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New insights into underreporting of time: The audit partner context
Abstract
Purpose
– The purpose of this paper is to provide evidence on underreporting of time (URT) by audit partners and the factors that drive URT at their level. In particular the study tests the relationship between URT and the following variables: pressures perceived by auditors related to audit budgets, the ethical acceptability of URT, the influence of peers and superiors on the resolution of ethical conflicts, and organisational ethical culture. A deeper analysis of URT practices is necessary, as failing to correctly report the total hours worked by audit partners poses a threat to audit quality, and can have a detrimental effect on individual auditors, audit firms, and even the auditing profession itself.
Design/methodology/approach
– A multiple regression data analysis was conducted, based on 84 responses from Spanish audit partners working in small- and medium-sized audit firms.
Findings
– The results reveal that URT is affected by the pressures perceived by auditors related to audit budgets, the ethical acceptability of URT, and the influence of peers and superiors on the resolution of ethical conflicts.
Originality/value
– This study contributes to international literature on the organisational context of audit firms by analysing URT from the perspective of audit partners. It also has practical implications, as it focuses on understanding the beliefs and behavioural patterns of audit partners, which is critical to proposing mechanisms for avoiding dysfunctional behaviour at all levels of audit firms.
... The competitive environment of the audit market places pressure on audit firms to reduce their fees (Barrainkua & Espinosa-Pike, 2015;Ettredge et al., 2014). In their pursuit of profitability, audit firms could minimize the costs of the services by limiting the number of team members assigned to each audit engagement, as well as by reducing the time allocated to the audit client (Christensen et al., 2021;Espinosa-Pike & Barrainkua, 2016;Otley & Pierce, 1996). ...
... In this study, we focus specifically on role overload and its impact on auditors' job-related attitudes. Auditors have been found to experience both quantitative and qualitative work overload (Barrainkua & Espinosa, 2015;DeZoort & Lord, 1997;Espinosa-Pike & Barrainkua, 2016;Sweeney & Pierce, 2006). Quantitative work overload is related to time pressure, while qualitative work overload occurs when individuals perceive that they lack the necessary competence to carry out their jobs (Dezoort & Lord, 1997). ...
... Heavy workloads may seem unavoidable to meet client demands and beyond the control of the audit firm. However, although audit firms may attribute time pressure and heavy workloads to external demands from the client (Anderson-Gough et al., 2001), allocating enough time to complete the audit tasks at hand are decisions made by audit partners and managers (Barrainkua & Espinosa-Pike, 2015). Given the pressure to lower audit fees, in the pursuit of profitability, audit managers attempt to reduce the cost of the services by reducing the time budget (Otley & Pierce, 1996;Sweeney & Pierce, 2006), which leads to role overload on the part of the audit staff. ...
This study analyses the influence of role overload on organizational commitment and job satisfaction in audit firms, as well as the mediating role of perceived organizational support on these job outcomes. This study is based on 122 survey responses from Spanish auditors. The results show that role overload has a negative relationship with organizational commitment and job satisfaction. Moreover, our findings demonstrate that perceived organizational support mediates both the relationship between role overload and organizational commitment, and the relationship between role overload and job satisfaction. To the best of our knowledge, this is the first study to analyse the role played by organizational support in the relationship between role overload and auditors’ critical work outcomes. Time constraints and heavy workloads are often perceived as inherent features of an auditor’s job. This particular organizational context makes it necessary to identify variables within a firm’s purview, such as organizational support, which may contribute to mitigating the negative effect of role overload on auditors’ job attitudes.
... In addition, Patterson (2001) and Karcher (1996) investigate factors affecting auditor ethical sensitivity. Besides, Barrainkua and Espinosa-Pike (2015) and Buchheit et al. (2003) focus on the underreporting of time. In this vein, future research may consider developing such research areas. ...
... Conducting quality audits within inadequate time limits leaves junior auditors to report time honestly and fail versus underreport time and succeed. Barrainkua and Espinosa-Pike (2015) claimed that underreporting of time is influenced by the pressures perceived by auditors linked to the ethical acceptability of underreporting of time, audit budgets and the impact of superiors and peers on the resolution of moral conflicts. Patterson (2001) concludes that the organizational and regulatory structures affect personal ethical sensitivity negatively. ...
... Besides, Chen et al. (2013), Schultz and Hooks (1998) and Matsumura and Tucker (1992) shed light on the auditor's ability to detect fraud. Besides, Barrainkua and Espinosa-Pike (2015) and Buchheit et al. (2003) focus on the underreporting of time. Regarding auditor independence, some articles examine the perception of finance directors or different stakeholders about auditor independence (Hussey and Lan, 2001;Firth, 1980). ...
Purpose
To the best of the authors' knowledge, this is the first study that aims to present a comprehensive view of the auditing ethics literature by unboxing 40 years of efforts in the field.
Design/methodology/approach
This study combined bibliometric, social network and content analysis by analyzing 114 articles published in accounting and top business ethics journals on the Web of Science database from 1980 to 2021.
Findings
The results show a rising interest in this topic and reveal auditors’ ethical decision-making and moral reasoning as the most discussed topics in the literature. The work also clusters the literature according to keywords and scopes, identifying literature gaps and suggesting new avenues for future research.
Practical implications
The research results assist provide an overarching image of the auditing ethics field. In addition, these results draw possible future avenues to bridge the void in the current auditing ethics literature by presenting indispensable directions for potential research. For example, future research could pay more attention to whistleblowing, fraud, personal auditor characteristics, auditor ethical sensitivity, auditor ethical conflict, ethical climate and underreporting of time. Moreover, the rapidly changing business environment necessitates the auditing ethics research to move to more practical implications to mitigate previous mistakes and avoid any future risks.
Originality/value
All crises are an ideal breeding ground to motivate fraud and audit failures. In fact, auditing ethics research has been subordinated to the different economic crises. However, despite increasing awareness of the topic’s relevance, no comprehensive study focuses on auditing ethics literature. Now, the devastating effects of the COVID-19 crisis are producing a new wave of financial distresses and avoiding former mistakes is timelier than ever. With this novel and integrated approach, this work goes one step forward, developing a comprehensive picture of the auditing ethics literature.
... At the same time, there is a growing concern that as working time gets more difficult to measure, workers may put in longer hours. While this phenomenon of "hidden overtime" is not new (Barrainkua and Espinosa-Pike, 2015;Otley and Pierce, 1996), it has received increased attention with the spread of telecommuting (ILO, 2017). Some even speak of an "epidemic of hidden overtime" and call for legal regulation of working hours (Jones et al., 2021). ...
... Hiding overtime work is widespread. Otley and Pierce (1996) and Barrainkua and Espinosa-Pike (2015) surveyed auditors and report that about 55% and 30% of them, respectively, admitted that they at least sometimes understated their true working hours. Moreover, teleworking spreads and teleworkers tend to work longer hours and more unpaid hours than workers working in the premises of their employers (ILO, 2017). ...
... Underreporting of working hours has been documented to correlate with the perceptions that underreporting increases job satisfaction, leads to career advancement and results in a better feeling about oneself (Akers and Eaton, 2003). The amount of underreporting has also been found to correlate with feelings of lacking competence (Barrainkua and Espinosa-Pike, 2015) and time pressure (Barrainkua and Espinosa-Pike, 2015;Otley and Pierce, 1996). We complement this empirical research with a theoretical model of hidden overtime. ...
... The exercise of premature sign-off fall under one type of reduction audit quality program behaviour. Prior empirical research has provided evidence of the existence of reduced audit quality activities (Rhode, 1978;Alderman & Deitrick, 1982;Margheim & Pany, 1986;Kelley & Margheim, 1990;Raghunathan, 1991;Malone & Roberts, 1996;Herrbach, 2001;Barrainkua & Espinosa-Pike, 2015;Agoglia et al., 2015;and Johnson et al., 2016). Kelley and Margheim (1990), for example, found that one half of the auditors surveyed admitted that they had committed in dysfunctional audit behaviours on a latest audit practice. ...
... Kelley and Margheim (1990), for example, found that one half of the auditors surveyed admitted that they had committed in dysfunctional audit behaviours on a latest audit practice. Barrainkua and Espinosa-Pike (2015) suggest that this behaviour may be caused by many factors including pressure to meet audit budget and significant reduction in audit dedicated resources. Mohammad Rezai et al. (2015) found that increased competition in the unfavourable audit market is more likely to result in unfavourable consequences encompassing price competition via decreasing audit fees, rather than quality competition through the audit quality improvement. ...
