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1 INTRODUCTION

International Safety Management (ISM) Code was

introduced as a global regulatory framework to

address human errors and poor management

practices of shipping companies. This was a major

change in approaching maritime safety as IMO’s

earlier attempts to improve shipping safety and to

prevent pollution from ships had been largely

directed at improving the hardware of shipping – for

example, the construction of ships and their

equipment [1].

The ISM Code defines the objectives & the

requirements of the Safety Management System (SMS)

and the responsibilities of the company in designing

and successfully implementing the SMS. Verification

of compliance of all regulations on ships proceeding

to sea is an important facet of the regulatory

framework of maritime safety and the flag states have

been obliged to ensure this through auditing,

inspections, etc., on ships flying their flags.

Chapter IX Regulation 6 of SOLAS lays down

verification of the proper functioning of the ship’s

safety management system by the flag state or an

organization recognized by the flag state [2].

The ISM Code provides an international standard

for safe management and operation of ships and for

pollution prevention. The Code is in two parts - Part

A deals with Implementation and Part B deals with

certification and verification [3] . Section 13 of the ISM

Code mentions in detail about the certification and

periodical verification for compliance with the

provisions of the Code. The Flag State of each ship is

required to conduct regular audits of the company as

well as each ship operated by them, to ensure that the

Development Of Model for Measuring Audit Quality in

Maritime Safety Management

.R. Sharma

Western No

rway University of Applied Sciences, Haugesund, Norway

ABSTRACT: The effectiveness of International Safety Management (ISM) Code has been evaluated in many

aspects. However, limited research has been attempted to evaluate the auditing mechanism, its quality, and

links with the effectiveness of the Code. The aim of this Paper is to define the concepts of quality in auditing

and thereafter propose a model for measuring audit quality in maritime safety management. The major

challenge is that almost all auditing literature and research is focused on accounting and financial domain.

Therefore, it was decided to utilize suitable principles and concepts about audit quality from financial domain

and modify them to maritime context. As no theoretical model for Audit Quality in maritime domain is

available, a model sourced from financial audits is modified for use. The framework for recontextualized

modifying of borrowed theories from the disciplines outside the reference discipline, was used on Wooten

(2003) model and Maritime Audit Quality Model (MAQM) has been proposed for evaluating ISM auditing

mechanism.

http://www.transnav.eu

the

International Journal

on Marine Navigation

and Safety of Sea Transportation

Volume 17

Number 4

December 2023

DOI: 10.12716/1001.17.04.

782

shipping company and the crew onboard ship

implemented the provisions of the Code.

The implementation framework and processes for

verification of compliance, adopted by various

national maritime administrations, constitute the ISM

auditing mechanism which may be quite different

from each other and could also lead to variation in the

quality of the outcome.

The ISM Code was introduced to address the

human factors and organizational or management

influences in safe management and operations of

ships thereby focusing on a systemic approach aiming

to integrate verification of compliance of all technical

and safety regulations through a safety management

concept. Therefore, the Code aims to support and

encourage the development of a safety culture within

the shipping industry whilst improving compliance

with the requirements of international convention [4].

1.1 Research Question

The paper is focused on the questions - What is the

meaning of the term ‘quality’ in audit and how do

you measure it through a theoretical model?

Thus, the aim of the paper is to identify, clarify,

discuss, and define the concepts of quality, in auditing

context, and thereafter examine the theoretical model

for audit quality.

1.2 Method

The overall analytical framework applied for

answering the research question is by broadly

applying qualitative research strategy. The model

sourced from a different discipline will be modified

for use in maritime context using recontextualized

theory.

2 QUALITY: CONCEPTS AND CHALLENGES

The evaluation of the ISM auditing mechanism for its

quality offers two major challenges – lack of scholarly

literature on auditing in safety or maritime domain

and defining the term ‘quality’.

2.1 Deficiency in Auditing Literature

A comprehensive literature search in all the major

academic databases and resources reveals that almost

all of the auditing literature consists of financial and

accounting domain despite auditing being also quite

prevalent in various other domains. Over the years,

audit principles have been established for quality

management system, environmental management

system, food safety, information security,

occupational health & safety and energy by the

International Organization for Standardization (ISO)

[5].

