (two in
2011 and two in 2013), but none had been concluded
as of April 2013 (Refenes, 2013). A member of ELTE’s
Disciplinary Council gave his insight into the apparent
inaction thus:
One key obstacle to the effective operation of the disci-
plinary function is the fact that we are essentially
unpaid and on top of that there is no legal immunity
or other protection. If we impose a penalty on an audit
?rm, we run the risk of facing claims for damages or
even criminal charges on the part of the audit ?rm . . .
and the legal environment is quite vague. It seems to
me that nobody really cares about what the Council
does or does not do, or what needs to be done to enable
the Council to perform its duties properly (interview, 14
July 2013, trans.).
The inertia of ELTE and the absence of an operating Dis-
ciplinary Council have been vividly noted by a senior Big-
Four partner: ‘‘ELTE has done nothing at all . . . has per-
formed no audit quality inspections, although it should
have. the Disciplinary Council has not been functioning
. . . we know there are cases which have been pending for
a very long time . . . Unfortunately, we have missed the
opportunity to improve the status of the profession . . .
and you know we pay for ELTE every year as required by
law’’ (interview, 7 September 2013, trans.).
Explaining inertia: institutional features of a delegative
democracy
The establishment of ELTE as a public sector entity
under the supervision and control of the Ministry of Econ-
omy ?rmly anchored the new OB to the Greek state appa-
ratus. This lack of independence has implications that go
beyond the ability of an OB to express a view that might
put the incumbent government in an awkward position.
As the case of the Greek OB shows, lack of independence
from the government (and general lack of autonomy) in a
political system of governance permeated by a tradition
of party politics and clientelism, increases the risk of being
caught in the cogs of state indifference, red tape, and inef-
fectiveness (O’Donnell, 1994). In practice, these interre-
lated factors include the inability of the OB to deal with
basic organizational issues and develop into a functioning
institution.
The Chairman of ELTE 2003–2009 commented on the
independence of ELTE from the government thus:
As I understand it, at the core of EU policy in relation to
oversight has been independence from the profession
and this has been secured . . . In retrospect, indepen-
dence from the Greek Ministry of Economy is an equally
important issue . . . I had talked on a number of occa-
sions to the Minister of Economy regarding the need
to ensure ELTE’s independence from the government; I
had been reassured that appropriate action would be
taken but the issue remains unresolved . . . ELTE is still
a public sector legal entity under the control of the Min-
istry (interview, 16 September 2013, trans.).
Next, we examine the modes that hampered the devel-
opment of institutions of horizontal accountability.
Party politics and clientelism
In Greek political tradition (Featherstone &
Papadimitriou, 2008; Lyrintzis, 2005), the appointment of
(key) staff is mostly, though not exclusively, made on the
basis of political af?liations rather than merit and capacity
to deliver:
In my experience, loyalty or networking is the key fac-
tor for appointments to public posts. We often see
unquali?ed and indifferent people get key posts. It is
loyalty and networking rather than personal aptitude
and knowledge that count. There is a golden rule and
in the past some appointees have learned it the hard
way: do not attempt to make waves if you want to keep
C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31 23
your job . . . and it pays off . . . it secures a signi?cant
source of income (interview with a certi?ed auditor
with considerable experience as a member of various
accounting regulatory and oversight authorities, 8 Sep-
tember 2008, trans.).
A member of ELTE’s leading elite offered his view on the
role of party af?liations in ?lling posts in ELTE thus: ‘‘I
think, to a signi?cant extent, when ELTE was established
the logic of the government was to cover the [EU] require-
ment and . . . to accommodate some of the party people’’
(interview with the Chairman of ELTE, 2009–2014, 26 July
2013, trans.).
Party political af?liations have consistently played a
signi?cant role in ?lling key positions in ELTE (interview
with a senior public servant at the Ministry of Economy,
26 September 2013). An active certi?ed auditor and senior
partner
26
in a Big-Four audit ?rm was appointed as the ?rst
chairman of ELTE in August 2003; and a senior member of
the OEE, who was a unionist af?liated with the governing
PASOK party, was appointed as vice-chairman and head of
SPE. The post of the second vice-chairman (head of SLOT)
was ?lled by an elderly independent accountant and key ?g-
ure in the old Greek accounting establishment (interview
with the Chairman of ELTE 2003–2009, 16 September
2013). The two vice-chairmen did not subscribe to the idea
of introducing major reforms to Greek accounting and audit-
ing (interview with the Chairman of ELTE 2003–2009, 16
September 2013).
Signi?cantly, the government showed no interest in ?ll-
ing the remaining posts in ELTE. In March 2004, PASOK lost
the elections and the center-right New Democracy party
came into power. Alogoskou?s was sworn in as Minister
of Economy, and another person, af?liated with the gov-
erning party, was appointed as Secretary General
27
to the
Ministry of Economy. Despite his strong rhetoric in favor
of independence from the state during the passing of the
Law through Parliament that established ELTE, the new Min-
ister passed article 18 of Law 3301/2004 in December 2004,
which brought ELTE under even closer government control
and abolished OEE’s and SOEL’s rights to nominate members
to ELTE’s organs of administration (Government Gazette,
2004). According to the new Law, the government would
appoint two public servants from the Ministry of Economy
as the two vice-chairmen of ELTE, and one member of its
Administrative Council would be nominated by the Federa-
tion of Industries of Northern Greece.
28
The government (New Democracy) changed the compo-
sition of ELTE’s Administrative Council in early February
2005 (Naftemporiki, 2005). The two vice-chairmen initially
appointed by PASOK were replaced by two public servants
from the Ministry of Economy, both of whom were openly
associated with the governing party (interview with the
Secretary General of the Ministry of Economy 2004–2007,
14 July 2010). In particular, at the time of appointment,
one of the two individuals was serving as the Director of
the Minister’s Political Of?ce, a position he continued to
hold for one and a half years after his appointment (inter-
view with the Secretary General of the Ministry of Econ-
omy 2004–2007, 14 July 2010). The chairman of ELTE
maintained his post.
After he left of?ce, the Minister of Economy (2004–
2008) under New Democracy acknowledged the in?uence
of clientelism on ELTE and explained the government’s pol-
icy on ?lling key positions in ELTE thus: ‘‘[The Chairman of
ELTE] was not a political friend of mine, I did not know him
personally. He was a professional man, knowledgeable in
accounting and auditing. Certainly, he had been appointed
by the previous government [but] I was of the view that he
should stay to give the message that the state has continu-
ity’’ (interview, 14 July 2010, trans.). However, he admitted
that the two vice-chairmen were party devotees, ‘‘but what
is important is that the Chairman was not . . . ideally no one
should be . . . but, you know, a vicious precedent [clientel-
istic appointments] has long been set in public administra-
tion’’ (interview, 14 July 2010). Thus, keeping the chairman
of ELTE, who had been appointed by the previous govern-
ment, also served legitimation purposes.
In January 2009, Alogoskou?s was removed, and Papa-
thanasiou became the new Minister of Economy. The
change of minister would, in the Greek political tradition,
ordinarily raise expectations of a change in ELTE’s leader-
ship. Indeed, the new Minister of Economy replaced two
of the three members of ELTE’s Administrative Council.
On 3 April 2009, he appointed a Professor of Finance as
chairman and a retired Big-Four partner as vice-chairman
of the SPE (the audit quality inspection unit of ELTE)
(Government Gazette, 2009). No further changes in the
leadership of ELTE have taken place up to the time of writ-
ing this article.
Clientelism and weak institutionalization are also evi-
dent in recurring incidents of a con?ict of interest regard-
ing ELTE’s leading elite. In July 2007, the chairman of ELTE
(2003–2009) was appointed non-executive director to a
‘‘regulatoree’’, a large listed Greek bank (see Express,
2007), and a year later he became chief of the bank’s Gen-
eral Directorate – Internal Control according to the bank’s
press bulletin of 31 July 2008. In a similar vein, in July
2008 the vice-chairman of ELTE (the head of SPE from
2003–2009) and one of the Minister’s close associates
became chairman and chief executive of?cer of a large
pension fund whose ?nancial statements are subject to
statutory audit. Another incident occurred in the early
2010s when the (new) vice-chairmen of ELTE (2009-pres-
ent) accepted an appointment with the audit committee
of a major listed Greek bank
29
and a second appointment
as chairman of the board of directors at an insurance
company.
30
26
On accepting his appointment, this individual formally went on a
voluntary suspension from practice.
27
The Secretary General formally oversaw the operation of ELTE, but the
power now rests with the Minister who is the real decision maker. The
individual concerned maintained his post until March 2007, when he
moved to another post. He was replaced as Secretary General by a retired
senior public servant of the Ministry of Economy.
28
According to a senior public servant, this was a request by the then
Deputy Minister of Economy who was elected in Thessaloniki, the largest
city of Northern Greece (interview, 26 September 2014).
29
See the 2010 ?nancial statements of the National Bank of Greece, p.
170.
30
Seehttp://www.interasco.gr/hilton.asp (in Greek).
24 C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31
These instances of apparent con?icts of interest have
been discussed within professional circles and at the Min-
istry of Economy (interview with a retired senior public
servant of the Ministry of Economy, 26 September 2013).
Eventually, these issues were published in the press
31
(e.g. To Vima, 2009) and provoked parliamentary questions
(Katseli, 2009; Nikolopoulos, 2014; Tatoulis, 2009). These
con?ict of interest incidents do not apparently violate Greek
law but certainly constitute a severe violation of the inde-
pendence requirements of OBs (IFIAR, 2014).
State indifference and ineffectiveness
Against the backdrop of party politics and clientelism,
the risk of ELTE being affectedby state indifference andinef-
fectiveness became evident. ELTE was infected by the ‘‘dee-
ply rooted . . . culture of inertia, slackness and laxity [within
the Greek public sector] . . . If making or implementing a
decisionis delayed, nothing bad will happen . . . the ship will
not sink . . . you know, it has taken some ten years for the
Greek Capital Markets Commission [formally established
in 1990] to start producing some results’’ (interview with
the Secretary General to the Ministry of Economy 2004–
2007, 14 July 2010, trans.). The Chairman of ELTE (2009–
2014) also emphasized that, ‘‘the state, whatever we mean
by this, has been a serious obstacle . . . It has really inhibited
the development of ELTE (interview 26 July 2013, trans.).
Our research has indeed identi?ed a chronic lack of active
interest on the part of the Ministry of Economy in relation
to the effective operation of ELTE: ‘‘Although there had been
pressure from market forces [to improve accounting and
audit practice] . . . [a]ccounting has essentially been a sec-
ond, if not third, priority issue for the Ministry’’ (interview
with the Secretary General to the Ministry of Economy
2004–2007, 10 July 2010, trans.). The chronic lack of inter-
est in ELTE on the part of the government was highlighted
by both chairmen of ELTE, 2003–2009 and 2009–2014
(interviews, 26 July 2013 and 16 September 2013
respectively).
The state’s indifference is also evident in the delay with
which the government ?lled various posts in ELTE.
Although the three heads of ELTE’s Executive Committee,
along with the remaining four posts in its Administrative
Council and one receptionist-secretary, had been
appointed by the end of August 2003 (Naftemporiki,
2003), the ?lling of the positions in SLOT (the accounting
standardization committee) took place in February 2005
(Government Gazette, 2005); and the appointment of
members of SPE (the audit quality inspections committee)
was delayed until March 2006 (Ministry of Economy,
2006), three years after the establishment of ELTE. Yet
these appointments were clearly essential even for the
most basic operations of ELTE. At times, the proper func-
tioning of ELTE has been derailed by inef?ciency in the
operation of other state institutions: ‘‘t took some
20 months for the Council of the State [the highest civil
court] to approve the rules and regulations of ELTE, [which
include provisions and bylaws] essential for providing us
with some legal security for the decisions we make’’ (inter-
view with the Chairman of ELTE, 2009–2014, 26 July 2013,
trans.).
Underlying the indifference on the part of government,
a view commonly held in Greece is that, regardless of any
formal requirement, inaction or avoiding tough issues
secures extended terms for of?ceholders by reducing any
adverse reaction or ‘‘political cost’’, i.e. the estrangement
of political friends and supporters (interview with the
President of SOEL, 19 July 2013). Furthermore, inaction is
encouraged by the complexity of public administration
rules and a subtle system for avoiding responsibility. For
example, certain issues, such as the supervision of ELTE,
may fall under the jurisdiction of the Secretary General,
who is formally overseen by the Minister: ‘‘[M]y directions
to the Secretary General have been crystal clear, that he
should perform the responsibilities that legally belong to
him’’ (Minister of Economy 2004–2008, interview, 10 July
2010, trans.). However, in practice:
Greece’s political and public administration systems are
built in such a way that even minor issues must have
the approval of the Minister . . . ministers usually like
to keep control while the bureaucracy tend to avoid tak-
ing responsibility. They [the bureaucracy] keep asking
for directions from the Minister or the Secretary Gen-
eral to appear agreeable, and yet they write documents
and decisions in such a way so that they cannot be held
responsible . . . the public administration does not work
in the right way and this is an issue for the political sys-
tem to sort out (interview with the Secretary General
2004–2007, 10 July 2010, trans.).
Politicians may pass the buck simply by stating a lack of
brie?ng or understanding of the issues involved and invok-
ing the role of bureaucracy: ‘‘I have always passed any
issues raised referring to problems with ELTE straight on
to the competent services of the Ministry’’ (interview with
the Minister of Economy 2004–2009, 14 July 2010, trans.).
Then, an unwritten rule in Greek public administration
essentially insulates politicians from criticism. That is, rec-
ommendations by subordinates to the Minister are for-
mally submitted only when they have a green light (from
the Minister) to do so (interview with the Secretary Gen-
eral 2004–2007, 10 July 2010). Thus, the Minister can
always legitimize his decisions by arguing: ‘‘I have always
acted upon the formal recommendations of the services of
the Ministry’’ (interview with the Minister of Economy
2004–2009, 14 July 2010, trans.).
Furthermore, as a public sector body, ELTE has been
affected by the austerity measures taken as a result of
the ongoing economic crisis. Indeed, ELTE remains subject
to the provisions of the memorandum(s) of understanding,
agreed on since 2010 between Greece and its lenders (the
troika of the European Central Bank, the European Com-
mission, and the International Monetary Fund). These mea-
sures, in view of the severity of the country’s ?nancial
crisis, have imposed signi?cant reductions in salaries and
restrictions on appointments within the public sector.
The austerity package that followed the memorandum of
31
This adverse publicity might have played a role in the change in ELTE’s
leadership in April 2009.
C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31 25
understanding has been applied across the entire Greek
public sector.
The leadership of ELTE tried to convince the govern-
ment to exempt ELTE from the restrictions following the
memorandum of understanding (interview with the Chair-
man of ELTE, 2009–2014, 26 July 2013), which was con-
?rmed by a senior partner in a Big-Four ?rm: ‘‘I do know
that appeals were made to the Minister of Economy, even
to the Prime Minister himself and to the troika . . . to
exempt ELTE . . . but they had no effect’’ (interview, 6 Sep-
tember 2013, trans.). This attempt failed completely
because politicians ‘‘do not appreciate the role of indepen-
dent quality inspections for the market . . . they do not
understand the role of an audit . . . they simply do not care
. . . t is a wider cultural issue which I have been witness-
ing for decades’’ (interview with the Chairman of ELTE
2003–2009, 6 September 2013, trans.).