... In addition, this study also intent to identify the causes contributing to premature signoff and finally, evaluate its impacts on the users of audit report. The issue like insufficient time and budget required to complete the audit report always leads to the premature sign-off of audit documents from external auditor (Cook & Kelly, 1998;Shapeero et al., 2003;Gundry & Liyanarachchi, 2007;McNamara & Liyanarachchi, 2008;Barrainkua & Espinosa-Pike, 2015;and Mohammad Rezaei et al., 2015). This behaviour will affect the professional accountability of an external auditor and negative impacts will arise if bad consequences occur after the issuance of the audit report. ...
The need for strong governance mechanisms has become increasingly louder after the spate of corporate accounting frauds over the last few decades. In India, the Satyam fiasco tarnished the reputation of the audit profession and underlined the need for overhauling the corporate governance framework. The Companies Act, 2013 ushered in a new era of corporate governance in India, with enhanced focus on audit committees. The present study aims to examine the significance of board audit committee roles from the perspective of auditors.
Analytic Hierarchy Process (AHP) is used to analyze the responses collected from 50 auditors, wherein the auditors were asked to assign ranks to various audit committee roles through paired comparison method. The AHP analysis shows that as per auditors’ perception, the most significant responsibility of audit committee is to monitor auditor independence and performance, and review the effectiveness of the audit process. There is an implied acknowledgement that the audit process is not free from managerial intervention.
The research findings could guide regulators and lawmakers to empower audit committees with more definitive authority over the company’s financial reporting process. Audit committees, though a part of the board, need to be perceived as a neutral body by both the company and auditors. Considering the pool of available talent in India, a 100% independent audit committee might emerge as a feasible answer for neutrality.
Keywords: audit committees, AHP, companies act 2013, auditors, Satyam, fraud.
... Penelitian lainnya juga menemukan faktor perilaku disfungsional auditor. Penelitian oleh Barrainkua & Pike (2015) membuktikan bahwa budaya organisasi dapat mempengaruhi auditor terhadap kepentingan publiknya, termasuk dalam pengambilan keputusan. Budaya organisasi diakui dapat menjadi aset atau penghalang dalam membentuk perilaku dalam organisasi dan dalam mencapai keberhasilan organisasi jangka panjang (Ramirez, Amezaga, & Medina, 2016). ...
... Penetapan jumlah sampel menggunakan metode Roscoe yaitu ukuran sampel berkisar 30 hingga 500 responden (Sugiyono, 2008). Instrumen penelitian ini menggunakan kuesioner yang diadaptasi dari kuesioner Barrainkua & Pike (2015) Responden yang telah mengisi kuesioner kemudian diidentifikasi berdasarkan jenis kelamin, pendidikan terakhir, dan lama bekerja. Identifikasi ini dilakukan untuk mengetahui secara umum karakteristik responden penelitian. ...
Penelitian ini bertujuan untuk mengetahui apakah ada pengaruh tipe kepribadian A auditor dan budaya organisasi terhadap perilaku disfungsional audit. Metode yang digunakan adalah survey menggunakan kuesioner terhadap 34 orang responden yang merupakan auditor di 5 KAP Batam. Hipotesis penelitian diuji menggunakan analisis regresi berganda. Penelitian ini menggunakan data primer berupa kuesioner dengan skala likert 5 poin. Tipe kepribadian A auditor diukur dari sikap ambisius, kompetitif, dan berorientasi pada prestasi. Variabel budaya organisasi diukur dengan sikap etis yang ada dalam suatu organisasi. Hasil penelitian mengungkapkan bahwa tidak terdapat pengaruh negatif antara tipe kepribadian A auditor dan budaya organisasi terhadap perilaku disfungsional audit. Penelitian selanjutnya bisa menambahkan variabel lain dan memperbesar wilayah populasi.
... An 11-item scale was included in the questionnaire to measure the perceived ethical culture of the respondents' organisations. This scale was adapted from the ethical environment instrument developed by Treviño et al. (1998), which has been proven to be reliable in accounting settings (Barrainkua & Espinosa-Pike, 2015;Shafer & Wang, 2010;Shafer & Simons, 2011). The ethical environment dimension proposed by Treviño et al. (1998) consisted of 14 items. ...
... In addition, two more items that could be relevant in the accounting field were included: 'Top managers in this organisation are concerned with informing employees about the ethics code' (OEC-9) and 'Top managers in this organisation promote the ethical training of employees' (OEC-10). These items have been employed as proxies for an ethical environment in previous studies (Barrainkua & Espinosa-Pike, 2015;Martinov-Bennie & Pflugrath, 2009). ...
Purpose – The aim of this study is to examine the effects of public interest commitment, professional commitment, organisational commitment, and organisational ethical culture on organisational professional conflict (OPC). The study also tests for the differences in the perception of OPC among professionals in different work settings: (i) professional accountants in business practice, (ii) tax and accounting advisors, and (iii) auditors.
Design/methodology/approach – This study is based on a questionnaire distributed among 779 Spanish professional accountants.
Findings – The findings show a negative relationship between both individuals’ organisational commitment and OPC and between a strong organisational ethical culture and OPC. Professional accountants working in different settings exhibit differences in their perception of OPC; tax/accounting advisors perceive OPC to a higher extent.
Originality/value – This is the first study that analyses the effect of organisational ethical culture, together with professional and organisational commitment, on the perception of pressures arising from OPC among professional accountants in different work settings. Identifying antecedents of the conflicts that professional accountants may face has implications for organisations’ human resource management and for the quality of the services provided. This study emphasizes the need for future studies to examine the differences in the work context of the different professional accountants.
... As such, they have to strike a balance between quality and audit cost by managing pressures on cost and effectiveness (Pierce & Sweeney, 2004). These pressures are experienced right from negotiation stage until audit execution and may undermine the sincerity of auditor judgment and ethical behavior (Barrainkua & Espinosa-Pike, 2015;Shafer & Wang, 2010;Svanberg & Öhman, 2013). Secondly, striking a balance between cost and quality presents an enormous challenge considering that quality requires more investments in audit time and resources which translates to further costs (Sweeney, Arnold & Pierce, 2010; Espinosa-Pike & Barrainkua, 2015). ...
... These pressures are experienced right from negotiation stage until audit execution and may undermine the sincerity of auditor judgment and ethical behavior (Barrainkua & Espinosa-Pike, 2015;Shafer & Wang, 2010;Svanberg & Öhman, 2013). Secondly, striking a balance between cost and quality presents an enormous challenge considering that quality requires more investments in audit time and resources which translates to further costs (Sweeney, Arnold & Pierce, 2010; Espinosa-Pike & Barrainkua, 2015). Thirdly, prior studies have presented different measures for audit quality (e.g. ...
Past studies have suggested that impairment of auditor objectivity and integrity is associated with various factors, prominent among which are provision of non-audit services, extended audit tenures, audit market competition, client size and audit firm size. Recent studies have however indicated that apart from these threats, the ethical culture within audit firms may have significant effect on auditor conclusions, auditor objectivity and integrity and ultimately audit quality. Although some studies have examined ethical culture in relation to auditor objectivity, none has considered their effect on auditor integrity despite the close association between auditor objectivity, integrity and ethical culture. This conceptual paper proposes that Ethical culture and auditor objectivity influence auditor integrity and could have implications for professional practice and audit firm cultures in Nigeria.
... As such, they have to strike a balance between quality and audit cost considerations by managing pressures on cost and effectiveness (Sweeney & Pierce, 2010). These pressures are experienced right from engagement negotiation stage uptil audit execution and may undermine auditor judgment and ethical behavior (Barrainkua & Espinosa-Pike, 2015;Shafer & Wang, 2010;Svanberg & O¨hman, 2013). Secondly, balancing cost and quality presents an enormous challenge as quality improvements require greater investments in audit time and resources which translates to additional costs (Sweeney, Arnold & Pierce, 2010;Espinosa-Pike & Barrainkua, 2015). ...