Further, audits of safety and safety management

systems in various industries have been implemented

as a systemic approach to improve safety. In addition,

regulatory compliance and assessment audits in

public services including government departments

are common for assessment and certification of

delivery systems of these entities to general public.

However, these fields of audits have been very

sparsely researched in terms of theory, modeling,

processes, quality, and effectiveness.

Similarly, the audits in maritime or shipping

domain are also very sparsely researched.

An exhaustive literature search including forward,

backward and sideways searches yielded very few

resources. In addition, professional literature,

produced and used by practitioners and operational

organizations - which was not discovered in academic

searches, was also traced and perused.

However, no existing principles or theories could

be found in safety auditing in general, and maritime

auditing in particular, for evaluation of the ISM

auditing mechanism. Thus, it was decided to utilize

suitable approach of relevant principles and doctrines

concerning financial auditing by modifying them to

maritime context. Consequently, this overall approach

falls more on the exploratory side than being

explanatory at this stage.

2.2 Defining Quality

A host of scholars attempting a literature review

towards synthesizing the variety of definitions of

audit quality have recognized and acknowledged the

difficulty that there is no uniformly accepted

definition of audit quality, despite decades of audit

research. DeAngelo (1981) defines audit quality in

terms of two components: the likelihood that an

auditor will (1) discover a breach (i.e., an existing

misstatement); and (2) appropriately report the

breach, if discovered. The first component links audit

quality to an auditor’s competence and level of effort

while the later refers to audit quality in terms of an

auditor’s independence and professional skepticism

[6].

Some other definitions have focused narrowly on

only a part of the full auditing system. Knechel, et al.

[7] cite some of these definitions - while US

Government Accountability Office (GAO) defines

audit quality as one performed in accordance with

auditing standards, Chang & Wong (2002) suggest

detecting errors in reported outcomes and Peecher &

Piercey (2008) define poor audit quality by identifying

adverse outcomes from an audit, thus defining it in

terms of failure - which could be litigation, fraud or

misreporting, etc.

The evaluation of the quality of the process of the

audit was also proposed as the measure of overall

audit quality discounting the earlier focus on facets of

auditor’s characteristics of competence and

independence [8]. Others define it in terms of

independence and competence of auditing - higher

independence & competence offer higher quality, and

size & reputation of auditing organization - larger and

reputed firms offer higher quality [9].

The perspectives of audit quality also vary among

stakeholders. For regulators, it could be maximizing

the amount of audit evidence obtained and the

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challenge provided to the management of company,

while for the company, it could be less cost of audit &

disruptions of ongoing operations by quick

completion of audit [10]. The auditors however,

perceive independence, objectivity, integrity and less

external constraints/ influences as factors for high

audit quality [11].

However, it has been observed that most of the

audit quality studies have given prominence to the

definition of DeAngelo and the basic principles in this

definition have been complemented either with

inclusion of certain additional factors or the existing

ones have been expanded or further clarified for

better focus. Further, it is considered in the

preliminary examination that this definition is quite

generic propounding basic principle of quality of an

audit in terms of finding and reporting any anomaly.

It not only conforms to the aim of the audit itself but

also provides for the evaluation of the overall

auditing mechanism & not restricted to the process of

audit. Thus, this definition can be applied in the

maritime context and in the study of ISM auditing

mechanism.

As the anomaly to be detected as per ISM Code, in

the audits for verification, is termed as ‘non-

conformity’, the same is proposed to be used for

defining audit quality for this study. Thus, the quality

of audit for maritime context is defined as ‘the

likelihood that an auditor will discover a non-

conformity and appropriately report the non-

conformity, if discovered’.

However, it may be considered that the conceptual

basis of the anomalies and how they are identified in

the two contexts- financial and maritime, could be

slightly different. Therefore, the analogy of ‘breach or

misstatement’ and ‘non-conformity’ could be

considered appropriately.