Thus, ELTE has not been given permission by the Minis-
try of Economy to appoint its own quali?ed staff, including
audit quality inspectors. Even if appointments were
allowed, ‘‘ELTE will not be able to attract suitably quali?ed
staff at the very low public sector salary rates it legally has
to follow’’ (interview with the Chairman of ELTE 2003–
2009, 6 September 2013, trans.). As a partner in a Big-Four
?rm put it:
f one is earning €6,000 month how would he or she
decide to become an audit quality inspector and earn
€1,500 a month? . . . From my professional experience
over the past 30 years, if you want to neutralize an
institution, a function or a process, you just do not pro-
vide the required resources . . . and it is dead. I do not
have concrete evidence that there is necessarily an evil
plan worked out but . . . (interview, 6 September, 2013,
trans.).
Or, as the senior partner put it: ‘‘[In other countries]
they headhunt to get the best audit quality inspectors . . .
Here they seem to believe that badly paid civil servants
will be able to inspect highly technical work performed
by the best auditors . . . isn’t it a joke?’’ (interview, 6 Sep-
tember, 2013, trans.).
This section exposes key features of the Greek political
system that have inhibited the development of ELTE as an
institution. The issue of ELTE’s poor performance was
directly raised with the Secretary General (2004–2007)
and the Minister of Economy (2004–2008) in interviews
conducted for this study (both on 10 July 2010). Both inter-
viewees agreed that ELTE has essentially remained in a
dormant state. They also provided some explanations as
to the government’s lack of appropriate action, namely:
much-needed structural reforms often take years to pro-
duce results, which leads to politicians being reluctant to
undertake such long-term projects (their average term of
of?ce in the Ministry is usually much shorter and, thus,
other politicians may reap the bene?ts); there is a lack of
strong, independent, and reform-minded bureaucracy that
could push changes through; and, lastly, there is also a
widespread lack of trust among the key participants in
public administration. These issues also appeared, quite
often and to varying degrees, in interviews conducted with
key individuals from the accounting profession and mem-
bers of ELTE, in the context of this study.
Concluding remarks
The construction of accounting and auditing OBs at the
national level is being promoted as a key component of the
global ?nancial architecture that has emerged since the
1990s. Operating within distinctively diverse local politi-
cal, economic, and cultural contexts, OBs are considered a
uniform solution at the global level, aimed at ensuring
high-quality ?nancial information to facilitate the ?ow of
capital across national borders and provide stability to
the interdependent global ?nancial system.
In this article, we examine the creation and operation of
an OB in a local European setting by employing an institu-
tional approach located within the broader political-econ-
omy framework of global capitalism (Arnold, 2009b, 2012;
Wade, 2007a, 2007b). Consequently, we place emphasis on
the interaction between global structural factors, institu-
tions, in?uences, and pressures (namely the unfolding of
the SSC project), and the local socio-political characteris-
tics that condition the establishment and effective opera-
tion of OBs at a local (state) level. Our analysis is
informed by O’Donnell’s (1994) conceptualization of dele-
gative democracy, supplemented by literature on eco-
nomic and political reform in Europe (e.g. Dyson & Goetz,
2003; Featherstone & Papadimitriou, 2008; Radaelli, 2003).
By analyzing a wealth of primary and secondary
research material, we illustrate the dif?culties and con-
straints of transplanting and operating OBs which are
modeled on the external Anglo-American tradition. Our
?ndings show that deeply-ingrained domestic socio-polit-
ical characteristics of a delegative nature have indeed
inhibited the development and operation of the local Greek
OB, as O’Donnell (1994) posits. That is, the newly-estab-
lished OB has been affected, since inception, by the all-per-
vasive clientelistic political system, the weaknesses of
state apparatus, and the country’s reform (in)capacity
problems. More speci?cally, the appointment of ELTE’s
elite has been decided by successive governments, mainly
on the basis of clientelism and political patronage. In addi-
tion, ELTE has been under the bureaucratic control of state
machinery, despite being privately funded by the profes-
sion. Even basic administrative decisions, such as the
appointment of audit quality inspectors and administrative
staff, need the ex ante approval of the Ministry of Economy.
The Greek OB has remained in a dormant state since its
inception. It still lacks appropriate infrastructure and suf?-
cient administrative personnel and has not been granted
permission by the government to appoint its own audit
quality inspectors. As a consequence, the performance of
audit quality inspections has been, at best, erratic. Cur-
rently, such inspections can be performed only by out-
sourcing to the professional body, in contravention of
IFIAR’s core principle on independence. The disciplinary
function appears to have been stalled for years, despite
the existence of several pending cases. In short, ELTE as
an institution has failed to become a signi?cant decisional
point in the ?ow of in?uence, power and policy in the
26 C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31
realm of accounting, which is so important for effecting
progress.
Our analysis shows that ELTE’s decade-long failure is
related to the country’s delegative characteristics. The
Ministry of Economy has failed to take effective corrective
action and there is evidence of distrust or distaste toward
truly independent authorities that would act as mecha-
nisms of horizontal control. In a sense, the case of the
Greek OB illustrates a form of social homeostasis. In other
words, the complex, multifaceted and interdependent sys-
tem of economic and political power of the country has
thwarted the emergence of a truly independent and effec-
tive OB in the accounting realm and, as such, has essen-
tially maintained its equilibrium.
Furthermore, by extrapolation, problems in the effec-
tive operation of institutions, including accounting and
auditing OBs, seem to extend far beyond the borders of
Greece, as literature from the ?elds of politics and social/
economic reforms indicates (e.g. Dyson & Goetz, 2003).
Party patronage, clientelism, institutional weaknesses,
and state ineffectiveness are not ingrained features exclu-
sive to Greece. Rather, they occur, albeit in varying degrees
and forms, in several other jurisdictions (O’Donnell, 1994).
The newcomers to domestic institutional terrains in
accounting and auditing are potentially vulnerable to the
pathogenesis of local political systems and, in particular,
the long historical traditions of party patronage and state
ineffectiveness. Thus, while the existing system of over-
sight appears to be secure against the Scylla of traditional
professional control, no care has been taken to deal with
the Charybdis of the clientelistic political system, weak
institutionalization and state ineffectiveness which are so
prevalent in several jurisdictions in Europe and beyond
(e.g. Kaufmann et al., 2013).
At a more general level, our analysis draws attention to
the structural mismatching between the global nature of
the international ?nancial architecture underpinning
today’s economic integration and the fragmented character
of public oversight that operates on a country-by-country
basis, embedded within its domestic socio-political and
economic constraints. This mismatch raises concerns about
the effectiveness of OBs embedded within geographically
and socio-politically dispersed domestic institutional
contexts.
Our study contributes to current academic literature
on accounting regulation. We employ O’Donnell’s
(1994) conception of delegative versus representative
democracy, enriched with elements of the broader polit-
ical economy perspective, to offer a methodological
framework for examining the transplanting of exter-
nally-induced reforms to diverse local settings. Through
the analysis of the Greek OB, we illuminate how local
socio-political factors, in?uences, and pressures condition
and eventually limit the effective operation of local OBs.
In particular, our case study evidence shows how, in a
country exhibiting characteristics of a delegative democ-
racy, the new accounting OB is assimilated into the local
socio-political tradition and preexisting ineffective state
structures and remains essentially dormant. This ?nding
lends further support to the literature on social and eco-
nomic reforms in Europe and elsewhere which argues
that, for economic, political, and historical reasons, some
countries have not been able to successfully transplant
externally-designed institutions to local settings.
This analysis of the Greek OB has signi?cant implica-
tions regarding the suitability of a global system of over-
sight and should be of interest to global and local policy
makers, the academic community, and various other stake-
holders in ?nancial reporting. The evidence of our case
study questions the underlying rationale of pursuing sta-
bility in the global, complex and interdependent ?nancial
system through the instigation of domestic OBs modeled
on Anglo-American traditions and operating in diverse
national environments. We demonstrate that the estab-
lishment of accounting and auditing OBs does not auto-
matically translate into concrete bene?ts to ?nancial
regulation and the quality of ?nancial reporting. Structural
weaknesses at the local level, and the socio-political fabric
and power relations underlying them, result in weak and
ineffective local OBs. As a result, material reforms needed
at the local level fail to materialize, and imbalances and
inequalities among states in the global landscape are main-
tained (Arnold, 2012; Wade, 2007a, 2007b). Finally,
regarding the accounting profession, we note that the lack
of (or ineffective) oversight may be a contributing factor to
deteriorating audit quality and plunging audit fees, espe-
cially in periods of economic stagnation or crisis. Such con-
ditions may eventually incubate major legitimation crises
for the profession.
Building a robust system of accounting oversight in a
diverse world economy is certainly a perplexing issue.
Some of the dif?culties inherent in such a project stemfrom
the structural characteristics of delegative democracies and
the (in)ability of individual states to effectively introduce
externally-induced reforms. Reversing or slowing down
the pace of global ?nancial integration, to allow individual
countries the time needed to build effective domestic insti-
tutions, does not seem to be a realistic approach at the cur-
rent historical juncture (Arnold, 2012). Furthermore, a
regression to technocratic self-regulation, which entails
higher risk regulatory capture (Hancher & Moran, 1989),
has been abandoned at this point in time. Given these com-
plex issues, and the fact that expertise is currently con-
trolled by Anglo-American audit ?rms (Botzem, 2012),
other approaches for improving accounting oversight on a
global scale warrant consideration.
One such approach would be to establish local OBs as
public authorities, legally enjoying political, economic,
and administrative independence from the government.
Such independent bodies, which are recognized as impor-
tant features of contemporary policy making and re?ect
an increasing awareness of the role of institutions, aim to
increase ef?ciency and policy credibility (Majone, 1994,
1996). This does not mean that such bodies will, by default,
solve the problems in question for delegative democracies.
Evidence shows that clientelistic states have a long history
of in?ltrating new institutions (O’Donnell, 1994). However,
such bodies, if established under a nexus of effective provi-
sions for staf?ng and accountability to parliament regard-
ing their operations, would likely have the potential to
spur progress in the successful operation of oversight at
the local level.
C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31 27
Another option would be to enhance international coor-
dination of the dispersed national OBs through emerging
transnational structures, such as IFIAR (at the global level)
and EGAOB (at the regional level), both of which are cur-
rently limited to an advisory and coordinating role. Cur-
rently, their operation, as our analysis shows, has not
mitigated the problems of the Greek OB, despite the
groundwork they have laid so far to address the structural
problem in the international oversight system. Strengthen-
ing international coordination might even lead to some
form of effective international (global or regional) OB
(Arnold, 2012). This approach might be easier to imple-
ment in the case of politico-economic blocks, such as the
EU, though it would require considerable co-ordination
and signi?cant hurdles would have to be overcome.
Further research is undoubtedly necessary to establish
the generalizability of our ?ndings and their relevance to
other locales. Academic inquiry could shed light on the
individual histories of accounting OBs in various national
contexts, with particular emphasis on their actual perfor-
mance and impact on the quality of ?nancial reporting
and auditing (Arnold, 2012; Malsch & Gendron, 2011). In
addition to the delegative versus representative construct,
other dimensions (e.g. code law vs. common law legal sys-
tems) and, more generally, historically-rooted modes of
regulation (Puxty et al., 1987), warrant examination for
their relationship to the ef?cacy of emerging oversight
institutions. Another issue requiring academic attention
is the position of the global profession and key interna-
tional audit ?rms regarding regulatory reforms in the EU
and US, and the ensuing spread of national OBs across
the globe. Of particular interest is the provision, under Sec-
tion 106 of the Sarbanes–Oxley Act, that PCAOB conduct
reviews of the foreign auditors of companies listed in the
US; and the potential for avoiding such reviews if a local
OB had already conducted audit quality inspections.
Acknowledgments
The authors are grateful to David Cooper, the editor of
Accounting, Organizations and Society, and two anonymous
reviewers for their valuable comments and suggestions.
Previous versions of this manuscript have bene?ted from
comments received from S. Walker, participants at the
33rd Annual Congress of the EAA (Istanbul, Turkey), and
colleagues at the Athens University of Economics and Busi-
ness. Finally, the authors express their gratitude to senior
politicians, state of?cials, civil servants, regulators, and
practicing auditors for being available for interviews and
for providing invaluable primary research data.
This research was funded by the Research Centre of the
Athens University of Economics and Business.
Appendix. The time line of events in the establishment
of ELTE
July 2002 The Ministry of Economy (PASOK)
publishes a draft bill providing for the
establishment of ELTE. A consultation
period begins immediately and ends in
March 2003.
March
2003
The bill for the establishment of ELTE is
introduced in Parliament, having received
only minor amendments during the
consultation period.
April 2003 The bill is initially debated in the Standing
Committee of Economic Affairs in
Parliament. The OEE secures a position on
ELTE’s Executive Committee and SOEL
secures a position on ELTE’s
Administrative Council.
May 2003 The bill is debated in the plenary session
of Parliament and voted to become Law
3148/2003.
August
2003
The government ?lls:
The posts of ELTE’s Executive
Committee: the chairman (a partner in a
Big-Four ?rm), the vice-chairman – SLOT
(an independent business accountant),
and the vice-chairman – SPE (an OEE
unionist af?liated with PASOK).
The remaining four posts in ELTE’s
Administrative Council (representing two
regulatory bodies, the auditing profession,
and one business association).
August
2003
One administrative member of staff is
appointed (a receptionist-secretary to
ELTE’s chairman).
March
2004
PASOK loses the elections, and New
Democracy takes over.
December
2004
Law 3301/2004 is passed, bringing ELTE
under closer government control and
eliminating the representation of the
profession in ELTE’s organs of
administration.
February
2005
The government:
Replaces the two vice-chairmen of
ELTE and appoints two party af?liates,
public servants at the Ministry of
Economy.
Fills the four posts of SLOT
(Accounting Standards Committee).
March
2006
The government ?lls the six posts of SPE
(Quality Inspections Committee).
June 2007 Law 3581/2007 (article 19) signi?cantly
increases the power of the chairman of
ELTE, while SPE is essentially abolished as
a decision-making body.
December
2007
A committee chaired by the chairman of
ELTE is established to propose a law for
the transposition of the (new) Eighth EU
Directive.
July 2008 Law 3693/2008 transfers to ELTE all
regulatory and oversight power that had
hitherto remained with SOEL.
April 2009 A new chairman of ELTE is appointed.
May 2009 Appointment of ?ve audit quality
28 C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31
inspectors by ELTE on a one-year contract.
April 2010 The results of the ?rst round of
inspections are publicly reported.
May 2010 The audit quality inspectors’ contracts
expire; the posts remain vacant.
May 2010 Two audit quality inspectors are
appointed by SOEL and seconded to ELTE
to deal with urgent investigations ordered
by the Courts of Justice.
January
2013
The number of audit quality inspectors
appointed by SOEL and seconded to ELTE
increases to six; as of yet, no audit quality
inspections have been completed.
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C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31 31
doc_442073547.pdf
The introduction of accounting and auditing oversight boards (OBs) has been promoted on
a global scale as a key component of the international financial architecture that has
emerged over the past two decades. Such institutions, modeled on the Anglo-American tradition,
are domestically organized and embedded within distinctively diverse institutional
contexts. Their role is to ease agency problems, improve the quality of financial reporting,
and help provide stability in the global financial system.