... These pressures are experienced right from engagement negotiation stage uptil audit execution and may undermine auditor judgment and ethical behavior (Barrainkua & Espinosa-Pike, 2015;Shafer & Wang, 2010;Svanberg & O¨hman, 2013). Secondly, balancing cost and quality presents an enormous challenge as quality improvements require greater investments in audit time and resources which translates to additional costs (Sweeney, Arnold & Pierce, 2010;Espinosa-Pike & Barrainkua, 2015). Thus, auditor judgement will then be based on ethical assessment of circumstances confronted as well as other factors affecting the cost-quality conflict. ...
Past studies have suggested that the ethical culture within audit firms may have significant effect on audit decisions, auditor objectivity and integrity and ultimately audit quality. This study examines whether Ethical Culture and auditor objectivity influences integrity of practicing auditors in Nigeria. Using a cross-sectional survey, data was collected from 156 auditors in the private sector. The correlation results show ethical culture, auditor objectivity and integrity are positively and significantly correlated at 5% (.495, .375, .403). The multiple regression results show ethical culture and auditor objectivity predict variation in auditor integrity by 20%. The regression coefficients show all variables have t value above ±1.96 (3.466, 2.809) all significant at 5% (P=.001 & .006) indicating that ethical culture and auditor objectivity are significant predictor of auditor integrity. The study findings have implications to regulators, auditors and researchers. The findings will further benefit regulatory and professional bodies in structuring ethical guidelines and standards for practicing accountants and serve as a reference material for enhancing audit firm cultures. The limitations provide avenues for further research.
... En España, la literatura previa que versa sobre los valores profesionales y éticos de los profesionales contables se ha centrado únicamente en los auditores (Barrainkua & Espinosa-Pike, 2015Castrillo, Calderón, García, Ortíz, & Pérez, 1995;Sierra Molina & Orta Pérez, 2005). Este trabajo realiza una aportación muy relevante a la literatura, puesto que centra su objeto de estudio en los diferentes colectivos que ejercen la profesión contable en España. ...
... El juicio ético se refiere a la evaluación de las acciones con respecto a las normas morales y los valores establecidos en la sociedad (Li, Chao, Chen, Yi & Zhang, 2018;Thoma, Rest & Davidson, 1991) En particular, el juicio ético va a definir el grado en que los individuos consideran que prácticas cuestionables son inaceptables de acuerdo con los estándares éticos de la profesión (Emerson, Conroy, & Stanley, 2007;Holtbrügge, Baron, & Friedmann, 2015). La literatura previa ha mostrado cómo la evaluación ética de prácticas cuestionables, influía en la intención de llevar a cabo dichas prácticas así como en la realización de las mismas (Barrainkua & Espinosa-Pike, 2015;Sweeney et al., 2010). ...
The loss of professional identity and a greater orientation towards commercial goals on the part of professional accountants have been considered as one of the main causes of the financial scandals. This ‘deprofessionalization’ has focused on auditors, with few studies analysing other accounting professionals. This study, carried out among more than 800 members of the Consejo General de Economistas, analyses the differences in the professional identity and values as well as the ethical judgment of accounting professionals employed in a company, accounting and tax advisors and external auditors. The results of this paper reinforce the importance of the accreditation and regulation of the professional accountant. Further, findings suggest important measures to be taken by professional corporations and public law institutions to improve commitment to the profession as well as the ethical and professional values of the professional accountants in different work settings.
... As such, they have to strike a balance between quality and audit cost by managing pressures on cost and effectiveness (Pierce & Sweeney, 2004). These pressures are experienced right from negotiation stage until audit execution and may undermine the sincerity of auditor judgment and ethical behavior (Barrainkua & Espinosa-Pike, 2015;Shafer & Wang, 2010;Svanberg & Öhman, 2013). Secondly, striking a balance between cost and quality presents an enormous challenge considering that quality requires more investments in audit time and resources which translates to further costs (Sweeney, Arnold & Pierce, 2010; Espinosa-Pike & Barrainkua, 2015). ...
... These pressures are experienced right from negotiation stage until audit execution and may undermine the sincerity of auditor judgment and ethical behavior (Barrainkua & Espinosa-Pike, 2015;Shafer & Wang, 2010;Svanberg & Öhman, 2013). Secondly, striking a balance between cost and quality presents an enormous challenge considering that quality requires more investments in audit time and resources which translates to further costs (Sweeney, Arnold & Pierce, 2010; Espinosa-Pike & Barrainkua, 2015). Thirdly, prior studies have presented different measures for audit quality (e.g. ...
... New laws and auditing standards primarily aim to provide an enhanced guidance toward the effective and ethical exercise of the duties of auditors. However, despite increased attention from practitioners and scholars, reports on unethical practices and behaviors involving the auditing profession continue (Cullinan, 2004;Barrainkua & Espinosa-Pike, 2015). Barrainkua and Espinosa-Pike (2015) determined that auditors who underreport are affected by the pressures they perceive. ...
... However, despite increased attention from practitioners and scholars, reports on unethical practices and behaviors involving the auditing profession continue (Cullinan, 2004;Barrainkua & Espinosa-Pike, 2015). Barrainkua and Espinosa-Pike (2015) determined that auditors who underreport are affected by the pressures they perceive. Such pressures are related to the audited budgets, ethical acceptability of auditors' underreporting, and influence of peers and superiors on the resolution of ethical conflicts. ...
This study examines the effects of individual ethical orientation, independence threat (a contextual factor), and moral intensity on auditors’ ethical decision-making process using Jones's issue-contingent model of ethical decision-making in Malaysia. A quasi-experimental design was employed to test the proposed hypotheses formulated for this study. Using WarpPLS, results support the positive direct effects of the independence threats, ethical orientation, and moral intensity of auditors on their ethical decision-making process. Results also suggest that moral intensity mediates the relationships between the auditors’ ethical orientation as well as auditor self-interest threat on the auditors’ ethical decision-making. Auditors with strong ethical orientation relativism, as compared to idealism, demonstrate undesirable ethical decision-making processes. Furthermore, low moral intensity underscores the effectiveness of auditors’ decision-making due to low ethical sensitivity and hence leads to inappropriate ethical decision-making processes and behavior. This study puts forward an auditing perspective through which to understand the ethical dilemmas and the importance of auditors’ moral intensity and ethical orientation in decision-making skills.
... TBP occurs due to the low audit fees which ban auditors from searching for important information (Iskandar et al., 2016). Because the needed actual time is greater than the budgeted time, auditors find themselves at a pressure to use their own time to meet deadlines and thus underreport chargeable hours (Barrainkua and Espinosa-Pike, 2015). In addition to underreporting chargeable hours, higher degrees of TBP have been linked to premature sign-off (Soobaroyen and Chengabroyan, 2006). ...
Purpose -This paper aims to identify differences in auditors' behaviour who have undergone work-integrated learning (WIL) versus the classical accounting education. Design/methodology/approach - In addition to the education factor, auditors' perception is assessed in scenarios when facing time budget pressure and time deadline pressure. The gender factor is included to highlight any behavioural differences between male and female auditors. Senior auditors working at the Big Four firms in the UK have participated in this survey.
Findings - The results show, from an educational perspective, that traditional accounting program is perceived as a catalyst of dysfunctional audit behaviour in comparison to WIL program that demonstrated a higher degree of ethicality. Furthermore, the results identify male auditors as having more tendency to behaving dysfunctionally when compared to their female counterparts.
Practical implications - This paper goes beyond assessing auditors' ethical actions under work-related stresses, to identifying the differences in their behaviour based on their academic background. It can be used as a tool for audit practitioners and accounting faculty by highlighting the factors leading to dysfunctional behaviour and trying to mitigate them.
Originality/value - The added value of the research paper is that it sheds light on one of the most issues faced by auditors and employees in general. Time pressures embedded in most businesses can harm organizations badly in relation to the behaviour of their employees.
... As a result, it would not be incorrect to express that premature sign-offs have really affected audit quality (Al-Qatamin, 2020; Agoglia et al., 2015). Within this context, it is vital to acknowledge that when an auditor fails to take a professional approach and interest in carrying out an audit procedure (Barrainkua & Espinosa-Pike, 2015), this lack of interest results in premature sign-off, and, subsequently, affects the audit quality (Herrbach, 2001). There could be various reasons behind this lack of interest; for example, if an auditor is new and has no related or prior experience of audit and has been asked to perform complex and lengthy audit procedures. ...