3 SELECTION OF MODEL FOR MEASUREMENT

OF AUDIT QUALITY

As discussed earlier, the term ‘Audit’ is usually

associated in scholarly literature with financial

auditing and other fields have been very sparsely

researched in terms of audit quality. Thus, a generic

model of ‘Audit Quality’ is not available which could

be applicable or utilized to most areas or could be

revised and modified for use by other fields. Further,

any specific model applicable to shipping industry,

where many types of audits are undertaken apart

from safety management, has also not been found.

Therefore, the model for measurement of audit

quality for investigation in my study is proposed to be

taken from financial auditing. Numerous frameworks

or models for audit quality have been proposed over

the period of time, some being very basic and others

very complex ones. Most of them include the overall

auditing system rather than only the audit process.

The basic models include elements of reliability,

availability and maintainability [12], inputs, process,

and outcomes [6], objectivity & independence,

integrity and constraints [11] and audit firm culture,

skills of staff, reliability, audit process and external

factors [13].

Figure 1. IAASB Audit Quality Model

Some of the more complex models include the one

described by International Auditing and Assurance

Standards Board (IAASB) in a voluminous document,

with a host of interactions between a large number of

factors and domains as depicted below [10].

Australian National Audit Office (ANAO) also

uses a complex model for quality framework as

depicted below [14].

Figure 2. Australian National Audit Office (ANAO) Audit

Quality Model

Some of the models focus only on a particular

component of the auditing system and still provide a

complex framework for audit quality. For example, a

complex model focusing only on auditing

organizations as proposed by Vaicekauskas and

Mackevičius [15] is depicted below.

Incidentally, three main perspectives have been

identified related to audit quality that could add to

our understanding of the concepts and factors

affecting audit quality in practice - academic research,

professional and regulatory [16]. Therefore, the

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differences and complexities of the framework and

models for audit quality could be associated to these

different perspectives.

Figure 3. Audit Quality Model for auditing organization

3.1 Identification of model for maritime audits

In the light of the above discussions, a comprehensive

investigation of models for measurement of audit

quality was conducted and the Audit Quality model

proposed by Wooten [17] for measuring audit quality

of a financial audit is identified as appropriate for

evaluation and application during the study. This

model is based on a two-dimensional model proposed

by DeAngelo in 1981 and further built on by Wooten

through theory building and empirical research over

the years. It is considered appropriate as it is based on

elements that are quite generic, which could either

directly be applied to a variety of domains or could be

modified easily to suit particular fields.

There are two considerations for choosing this

model for the current study. Firstly, the definition

used for audit quality in the study is drawn from the

basic principles postulated by DeAngelo, which is

also the primary basis for this model and therefore it

complements the research without any bias and

distortions. Secondly, this model is considered

generally suited to be adapted to maritime context as

it incorporates elements similar or contextual in

maritime domain. The model is depicted below:

Audit Firm

Factors

Audit Team

Factors

Outcomes

Detecting

Misstatements

Audit

Quality

Reporting

Misstatements

Firm Size

Other

Services

Professionalism

Planning &

Performing

Control

Processes

Human

Resources

Industry

Experience

Independence

Supervision

Industry

Experience

Client

Experience

Tenure

Higher Fees

Lower Litigation

Good Reputation

Higher Client Valuations

Pricing

Figure 4. Wooten Audit Quality Model

The model postulates that the ‘Audit Quality’ is

influenced by a variety of factors. However, it

primarily defines two standards for addressing the

issue, first, a misstatement must be detected, and

second, the misstatement must be reported (based on

DeAngelo definition). Further, the model attempts to

define, measure and study multiple dimensions of

audit quality. The factors related to detection consist

of those associated with the Audit Firm and the Audit

Team while those related to reporting are associated

with the independence of auditors and the firm in

general. It further identifies the most significant

influencers to each of these three factors as depicted in

the model.

4 MODIFICATION OF WOOTEN MODEL OF

AUDIT QUALITY FOR MARITIME DOMAIN

Though prima facie, it is a model for measuring audit

quality for financial audits, preliminary examination

reveals that it is also suitable to be utilized for

maritime audits. However, the nuances of the

influencing factors may need to be suitably redefined

to give contextual basis and contrast, though there

may not be any requirement for a large-scale

modification.