Transplanting Anglo-American accounting oversight boards
to a diverse institutional context
Constantinos Caramanis
a,?
, Emmanouil Dedoulis
a,1
, Stergios Leventis
b,c,2
a
Department of Business Administration, Athens University of Economics and Business, 76 Patision Street, 104-34 Athens, Greece
b
International Hellenic University, School of Economics and Business Administration, 14th klm Thessaloniki-Moudania, 57 101 Thessaloniki, Greece
c
Aston Business School, UK
a r t i c l e i n f o
Article history:
Available online 14 February 2015
a b s t r a c t
The introduction of accounting and auditing oversight boards (OBs) has been promoted on
a global scale as a key component of the international ?nancial architecture that has
emerged over the past two decades. Such institutions, modeled on the Anglo-American tra-
dition, are domestically organized and embedded within distinctively diverse institutional
contexts. Their role is to ease agency problems, improve the quality of ?nancial reporting,
and help provide stability in the global ?nancial system. We employ an institutional
approach, located within the broader political economy framework of global capitalism,
to examine the establishment and operation of the new regulatory regime in Greece.
Greece, a member of the European Union, exhibits characteristics of a ‘‘delegative’’ democ-
racy, i.e. a traditionally weak institutionalization, reform (in)capacity problems and a cli-
entelistic political system. Our case study shows that the formation and operation of the
newly-established system of oversight is conditioned by local political and economic con-
straints and, thus, does not automatically translate into concrete bene?ts for the quality of
?nancial reporting. We also draw attention to the structural mismatch between a progress-
ing globalized ?nancial integration and the fragmented nature of the system of oversight,
and illustrate that OBs’ independence from local governments is an important but
neglected issue.
Ó 2015 Elsevier Ltd. All rights reserved.
Introduction
Internationally, the history of corporate accounting and
auditing is replete with failures and scandals, followed by
waves of regulation (e.g. Malsch & Gendron, 2011; Zeff,
2003). In the past two decades of advancing globalization,
reforms in the accounting domain have taken place within
what Wade (2007a) calls the Standards–Surveillance–
Compliance (SSC) doctrine, a regulatory framework of
globally-integrated ?nancial markets that aims to provide
stability in the marketplace (Büthe & Mattli, 2011; Davies
& Green, 2008; Wade, 2007a, 2007b). This new dogma
entails the use of comprehensive and universal standards,
as well as codes of good practice, whose application would
be overseen and enforced by a gamut of regulatory institu-
tions and agencies – of?cial or unof?cial, national or global
(Cooper & Robson, 2006; Humphrey, Loft, & Woods, 2009).
A key element of the emerging international ?nancial
reporting infrastructure is the introduction of systems of
oversight for accounting and audit practice, independent
of the profession, which appears to signal an end to the tra-
dition of self-regulation. Accounting and auditing oversight
boards (OBs) serve as a basic mechanism for tackling
perennial problems in corporate ?nancial reporting andhttp://dx.doi.org/10.1016/j.aos.2015.01.001
0361-3682/Ó 2015 Elsevier Ltd. All rights reserved.
?
Corresponding author. Tel.: +30 210 620 3367.
E-mail addresses: [email protected] (C. Caramanis), ededoulis@
aueb.gr (E. Dedoulis), [email protected] (S. Leventis).
1
Tel.: +30 210 820 3453.
2
Tel.: +30 2310 807 541.
Accounting, Organizations and Society 42 (2015) 12–31
Contents lists available at ScienceDirect
Accounting, Organizations and Society
j our nal homepage: www. el sevi er. com/ l ocat e/ aos
auditing, within the broader complex and hierarchical glo-
bal regulatory system (Arnold, 2012; Humphrey et al.,
2009; Wade, 2007a). OBs emerged in the US under the Sar-
banes–Oxley Act (US Congress, 2002), in the EU under the
(new) Eighth Directive (European Commission, 2006), and
in other countries (Malsch & Gendron, 2011). Their estab-
lishment rests on the assumption that they can operate
ef?ciently and effectively to ease agency problems,
improve the quality of ?nancial reporting, and help to
restore the trust of investors and the public (European
Commission, 2001a, 2006, 2010; US Congress, 2002, 2010).
The system of oversight for accounting and auditing is
domestically organized and embedded within distinctively
diverse local political, economic, legal, and cultural con-
texts (e.g. Kaufmann, Kraay, & Mastruzzi, 2013).
O’Donnell (1994) argues that, for historical and socio-polit-
ical reasons, some countries consistently exhibit a marked
weakness in introducing social and economic reforms and
in building strong and functional institutions of horizontal
accountability. These countries, termed by O’Donnell as
‘‘delegative’’ democracies, are characterized by a highly cli-
entelistic political system and state ineffectiveness, stand-
ing in contrast to other countries that have shown a history
of successful reforms and strong institutionalization. Thus,
the effectiveness of the operation of OBs at a domestic level
warrants in-depth empirical evaluation (Arnold, 2012;
Malsch & Gendron, 2011), given their importance for the
stability of the global ?nancial system (Wade, 2007a,
2007b) and the variability of local institutional backdrops
(Dyson & Goetz, 2003; O’Donnell, 1994).
In this article, we adopt an institutional approach
located within the broader political economy framework
of global capitalism (Arnold, 2009b, 2012; Wade, 2007a,
2007b; see also Chapman, Cooper, & Miller, 2009) to exam-
ine the creation and operation of an OB in a local European
setting. We focus on O’Donnell’s (1994) conceptualization
of delegative democracy and supplement our framework
with literature on Europeanization, which indicates that
reform (in)capacity problems and weak institutionaliza-
tion occur even within the EU and the euro area (Dyson
& Goetz, 2003; Featherstone & Papadimitriou, 2008). We
place emphasis on the interaction between global struc-
tural elements, institutions, in?uences and pressures
(namely, the unfolding of the SSC project), and on local
socio-political characteristics that may condition the
establishment and effective operation of OBs at the local
(state) level. Our focus is Greece, which offers a clear van-
tage point for examining the issue at hand for two main
reasons. First, the country is known for its clientelistic
political system and well-documented reform (in)capacity
problems (e.g. Featherstone & Papadimitriou, 2008).
Second, Greece has been in a deep, multifaceted crisis since
2008 (OECD, 2011a, 2011b), illustrating the importance of
each nation to the stability of the new, complex, and inter-
dependent international ?nancial system (International
Monetary Fund, 2013).
With a wealth of empirical material (written evidence
and interview data), our national case study illustrates
the dif?culties and limitations in transplanting
Anglo-American (Arnold, 2012) reforms to a diverse
socio-political local context. Our study shows that the
political practices of clientelism and party patronage, as
well as bureaucratic control by the government and a
widespread mentality of inertia within the broader state
apparatus, have affected ELTE,
3
the Greek OB, since its
inception in 2003. As a result, ELTE has remained essentially
dormant. In this study, we show that ELTE has failed to
become a signi?cant player in Greek accounting and audit
practices and demonstrate that improvements are urgently
needed in the quality of Greek ?nancial reporting and audit-
ing (Caramanis & Papadakis, 2008; Christensen et al., 2013;
Leuz et al., 2003; Osma & Pope, 2011).
This article extends prior work on the establishment of
the Greek OB (Blavoukos et al., 2013) and contributes to
emerging international academic literature on accounting
and auditing oversight (e.g. Malsch & Gendron, 2011) on
several fronts. First, our paper employs O’Donnell’s theo-
retical conception of delegative democracies within a
broader political economy framework to create the theo-
retical backdrop for investigating how local socio-political
constraints condition the establishment and operation of
an imported institution – a subject that is currently high
on the global agenda. In particular, we show that the Greek
OB has been stymied since inception by pre-existing local
structures and remains essentially a dormant institution,
providing no concrete bene?ts to ?nancial reporting qual-
ity. Second, whereas the current system of oversight puts
emphasis on ensuring the independence of OBs from the
auditing profession, we illustrate that independence from
government is an equally important but essentially
neglected issue. Speci?cally, we argue that, while existing
arrangements may have saved the oversight system from
the Scylla of professional control, they have sailed too close
to the Charybdis of state meddling.
Thus, our study draws attention to the structural mis-
match between a progressing integration of the interde-
pendent global ?nancial system and the fragmented
organization of accounting and auditing oversight on a
domestic (national) level. This mismatch raises the ques-
tion of the effectiveness of local OBs, given the diversity
of the domestic socio-political contexts within which they
emerge and the rather elementary level of current interna-
tional or regional (e.g. EU) coordination (Davies & Green,
2008, pp. 89–91; Humphrey et al., 2009).
Our study is of relevance to several other countries that
exhibit, albeit to varying degrees, a tradition of party
patronage, clientelism, institutional weaknesses and state
ineffectiveness. The ?ndings have implications for various
actors and stakeholders in ?nancial reporting. For example,
global regulators should realize that independence from
the profession, while simultaneously ignoring local institu-
tional impediments, by no means guarantees the operation
of effective national OBs across the globe. Furthermore, in
the absence of effective oversight, particularly amid a
severe ?nancial crisis, there is a real risk that the quality
of auditing will fall and audit fees will plunge, conditions
that may bring about a major legitimation crisis for the
profession.
3
The full Greek name of ELTE is Episqopg
9
Kocirsijg
9
1 Ntpopoi
9
grg1
jai Eke
9
cvxm – EKNE (Epitropi Logistikis Typopoisis kai Elegchon – ELTE),
which translates as the Accounting and Auditing Committee).
C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31 13
The rest of the article is structured as follows: in the
next section, we discuss the emergence of accounting
and auditing OBs since the early 2000s as a means for reg-
ulating globalized capitalism, with particular emphasis on
institutional aspects, and we present the research methods
employed. We then outline the international and local
institutional settings to demonstrate the environment
from which the Greek OB emerged. Next, we present the
debate in the Greek Parliament to illuminate prevailing
perceptions of independence and clientelism, and to sketch
the context in which the new OB was eventually submitted
to government control. We then demonstrate the inertia of
ELTE through an evaluation of its performance since incep-
tion (2003–2013). Concluding remarks and implications
appear in the last section.
The political economy of OB establishment: an
institutional approach
As accounting scholars have observed, the internation-
alization of accounting and auditing practices is not a
recent phenomenon (e.g. Hopwood, 2000; Power, 2009).
Rather, long historical processes have been at work for cen-
turies, as a result of the expansion of a universalistic com-
mercial culture. Power (2009, p. 331) in particular
highlights the need to understand ‘‘the history and institu-
tional shape of a changing structural coupling between
world-level accounting elements and the preoccupation
of state agencies’’ and calls for a shift of emphasis from
the nation-state to the ‘‘world system of accounting’’.
Arnold (2009a, 2009b, 2012) recognizes Power’s (2009)
position as a useful starting point and argues for an institu-
tional perspective, informed by the political economy of
the contemporary inter-state system, to examine the role
of accounting in the global economic system. Such a per-
spective draws attention to the key role of (historically
changing) hegemonic states (still the US at the current his-
torical juncture), con?icting interests, and power relations
in the governance of global capitalism.
At the turn of the 21st century, a new international
?nancial architecture was under development to provide
urgently-needed stability to a global ?nancial system char-
acterized by recurring crises, the rise of ?nance capital and
inequality among states regarding the power to in?uence
the shaping of emerging regulatory apparatuses (Arnold,
2009a, 2009b, 2012; Humphrey et al., 2009; Wade,
2007a, 2007b). This new architecture was sponsored by
the G7 (G20 since the crisis of the late 2000s; see
Humphrey et al., 2009, p. 812) and other signi?cant actors
in international ?nancial systems. It provided for an
upgraded role of various international organizations (e.g.
International Monetary Fund) and the application of a ser-
ies of global standards and codes of good practice in the
management of the global ?nancial system (Wade,
2007a, 2007b). These standards of good practice (the SSC
system) cover macroeconomic policy and data transpar-
ency, institutional and market infrastructures (including
international accounting as well as auditing standards),
and ?nancial regulation and supervision (Arnold, 2012, p.
367). The key idea was that adherence to these standards
of practice and increased transparency would improve
the quality of ?nancial reporting and access to ?nance,
thus further inducing (in a virtuous circle) the observance
of these standards (Humphrey et al., 2009).
However, Wade (2007a, 2007b) argues that this new
?nancial architecture promotes the interests of Anglo-
American style capitalism and re?ects the increasing
importance of the ?nance industry in global economic
activity. Furthermore, Arnold (2012) contends that reform-
ers have shown eagerness in rapidly promoting the
reforms, regardless of the ability of countries to effectively
introduce and assimilate them. Other options, such as slow-
ing down the pace of reforms to give states some breathing
space (Arnold, 2012) or setting up truly international regu-
lators to match the global nature of the ?nancial integration
(Eatwell & Taylor, 2000), were rejected at the time.
OBs within the SSC system
A key component of the new regime has been account-
ing and auditing OBs, which are meant to operate at the
state level and to occupy a pivotal role in restoring con?-
dence in ?nancial reporting. OBs, modeled on the Anglo-
American tradition, are promoted as a uniform solution
to the need for material improvements in the effectiveness
of global ?nancial market regulation (Arnold, 2012; Büthe
& Mattli, 2011; Davies & Green, 2008).
OBs, local or transnational, are complex, multifaceted
units of analysis, with important and diverse characteris-
tics. They are established as formal political institutions,
operating at the interface between the world of economy
and the world of politics (e.g. Büthe & Mattli, 2011;
Davies & Green, 2008). As actors within the political arena,
OBs are part of the wider decision-making system,
assumed to produce and/or effect mandatory rules within
a given territory (not necessarily con?ned to the borders
of a particular jurisdiction/state) and for a particular
domain (e.g. accounting).
The establishment of accounting and auditing OBs
within the SSC context is considered a means to secure
an adequate level of quality in ?nancial reporting to facil-
itate the operation of globalized ?nancial markets
(Humphrey et al., 2009; Wade, 2007a, 2007b). In this
sense, the establishment of OBs in the 2000s can be under-
stood as a manifestation of the ‘‘accounting international-
ization’’ process, which has a long history (Hopwood,
2000; Power, 2009). However, as Power (2009) notes,
accounting scholars have long voiced caution or skepticism
about the feasibility of eradicating local ‘‘constraints’’ to
the internationalization of accounting practice and regula-
tion, as these constraints are culturally and institutionally
embedded and exhibit remarkable resilience (e.g.
Bromwich & Hopwood, 1983; Hopwood, 2000, 2009;
Puxty et al., 1987).
Other scholars have challenged the suitability of exter-
nally-induced change, modeled on the Anglo-American
tradition, because it disregards local factors crucial for
the project’s success (Arnold, 2012; Wade, 2007a, 2007b).
In particular, scholars have questioned the feasibility of
pursuing the stability of a global, complex and interdepen-
dent ?nancial system through the operation of domestic
14 C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31
OBs across the globe. At the same time, local needs for
reform are ignored, leaving the imbalances and inequali-
ties among states in the global economic system neglected.
Wade (2007b) suggests that the effectiveness of the sys-
tem of global oversight should not be taken for granted,
and he captures the need for a thorough investigation of
OBs in practice thus:
At ?rst glance, transparency, standards and surveillance
are as desirable as motherhood and apple pie. To go
beyond the ?rst glance we have to ask whether national
regulatory authorities have complied with the stan-
dards, and whether their compliance makes a difference
to the behavior of private market participants (p. 80).