This study aims to investigate the impact of auditors' industry knowledge (AIK) and auditor experience (EXP) on premature sign-offs (PMSOs) among external auditors. PMSOs is one of dysfunctional behaviours in auditing that eventually affects the audit quality. Audit quality is defined as all audit procedures are satisfactorily performed and stakeholders are not negatively affected with the results of poor audit quality. While the topic of audit quality has received great attention from previous studies decades ago, studies on how AIK and auditor experience affects PMSOs are limited. Therefore, this study examined the effects of AIK and auditor experience on PMSOs. Survey data was gathered from 144 auditors in the Jordanian audit firms. AMOS-SEM was used to analyse the data for testing the hypotheses. Results revealed that AIK and auditor experience negatively affected PMSOs. Based on these findings, this study suggests that to a certain extent PMSOs practices are prevalent in Jordanian audit firms, AIK, and auditor experience are a measure that can be used to reduce the PMSOs practices. Thus, this study provides empirical evidence of the impact factor determining the effect of auditor knowledge in the industry and auditor experience on the dysfunctional behaviour-PSMOs and impact on audit quality. The limitations of this study and recommendations for future research are also provided.
... Dysfunctional audit behaviour is a continuing concern and a large number of auditors are engaging in it deliberately and not out of ignorance (Nehme, Mutawa and Jizi, 2016) and it still remains challenging (Smith and Emerson, 2017). In addition, Barrainkua and Espinosa-Pike (2015) highlight that in spite of attention from watchdogs, professionals and researchers, evidence on unethical practices and behaviours about audit profession remain existent. Researchers and scholars have stressed the need to find out enablers and predictors of DAB (Herda and Martin, 2016;Broberg, Torbjorn, Argento, Gyllengahm and Martensson, 2016;Nehme, 2017). ...
... Cette tension est exacerbée par les attentes de l'associé. Ce dernier est en effet responsable légale- ment de la mission, à la fois de la mise en oeuvre de tous les moyens nécessaires à son mandat et de la rentabilité commerciale du dossier pour le cabinet ( Barrainkua et Espinosa-Pike, 2015). Le manager doit alors articuler les exigences de l'associé avec la perception des équipes sur la pertinence des efforts à réaliser. ...
Cet article présente les résultats d’une étude de cas dans les grands cabinets d’audit du Big Four. Il vise à comprendre comment, selon que l’auditeur perçoit le contrôle des performances individuelles comme plus ou moins juste, ce mode de contrôle peut être lié à l’apparition de risques psychosociaux. Cette étude ne cherche pas pour autant à promouvoir un discours alarmiste. Au moyen d’une démarche qualitative, elle se concentre sur les cas où les évaluations individuelles peuvent être sources de risques psychosociaux, selon le sentiment de justice qu’elles suscitent. Cet article contribue à la littérature en montrant que la dégradation du sentiment de justice de l’évaluation peut être source d’insécurité et de précarité subjective chez l’auditeur. Il suggère en ce sens que le sentiment de justice peut être instrumentalisé par les grands cabinets au service de leur régulation. Enfin, il contribue aux recherches consacrées à la profession, en explorant la manière dont le sentiment de justice participe à la construction identitaire de l’auditeur.
... Some empirical research on underreporting of time uses pre-manager level auditors, as auditors at the staff and senior levels have been found to engage in higher levels of underreporting behavior (Otley and Pierce 1996;Pierce and Sweeney 2003;Sweeney and Pierce 2006;Sweeney et al. 2010). Nevertheless, other studies on underreporting time use samples consisting of auditors at various hierarchical ranks, from the staff through partner levels (e.g., S. Lightner, Adams, and K. Lightner 1982;Margheim and Pany 1986;Donnelly et al. 2003;Donnelly, Quirin, and O'Bryan 2011;Paino, Smith, and Ismail 2012;Agoglia et al. 2015;Barrainkua and Espinosa-Pike 2015). Lightner et al. (1982) surveyed auditors at the staff through partner levels and did not find a significant relationship between auditor level and underreporting time. ...
Underreporting time is a common ethical dilemma in auditing. We examine the effects of professional commitment and experience on auditor acceptance of underreporting time with a sample of 110 practicing auditors at two large national accounting firms. Using a moderated mediation research model, we find that auditor experience moderates the negative relationship between professional commitment and acceptance of underreporting time, such that professional commitment is associated with underreporting acceptance only among less experienced auditors. We discuss the contributions, limitations, and practical implications of our findings.
Data Availability: Please contact the first author.
... Otley and Pierce (1996) conclude that the key for achieving successful budget limits lies in more sophisticated evaluation practices rather than achieving better audit quality. Not only senior auditors are involved in under-reporting of time when facing time deadline pressure but also partners (Barrainkua & Espinosa-Pike, 2015). ...
The general goal behind this research is to gain a better understanding of factors leading to dysfunctional behavior of auditors. The role of auditors has been a controversial issue especially after the recent accounting scandals (WorldCom, Enron, Paramalat SpA, Waste Management Inc., Xerox Corporation, and Société Générale). In relation to these scandals and lawsuits, a question is frequently asked “where were the auditors?” The survey we offer up for research is made up of 34 questions that are designed to analyse the perception of auditors and the cause of dysfunctional behavior. The object of this research is comprised of auditors positioned and employed at the Big Four audit firms in Kuwait. The selected sample is comprised from auditors at different levels ranging from audit trainees to audit partners. The so-called stakeholder theory talks about the relationship between audit behavior and audit firm practices with time deadlines and time budgets involved. It is generally accepted that the more auditors align their interests with firms’ measures and practices, the more a firm is capable of meeting general goals and objectives. Consequently, this may result in a less dysfunctional workplace conduct. Dysfunctional behavior (DB) is analysed against two signalling proxies of dysfunctional behavior; premature sign-off and under reporting of chargeable time. DB is analysed against time budget and time deadline pressures. The results suggest that the general belief among auditors is that the profession of accountancy predetermines their tendency to commit certain patterns of dysfunctional behavior. The results indicate that auditors understand that dysfunctional behavior is exercised by the majority of auditors. Dysfunctional behaviour is exercised with intention and it is not committed out of ignorance. One of the interesting findings is that auditors, at all levels, are concerned about their reputation. Thus, dysfunctional behavior is exercised, to a certain extent, without harming the quality of the audit work. Having our investigation conducted at the Big Four audit firms, we have come to the conclusion that there is a general difference in behavior patterns among perceptions of dysfunctional behavior and normal skeptic professional behavior. Audit firms should continuously conduct workshop and training events related to dysfunctional behavior. It is revealed that some auditors are not aware that certain practices are considered dysfunctional behavior or not. This research work can be used to aid audit practitioners to mitigate audit dysfunctional behavior. It highlights certain type of practices that is exercised in an improper way.
With increasing regulatory focus on improving audit quality, research on drivers of audit quality remains important to academics, professionals and regulators. One compelling branch of this research focuses on auditors' intentional actions that reduce audit quality, often referred to in the literature as reduced audit quality acts (RAQAs). This paper provides a review and synthesis of the RAQA literature, including a unifying definition for RAQAs and a model for organizing past and future RAQA research. With the model, we explore antecedents to RAQAs as well as the discovery of, responses to and subsequent consequences of RAQAs. We also discuss potential avenues for future research.
We investigate the factors impacting dysfunctional audit behaviour (DAB) in audit companies in Indonesia during COVID-19. We additionally examine at how organisational commitment (OC), employee performance (EP), and turnover intention (TI) play a role as mediators in the relationship between locus of control (LOC) and DAB, how OC and TI play a role as mediators between EP and DAB, and how OC plays a role as a mediator between TI, auditor position (AP), and DAB. This study made use of the structural equation model (SEM) and the SmartPLS methodology. The processed data includes 118 external auditor replies received between May and October 2022. DAB was positively impacted by LOC, TI, time budget pressure (TBP), and AP, according to our findings. DAB is negatively affected by EP and OC. The relationship between LOC and DAB is mediated via OC and EP. EP and DAB interactions are mediated via OC and TI. The relationship between TI, AP, and DAB is mediated by OC. Indonesia’s first comprehensive causal model examined COVID-19 DAB hazards. DAB assessed COVID-19 auditors. This study addresses audit firm and external auditors. Auditing, reviews, auditor monitoring, and peer-reviewing audit organisations prevent DAB. DAB can lower audit quality and fail audits.
Purpose
Audit hour reporting is rare internationally. Thus, to what extent shareholders have the power to influence audit effort/hour demand is a question left unanswered. This study aims to use unique South Korean data to determine whether the increasing power of the largest foreign/domestic shareholders and blockholders can influence audit hour demand.
