Analysing the disciplinary power of proactive monitoring bodies

Purpose

The important role of regulatory monitoring bodies in enhancing financial statement quality is increasingly being studied. Prior research focuses on developed economies and often adopts a relatively unproblematic regulatory perspective to explain how these bodies foster compliance. This paper adopts a more critical approach by investigating the forces and processes at work by utilising a Foucauldian disciplinary power perspective on the proactive monitoring unit (PMU) regulating South African listed companies on the Johannesburg Stock Exchange.

Design/methodology/approach

Seventeen semi-structured, open-ended interviews were conducted with expert financial statement preparers, auditors, regulators and academics. Open, axial and selective coding were used to analyse the interview data.

Findings

The PMU is indicative of an enclosure mechanism that monitors and controls the financial reporting space of listed companies. Consequently, preparers and auditors resemble well-trained individuals who follow the PMU’s guidance without question. The PMU’s constant gaze, combined with the negative reputational impact of an adverse review for individual preparers and auditors, results in them presenting their financial statements in conformity with the PMU’s interpretation. However, complete panoptic control is not achieved, as there is some resistance.

Originality/value

This is one of the first studies to examine how an external monitoring body, the PMU, functions in a real-world setting. There is a limited understanding of what drives companies to comply with monitoring bodies that do not enjoy the direct force of law. This paper makes use of the novel Foucauldian framework to contribute towards understanding the disciplinary power that may be applied by the PMU.