To examine OBs at the local level more closely, we turn
to the literature on politico-economic reforms and institu-
tion building. O’Donnell (1994) recognizes strong institu-
tions, such as OBs, as key factors for the smooth
functioning of the political and economic process and he
maintains that the effectiveness of such institutions is con-
tingent on the wider socio-political context (see also
Acemoglu & Robinson, 2012; Schmitter, 1974; Streeck &
Schmitter, 1985). More speci?cally, O’Donnell (1994) sug-
gests that, for various reasons, including long-term histor-
ical factors and the intensity of their socio-economic
problems, some countries have failed to develop a state
of consolidated, institutionalized democracy, or what he
terms ‘‘representative democracy’’. These countries,
dubbed ‘‘delegative democracies’’, in contrast to their rep-
resentative counterparts, tend to have weak institutions
(e.g. OBs), often due to intentional strategy. Such countries
tend to lack or have weak horizontal accountability mech-
anisms (i.e. a nexus of relatively autonomous institutions
that operate as a system of checks and balances to the ?ow
of power). In delegative democracies, institutions that
make horizontal accountability operational in practice are
often considered ‘‘unnecessary encumbrances . . . and
strenuous efforts [are made] to hamper the development
of such institutions’’ (O’Donnell, 1994, pp. 61–62).
Furthermore, the enforcement of a clear distinction
between the public and the private interests of of?ce-hold-
ers in delegative democracies is cursory, if not absent. In
other words, in these countries, whoever wins the elec-
tions is in a sense ‘‘entitled to govern as he or she sees
?t, constrained only by the hard facts of existing power
relations and by a constitutionally limited term of of?ce’’
(O’Donnell, 1994, p. 59). In addition, delegative democra-
cies are typically omnipotent in introducing spectacular
policy reform packages and in setting up various institu-
tions that often imitate successful examples from
advanced countries but are in fact highly impotent, or
maybe indifferent, in effectively implementing those deci-
sions in practice (O’Donnell, 1994). In short, delegative
democracies tend to exhibit characteristics such as: low-
quality public administration with limited independence
from political pressure; low commitment to sound policy
formulation and implementation; limited con?dence in
and abidance of the rules; weaknesses in contract enforce-
ment, and regulatory capture by elites and private interests
(O’Donnell, 1994; see also Kaufmann et al., 2013).
One quali?cation is warranted with regard to
O’Donnell’s (1994) ideal typology of democracies. Repre-
sentative and delegative democracies should not be con-
sidered polar opposites; rather, they differ only in the
degree, albeit often signi?cant, to which they exhibit their
particular characteristics, and it is not always easy to make
a sharp distinction between them.
Building strong institutions and effectively introducing
material reforms in member states is critical for the EU,
given the political objectives of economic and political
integration (European Commission, 2001b). Yet the dif?-
culties involved show remarkable resilience (e.g. Balkir,
Bolukbasi, & Ertugal, 2013; Falkner & Treib, 2008;
Falkner, Treib, Hartlapp, & Leiber, 2005). EU reform initia-
tives are, in practice, imposed on states exhibiting distinc-
tively diverse social, political and institutional
backgrounds (e.g. Dyson & Goetz, 2003). Dyson and
Goetz (2003) maintain that the peripheral, or less central,
states in southern Europe (e.g. Portugal, Italy, Greece,
Spain) exert considerably less in?uence than core coun-
tries on the formulation of EU policy. As they convincingly
argue, the Europeanization project is highly likely to be a
mere ‘‘top-down’’ process for peripheral southern member
states and may produce variable and contingent outcomes
due to social, political and economic differences among
various member states.
Studies have shown that the implementation of EU-
inspired reforms by member states is often associated with
signi?cant gaps between the intended purposes and the
actual effects of the Europeanization project
(Featherstone & Papadimitriou, 2008; Radaelli, 2003). In a
sense, when change is imposed from above (Mouzelis,
1995), the complex, multifaceted and interdependent
domestic system of economic and political power illus-
trates a form of social ‘‘homeostasis’’ (Simon, 1962, p.
467). Reforms are internalized in such a way that the sys-
tem essentially maintains its ex ante equilibrium. Material
change is minimized, delayed, postponed and even averted
(Mouzelis, 1995; Pagoulatos, 2003). Blavoukos et al. (2013)
examine aspects of the function of the Greek OB within the
context of the Europeanization process – which, inter alia,
involves the curtailment of a member state’s policy-mak-
ing role and the disempowerment of domestic technoc-
racy. The authors use Radaeli’s (2003) conceptual model
to illustrate that domestic policy adaptation to EU-induced
reforms is often shallow and a mere façade.
Other prior literature in the ?eld of politics has identi-
?ed links between this reform gap and the particular fea-
tures of the local political system. For example, in
delegative democracies the operation of formal institutions
is eroded by non-formalized but strongly-operative prac-
tices, such as clientelism (O’Donnell, 1994), which ‘‘cut
across the divide between public and private’’
(Christiansen & Neuhold, 2012b, p. 1). The issue of cliente-
lism, and more generally the existence of informal prac-
tices, is certainly not limited to delegative democracies
(Christiansen & Neuhold, 2012a). Key aspects of the pro-
cess and outcomes of political and economic reform initia-
tives can be explained using the ‘‘party patronage’’
approach (Hopkin, 2006; Kopecky & Scherlis, 2008;
Piattoni, 2001; Roniger, 2004). In broad terms, party
C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31 15
patronage refers to the actions of political parties in power
to put appointees in key positions (in the civil service as
well as various commissions and regulatory bodies), so
that government policies and objectives are best served
(see Piattoni, 2001). Party patronage constitutes a critical
organizational and governmental resource employed by
political parties across Europe and elsewhere (Kopecky &
Scherlis, 2008).
However, the scope of party appointments, as well as
the rationale behind it, may vary signi?cantly. In countries
with well-established institutional traditions (representa-
tive democracies), party patronage may be narrow in scope
and political appointments are usually limited to ministe-
rial positions, only to secure the mere existence of party
government (Kopecky & Scherlis, 2008, p. 362). In contrast,
in countries with weak institutionalization,
4
in addition to
the control of top-ranking positions, a large number of jobs
are supplied as a clientelistic exchange for political support:
‘‘this type of patronage is primarily employed . . . for more
far-reaching clientelistic exchanges . . . [W]hat matters, how-
ever, is that jobs are primarily utilized as a reward for party
or factional allegiance, rather than for any other purposes’’
(Kopecky & Scherlis, 2008, p. 363; see also Hopkin, 2006).
A clientelistic political system in delegative democra-
cies means that institutions such as OBs, which in principle
should be autonomous organizations, in practice lack inde-
pendence from the state apparatus, which itself is a pris-
oner of political parties (Featherstone & Papadimitriou,
2008; Lyrintzis, 1984; Papakostas, 2001). Party patronage
in delegative democracies systematically undermines the
operation of OBs as independent horizontal control mech-
anisms (O’Donnell, 1994). Lack of independence implies
limited ability for an OB to express an objective opinion
within its jurisdictional domain, to the extent that such
an opinion could be interpreted as undesirable or disad-
vantageous for the government. In addition, institutions
in delegative democracies run the risk of being caught in
the cogs of clientelism, state indifference, ineffectiveness
and red tape. These interrelated factors might even prevent
an institution fromdealing with basic organizational issues
and developing into a functioning organization.
In short, clientelism and other features of delegative
democracies (e.g. poor government effectiveness, regula-
tory quality and rule of law) limit the possibility of build-
ing strong, operative institutions of horizontal
accountability, such as OBs, which are nonetheless a key
component of the global ?nancial infrastructure that
emerged in the 2000s. From a more general viewpoint,
these countries lack the ability to produce and apply coher-
ent and consistent policies, thus they exhibit, to varying
degrees, poor records of implementing major reforms. This
conceptualization of the state is certainly in contrast with
the role of the state in advanced, institutionalized democ-
racies (O’Donnell, 1994).
This theoretical conceptualization, drawn from litera-
ture on politics, of the varying ability of states to deliver
on key functions has received broader empirical support
in global surveys. For example, Kaufmann et al. (2013)
report signi?cant variation in key governance indicators,
including government effectiveness, regulatory quality
and rule of law. More importantly, signi?cant variation
also exists in these indicators even among EU member
states.
In summary, the theoretical threads on which this arti-
cle is based suggest that the establishment and develop-
ment of Anglo-American in conceptualization, OBs should
be examined in relation to the dynamics of the political
economy of the global economic system. OBs are promoted
by the G7/G20 and other powerful global actors as a uni-
form solution to improve the quality of ?nancial reporting
and to help instill stability in a crisis-prone and interde-
pendent global ?nancial system. This need has been so
profoundly exposed during the current ?nancial crisis
which has shaken the world economy. The proliferation
of OBs in the early 2000s rests on the assumption that
every country has the capability to successfully establish
and operate accounting institutions molded on Anglo-
American governance regimes.
However, the ef?cacy of local OBs should not be taken
for granted, since countries differ in their historical, social,
cultural and economic traditions, and these differences, in
turn, may condition their ability to introduce systems of
effective oversight and related reforms. Thus, the operation
of emerging domestic OBs warrants close examination.
Countries with a tradition of weak institutionalization
(delegative democracies) tend to exhibit signi?cant dif?-
culties in importing reform measures developed in coun-
tries with a tradition of strong, operative institutions. The
former tend to lack a nexus of horizontal accountability
mechanisms, which thus hampers the development of
strong OBs. Clientelism, a particular version of party
patronage, is a widespread characteristic of political sys-
tems in certain European countries (and elsewhere) and
is associated with the institutional weaknesses of delega-
tive democracies and their inability to build strong, opera-
tive OBs.
Research methods
This study follows a case study research design (Babbie,
1998; Hussey & Hussey, 1997; Yin, 2002) and its empirical
part, which spans the period 2003–2014, is based on a mix
of data sources and triangulation research methodology
(Denzin, 1978; Jick, 1979). The data sources includea wealth
of publically-available archival material (e.g. minutes of
parliamentary debates, parliamentary reports, laws, minis-
terial decisions, articles inthe press andinprofessional jour-
nals, as well as a small number of letters, memoranda and
reports submitted by interested parties to the Minister of
Economy
5
). The written evidence is supplemented with 10
focused, semi-structured, face-to-face interviews. The inter-
views covered, depending on the interviewee’s personal
knowledge, a series of issues related to the establishment
and performance of ELTE. Semi-structured interviews
were recorded and professionally transcribed. Interviewees
4
Kopecky and Scherlis (2008) identify a third group of countries in
which the number of posts ?lled by the party is higher and, therefore, the
potential control exercised would also be higher.
5
All empirical sources are available on request from the authors.
16 C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31
requested their names not be disclosed in the paper (apart
from Minister Alogoskou?s, who made no such request), but
agreed to disclosing the description of their post. Further-
more, three interviewees requested that the interview not
be recorded and notes were taken instead. Interviewees
included: the Minister of Economy (2004–2008); the Secre-
tary General to the Ministry of Economy (2004–2007); the
two chairmen of ELTE (2003–2009 and 2009–2014, respec-
tively); the President of the Institute of Certi?ed Auditors–
Accountants of Greece (1993-present), who is also a partner
in a large local audit ?rm; one local, small audit ?rm partner
and two Big-Four audit ?rm partners; one senior public ser-
vant at the Ministry of Economy; and one member of ELTE’s
Disciplinary Council.
Our study shares limitations inherent to a qualitative
methodology. In addition, we acknowledge that one of
the authors (referred to in the paper as ‘‘Academic’’) served
as a member of ELTE’s accounting arm for two years
(2005–2007). To reduce the risk of subjectivity and bias,
we note that the paper is mostly based on publically-avail-
able written evidence, unrelated to the Academic. In addi-
tion, all semi-structured interviews cited herein have been
conducted by the other co-authors.
The interaction between global and local institutional
settings
The global landscape
In Europe, public oversight of accounting and auditing
emerged as a policy matter in the late 1990s, when the
EU embarked on a review of the corporate external audit
function, in light of further integration (European
Commission, 1998). This review resulted in the issuing of
the Recommendation of 15 November 2000, which viewed
the creation of an effective system of public oversight at
the state level as an integral part of a single internal market
(European Commission, 2001a). Although the Recommen-
dation was non-mandatory, it provided a clear indication
of the EU’s preference for a system of oversight indepen-
dent of the profession. It envisaged that such a system
would be run by non-professionals, including representa-
tives from the industry, securities regulators and other
stakeholders. These EU measures intensi?ed in the early
2000s and eventually culminated in the issuing of the
(new) Eighth Directive in 2006 (European Commission,
2006). This piece of EU legislation requires member states
to install or upgrade systems of accounting and auditing
oversight.
These EU measures re?ected developments on the other
side of the Atlantic (Davies & Green, 2008; Malsch &
Gendron, 2011). In the US, following the infamous Enron
scandal and the collapse of Arthur Andersen in 2001, the
Sarbanes–Oxley Act (US Congress, 2002) led to the creation
of the Public Company Accounting Oversight Board
(PCAOB), which heralded the end of self-regulation for
the accounting profession in the US (e.g. Anantharaman,
2012; Lennox & Pittman, 2010). The new regulator was
charged with audit quality inspections, ending the
peer-review system run hitherto by the US profession
(Anantharaman, 2012; Lennox & Pittman, 2010).
It is within this international context that domestic OBs
began mushrooming in the early 2000s across the globe, as
one means of regulating crisis-prone globalized capitalism
(Büthe & Mattli, 2011; Davies & Green, 2008; Wade,
2007a). Although the argument that integrated economies
require integrated systems of regulation and oversight has
received support (Davies & Green, 2008), OBs are set up
and operate at the local, domestic level. Thus, the structure
of these emerging systems of oversight, i.e. dispersed OBs
embedded within diverse local contexts, is incongruent
with the ever-growing integration of the global ?nancial
system.
The need to coordinate diverse OBs was recognized in
2006 when national OBs from 18 separate jurisdictions
set up a representative organization, the International
Forum of Independent Audit Regulators (IFIAR). Member-
ship has only grown to 49 as of 2014, so most UN member
states have not yet joined. IFIAR is meant to operate as a
platform for coordination, knowledge sharing and dialogue
among bodies, with no enforcement power over its mem-
bers
6
regarding audit quality inspections. At the moment,
coordination of national OBs through IFIAR remains rather
elementary (Davies & Green, 2008, pp. 89–91; Humphrey
et al., 2009). IFIAR issued seven non-binding
7
core principles
for its members in April 2011. Similarly to IFIAR, the Euro-
pean Group of Auditors’ Oversight Bodies established by
the European Commission in 2005 lacks enforcement
power,
8
since it is limited to an advisory and coordinating
role within the EU.
The local politico-economic and professional context
As a member of the European Economic Community
since the early 1980s, Greece’s position within the global
politico-economic system has been conditioned by Euro-
pean policies. With regard to accounting and auditing in
particular, relevant regulation and practice in the past
three decades has largely been shaped by European direc-
tives (Caramanis & Dedoulis, 2011). During the past three
decades, successive governments
9
have pursued further
integration of the country into the EU. This effort has
entailed a series of liberalization reforms since the early
1990s, among them the liberalization of the Greek audit
market in 1992 (Caramanis, 1999), and culminated in
Greece’s entry to the euro zone
10
in 2001.