Design/methodology/approach
In this study ordinary least squares (OLS) regression analysis is conducted using a sample of Korean listed firms over the 2004–2018 sample period.
Findings
The results show: as the percentage equity holding of the largest foreign shareholder and blockholder (>5%) increases, audit hour demand increases. As the shareholding of the largest domestic shareholder increases, audit hour demanded decreases. The association between audit fees/hours is not qualitatively indifferent, after controlling for the audit fee premium effect. Furthermore, the largest foreign shareholder is shown to demand increasingly higher levels of audit hours from Big4 auditors, relative to NonBig4. All results are consistent with audit demand theory.
Originality/value
Whilst previous studies offer audit fee/risk interpretations, this study extends the literature by developing a framework to explain why audit hour demands differ for specific groups. Because audit hour information is rare internationally, the study has important policy implications.
Purpose
This paper aims to propose and examine a pragmatic approach to minimizing auditors’ underreporting of time. Specifically, the study examines the effects of time budget pressure (TBP) and reported time use policy (RTUP) on time underreporting.
Design/methodology/approach
This paper uses a 2 × 2 between experimental design. The participants are 130 undergraduate accounting students and they completed a ratio-based task. The online experiment manipulated TBP and a RTUP.
Findings
This study shows a RTUP reduces time underreporting, especially when TBP is high.
Practical implications
This study is useful to audit firms because it provides a feasible solution to minimizing time underreporting.
Social implications
Studies show that firm culture affects the dysfunctional behavior of time underreporting. Consequently, this study recommends that firms influence the culture around time reporting through an upfront communication of a use policy.
Originality/value
Studies on time underreporting exist, but formal studies on solutions to the issue are sparse. The authors propose a solution to the issue of time underreporting, which is a RTUP.
This article investigates how auditors come to make a longer-term commitment to their profession through coping with the demands and intensity of working in the Big Four firms. Through analysis of ethnographic data and thirty-one interviews, we show that the difficulties of team work and the complexity of audit engagements can lead auditors to develop emotional qualities of constructive pedagogy, pragmatic self-abnegation, and collective resilience. These qualities may help auditors to manage the intensity of the negative and positive emotions triggered by their work, and to find longer-term strategies for dealing with the constraints inherent in auditing. Our study does not aim to suggest unduly that all auditors are capable of developing these emotional qualities, but rather to shed light on the dynamic of emotions that drives some auditors to bond with each other, and thus in some cases commit to the profession for the longer term.
Auditing is considered a stressful occupation as the job is always characterized by heavy workloads, many deadlines, time pressure, social pressure and commitment towards the organization. Public auditors are often under pressure to produce quality audit, and yet may be under serious work pressure or continually dealing with auditees in stressful situations. Work stress faced by public auditors also may lead to mental and physical distress which resulted to decrease in job performance. This study examines which potential factors of pressure that have a significant relationship to government auditors’ job performance. Factors to be test in this study are work overload, time pressure and social influence pressure. This current study contributes information and ideas to the management and academician in the theoretical and practical aspects. The respondents in this study are 203 government auditorsfrom government auditors in National Audit Department of Malaysia. The result of this study shows that there is no significant relationship on work overload to auditors’ job performance. However the result of this study found that factor of time pressure shown a positive significant relation on auditors’ job performance, while social influence pressure shown a negative significant relationship on auditors’ job performance.
This study explores auditors’ professional attitudes and behaviours. It tests the influence of public interest commitment, independence enforcement beliefs and organisational ethical culture on auditors’ acceptance of and engagement in practices that compromise their objectivity. The study is based on survey responses of 122 Spanish auditors. To analyse the combined effect of the variables under study, variance-based structural equation modelling (partial least squares, PLS) was employed. The results suggest that the regulatory efforts to improve auditors’ behaviours by enforcing independence rules have been internalised by auditors. The results also reinforce the need to instil the societal responsibilities of professional auditors, since auditors’ public interest commitment is related to their ethical decision making. Furthermore, this study reveals that firms’ ethical cultures influence auditors’ commitment to the public interest, as well as their ethical decision making. The study raises practical implications for auditing professionals, regulators and audit firms. Understanding auditors’ beliefs and behavioural patterns is critical to proposing mechanisms that enhance their ethical behaviours, which could ultimately enhance audit quality. The chapter contributes to the field by analysing the combined effect of the regulatory framework and organisational context on auditors’ professional values and behaviours. © 2018 by Emerald Publishing Limited All rights of reproduction in any form reserved.
Este trabajo estudia la respuesta de los auditores a las presiones derivadas de los presupuestos de auditoría ajustados, así como el efecto que los valores profesionales de los auditores y otros factores organizativos tienen en su comportamiento. El estudio, llevado a cabo entre 103 auditores españoles, revela que las presiones de tiempo y competencia influyen en la falta de dedicación de tiempo suficiente a los procedimientos de auditoría y en la decisión de no revelar la totalidad de las horas dedicadas al encargo, comportamientos ambos considerados disfuncionales. Los resultados muestran además que la aceptabilidad ética de estas prácticas, la orientación hacia el cliente y la cultura ética organizativa influyen en dichos comportamientos disfuncionales. De este trabajo se derivan implicaciones para las firmas de auditoría, los organismos reguladores y la profesión en su conjunto. En concreto, los resultados apoyan las medidas adoptadas a nivel internacional que promueven la asignación de recursos suficientes, la formación ética y la implantación de criterios de evaluación que reconocen el compromiso con los principios éticos.
This study is designed to investigate empirically the range and frequency of functional and dysfunctional auditor behaviours in Big Five (now Big Four) audit firms in Ireland in response to formal cost control systems, and to identify trends in response behaviours since previous studies. A survey questionnaire was sent to all auditors in second year (audit juniors) and third year (audit seniors) in four of the Big Five firms in Ireland in 1999. The findings suggest that the levels of underreporting of time (URT) and quality threatening behaviours (QTB) in response to tight time budgets have decreased since the previous study in Ireland. The overall level of URT has
also decreased, while overall QTB frequency has increased. This suggests that factors other than tight time budgets are driving levels of QTB in the current audit environment but having no effect all URT. The behavioural patterns of juniors and seniors were not found to be significantly different, but male auditors were found to report significantly higher levels of certain dysfunctional behaviours than female auditors. Contrary to prior literature, the level of documentation between audit areas was not found to be a significant indicator of the most serious form of QTB - premature sign-off (PSO); however, the level of documentation within each of two audit areas was a significant indicator of the level of PSO within those areas.
A meta-analysis of single-item measures of overall job satisfaction (28 correlations from 17 studies with 7,682 people) found an average uncorrected correlation of .63 (SD = .09) with scale measures of overall job satisfaction. The overall mean correlation (corrected only for reliability) is .67 (SD = .08), and it is moderated by the type of measurement scale used. The mean corrected correlation for the best group of scale measures (8 correlations, 1,735 people) is .72 (SD = .05). The correction for attenuation formula was used to estimate the minimum level of reliability for a single-item measure. These estimates range from .45 to .69, depending on the assumptions made.
The present study analyzes the pressures perceived by auditors in their professional activity. Furthermore, it explores the ethical acceptability of questionable practices and the way auditors resolve the conflicts of interest with which they are confronted. This paper also studies the influence of the size of the audit firm and the experience of the auditors on the perception of pressures, their ethical judgment, and the way of resolving conflicts of interest.
Data were collected through a questionnaire administered to auditors from small and medium-sized audit firms in Spain, members of REA (Registro de Economistas Auditores).
This study contributes to the international academic literature on auditing behavior, as it provides new empirical data on the pressures perceived, not only those from the audit client, which have been extensively studied in the academic literature, but in addition, it highlights pressures arising from the audit firm itself that could also have a detrimental effect on the audit quality. It also contributes to the understanding of the effect of these pressures on the behavior of auditors.
The results of this study are also of particular relevance for the legal and professional Spanish auditing regulators as they face, at this moment, the challenge of developing a set of ethical standards that should improve the ethical judgment and behavior of accounting professionals.