The framework for recontextualized modifying of

borrowed theories from the disciplines outside from

the reference discipline proposed by Moeini, et al. [18]

is used in this study. It proposes recontextualization

of the construct as well as relationships between them

through specification – modifying for specific

phenomena, and distinction – explaining how aspects

of modified conceptualizations and relationships are

unique to these phenomena. The authors have

proposed this theoretical approach based on

information systems (IS)- specific theory, for

information technology (IT)-rich recontextualization

of borrowed theories. However, it is found suitable to

be adapted and used in other domains too.

4.1 Recontextualization of Constructs

The constructs in the Wooten Model have been

examined and the following have been

recontextualized (Table 1).

4.2 Recontextualization of Relationships

The relationships between the constructs in the

Wooten Model have been examined and the following

have been recontextualized (Table 2).

Based on the recontextualization of constructs and

relationships, the modified version of Wooten Audit

Quality model is depicted below and is designated as

Maritime Audit Quality Model (MAQM) as it could

also be used for audits other than maritime safety

management.

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Table 1.

___________________________________________________________________________________________________

Original Construct Recontextualized Specification Distinction

labels construct labels

___________________________________________________________________________________________________

Detecting Detecting Misstatement is relevant to financial Non-conformity is non fulfilment of a

misstatements non-conformities and accounting domain in the context specified requirement, which is not only

of anomalies that are aimed to be appropriate in regulatory audits but also

detected in an audit. This anomaly is the designated anomaly to be detected as

‘non-conformity’ in maritime context. per ISM Code in the audits for

verification and certification.

Reporting Reporting Same as above Same as above

misstatements non-conformities

Audit Firm factors Auditing Firm is relevant to financial and The term ‘Auditing organization’ is more

organization accounting domain in the context of generic and therefore better suited to

factors private entities conducting audits. In exemplify all types of entities conducting

maritime context, there are different audits in maritime context. The term ‘Firm’

types of entities conducting audits- flag cannot include Flag State being the

states themselves or ROs under government entity.

authorization by flag states.

Firm Size Auditing Same arguments for ‘Firm’ as above. Same arguments for ‘Firm’ as above.

organization Size embodies all characteristics of an Characteristics is a broad concept which

Characteristics auditing firm in financial and includes size, type of organization,

accounting domain. However, due to a association membership, reciprocal

wide variety of auditing organizations, arrangements, etc. and therefore, is more

‘Characteristics’ provides a better relevant in maritime context.

gauge than ‘Size’.

Pricing Flag State Pricing is relevant to financial and Flag state is the major factor for influencing

accounting domain with the auditing organizations and

interrelationships on audit firm and independence of system through regulatory

audit team factors through various framework, procedural guidelines, and

influences. However, it is not a delegation of auditing work on their behalf.

significant factor in maritime context Therefore, it better represents the construct

where such major impact is than pricing.

exemplified by the Flag State. Further, decision of shipowner to choose

open or international registries to flag their

vessels is also usually based on price or

costs and could be correlated to the concept.

Higher Fees Higher Safety The influences of audit quality The model is proposed for safety

outcomes in terms of higher fees are management audit and therefore, the

more relevant to financial and outcome is higher safety.

accounting domain. Safety as a

measure of output instead of Fees is

more suited to maritime domain.

Lower litigation Lower accidents Same as above, accidents as a measure Lower accident is outcome for safety

of output instead of litigation is more management audit.

suited to maritime domain

Higher client --- No equivalent construct found and

evaluations therefore it is removed.

--- --- New construct ‘Stakeholders Factors’ The maritime safety management is aimed

incorporated in model. and implemented through a broad

regulatory framework in ISM Code. Hence,

there are a wide variety of influences of

various stakeholders e.g., the shipping

company, ROs and the seafarers, on the

auditing mechanism of maritime safety

management. Therefore, a new construct of

‘Stakeholders Factors’ is incorporated in the

model.

--- --- New construct ‘Feedback’ The feedback on the auditing by the auditee

incorporated in model - shipping company and ship’s crew

provide an important loop for quality.