6
Seehttps://i?ar.org/About-Us.aspx.
7
Seehttps://i?ar.org/IFIAR/media/Documents/General/Final-Core-Prin-
ciples.pdf.
8
Seehttp://ec.europa.eu/internal_market/auditing/egaob/index_en.htm.
9
From 1981 to 2012, the country had been governed by either the
socialist PASOK party or the center-right New Democracy party. New
Democracy was in power for eight of these years (1990–1993 and 2004–
2009). In October 2009, PASOK returned to power against the background
of an intensifying economic crisis. A coalition government has been at the
helm since 2012.
10
It has been argued, however, that entering the euro zone in 2001 was,
to a certain degree, the result of political considerations at the EU level, as
well as of creative accounting practices in Greece’s ?nancial statistics (e.g.
Financial Times, 11 and 30 November 2009).
C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31 17
However, despite improvements in certain ?nancial
indicators, concerns have remained about the real growth
and development of the economy. For example, Greece
has consistently been the worst performer in terms of
the criteria set out in the Lisbon Programme (e.g. World
Economic Forum, 2004, 2006). Clear signs of an economic
slowdown had been apparent before the 2008 ?nancial cri-
sis erupted and the country eventually entered into a deep
(and still ongoing) recession in 2009, amid widespread rec-
ognition that the ?nancial crisis was a symptom of more
serious, structural socio-political problems (e.g. OECD,
2009, 2010, 2011a, 2011b, 2012).
Greece’s lingering economic problems are certainly
related to the country’s reform capacity problems, result-
ing from its weak institutionalization and clientelistic
political system (e.g. Featherstone & Papadimitriou,
2008). An OECD report (2011b) explicitly ties Greece’s
problems to the widely-acknowledged weakness of the
state apparatus:
Strong measures . . . to improve the effectiveness,
accountability and integrity of the public administra-
tion so that it is ‘‘?t for purpose’’ are a priority, perhaps
even the ?rst of the reform priorities facing Greece. Fail-
ure to implement a major and integrated public gover-
nance reform in Greece is likely to jeopardise the
broader reforms required to put Greece back on the
path to sustainable growth.
[Featherstone & Papadimitriou, 2008, p. 3]
The weakness of the Greek state apparatus and its role
as an impediment to progress has been recently high-
lighted by Jean-Claude Triche, head of the European Cen-
tral bank (2003–2011), in the context of an inquiry led
by the European Parliament into the handling of the Greek
crisis by the ‘‘troika’’ (the European Commission, the Euro-
pean Central Bank, and the International Monetary Fund).
As Trichet (2014, trans.) states: ‘‘The state in Greece does
not operate the way it should . . . [W]hat Greece should
do is to continue trying to build a solid state. This is a pre-
condition for the country to succeed . . . and for the econ-
omy to operate’’. Kaufmann, Kraay, and Mastruzzi (2013)
also capture the weakness of Greek public administration
in a global survey, in which Greece ranks at or close to
the bottom of EU member states in key governance indica-
tors, including government effectiveness, regulatory qual-
ity, and rule of law.
The international developments in accounting regula-
tion of the late 1990s and early 2000s have been repeat-
edly and explicitly acknowledged by the Greek
government as a signi?cant factor in formulating policy
regarding the establishment of ELTE (e.g. Greek
Parliament, 2003a, 2003b, 2003c). For example, the Minis-
ter of Economy Christodoulakis (2001–2004) stated that
the government was trying to bring Greece closer to the
global SSC system of ?nancial regulation: ‘‘We are creating
a new institution in order to be in a position to deal with
the complexity of corporate audits . . . [W]e use the formu-
lae that are available internationally to improve the con-
text in which the markets operate and investors make
decisions’’ (Greek Parliament, 2003c, p. 4.269, trans.). Sim-
ilarly, the Deputy Minister of Economy Fotiadis openly
acknowledged the role of international developments:
‘‘[T]he Enron experience has led most countries to initiate
reforms in order to improve the quality of audits and pro-
vide adequate assurances to the investing community . . .
and this is what we are doing’’ (Greek Parliament, 2003a,
p. 1083, trans.).
However, in addition to international developments,
local-level events and conditions in Greece provided fur-
ther impetus to the introduction of public oversight. As
such, these conditions hastened the establishment of ELTE
before it actually became an EU legal requirement through
the issuing of the new Eighth Directive in 2006. One such
major event was the Athens Stock Exchange (ASE) scandal
of the late 1990s, which eroded public con?dence in
?nancial reporting and the role of the auditing profession.
An unprecedented growth in the ASE, which had created
market euphoria and involved hundreds of thousands of
Greek households, was followed by an intensive down-
ward spiral. The General Index fell from 6355 to 1800
points within the space of a few months in the last quarter
of 1999 (ASE, 2001). Soon, allegations appeared in the
press and in public debates
11
about the role of key
politicians, even of the Prime Minister himself, in the affair
and such claims were even raised in the Parliament
(Greek Parliament, 2003c; see also Papadimitriou, 2001;
Staikouras, 2001).
It is evident that the ASE episode created a legitimation
crisis for the government. Under such conditions, tighten-
ing regulation or introducing more structural changes has
been a state’s main response to crisis at various times
and locales (Hancher & Moran, 1989; Malsch & Gendron,
2011; Zeff, 2003). Indeed, a senior public servant has
linked the establishment of ELTE with the ASE affair, sug-
gesting that the creation of the Greek OB ‘‘was apparently
brought forward by the scandal’’ (interview, 26 September
2013). During the debate in Parliament on the establish-
ment of ELTE, the sponsor of the bill emphatically sug-
gested that the new regulation was: ‘‘an answer to those
who argue that the government is somehow related to
sleaze and scandals’’ (Greek Parliament, 2003a, p. 1069,
trans.), and Deputy Minister of Economy Fotiadis stated
that the government sought to ‘‘strengthen transparency’’
(Greek Parliament, 2003a, p. 1083, trans.) as public con?-
dence in the operation of the market had evaporated.
The ?nal local factor to consider is the division within
the Greek auditing profession regarding the introduction
of independent oversight, which primarily emanated from
a lingering intra-professional con?ict. This con?ict initially
erupted in the late 1970s between SOL,
12
a quasi-state
auditing organization, and SELE, an aspiring occupational
group representing local branches of the big international
accounting ?rms that had been campaigning for access to
the statutory audit market (Caramanis, 1999). The
profession was eventually liberalized in 1992 through legis-
lation (Caramanis, 1999). This audit reform entailed the
11
The ASE scandal was a major political issue in the elections of March
2000.
12
SOL is the English abbreviation of the Greek Rx
9
la Oqjxsx
9
m
Kocirsx
9
m – ROK (Soma Orkoton Logiston – SOL), which translates as
the Body of Sworn-in Accountants.
18 C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31
introduction of competition between auditors and the for-
mal uni?cation of the profession as members of interna-
tional accounting ?rms gained professional recognition.
The reform also abolished SOL and established SOEL,
13
a
new professional association, largely organized as a self-
regulated professional institute. However, the formal
uni?cation of the profession in 1992 failed to end this
intra-professional con?ict which continued,
14
overtly or
covertly, around the issue of the control of SOEL’s adminis-
tration. Related to this con?ict, the profession stood divided
regarding the proposal for the establishment of ELTE, and
particularly regarding the transfer of regulatory and over-
sight powers from SOEL to the new OB. The Big-Four and
international second-tier ?rms openly supported the reform,
while resistance mostly came from SOL SA, the largest (local)
audit ?rm, supported by the Economic Chamber of Greece
(OEE
15
), a legal, compulsory trade association of all gradu-
ates in the broader ?eld of economics, including business
accountants. Thus, the divided profession, apparently
involved in the stock exchange scandal, had a signi?cantly
reduced capacity to resist reform (Caramanis, Dedoulis, &
Leventis, 2010).
The deep divide and the power relations within the pro-
fession were summarized in a letter to SOEL’s Supervisory
Council, sent by a partner of a second-tier international
audit ?rm shortly after the government announced its plan
to set up ELTE:
[T]he Greek profession is characterised by an extreme
concentration of power in very few audit ?rms . . . in
practice, two blocks have been formed in the profession.
The one that has all the power in the organs of admin-
istration and the other that is seeking to bring it into
balance. It is this antithesis that has created many prob-
lems in the internal operation, status and the public
image of the profession.
[Second-tier ?rm partner, 2002, trans.]
Following the 1992 reform, the great majority of SOL
members established the audit ?rm SOL SA
16
under the
leadership of ‘‘Unileader’’ (Caramanis, 2002) – the most
important of the dramatis personae in the Greek accounting
profession in the past two decades. Unileader, a charismatic
ex-trade unionist of SOL and middle-to-senior member of
PASOK, also served as Secretary General (1996–2000) of
the Ministry of Economy and, for two terms, was President
of the OEE during the late 1990s and early 2000s. The formal
uni?cation of the profession, however, did not end this intra-
professional con?ict. It continued, explicitly or implicitly, as
SOL SA attempted to reverse liberalization following
PASOK’s return to power in October 1993 (Caramanis,
2002, 2005). Eventually though, the intra-professional con-
?ict seemed to abate, and a modus vivendi between the con-
?icting groups was achieved, subsequent to SOL SA’s utterly
unsuccessful attack on liberalization in the late 1990s. Fol-
lowing this development, Unileader focused on consolidat-
ing his control over SOEL, which is funded through a
legally-sanctioned 2% annual membership charge on audit
fees. Taking advantage of the one member-one vote system
of the profession, he has uninterruptedly been the elected
President of SOEL since the early 1990s (he was re-elected
in April 2012 for another three-year term of of?ce).
In summary, global in?uences and pressures (i.e. the EU
guidelines and the precedent set by the PCAOB) along with
local events (the ASE scandal and intra-professional con-
?ict) created a unique trajectory, conducive to the emer-
gence of a local accounting and auditing OB independent
of the profession, well before it became a legal EU require-
ment. However, the delegative characteristics of Greece
created a rather gloomy outlook for the prospect of a truly
effective and independent accounting and auditing OB.
The parliamentary debate: rhetoric on independence
and concerns about clientelism
The debate in Parliament on the establishment of
ELTE
17
began in spring 2003 (Greek Parliament, 2003a,
2003b, 2003c). The minutes of this debate provide useful
insights into the clientelistic nature of Greek politics, the
prevailing perceptions among politicians and the institu-
tional impediments to the independence of ‘‘independent’’
authorities. The proceedings reveal that the risk of creating
an impotent institution under government control in Greece
was neither unforeseeable nor unforeseen, as shown during
the debate on the bill in Parliament.
The need to ensure that ELTE would not fall victim to
party clientelism and ineffectiveness, a quintessential
characteristic of the Greek public sector, was openly
acknowledged by Christodoulakis (Minister of Economy
2000–2004) during the debate in Parliament: ‘‘[O]ur pur-
pose is only one: to make the system for overseeing ?nan-
cial audits more transparent, more rigorous and to bring it
away from the operation of the state, so that it will be
able to adapt to international developments and will be
capable of overseeing companies and inspecting auditors’’
(Greek Parliament, 2003c, p. 4269, trans., emphasis added).
Yet he insisted that the Ministry maintain overall control
13
SOEL is the English abbreviation of the Greek Rx
9
la Oqjxsx
9
m
Ekecjsx
9
m Kocirsx
9
m – ROEK (Soma Orkoton Elegkton Logiston – SOEL),
which translates as the Institute of Certi?ed Auditors – Accountants.
14
There was also an abortive attempt to reverse liberalization when
PASOK returned to power in 1993 (see Caramanis, 2002, 2005).
15
OEE is the English abbreviation of the Greek Oijomolijo
9
Epi-
lekgsg
9
qio Ekkdo1 – OEE (Economico Epimelitirio Ellados – OEE), which
translates as the Economic Chamber of Greece. OEE was established by the
(PASOK) government in the early 1980s as a state-corporatist institution
and has traditionally been an arena for party competition and clientelism.
All practicing statutory auditors, business accountants and tax consultants
must have OEE membership. Other membership comes from tax of?ce and
banking sector employees. OEE is still capable of exercising some political
power, emanating from its membership, which amounts to around 90,000
individuals. However, it has failed to have any signi?cant impact on
accounting and related matters (Caramanis, 1999, 2005).
16
SOL SA is by far the largest audit ?rm in Greece, at least in terms of
staff. As of 2010, it accounted for almost one-third of SOEL’s membership
(all ranks included) which, in the highly-politicized Greek context, is widely
believed to give SOL SA signi?cant bearing in the political centers of power.
17
The government had announced its plan to establish an accounting and
auditing OB and end self-regulation in July 2002, when it published a draft
bill for the creation of ELTE (Kerdos, 2002; Ministry of Economy, 2002). A
long consultation period ended in March 2003 when the bill was
introduced to Parliament, amid ?erce and concerted protest from SOEL
and OEE. Nhe bill was eventually voted for in May 2003 (Government
Gazette, 2003).
C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31 19
over the new institution, even on technical accounting
matters: ‘‘[T]he deliberations of ELTE shall be signed by
the Minister of Economy’’ (Greek Parliament, 2003c, p.
4.269, trans.).
Several speakers in the parliamentary debate, across the
political spectrum, emphasized ELTE as being under the
direct control of the incumbent Minister of Economy. The
Member of Parliament (MP) and Shadow Minister of Econ-
omy Alogoskou?s
18
expressed concerns that the creation of
ELTE was an opportunity for the government to create posts
for its political friends and allies (Greek Parliament, 2003b).
Moreover, MPs from political parties on the left argued that,
though the law secured independence from the profession,
‘‘ELTE lacked even a semblance of independence from the
government’’ (Greek Parliament, 2003c, p. 4259, trans.),
underscoring the lack of accountability to Parliament
(Greek Parliament, 2003b, 2003c). These MPs, however,
extended their criticism to New Democracy: ‘‘[W]hile PASOK
is seeking full government control over accountancy, New
Democracy is essentially supporting the bill, as they expect
to take political advantage of the new institution if they
return to power’’ (Greek Parliament, 2003a, p. 1077, trans.).
Overall, the debate in Parliament revealed a more gen-
eral lack of trust in public authorities (which are normally
presumed to be independent of government and party-
political in?uences and pressures) as a precondition for
the smooth functioning of the free market economy
(O’Donnell, 1994). It is indicative that, when the Chairman
of the Standing Committee of the Chamber announced that
the heads of the Capital Markets Commission and the ASE
(traditionally devoted government appointees) had been
invited to express their views on the establishment of
ELTE, MP Alogoskou?s a priori discredited their testimony
and suggested that there was no need to invite them
because ‘‘on the basis of past experience [they] come to
the Parliament only to support the government’s views.
We shall not learn anything more than what the govern-
ment and the Minister will tell us’’ (Greek Parliament,
2003a, p. 1068, trans.). He also explicitly recognized the
issue of state ineffectiveness:
The question of the credibility of ?nancial audits is not
only a matter of institutions and legislation . . . [W]e
already had [institutions that did not work and] ade-
quately strong legislation which was not enforced in
practice and this resulted in the serious problems of
the Athens Stock Exchange [the 1999 scandal] . . .