The central contention of this paper is that a new paradigm is emerging within the area of professional or expert labour. This process entails a shift from a “social service” evaluation mechanism to a “commercialised” mechanism. This change is but one element in a wider range of alterations entailed in the change from a Fordist regime of accumulation to a Flexible Accumulation regime. The paper examines these issues with regard to the chartered accountancy profession. It analyses the socialisation processes experienced by accountants and the evaluation criteria involved in the promotional process to partnership. The evidence for this paper was gathered from qualitative and quantitative research undertaken in the Big Six accountancy practices in Ireland and the USA.
This study uses the ethical decision-making model to examine underreporting and premature audit sign-off in public accounting. Structural equation modelling results indicate that accountants view premature sign-off activities differently from underreporting activities. For example, those accountants who use a teleological moral evaluation process, and who perceive a greater likelihood of reward are more likely to underreport. That these variables are not significantly related to the likelihood of premature sign-off suggests that accountants may use a consequences-based approach when making decisions having lesser ethical content (like underreporting), but employ a different decision process when faced with decisions having greater ethical content (like whether to prematurely sign-off). The results also suggest that supervisors and managers are less likely to underreport, and to prematurely sign-off, than senior and staff-level accountants, and that accountants with an internal locus of control are less likely (than externals) to either underreport or prematurely sign-off.
The proliferation of electronic workpapers at audit firms allows audit managers and partners the choice of interacting electronically with their audit teams, as opposed to communicating with them in person. Prior research indicates that in-person discussion during review positively impacts audit effectiveness, while electronic review may improve audit efficiency. Thus, the choice of review format can be viewed as both a crucial and controllable audit input that can affect audit quality and, in turn, the reliability of financial statements. Still, little is known about how this decision is made. We conduct a survey and an experiment to extend the audit literature by examining reviewers’ choice of review format and by considering factors that influence this important choice. Survey evidence suggests that reviewers perceive in-person interaction during review as more effective and electronic interaction as more convenient. Given these findings, we conduct an experiment that explores whether misstatement risk and workload pressure influence the choice of review method. We find that these factors interact to affect reviewer behavior. Specifically, workload pressure can increase the likelihood of electronic review, but only when misstatement risk is low. When risk is high, reviewers choose to employ in-person reviews regardless of workload pressures. These findings are particularly relevant in light of changes in the regulatory environment that both emphasize the auditor’s role in detecting fraud/errors and exacerbate traditional workload pressures during busy times of the year. Our results suggest that reviewers cope with these conflicting pressures by choosing alternative review formats.
Purpose
– The purpose of this paper is to addresses the impact of organizational ethical context (ethical climate and ethical culture) and Machiavellianism on organizational‐professional conflict (OPC) and affective organizational commitment (OC) among Chinese accountants. The paper also aims to test for interactive effects of ethical context and Machiavellianism.
Design/methodology/approach
– The paper is based on a field survey of 89 professional accountants employed by companies operating in Mainland China.
Findings
– Two aspects of the organizational ethical culture, expectations of obedience to authority and strong ethical norms/incentives, emerged as the dominant influences on both OPC and affective commitment. Strong negative correlations are observed between OPC and OC, and between Machiavellianism and OC. Contrary to expectations, the organizational ethical context had the greatest impact on OC among high Machiavellians. For low Machiavellians, OPC fully mediated the relationship between ethical context and OC, but no such mediation effects are found for high Machiavellians.
Originality/value
– This is the first study of the relationships among ethical context, OPC and OC among industry accountants in China, and the first study of the effects of Machiavellianism on these relationships. The results generally support our contention that organizational ethical context will be a key determinant of OPC and OC. The fact that weaker ethical cultures were strongly associated with increased conflict and decreased commitment suggests that managers of accounting/auditing departments should take a proactive approach to developing and nurturing positive or supportive cultures. The differences in results for high and low Machiavellians also raise interesting questions that should be addressed in future research.
Purpose
– The purpose of this paper is to examine the impact of organizational ethical culture on the ethical decisions of tax practitioners in mainland China.
Design/methodology/approach
– The study is based on a field survey of practicing public accountants.
Findings
– As hypothesized, certain dimensions of ethical culture had highly significant effects on intentions to engage in aggressive tax minimization strategies. Cultures characterized by strong ethical norms and incentives for ethical behavior significantly reduced the reported likelihood of engaging in unethical behavior in a high moral intensity case. In a low moral intensity case, intentions to engage in questionable behavior were significantly higher when participants felt that top managers in their firm were unethical and rewarded unethical behavior. Relativism judgments (judgments of what is traditionally or culturally acceptable or acceptable to one's family) emerged as the strongest determinant of behavioral intentions across both cases. Participants also appeared highly sensitive to questions regarding what is traditionally or culturally acceptable in Chinese tax practice.
Originality/value
– This is the first study of ethical decision making among tax practitioners in mainland China, and the findings add to a growing body of literature documenting the significant effects of organizational ethical context on public accountants' decision making processes. This has important implications for CPA firms, suggesting that proactive steps should be taken to promote supportive ethical contexts. The findings for the effects of relativism judgments raise concerns regarding the ethical decisions of Chinese tax practitioners, implying they are likely to engage in unethical behavior if they feel such behavior is common in their cultural environment.
Following the scandals involving Enron, WorldCom, and Qwest Communications, the accounting profession has spent the past several years trying to get back on track. While Sarbanes-Oxley may improve the decision-making of audit professionals, and help prevent future large-scale catastrophes that hurt stockholders and bring down firms, there is another problem in public accounting that few consider and nobody has proposed to solve: deviant workplace behavior. Previous research describes deviant workplace behavior as the voluntary behavior of organizational members that violates significant organizational norms and, in so doing, threatens the well being of the organization and/or its members. Building from recent work in various business literatures, this is the first research since the passage of Sarbanes-Oxley to examine workplace deviance at Big 4 accounting firms. Taking a cross-disciplinary, collaborative approach, the authors endeavor to explain why workplace deviance has infiltrated accounting firms and how it is undermining their effectiveness and derailing their long-term prospects for success. After describing its genesis and effects, the authors prescribe several managerial strategies for preventing deviance and minimizing its effects on a firm.
Prior research on audit quality reduction acts has generally focused on nonmanagerial personnel in CPA firms. This study gathers perception data on the existence, extent, and possible factors associated with inappropriate partner behavior. A questionnaire addressing these issues was mailed to a national sample of senior managers and partners employed in auditing positions with public accounting firms. A large majority of the respondents had never observed four of the five inappropriate behaviors examined.However, approximately 25 percent of respondents indicated that they had observed one or more instances of inadequate workpaper review. Two economic factors (large client size and the presence of a fixed-fee audit contract) were most strongly associated with GAAP and GAAS violations.
This study is an empirical investigation into the operation of control systems in large audit firms in Ireland. All audit seniors in three Big 6 firms were included in a postal survey. The results showed evidence of under-reporting of time, premature sign-off and other audit quality reduction acts. The analysis was extended beyond that reported in previous studies by developing regression models to explain these three types of dysfunctional behavior. Perceived attainability of time budgets and the leadership style of audit managers had a significant influence on dysfunctional behavior, but the perceived amount of emphasis on meeting budgets did not. Although organizational commitment was a further explanatory variable, professional commitment was not. Perceived effectiveness of audit review procedures was found to be significantly associated with lower levels of premature sign-off and other quality reduction acts, while the explicit and implied approval of supervisors was significant in the under-reporting of time decision. The discussion identifies two important types of informal control, and suggests that audit firms need to address a number of key issues in order to improve the effectiveness of their formal control systems. The study contributes to the literature on management control by examining the impact on individual behavior of a widely used formal control system. Furthermore, while previous studies in an audit setting have tended to report perceived influences on auditor behavior, or the outcome of testing involving a single variable, this study constitutes an extension of earlier work by examining the combined effect of specific variables on actual behavior, as reported by practising auditors.
A meta-analysis of single-item measures of overall job satisfaction (28 correlations from 17 studies with 7,682 people) found an average uncorrected correlation of .63 (SD = .09) with scale measures of overall job satisfaction. The overall mean correlation (corrected only for reliability) is .67 (SD = .08), and it is moderated by the type of measurement scale used. The mean corrected correlation for the best group of scale measures (8 correlations, 1,735 people) is .72 (SD = .05). The correction for attenuation formula was used to estimate the minimum level of reliability for a single-item measure. These estimates range from .45 to .69, depending on the assumptions made.
Purpose
– The purpose of this paper is to address the impact of ethical culture on audit quality under conditions of time budget pressure. The study also tests the relationship between ethical culture and time budget pressure.