Therefore, a new construct of ‘Feedback’ is

incorporated in the model.

Industry Industry The definition of construct is The inherent or residual expertise is

Experience Experience recontextualized to also include significant factor influencing any auditing

expertise. organization, especially in maritime context

where very small countries operate open

registries with large fleet of ships.

Planning & Planning & The definition of construct is Auditor’s perspectives originating either

performing performing recontextualized to also include from cultural, behavioral, or systemic

Auditor’s perspectives. causes, influences perceived relative

significance of ISM objectives and affects

Audit Team factors.

___________________________________________________________________________________________________

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Table 2.

___________________________________________________________________________________________________

Original causal Recontextualized Specification Distinction

relationship causal relationship

___________________________________________________________________________________________________

Firm size influences In the new constructs, Flag state influences who will be The concept of Flag State is unique

‘Pricing’ ‘Auditing organization the auditing organization, deciding in maritime context which has the

characteristics’ and ‘Flag whether to authorize any ROs, main responsibility for verification

State’, the causal distribution of work to ROs or itself, of compliance in maritime safety

relationship is opposite etc. management.

Other multiple New construct ‘Flag Similar relationships with Other services include the

causal and State’ found to have constructs Other Services, classification services and statutory

influencing similar relationships Independence, Planning & services provided by classification

relationships of Performing (audit team factors) and societies on behalf of flag states to

‘Pricing’ tenure. shipowners, which in turn

influences independence.

Flag state directly influences

independence, while acting as

auditing organization and also

through oversight mechanism of

ROs work.

Flag state influences planning &

performing through regulations

and guidelines and procedures for

conducting audits.

Tenure or time duration of

engagement influences flag state

decision for authorization of ROs

--- --- The new construct ‘Stakeholders The various stakeholders influence

Factors’ has two ways causal and and get influenced from auditing

influencing relationship with the organizations and have a greater

construct ‘Auditing organization role in maritime context due to

Characteristics’ broad framework envisaged.

--- --- The new construct ‘Feedback’ is The feedback from the auditee

influenced by the new construct contributes to the improvements in

‘Stakeholders Factors’. Further, it processes in the auditing

influences the construct ‘Auditing organizations for enhancing

organization Factors’. quality.

___________________________________________________________________________________________________

Auditing

Organization

Factors

Audit Team

Factors

Outcomes

Detecting

Non -

conformities

Audit

Quality

Reporting

Non -

conformities

Auditing Organization

Characteristics

Other

Services

Professionalism

Planning &

Performing

Control

Processes

Human

Resources

Industry

Experience

Independence

Supervision

Industry

Experience

Client

Experience

Tenure

Higher Safety

Lower Accidents

Good Reputation

Flag State

Stakeholders

Factors

Feedback

Figure 5. Maritime Audit Quality Model (MAQM)

5 CONCLUSION

The principles of safety management implemented

through ISM Code in maritime domain have been

evaluated in many ways by various scholars. The

importance of the verification and certification to

ensure compliance of the requirements makes it

prudent to evaluate the ISM auditing mechanism for

its quality and effectiveness.

The major challenge in attempting this is due to

the fact that almost all auditing literature and research

is focused on accounting and financial domain.

Though audits are used as an effective tool for a host

of other domains including safety and safety

management, these fields have been very sparsely

researched. Therefore, it was decided to utilize

suitable principles and concepts about audit quality

from financial domain and modify them to maritime

context.

Further, the concept of quality with respect to

audits is quite complex with definitions ranging from

very simple to quite complex ones.

The audit quality has been defined for this paper

based on the definition of DeAngelo, as the likelihood

that an auditor will discover a ‘non-conformity’ and

appropriately report the ‘non-conformity’, if

discovered.

As a generic model of ‘Audit Quality’ is not

available which could be applicable or utilized to

most areas or could be revised or modified for use by

other fields, Audit Quality model proposed by

Wooten (2003) is modified to maritime context and

proposed for use. The recontextualization of the

constructs as well as relationships between them was

undertaken and MAQM has been proposed for

evaluating ISM auditing mechanism.

787

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