[W]e shall vote for the bill because we want to indicate
that . . . there is a need for more effective audits and
more reliable ?nancial statements . . . particularly in
state-controlled organizations.
[Greek Parliament, 2003c, p. 4264, trans.]
The issues of clientelism and lack of true independence
of OBs from the government were most explicitly captured
by MP Lafazanis thus:
The independence of ‘‘independent’’ authorities is a
mockery . . . You appoint hangers-on to various posts,
you name them independent, and then [when things
go wrong] you come to say that they have failed and
put the blame on them so that you remain protected
from criticism. I would prefer, Mr. Minister, that you
personally have the political responsibility [for oversee-
ing corporate auditing].
[Greek Parliament, 2003c, p. 4259, trans.]
However, regardless of any arguments during the
debate in Parliament, senior politicians (at least when in
power) showed clearly negative attitudes toward truly
independent authorities outside the control of the political
system, an observation in congruence with O’Donnell’s
theorization of delegative democracies (1994). As the Sec-
retary General (2004–2007) put it in an interview well
after he left of?ce: ‘‘Ministers tend to have the view that
independent authorities should be at an arm’s length . . .
[They] should be independent but not too much so’’ (inter-
view, 14 July 2010, trans.). That is, ministers want to main-
tain control over independent authorities. The way the
Minister of Economy (2004–2009) under New Democracy
rationalized this attitude against truly independent bodies
is illuminating:
There are two kinds of risks associated with indepen-
dent authorities. Either they will not do the job they
are established for, or they will be overactive, causing
problems for the operation of the market . . . [in Greece
and] . . . they are in a position to hold the Minister to
ransom . . . and blackmail the government . . . because
they have all the information and the Minister is very
vulnerable to adverse publicity (interview, 14 July
2010, trans.).
The establishment of ELTE: subjugating the new OB to
government control
The Greek OB was eventually established by Law 3148/
2003 (Government Gazette, 2003), in May 2003 (Appendix
presents the time line of major events in the history of
ELTE since July 2002, when the government announced
its decision to establish an accounting and auditing OB).
Following the international trend (EU guidelines and the
PCAOB precedent), the Law secured the independence of
ELTE from the profession.
Formally, ELTE was set up as a public sector legal entity
and its mission is to ‘‘promote transparency in the opera-
tion of business enterprises through accounting standardi-
zation, and to ensure the quality of corporate audits’’
(article 1 of the Law, trans.), and to act as the government’s
formal advisor on accounting and auditing matters. ELTE is
funded by audit ?rms through a 1% levy on total audit
fees,
19
which secures the availability of necessary ?nancial
resources.
As Fig. 1 shows, ELTE is headed by a chairman and two
vice-chairmen, who constitute its powerful Executive
18
Alogoskou?s became Minister of Economy when New Democracy won
the 2004 elections. He played a key role in the developments in Greek
accountancy in the late 2000s, as we explain subsequently.
19
This, as of 2010, amounted to almost € 2 m per annum in total revenue
for ELTE.
20 C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31
Committee. The chairman and one vice-chairman are
selected by the Ministry of Economy and the second vice-
chairman is nominated by OEE,
20
whose leadership at the
time was controlled by the governing PASOK. All appoint-
ments require con?rmation from Parliament. ELTE’s admin-
istrative structure is supplemented by a seven-member
Administrative Council, comprising three members of the
Executive Committee and four other individuals nominated
by the Bank of Greece, the Hellenic Capital Markets Commis-
sion, the Confederation of Greek Industries, and the account-
ing profession
21
(SOEL).
Under the umbrella of ELTE, two organs were created.
The ?rst is SLOT
22
(Accounting Standardization Committee),
which comprises four accounting experts appointed by the
Ministry of Economy and is headed by one of ELTE’s two
vice-chairmen. The second is SPE
23
(Quality Inspections
Committee), which is a seven-member committee headed
by the second vice-chairman of ELTE. The remaining mem-
bers of SPE include a senior judge, one member of SLOT
and four other individuals nominated by the Bank of Greece,
the Hellenic Capital Markets Commission, SOEL, and the
Ministry of Economy. SPE’s main responsibility is the man-
agement of a peer-review-based quality inspection system
that was to be introduced.
In addition to directly appointing the three heads of
ELTE and the members of SLOT, the nominations for mem-
bership of ELTE’s Administrative Council (four) and of the
Quality Inspections Committee (?ve) require formal
approval from the Ministry of Economy. Furthermore, the
Ministry of Economy exercises oversight of ELTE’s opera-
tions, determines the remuneration of its senior staff, and
approves the appointment of administrative personnel.
Even ELTE’s regulatory decisions on technical issues are
subject to approval by the Ministry of Economy. Finally,
Law 3148/2003 removed the disciplinary power of SOEL
and provided for the establishment of a new system of dis-
ciplinary arrangements,
24
independent of the profession,
which would operate in parallel with ELTE. The members
of the Disciplinary Council were to be appointed by the gov-
ernment. Furthermore, auditor independence was to be
strengthened through the introduction of provisions on var-
ious issues (e.g. auditor rotation, employment of audit staff
by the client, consulting services to audit clients).
The formal passing of Law 3148/2003 and the establish-
ment of ELTE as the ?rst OB in the history of Greek
accounting and auditing naturally created expectations of
much-needed improvements in Greek ?nancial report-
ing.
25
However, given the deeply politicized nature of the
Greek state and the lingering ineffectiveness of public
administration, the close control of ELTE by the government
apparently gave cause for concern from the outset, and
called into question whether ELTE as an institution would
in practice play the vital role for which it had formally been
established. We turn to this issue in the next section.
ELTE in a state of inertia
ELTE was envisaged to play a key role in ensuring
much-needed transparency and con?dence in ?nancial
reporting. This would be achieved by improving the quality
of corporate audits through the introduction of a system of
audit quality inspections. However, since its inception in
May 2003, ELTE has, in practice, fallen into an essentially
dormant state with regard to improving transparency
and con?dence in ?nancial reporting. ELTE’s situation
Chairman
Execu?ve Commi?ee
(chairman and two vice-chairmen)
Administra?ve Council
(chairman, two vice-chairman and four other members)
SLOT – The accoun?ng standards se?er
SPE – The audit quality inspec?ons unit
(one vice-chairman and six other members)
Disciplinary Council
(three members)
(one vice-chairman and four experts)
Fig. 1. The administrative structure of ELTE.
20
The OEE gained the right to nominate one vice-chairman of ELTE as a
result of its electoral power and effective political mobilization during the
debate in the chamber (see Greek Parliament, 2003a, 2003b, 2003c).
21
The initially-submitted Law did not provide for representation of the
profession in ELTE. However, political pressure during the discussion in
Parliament gave SOEL one seat on ELTE’s Administrative Council (see Greek
Parliament, 2003a, 2003b, 2003c).
22
SLOT is the Greek acronym of Rtlbot9kio Kocirsijg
9
1 Ntpopoi
9
grg1
– RKON, which translates as the Accounting Standardization Committee.
23
SPE is the Greek acronym of Rtlbot9kio Poiosijot9 Eke
9
cvot – RPE,
which translates as the Quality Inspections Committee – SPE). The
appointment of SPE members is controlled by the Minister of Economy.
24
The bill initially provided for severe monetary ?nes for errant auditors
and audit ?rms, but these penalties were signi?cantly softened in the ?nal
text of the law, as the profession stood united against them.
25
According to academic research, Greece has a leading position in
earnings management internationally (Christensen et al., 2013; Leuz et al.,
2003; Osma & Pope, 2011).
C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31 21
was acknowledged by its chairman (since 2009) in an
interview with the in?uential quarterly Accountancy
Greece, issued by SOEL for its membership:
As you know, since its establishment in 2003, ELTE has
been in a state of inertia . . . understaffed, without
[proper] of?ces, incapable of performing its duties
and, most importantly, unable to conduct the audit
quality inspections required by legislation since 2003
. . . It is imperative that the Authority be staffed with
quali?ed personnel as a matter of urgency.
[Refenes, 2011, p. 29, trans.]
The poor state of ELTE was documented in an academic
survey of auditors and corporate ?nancial executives
(Caramanis & Papadakis, 2008). The survey, which
attracted signi?cant media attention, revealed that Greek
oversight authorities were in need of signi?cant improve-
ments in several respects, including: reliability, transpar-
ency, staf?ng, and independence from political and
economic centers of power (e.g. Kerdos, 2008; Kourkouta,
2008; Naftemporiki, 2008). The headline of the newspaper
Kerdos (2008, p. 14, trans.) read: ‘‘The de?ciencies of the
oversight authorities cast doubt on the bene?ts of the
introduction of IFRSs’’. ELTE’s poor state of affairs was also
evidenced by its development of a web page as late as
spring 2009, six years after its establishment; a web pres-
ence had been agreed on early in 2005, since it was consid-
ered a key factor in effecting change and ensuring
transparency and accountability (SLOT, 2005).
The failure of ELTE to perform its duties over the years
has been indicated in internal documents prepared by the
Academic member of SLOT and a retired senior judge-
member of the SPE and submitted to the Ministry of Econ-
omy (Academic, 2006, 2007, 2008; Retired Judge, 2006a,
2006b). ELTE’s deplorable position has also been high-
lighted in two parliamentary questions raised by MPs
Tatoulis (2009) and Katseli (2009). In her question, Katseli
particularly stressed that ‘‘ELTE . . . with a leadership
appointed by the government has fallen victim to the path-
ogenesis of Greek public administration’’ (Katseli, 2009, p.
2, trans.). The Secretary General 2004–2007 and the Minis-
ter of Economy (2004–2008) also both acknowledged that
ELTE had failed to improve Greek accounting and audit
practice and, in retrospect, implicitly expressed their regret
for not taking appropriate measures while in power (both
interviewed on 14 July 2010).
ELTE’s inaction is most evident with regard to quality
inspections. Following the ?lling of the SPE posts in March
2006, ELTE initiated the organization of the ?rst audit qual-
ity inspections in the history of Greek auditing in July 2006,
three years after its establishment. However, this attempt
utterly failed: ‘‘t became clear that we did not have a safe
legal framework to proceed, we did not have our own audit
quality inspectors . . . it would be a mockery to perform
inspections under such conditions’’ (interview with the
Chairman of ELTE 2003–2009, 26 September 2013, trans.).
Two years after this incident, the government eventually
passed Law 3693/2008, which, inter alia, abolished the
peer-review system and provided that ELTE would appoint
its own audit quality inspectors. However, ELTE did not
have the authority to proceed with ?lling the posts of
quality inspectors, as recruitments were subject to the
Ministry’s approval. It took one year (July 2009) for ELTE
to receive permission from the Ministry of Economy to
appoint ?ve quali?ed members of staff for the audit quality
inspections on a one-year employment contract (ELTE,
2009). Using the limited human resources available, ELTE
was eventually able to complete the ?rst audit quality
inspections as late as April 2010, seven years after its
inception (ELTE, 2010). The main ?ndings of these inspec-
tions were presented at a public event on 14 April 2010.
ELTE’s chairman publicly admitted in his speech that ELTE
had adopted a largely ‘‘educational’’ approach and no disci-
plinary action was taken. He made clear though that ELTE
would exercise disciplinary action against any deviant
auditors in the next round of inspections.
However, the work contracts of ELTE’s inspectors
expired in spring 2010, and, as no permission for new
appointments had been granted by the Ministry of Econ-
omy, ELTE had insuf?cient human resources even for min-
imum operations. Yet Greece still needed to comply with
the requirement of the Eighth Directive for audit quality
inspections on a regular basis (interview with the Chair-
man of ELTE, 2009–2014, 26 July 2013). To deal with this
problem, shortly thereafter an arrangement was made
between ELTE and SOEL, with the permission of the Minis-
try of Economy, according to which SOEL appointed two
inspectors who were then seconded to ELTE (interviews
with the President of SOEL, 19/07/2013; Chairman of
ELTE 2009–2014, 26/07/2013). The two individuals would
mainly deal with urgent investigations ordered within
the context of judicial procedures, following major, or
sometimes more minor, auditing scandal (interview with
the Chairman of ELTE 2009–2014, 26/07/2013).
Nevertheless, ELTE’s performance eventually came
under legal scrutiny. On 5 April 2012, the public prosecutor
for economic affairs ordered an investigation into ELTE’s
apparent inaction by the Internal Audit Service of Public
Administration (Kousoulos & Vlachoutsakos, 2012). The
judicial investigation was provoked by written allegations
by individuals (investors claiming ?nancial losses as a
result of ELTE’s inaction) that had been submitted to the
Ministry of Economy and various judicial authorities
(Kousoulos & Vlachoutsakos, 2012). The report of the Inter-
nal Audit Service of Public Administration found that ELTE
had in fact failed to perform its responsibilities, but attrib-
uted this to lack of staff (interview with the Chairman of
ELTE 2009–2014, 26 July 2013).
In January 2013, ELTE received permission from the
Ministry of Economy to outsource the implementation of
audit quality inspections, since public sector appointments
had essentially been banned since 2010 due to the ?nan-
cial crisis. The contract was awarded to SOEL, the profes-
sional organization representing the auditing profession,
which appointed six individuals from the relatively junior
staff of audit ?rms on ?xed-term contracts (interview with
the Chairman of ELTE, 26 July 2013). The arrangement was
in clear violation of core principle 5 of IFIAR (2014), of
which ELTE is a member. According to Principle 5:
Audit regulators should have arrangements in place to
ensure that inspection staff members are independent
22 C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31
of the profession. These arrangements will, as a mini-
mum, include ensuring that staff members should not
be practicing auditors or employed by or af?liated with
an audit ?rm, and that the arrangements are not con-
trolled in any form by a professional body.
The problem with the IFIAR requirement was acknowl-
edged by the Chairman of ELTE who explained that ‘‘in the
prevailing political circumstances, there was no other
option . . . this was as far as we could go’’ (interview with
the Chairman of ELTE, 26 July 2013, trans.). Furthermore,
questions have been raised as to the technical ability of
the staff appointed to perform effective quality inspections
of the audit ?les of large and complex organizations such
as banks and insurance companies (interviews with two
Big-Four audit ?rm partners, 6 and 7 September 2013).
This is another violation of IFIAR’s principle 5 that inspec-
tion staff be of appropriate competence. The Chairman of
ELTE 2003–2009 voiced his concerns thus: ‘‘I do not know
the inspectors personally, so I cannot comment on their
technical competence. But there is an obvious question as
regards the credibility of inspections performed by staff
members appointed by the profession . . . at the very least
they lack the appearance of independence’’ (interview, 16
September 2013, trans.).
The performance of audit quality inspections had the
backing of the profession, in an attempt to deal with an
acute drop in audit fees in the middle of the ongoing
?nancial crisis (interviewwiththe President of SOEL, 27 July
2013). Even before the advent of the crisis in 2008, a survey
found that a signi?cant majority (two-thirds) of auditors
supported quality inspections as a means of maintaining
audit fees at a satisfactory level (Caramanis & Papadakis,
2008, p. 47). A senior partner in a Big-Four ?rm put it thus:
‘‘We do believe that audit quality inspections are in the
interests of the profession . . . to improve credibility and as
a safeguard against unfair competition’’ (interview, 6
September 2013, trans.). No such inspections had yet been
completed as of July 2013, and ELTE still appears to remain
in an essentially dormant state ten years after its
establishment.