Design/methodology/approach
– The study is based on a field survey of financial auditors employed by audit firms operating in Sweden.
Findings
– The study finds relationships between three ethical culture factors and reduced audit quality acts. The ethical environment and the use of penalties to enforce ethical norms are negatively related to reduced audit quality acts, whereas the demand for obedience to authorities is positively related to reduced audit quality acts. Underreporting of time is not related to ethical culture, but is positively related to time budget pressure. Finally, the study finds a relationship between two ethical culture factors and time budget pressure, indicating a possible causal relationship, but ethical culture does not mediate an indirect effect of time budget pressure on reduced audit quality acts.
Originality/value
– This is the first study to report the effect of ethical culture on dysfunctional auditor behavior using actual self‐reported frequencies of reduced audit quality acts and underreporting of time as data.
A principal element of business risk (or strategic systems) auditing is the goal of evaluating the degree of concordance between management representations and expectations derived from an understanding of the business environment. Peecher et al. (2007) argue that an effective means by which auditors may achieve this goal is through a process of evidentiary triangulation. In this exploratory study, we investigate whether the order with which auditors evaluate business environment, information systems and financial statement representations evidence has the potential, as suggested by belief function theory, to improve the effectiveness with which they interpret the complex interrelationships between these three sources of evidence. Analyzing judgements made by practicing auditors in an experimental setting, our results reveal that, when faced with negative business environment evidence that is in conflict with positive information systems and financial statement representations evidence, auditors assess the risk of material misstatement to be higher when they are presented with the critically important business environment evidence last, rather than, as is traditionally the case, first. There is, however, some evidence to suggest that the positive order effects may be attenuated by the requirement to document reasons underlying the judgements made. The results raise a number of practical and theoretical issues that give direction to future research in this important area.
In this article we explore how notions of the client and client service are constructed within two `Big 5' professional services firms. Drawing upon a range of qualitative materials, we argue that the client is a central term in the socialization of trainee accountants within these firms and the emergence of their professional identities. We illustrate this with reference to recruitment, appraisal and daily work practices. We then move on to consider the power effects of a discourse that privileges the client in this way by attending to what is `written out' of such a discourse. We suggest that management control, friends, family and the profit motive are all written out. However, we also point to what such a discourse enables, both materially and symbolically, for the trainees in the study.
Significant concerns have been voiced about the negative impact of competition on audit quality. Recent research suggests that auditors may reduce budgeted hours in response to fee pressure despite an increase in client risk (Houston, 1999). However, only one prior study Gramling, (1999) has considered the role of the auditor's superiors, who may encourage subordinates to increase audit efficiency, particularly in cases where audit revenues have been reduced McNair, (1991). Gramling focused on reliance on internal auditors rather than a generic program planning decision. Further, there is little empirical evidence on the program planning strategies pursued by auditors with respect to the nature of tests, and no prior evidence regarding staffing assignments in response to these pressures. In developing program plans auditors are accountable to multiple sources such as an immediate superior (e.g. a manager), the partner, the firm and, in a broader sense, to the public. Often these sources provide conflicting forces, which have been referred to by Gibbins and Newton (1994) as “complex accountability”. To investigate these issues, eighty-three auditors completed a case based on an actual audit client in which they were asked to perform program planning for the revenue cycle. Fee pressure and partner pressure were manipulated (present or absent) in a between-subjects design. There were three main findings. First, corroborating prior studies, auditors reduced total budgeted hours in response to fee pressure. Second, auditors reduced planned tests in response to partner pressure to improve audit efficiency. Third, there is evidence to suggest that in response to multiple competitive pressures auditors are more likely to reduce budgeted hours of more experienced staff. Specifically, auditors subject to both fee pressure and partner pressure may focus on reducing second year staff hours because greater efficiency gains (i.e. cost reductions) come from eliminating hours assigned to this more experienced personnel than first year staff. These results suggest that both fee pressure and partner pressure motivate auditors to improve audit efficiency. Moreover, fee pressure may be perceived by auditors, based on previous experience, as an implicit suggestion to improve audit efficiency. These findings suggest firms must be cautious in communicating audit fees to staff, and that the audit partner plays a key role in communicating ways to manage competitive pressures.
Audit firms face a constant conflict between the business of auditing and the profession of auditing, which is manifested at audit senior level in the pressure to perform quality work within specified time limits. Prior quantitative studies have reported high levels of quality-threatening behaviour (QTB) at senior level and the importance of examining contributory factors has been highlighted. Semi-structured interviews were conducted with audit seniors in four of the (then) Big Five firms and findings suggest that key variables (time pressure, participative target setting, and style of performance evaluation) have been inadequately operationalised in previous studies and that two distinct forms of QTB exist: deliberate and inadvertent. Propositions are developed for variables associated with both forms of QTB, which provide direction and focus for future research.
Research suggests that dysfunctional behaviour by auditors may be related to the perceived tightness of time budgets. Using data collected from practising auditors, examines the nature of such a relationship. Found that the frequency of dysfunctional behaviour increased sharply as budgets were seen to approach unattainable levels of performance. Recognizing the importance of auditors’ perceptions regarding the attainability of budgets, examines antecedent variables affecting budget attainability. Found that the influence of client fee expectations, the level of audit senior participation and the influence of the audit programme were significant influences. Discusses implications for practice and possibilities for future research.
This paper examines how partners in an audit firm can use profit-sharing rules to induce optimal partner behavior from the firm's point of view, taking into account the strategic competition of firms in an auditing oligopoly. We use a linear contracting framework to investigate the effects of profit-sharing rules on individual partners' various decisions, including their pricing strategies and effort choices. We assume that efficient audits of different types of clients require different effort profiles with respect to degree of partner cooperation. For example, the audit of a complex company requires different amounts of partner collaboration than does the audit of a simple company. Moreover, since it is too costly for an enforcement party, such as the head office of an audit firm or a court, to verify each client's type in order to resolve compensation disputes among the firm's partners, it is reasonable to assume that client type cannot be contracted upon for partner compensation purposes. Given this assumption, we derive conditions under which there exists an equilibrium in which audit firms strategically choose different profit-sharing rules to specialize in different types of clients, thereby earning positive economic profits. Our analysis provides insights into the strategic competition among the big audit firms, and helps to explain the observed differences in the compensation plans of these firms and in the nature of their client portfolios.
This study investigates the implicit financial incentives of individual Big 4 audit partners by examining the association between a partner's compensation and characteristics of the audit firm, audit partner, and individual partner clientele for Big 4 firms in Sweden. Using tax and financial data for individual audit partners and clients, our empirical findings indicate that there is significant variation in the implicit determinants that are associated with compensation across the Big 4. We find that audit partners’ compensation is positively associated with the size of their clientele or the number of publicly traded clients, both of which represent revenue-generating opportunities. Similarly, compensation and developing an industry specialization are positively related. In three firms, gaining clients is clearly related to an increase in compensation, while losing a client is associated with a reduction in partner income in only one firm. We find that audit partner income is more sensitive to performance-related incentives, such as attracting new clients, as partners progress in their career. Finally, we find evidence that audit failures, proxied by reporting errors related to issuing a going concern opinion, are associated with lower compensation. These results should be of interest to the auditing profession, audit firms, and regulators when they consider the effects of implicit incentives of partner compensation on audit quality.
This paper argues that performance evaluation is a major element of preserving the status quo of gender differences in public accounting organizations. Performance evaluation is problematized as part of several broader themes in order to more fully appreciate its importance within careers and the gender patterning of organizations. Results of a study involving reactions to a hypothetical staff auditor in charge of an over-budget audit engagement reveal significant gender differences. Implications for the gender neutrality of career management by large public accounting firms are drawn.
Purpose
The aim of the research is to investigate, using a field survey, the concept of underreporting of time (URT), from both an individual and organisational perspective as a defence mechanism for coping with time budget pressure.
Design/methodology/approach
Big Four audit partners and seniors are interviewed regarding the factors that motivate staff auditors to engage in manipulation of time records and the consequences of the behaviour for individual auditors and audit firms.
Findings
Findings indicate that time record manipulation is not a single type of activity as suggested previously, but includes a variety of behaviours, six of which are identified in the study. Each of these constitutes a very different type of defence mechanism, motivated by different influences and resulting in different outcomes for the individual and the organisation. The firms engage in a defence mechanism characterised by a series of mixed messages to avoid dealing with inherent cost/quality conflicts and elements of this mechanism become embedded in routine activities at different levels in the firms.