The inertia of ELTE has been complemented by
inaction on the part of the profession’s Disciplinary
Council, in which ELTE plays a de facto coordinating role.
During the past decade, four cases (alleged audit scan-
dals) have been referred to the council by ELTE (two in
2011 and two in 2013), but none had been concluded
as of April 2013 (Refenes, 2013). A member of ELTE’s
Disciplinary Council gave his insight into the apparent
inaction thus:
One key obstacle to the effective operation of the disci-
plinary function is the fact that we are essentially
unpaid and on top of that there is no legal immunity
or other protection. If we impose a penalty on an audit
?rm, we run the risk of facing claims for damages or
even criminal charges on the part of the audit ?rm . . .
and the legal environment is quite vague. It seems to
me that nobody really cares about what the Council
does or does not do, or what needs to be done to enable
the Council to perform its duties properly (interview, 14
July 2013, trans.).
The inertia of ELTE and the absence of an operating Dis-
ciplinary Council have been vividly noted by a senior Big-
Four partner: ‘‘ELTE has done nothing at all . . . has per-
formed no audit quality inspections, although it should
have. the Disciplinary Council has not been functioning
. . . we know there are cases which have been pending for
a very long time . . . Unfortunately, we have missed the
opportunity to improve the status of the profession . . .
and you know we pay for ELTE every year as required by
law’’ (interview, 7 September 2013, trans.).
Explaining inertia: institutional features of a delegative
democracy
The establishment of ELTE as a public sector entity
under the supervision and control of the Ministry of Econ-
omy ?rmly anchored the new OB to the Greek state appa-
ratus. This lack of independence has implications that go
beyond the ability of an OB to express a view that might
put the incumbent government in an awkward position.
As the case of the Greek OB shows, lack of independence
from the government (and general lack of autonomy) in a
political system of governance permeated by a tradition
of party politics and clientelism, increases the risk of being
caught in the cogs of state indifference, red tape, and inef-
fectiveness (O’Donnell, 1994). In practice, these interre-
lated factors include the inability of the OB to deal with
basic organizational issues and develop into a functioning
institution.
The Chairman of ELTE 2003–2009 commented on the
independence of ELTE from the government thus:
As I understand it, at the core of EU policy in relation to
oversight has been independence from the profession
and this has been secured . . . In retrospect, indepen-
dence from the Greek Ministry of Economy is an equally
important issue . . . I had talked on a number of occa-
sions to the Minister of Economy regarding the need
to ensure ELTE’s independence from the government; I
had been reassured that appropriate action would be
taken but the issue remains unresolved . . . ELTE is still
a public sector legal entity under the control of the Min-
istry (interview, 16 September 2013, trans.).
Next, we examine the modes that hampered the devel-
opment of institutions of horizontal accountability.
Party politics and clientelism
In Greek political tradition (Featherstone &
Papadimitriou, 2008; Lyrintzis, 2005), the appointment of
(key) staff is mostly, though not exclusively, made on the
basis of political af?liations rather than merit and capacity
to deliver:
In my experience, loyalty or networking is the key fac-
tor for appointments to public posts. We often see
unquali?ed and indifferent people get key posts. It is
loyalty and networking rather than personal aptitude
and knowledge that count. There is a golden rule and
in the past some appointees have learned it the hard
way: do not attempt to make waves if you want to keep
C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31 23
your job . . . and it pays off . . . it secures a signi?cant
source of income (interview with a certi?ed auditor
with considerable experience as a member of various
accounting regulatory and oversight authorities, 8 Sep-
tember 2008, trans.).
A member of ELTE’s leading elite offered his view on the
role of party af?liations in ?lling posts in ELTE thus: ‘‘I
think, to a signi?cant extent, when ELTE was established
the logic of the government was to cover the [EU] require-
ment and . . . to accommodate some of the party people’’
(interview with the Chairman of ELTE, 2009–2014, 26 July
2013, trans.).
Party political af?liations have consistently played a
signi?cant role in ?lling key positions in ELTE (interview
with a senior public servant at the Ministry of Economy,
26 September 2013). An active certi?ed auditor and senior
partner
26
in a Big-Four audit ?rm was appointed as the ?rst
chairman of ELTE in August 2003; and a senior member of
the OEE, who was a unionist af?liated with the governing
PASOK party, was appointed as vice-chairman and head of
SPE. The post of the second vice-chairman (head of SLOT)
was ?lled by an elderly independent accountant and key ?g-
ure in the old Greek accounting establishment (interview
with the Chairman of ELTE 2003–2009, 16 September
2013). The two vice-chairmen did not subscribe to the idea
of introducing major reforms to Greek accounting and audit-
ing (interview with the Chairman of ELTE 2003–2009, 16
September 2013).
Signi?cantly, the government showed no interest in ?ll-
ing the remaining posts in ELTE. In March 2004, PASOK lost
the elections and the center-right New Democracy party
came into power. Alogoskou?s was sworn in as Minister
of Economy, and another person, af?liated with the gov-
erning party, was appointed as Secretary General
27
to the
Ministry of Economy. Despite his strong rhetoric in favor
of independence from the state during the passing of the
Law through Parliament that established ELTE, the new Min-
ister passed article 18 of Law 3301/2004 in December 2004,
which brought ELTE under even closer government control
and abolished OEE’s and SOEL’s rights to nominate members
to ELTE’s organs of administration (Government Gazette,
2004). According to the new Law, the government would
appoint two public servants from the Ministry of Economy
as the two vice-chairmen of ELTE, and one member of its
Administrative Council would be nominated by the Federa-
tion of Industries of Northern Greece.
28
The government (New Democracy) changed the compo-
sition of ELTE’s Administrative Council in early February
2005 (Naftemporiki, 2005). The two vice-chairmen initially
appointed by PASOK were replaced by two public servants
from the Ministry of Economy, both of whom were openly
associated with the governing party (interview with the
Secretary General of the Ministry of Economy 2004–2007,
14 July 2010). In particular, at the time of appointment,
one of the two individuals was serving as the Director of
the Minister’s Political Of?ce, a position he continued to
hold for one and a half years after his appointment (inter-
view with the Secretary General of the Ministry of Econ-
omy 2004–2007, 14 July 2010). The chairman of ELTE
maintained his post.
After he left of?ce, the Minister of Economy (2004–
2008) under New Democracy acknowledged the in?uence
of clientelism on ELTE and explained the government’s pol-
icy on ?lling key positions in ELTE thus: ‘‘[The Chairman of
ELTE] was not a political friend of mine, I did not know him
personally. He was a professional man, knowledgeable in
accounting and auditing. Certainly, he had been appointed
by the previous government [but] I was of the view that he
should stay to give the message that the state has continu-
ity’’ (interview, 14 July 2010, trans.). However, he admitted
that the two vice-chairmen were party devotees, ‘‘but what
is important is that the Chairman was not . . . ideally no one
should be . . . but, you know, a vicious precedent [clientel-
istic appointments] has long been set in public administra-
tion’’ (interview, 14 July 2010). Thus, keeping the chairman
of ELTE, who had been appointed by the previous govern-
ment, also served legitimation purposes.
In January 2009, Alogoskou?s was removed, and Papa-
thanasiou became the new Minister of Economy. The
change of minister would, in the Greek political tradition,
ordinarily raise expectations of a change in ELTE’s leader-
ship. Indeed, the new Minister of Economy replaced two
of the three members of ELTE’s Administrative Council.
On 3 April 2009, he appointed a Professor of Finance as
chairman and a retired Big-Four partner as vice-chairman
of the SPE (the audit quality inspection unit of ELTE)
(Government Gazette, 2009). No further changes in the
leadership of ELTE have taken place up to the time of writ-
ing this article.
Clientelism and weak institutionalization are also evi-
dent in recurring incidents of a con?ict of interest regard-
ing ELTE’s leading elite. In July 2007, the chairman of ELTE
(2003–2009) was appointed non-executive director to a
‘‘regulatoree’’, a large listed Greek bank (see Express,
2007), and a year later he became chief of the bank’s Gen-
eral Directorate – Internal Control according to the bank’s
press bulletin of 31 July 2008. In a similar vein, in July
2008 the vice-chairman of ELTE (the head of SPE from
2003–2009) and one of the Minister’s close associates
became chairman and chief executive of?cer of a large
pension fund whose ?nancial statements are subject to
statutory audit. Another incident occurred in the early
2010s when the (new) vice-chairmen of ELTE (2009-pres-
ent) accepted an appointment with the audit committee
of a major listed Greek bank
29
and a second appointment
as chairman of the board of directors at an insurance
company.
30
26
On accepting his appointment, this individual formally went on a
voluntary suspension from practice.
27
The Secretary General formally oversaw the operation of ELTE, but the
power now rests with the Minister who is the real decision maker. The
individual concerned maintained his post until March 2007, when he
moved to another post. He was replaced as Secretary General by a retired
senior public servant of the Ministry of Economy.
28
According to a senior public servant, this was a request by the then
Deputy Minister of Economy who was elected in Thessaloniki, the largest
city of Northern Greece (interview, 26 September 2014).
29
See the 2010 ?nancial statements of the National Bank of Greece, p.
170.
30
Seehttp://www.interasco.gr/hilton.asp (in Greek).
24 C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31
These instances of apparent con?icts of interest have
been discussed within professional circles and at the Min-
istry of Economy (interview with a retired senior public
servant of the Ministry of Economy, 26 September 2013).
Eventually, these issues were published in the press
31
(e.g. To Vima, 2009) and provoked parliamentary questions
(Katseli, 2009; Nikolopoulos, 2014; Tatoulis, 2009). These
con?ict of interest incidents do not apparently violate Greek
law but certainly constitute a severe violation of the inde-
pendence requirements of OBs (IFIAR, 2014).
State indifference and ineffectiveness
Against the backdrop of party politics and clientelism,
the risk of ELTE being affectedby state indifference andinef-
fectiveness became evident. ELTE was infected by the ‘‘dee-
ply rooted . . . culture of inertia, slackness and laxity [within
the Greek public sector] . . . If making or implementing a
decisionis delayed, nothing bad will happen . . . the ship will
not sink . . . you know, it has taken some ten years for the
Greek Capital Markets Commission [formally established
in 1990] to start producing some results’’ (interview with
the Secretary General to the Ministry of Economy 2004–
2007, 14 July 2010, trans.). The Chairman of ELTE (2009–
2014) also emphasized that, ‘‘the state, whatever we mean
by this, has been a serious obstacle . . . It has really inhibited
the development of ELTE (interview 26 July 2013, trans.).
Our research has indeed identi?ed a chronic lack of active
interest on the part of the Ministry of Economy in relation
to the effective operation of ELTE: ‘‘Although there had been
pressure from market forces [to improve accounting and
audit practice] . . . [a]ccounting has essentially been a sec-
ond, if not third, priority issue for the Ministry’’ (interview
with the Secretary General to the Ministry of Economy
2004–2007, 10 July 2010, trans.). The chronic lack of inter-
est in ELTE on the part of the government was highlighted
by both chairmen of ELTE, 2003–2009 and 2009–2014
(interviews, 26 July 2013 and 16 September 2013
respectively).
The state’s indifference is also evident in the delay with
which the government ?lled various posts in ELTE.
Although the three heads of ELTE’s Executive Committee,
along with the remaining four posts in its Administrative
Council and one receptionist-secretary, had been
appointed by the end of August 2003 (Naftemporiki,
2003), the ?lling of the positions in SLOT (the accounting
standardization committee) took place in February 2005
(Government Gazette, 2005); and the appointment of
members of SPE (the audit quality inspections committee)
was delayed until March 2006 (Ministry of Economy,
2006), three years after the establishment of ELTE. Yet
these appointments were clearly essential even for the
most basic operations of ELTE. At times, the proper func-
tioning of ELTE has been derailed by inef?ciency in the
operation of other state institutions: ‘‘t took some
20 months for the Council of the State [the highest civil
court] to approve the rules and regulations of ELTE, [which
include provisions and bylaws] essential for providing us
with some legal security for the decisions we make’’ (inter-
view with the Chairman of ELTE, 2009–2014, 26 July 2013,
trans.).
Underlying the indifference on the part of government,
a view commonly held in Greece is that, regardless of any
formal requirement, inaction or avoiding tough issues
secures extended terms for of?ceholders by reducing any
adverse reaction or ‘‘political cost’’, i.e. the estrangement
of political friends and supporters (interview with the
President of SOEL, 19 July 2013). Furthermore, inaction is
encouraged by the complexity of public administration
rules and a subtle system for avoiding responsibility. For
example, certain issues, such as the supervision of ELTE,
may fall under the jurisdiction of the Secretary General,
who is formally overseen by the Minister: ‘‘[M]y directions
to the Secretary General have been crystal clear, that he
should perform the responsibilities that legally belong to
him’’ (Minister of Economy 2004–2008, interview, 10 July
2010, trans.). However, in practice:
Greece’s political and public administration systems are
built in such a way that even minor issues must have
the approval of the Minister . . . ministers usually like
to keep control while the bureaucracy tend to avoid tak-
ing responsibility. They [the bureaucracy] keep asking
for directions from the Minister or the Secretary Gen-
eral to appear agreeable, and yet they write documents
and decisions in such a way so that they cannot be held
responsible . . . the public administration does not work
in the right way and this is an issue for the political sys-
tem to sort out (interview with the Secretary General
2004–2007, 10 July 2010, trans.).
Politicians may pass the buck simply by stating a lack of
brie?ng or understanding of the issues involved and invok-
ing the role of bureaucracy: ‘‘I have always passed any
issues raised referring to problems with ELTE straight on
to the competent services of the Ministry’’ (interview with
the Minister of Economy 2004–2009, 14 July 2010, trans.).
Then, an unwritten rule in Greek public administration
essentially insulates politicians from criticism. That is, rec-
ommendations by subordinates to the Minister are for-
mally submitted only when they have a green light (from
the Minister) to do so (interview with the Secretary Gen-
eral 2004–2007, 10 July 2010). Thus, the Minister can
always legitimize his decisions by arguing: ‘‘I have always
acted upon the formal recommendations of the services of
the Ministry’’ (interview with the Minister of Economy
2004–2009, 14 July 2010, trans.).
Furthermore, as a public sector body, ELTE has been
affected by the austerity measures taken as a result of
the ongoing economic crisis. Indeed, ELTE remains subject
to the provisions of the memorandum(s) of understanding,
agreed on since 2010 between Greece and its lenders (the
troika of the European Central Bank, the European Com-
mission, and the International Monetary Fund). These mea-
sures, in view of the severity of the country’s ?nancial
crisis, have imposed signi?cant reductions in salaries and
restrictions on appointments within the public sector.
The austerity package that followed the memorandum of
31
This adverse publicity might have played a role in the change in ELTE’s
leadership in April 2009.
C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31 25
understanding has been applied across the entire Greek
public sector.
The leadership of ELTE tried to convince the govern-
ment to exempt ELTE from the restrictions following the
memorandum of understanding (interview with the Chair-
man of ELTE, 2009–2014, 26 July 2013), which was con-
?rmed by a senior partner in a Big-Four ?rm: ‘‘I do know
that appeals were made to the Minister of Economy, even
to the Prime Minister himself and to the troika . . . to
exempt ELTE . . . but they had no effect’’ (interview, 6 Sep-
tember 2013, trans.). This attempt failed completely
because politicians ‘‘do not appreciate the role of indepen-
dent quality inspections for the market . . . they do not
understand the role of an audit . . . they simply do not care
. . . t is a wider cultural issue which I have been witness-
ing for decades’’ (interview with the Chairman of ELTE
2003–2009, 6 September 2013, trans.).
Thus, ELTE has not been given permission by the Minis-
try of Economy to appoint its own quali?ed staff, including
audit quality inspectors. Even if appointments were
allowed, ‘‘ELTE will not be able to attract suitably quali?ed
staff at the very low public sector salary rates it legally has
to follow’’ (interview with the Chairman of ELTE 2003–
2009, 6 September 2013, trans.). As a partner in a Big-Four
?rm put it:
f one is earning €6,000 month how would he or she
decide to become an audit quality inspector and earn
€1,500 a month? . . . From my professional experience
over the past 30 years, if you want to neutralize an
institution, a function or a process, you just do not pro-
vide the required resources . . . and it is dead. I do not
have concrete evidence that there is necessarily an evil
plan worked out but . . . (interview, 6 September, 2013,
trans.).
Or, as the senior partner put it: ‘‘[In other countries]
they headhunt to get the best audit quality inspectors . . .
Here they seem to believe that badly paid civil servants
will be able to inspect highly technical work performed
by the best auditors . . . isn’t it a joke?’’ (interview, 6 Sep-
tember, 2013, trans.).
This section exposes key features of the Greek political
system that have inhibited the development of ELTE as an
institution. The issue of ELTE’s poor performance was
directly raised with the Secretary General (2004–2007)
and the Minister of Economy (2004–2008) in interviews
conducted for this study (both on 10 July 2010). Both inter-
viewees agreed that ELTE has essentially remained in a
dormant state. They also provided some explanations as
to the government’s lack of appropriate action, namely:
much-needed structural reforms often take years to pro-
duce results, which leads to politicians being reluctant to
undertake such long-term projects (their average term of
of?ce in the Ministry is usually much shorter and, thus,
other politicians may reap the bene?ts); there is a lack of
strong, independent, and reform-minded bureaucracy that
could push changes through; and, lastly, there is also a
widespread lack of trust among the key participants in
public administration. These issues also appeared, quite
often and to varying degrees, in interviews conducted with
key individuals from the accounting profession and mem-
bers of ELTE, in the context of this study.
Concluding remarks
The construction of accounting and auditing OBs at the
national level is being promoted as a key component of the
global ?nancial architecture that has emerged since the
1990s. Operating within distinctively diverse local politi-
cal, economic, and cultural contexts, OBs are considered a
uniform solution at the global level, aimed at ensuring
high-quality ?nancial information to facilitate the ?ow of
capital across national borders and provide stability to
the interdependent global ?nancial system.
In this article, we examine the creation and operation of
an OB in a local European setting by employing an institu-
tional approach located within the broader political-econ-
omy framework of global capitalism (Arnold, 2009b, 2012;
Wade, 2007a, 2007b). Consequently, we place emphasis on
the interaction between global structural factors, institu-
tions, in?uences, and pressures (namely the unfolding of
the SSC project), and the local socio-political characteris-
tics that condition the establishment and effective opera-
tion of OBs at a local (state) level. Our analysis is
informed by O’Donnell’s (1994) conceptualization of dele-
gative democracy, supplemented by literature on eco-
nomic and political reform in Europe (e.g. Dyson & Goetz,
2003; Featherstone & Papadimitriou, 2008; Radaelli, 2003).
By analyzing a wealth of primary and secondary
research material, we illustrate the dif?culties and con-
straints of transplanting and operating OBs which are
modeled on the external Anglo-American tradition. Our
?ndings show that deeply-ingrained domestic socio-polit-
ical characteristics of a delegative nature have indeed
inhibited the development and operation of the local Greek
OB, as O’Donnell (1994) posits. That is, the newly-estab-
lished OB has been affected, since inception, by the all-per-
vasive clientelistic political system, the weaknesses of
state apparatus, and the country’s reform (in)capacity
problems. More speci?cally, the appointment of ELTE’s
elite has been decided by successive governments, mainly
on the basis of clientelism and political patronage. In addi-
tion, ELTE has been under the bureaucratic control of state
machinery, despite being privately funded by the profes-
sion. Even basic administrative decisions, such as the
appointment of audit quality inspectors and administrative
staff, need the ex ante approval of the Ministry of Economy.
The Greek OB has remained in a dormant state since its
inception. It still lacks appropriate infrastructure and suf?-
cient administrative personnel and has not been granted
permission by the government to appoint its own audit
quality inspectors. As a consequence, the performance of
audit quality inspections has been, at best, erratic. Cur-
rently, such inspections can be performed only by out-
sourcing to the professional body, in contravention of
IFIAR’s core principle on independence. The disciplinary
function appears to have been stalled for years, despite
the existence of several pending cases. In short, ELTE as
an institution has failed to become a signi?cant decisional
point in the ?ow of in?uence, power and policy in the
26 C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31
realm of accounting, which is so important for effecting
progress.
Our analysis shows that ELTE’s decade-long failure is
related to the country’s delegative characteristics. The
Ministry of Economy has failed to take effective corrective
action and there is evidence of distrust or distaste toward
truly independent authorities that would act as mecha-
nisms of horizontal control. In a sense, the case of the
Greek OB illustrates a form of social homeostasis. In other
words, the complex, multifaceted and interdependent sys-
tem of economic and political power of the country has
thwarted the emergence of a truly independent and effec-
tive OB in the accounting realm and, as such, has essen-
tially maintained its equilibrium.
Furthermore, by extrapolation, problems in the effec-
tive operation of institutions, including accounting and
auditing OBs, seem to extend far beyond the borders of
Greece, as literature from the ?elds of politics and social/
economic reforms indicates (e.g. Dyson & Goetz, 2003).
Party patronage, clientelism, institutional weaknesses,
and state ineffectiveness are not ingrained features exclu-
sive to Greece. Rather, they occur, albeit in varying degrees
and forms, in several other jurisdictions (O’Donnell, 1994).
The newcomers to domestic institutional terrains in
accounting and auditing are potentially vulnerable to the
pathogenesis of local political systems and, in particular,
the long historical traditions of party patronage and state
ineffectiveness. Thus, while the existing system of over-
sight appears to be secure against the Scylla of traditional
professional control, no care has been taken to deal with
the Charybdis of the clientelistic political system, weak
institutionalization and state ineffectiveness which are so
prevalent in several jurisdictions in Europe and beyond
(e.g. Kaufmann et al., 2013).
At a more general level, our analysis draws attention to
the structural mismatching between the global nature of
the international ?nancial architecture underpinning
today’s economic integration and the fragmented character
of public oversight that operates on a country-by-country
basis, embedded within its domestic socio-political and
economic constraints. This mismatch raises concerns about
the effectiveness of OBs embedded within geographically
and socio-politically dispersed domestic institutional
contexts.
Our study contributes to current academic literature
on accounting regulation. We employ O’Donnell’s
(1994) conception of delegative versus representative
democracy, enriched with elements of the broader polit-
ical economy perspective, to offer a methodological
framework for examining the transplanting of exter-
nally-induced reforms to diverse local settings. Through
the analysis of the Greek OB, we illuminate how local
socio-political factors, in?uences, and pressures condition
and eventually limit the effective operation of local OBs.
In particular, our case study evidence shows how, in a
country exhibiting characteristics of a delegative democ-
racy, the new accounting OB is assimilated into the local
socio-political tradition and preexisting ineffective state
structures and remains essentially dormant. This ?nding
lends further support to the literature on social and eco-
nomic reforms in Europe and elsewhere which argues
that, for economic, political, and historical reasons, some
countries have not been able to successfully transplant
externally-designed institutions to local settings.
This analysis of the Greek OB has signi?cant implica-
tions regarding the suitability of a global system of over-
sight and should be of interest to global and local policy
makers, the academic community, and various other stake-
holders in ?nancial reporting. The evidence of our case
study questions the underlying rationale of pursuing sta-
bility in the global, complex and interdependent ?nancial
system through the instigation of domestic OBs modeled
on Anglo-American traditions and operating in diverse
national environments. We demonstrate that the estab-
lishment of accounting and auditing OBs does not auto-
matically translate into concrete bene?ts to ?nancial
regulation and the quality of ?nancial reporting. Structural
weaknesses at the local level, and the socio-political fabric
and power relations underlying them, result in weak and
ineffective local OBs. As a result, material reforms needed
at the local level fail to materialize, and imbalances and
inequalities among states in the global landscape are main-
tained (Arnold, 2012; Wade, 2007a, 2007b). Finally,
regarding the accounting profession, we note that the lack
of (or ineffective) oversight may be a contributing factor to
deteriorating audit quality and plunging audit fees, espe-
cially in periods of economic stagnation or crisis. Such con-
ditions may eventually incubate major legitimation crises
for the profession.
Building a robust system of accounting oversight in a
diverse world economy is certainly a perplexing issue.
Some of the dif?culties inherent in such a project stemfrom
the structural characteristics of delegative democracies and
the (in)ability of individual states to effectively introduce
externally-induced reforms. Reversing or slowing down
the pace of global ?nancial integration, to allow individual
countries the time needed to build effective domestic insti-
tutions, does not seem to be a realistic approach at the cur-
rent historical juncture (Arnold, 2012). Furthermore, a
regression to technocratic self-regulation, which entails
higher risk regulatory capture (Hancher & Moran, 1989),
has been abandoned at this point in time. Given these com-
plex issues, and the fact that expertise is currently con-
trolled by Anglo-American audit ?rms (Botzem, 2012),
other approaches for improving accounting oversight on a
global scale warrant consideration.
One such approach would be to establish local OBs as
public authorities, legally enjoying political, economic,
and administrative independence from the government.
Such independent bodies, which are recognized as impor-
tant features of contemporary policy making and re?ect
an increasing awareness of the role of institutions, aim to
increase ef?ciency and policy credibility (Majone, 1994,
1996). This does not mean that such bodies will, by default,
solve the problems in question for delegative democracies.
Evidence shows that clientelistic states have a long history
of in?ltrating new institutions (O’Donnell, 1994). However,
such bodies, if established under a nexus of effective provi-
sions for staf?ng and accountability to parliament regard-
ing their operations, would likely have the potential to
spur progress in the successful operation of oversight at
the local level.
C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31 27
Another option would be to enhance international coor-
dination of the dispersed national OBs through emerging
transnational structures, such as IFIAR (at the global level)
and EGAOB (at the regional level), both of which are cur-
rently limited to an advisory and coordinating role. Cur-
rently, their operation, as our analysis shows, has not
mitigated the problems of the Greek OB, despite the
groundwork they have laid so far to address the structural
problem in the international oversight system. Strengthen-
ing international coordination might even lead to some
form of effective international (global or regional) OB
(Arnold, 2012). This approach might be easier to imple-
ment in the case of politico-economic blocks, such as the
EU, though it would require considerable co-ordination
and signi?cant hurdles would have to be overcome.
Further research is undoubtedly necessary to establish
the generalizability of our ?ndings and their relevance to
other locales. Academic inquiry could shed light on the
individual histories of accounting OBs in various national
contexts, with particular emphasis on their actual perfor-
mance and impact on the quality of ?nancial reporting
and auditing (Arnold, 2012; Malsch & Gendron, 2011). In
addition to the delegative versus representative construct,
other dimensions (e.g. code law vs. common law legal sys-
tems) and, more generally, historically-rooted modes of
regulation (Puxty et al., 1987), warrant examination for
their relationship to the ef?cacy of emerging oversight
institutions. Another issue requiring academic attention
is the position of the global profession and key interna-
tional audit ?rms regarding regulatory reforms in the EU
and US, and the ensuing spread of national OBs across
the globe. Of particular interest is the provision, under Sec-
tion 106 of the Sarbanes–Oxley Act, that PCAOB conduct
reviews of the foreign auditors of companies listed in the
US; and the potential for avoiding such reviews if a local
OB had already conducted audit quality inspections.
Acknowledgments
The authors are grateful to David Cooper, the editor of
Accounting, Organizations and Society, and two anonymous
reviewers for their valuable comments and suggestions.
Previous versions of this manuscript have bene?ted from
comments received from S. Walker, participants at the
33rd Annual Congress of the EAA (Istanbul, Turkey), and
colleagues at the Athens University of Economics and Busi-
ness. Finally, the authors express their gratitude to senior
politicians, state of?cials, civil servants, regulators, and
practicing auditors for being available for interviews and
for providing invaluable primary research data.
This research was funded by the Research Centre of the
Athens University of Economics and Business.
Appendix. The time line of events in the establishment
of ELTE
July 2002 The Ministry of Economy (PASOK)
publishes a draft bill providing for the
establishment of ELTE. A consultation
period begins immediately and ends in
March 2003.
March
2003
The bill for the establishment of ELTE is
introduced in Parliament, having received
only minor amendments during the
consultation period.
April 2003 The bill is initially debated in the Standing
Committee of Economic Affairs in
Parliament. The OEE secures a position on
ELTE’s Executive Committee and SOEL
secures a position on ELTE’s
Administrative Council.
May 2003 The bill is debated in the plenary session
of Parliament and voted to become Law
3148/2003.
August
2003
The government ?lls:
The posts of ELTE’s Executive
Committee: the chairman (a partner in a
Big-Four ?rm), the vice-chairman – SLOT
(an independent business accountant),
and the vice-chairman – SPE (an OEE
unionist af?liated with PASOK).
The remaining four posts in ELTE’s
Administrative Council (representing two
regulatory bodies, the auditing profession,
and one business association).
August
2003
One administrative member of staff is
appointed (a receptionist-secretary to
ELTE’s chairman).
March
2004
PASOK loses the elections, and New
Democracy takes over.
December
2004
Law 3301/2004 is passed, bringing ELTE
under closer government control and
eliminating the representation of the
profession in ELTE’s organs of
administration.
February
2005
The government:
Replaces the two vice-chairmen of
ELTE and appoints two party af?liates,
public servants at the Ministry of
Economy.
Fills the four posts of SLOT
(Accounting Standards Committee).
March
2006
The government ?lls the six posts of SPE
(Quality Inspections Committee).
June 2007 Law 3581/2007 (article 19) signi?cantly
increases the power of the chairman of
ELTE, while SPE is essentially abolished as
a decision-making body.
December
2007
A committee chaired by the chairman of
ELTE is established to propose a law for
the transposition of the (new) Eighth EU
Directive.
July 2008 Law 3693/2008 transfers to ELTE all
regulatory and oversight power that had
hitherto remained with SOEL.
April 2009 A new chairman of ELTE is appointed.
May 2009 Appointment of ?ve audit quality
28 C. Caramanis et al. / Accounting, Organizations and Society 42 (2015) 12–31
inspectors by ELTE on a one-year contract.
April 2010 The results of the ?rst round of
inspections are publicly reported.
May 2010 The audit quality inspectors’ contracts
expire; the posts remain vacant.
May 2010 Two audit quality inspectors are
appointed by SOEL and seconded to ELTE
to deal with urgent investigations ordered
by the Courts of Justice.
January
2013
The number of audit quality inspectors
appointed by SOEL and seconded to ELTE
increases to six; as of yet, no audit quality
inspections have been completed.
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