Research limitations/implications
The implications for audit firms vary with the type of time record manipulation and future research therefore needs to concentrate on a closer examination of the various practices that make up URT as identified in this study.
Originality/value
The insights provided by the research are used to explain apparently conflicting arguments in the literature and to set out implications for research and practice.
This field survey focused on two constructs that have been developed to represent the ethical context in organizations: ethical climate and ethical culture. We first examined issues of convergence and divergence between these constructs through factor analysis and correlational analysis. Results suggested that the two constructs are measuring somewhat different, but strongly related dimensions of the ethical context. We then investigated the relationships between the emergent ethical context factors and an ethics-related attitude (organizational commitment) and behavior (observed unethical conduct) for respondents who work in organizations with and without ethics codes. Regression results indicated that an ethical culture-based dimension was more strongly associated with observed unethical conduct in code organizations while climate-based dimensions were more strongly associated with observed unethical conduct in non-code organizations. Ethical culture and ethical climate-based factors influenced organizational commitment similarly in both types of organizations. Normative implications of the study are discussed, as are implications for future theorizing, research and management practice.
Questionnaires are the most commonly used method of data collection infield research (Stone, 1978). Problems with the reliability and validity of measures used on questionnaires has often led to difficulties in interpreting the results of field research (Cook, Hepworth, Wall & Wart-, 1981; Schriesheim, Powers, Scandura, Gardiner & Lankau, 1993). This article reviews scale development procedures for 277 measures used in 75 articles published in leading academic journals from 1989 to 1994. It points out some of the problems encountered and provides examples of what could be considered “best practices “in scale development and reporting. Based on the review, recommendations are made to improve the scale development process.
The paper reports a postal survey of successful finalists of the exams of the Institute of Chartered Accountants in England and Wales. The auditing profession has faced increasing cost pressures arising from competition and economic recession. Firms have striven to increase auditefficiency and reduce chargeable time. It was hypothesized that time budget pressure and other factors might produce irregular short cuts in audit procedures: i.e., that similar behaviour to that reported by Raghunathan (1991) and other studies would be found in the UK. Respondents were asked about the impact of time budget pressures on their work, about irregular auditing practices similar to premature sign off and certain contextual variables. An appreciable incidence of irregular auditing was discovered which was associated, inter alia, with perceptions of time budget pressure, perception of a firm culture of acceptance of irregular short cuts and areas of work which were felt to be unimportant. The implications of the findings for the auditing profession and individual firms are considered together with recommendations for future research.
Despite the controversy regarding "glass ceiling" effects for women and the specific concern expressed by large CPA firms over their inability to retain women in senior positions, there is little empirical evidence regarding why women partners and managers leave public accounting. In this study we examine factors potentially associated with the actual turnover decisions for a large sample of auditors who were managers or partners in large CPA firms. Public accounting-specific latent variables are developed to capture four critical aspects that affect turnover in public accounting: (1) competitive environment, (2) work/non-work obligations, (3) internal/external control and supervision, and (4) litigation risk. Women differ fundamentally on the work-non-work obligation dimension. Women who leave the employ of an auditing firm are significantly less likely to be reemployed in public accounting compared to their male counterparts. Additionally, women who do remain in public accounting, post-separation, are more likely to work for smaller firms.
Recent regulatory initiatives stress that an independent oversight board, rather than the management board, should be the client of the auditor. In an experiment, we test whether the type of client affects auditors’ independence. Unique features of the German institutional setting enable us to realistically vary the type of auditors’ client as our treatment variable: we portray the client either as the management preferring aggressive accounting or the oversight board preferring conservative accounting. We measure auditors’ perceived client retention incentives and accountability pressure in a post-experiment questionnaire to capture potential threats to independence. We find that the type of auditors’ client affects auditors’ behaviour contingent on the degree of the perceived threats to independence. Our findings imply that both client retention incentives and accountability pressure represent distinctive threats to auditors’ independence and that the effectiveness of an oversight board in enhancing auditors’ independence depends on the underlying threat.
Public accounting watchdog groups have expressed concern that the practice of underreporting can negatively affect audit quality and lead to other unethical behaviors that can increase audit risk. While the practice is prohibited by audit firm policies, if underreporting by engagement staff is tacitly rewarded by the audit managers evaluating staff work, an environment is created in which underreporting time may be necessary for staff to succeed and advance within the firm. Our study considers the role of audit managers in perpetuating the practice of underreporting by examining the extent to which, and under what circumstances, managers accept (i.e., implicitly reward) such behavior from their audit staff. Utilizing an experiment in which engagement staff appear to have worked more hours than were budgeted, we manipulate staff reporting accuracy (underreporting hours worked in order to meet budget versus accurately reporting exceeding the budget) and managers’ personal preference for the client (high versus low). We find that staff reporting accuracy and managers’ personal preference for the client interact to affect managers’ performance evaluations of staff, with the highest evaluations going to staff who underreport when the manager’s preference for the client is high, and the lowest going to staff who accurately report that they have exceeded budget when the manager’s preference for the client is high. Further, we find that managers are more likely to request an underreporter on a different engagement, regardless of their preference for the current client. When we run the same experiment using partner participants, we find that, unlike managers, partners do not reward or prefer staff who underreport. Interestingly, and consistent with agency theory, partners penalize both underreporters and staff who report exceeding budget (compared to a baseline condition in which staff actually meet budget). These results suggest that managers’ own incentive structures influence how they evaluate their audit staff, contributing to an environment that implicitly rewards underreporting of time even though firm policy explicitly prohibits the behavior.
This paper presents an interpersonal model of audit file review centered on the audit manager. A manager's conduct of the review is impacted by four other components: a manager's expectations about the client, expectations about the preparer, expectations about the partner and the manager's own approach and circumstances. The paper then presents a comprehensive field based analysis of how working paper review is conducted. It supplements the mostly experimental research on working paper review by reporting the results of a retrospective field questionnaire which asked audit managers to report on their behavior and their relationships with preparers and partners on actual audit engagements. The extent of review was sensitive to specific features of the client and the file, (including risk factors) to features of the preparer and particularly to the style of the reviewer, which was quite stable across cases. While the evidence of managers' awareness of preparers' "stylizing" the file to suit the manager was weak, the evidence of managers' stylizing for the partners was pervasive, affecting both work done and documentation. Reviewers tended to have a stable review style across reviews. Managers believed that good reviews emphasized key issues and risks rather than detail. Other new descriptive evidence on the nature of the review process is provided including the purpose of the review process, how frequently surprises are found in the review process and what are the qualities of good reviewers as compared to poor reviewers. The implications of our model and our results for future research are outlined.
This paper introduces the theory of moral reasoning as a valid determinant of the underreporting of audit time. In an experimental lab design for a sample of 88 auditors from a national public accounting firm, actual underreporting on an audit task was observed. Findings show that underreporting is systematically related to the auditor's level of moral reasoning as measured by the Defining Issues Test (DIT). Here those with relatively low DIT scores were shown to underreport most severely. Results also show that although an unattainable time budget affects behavior, peer pressure has the most significant impact on underreporting. The present study makes three important contributions to the auditing and psychology literature. First, it establishes the significance of peer pressure as an antecedent to underreporting. Second, it shows that an auditor's moral reasoning explains actual underreporting behavior under conditions of work-related pressure. Third, it reveals marked underreporting under simulated audit conditions.
This study examined the impact of perceived ethical culture of the firm and selected demographic variables on auditors’ ethical
evaluation of, and intention to engage in, various time pressure-induced dysfunctional behaviours. Four audit cases and questionnaires
were distributed to experienced pre-manager level auditors in Ireland and the U.S. The findings revealed that while perceived
unethical pressure to engage in dysfunctional behaviours and unethical tone at the top were significant in forming an ethical
evaluation, only perceived unethical pressure had an impact on intention to engage in the behaviours. Country was also found
to have a significant impact, with U.S. respondents reporting higher ethical evaluations and lower intentions to engage in
unethical acts than Irish respondents. Implications of the findings and areas for future research are discussed.
Keywordsauditor conflict-ethical culture-ethical decision making-underreporting of time-quality threatening behaviours-time pressure
This paper examines the relationship between organizational ethical culture in two large international CPA firms, auditors'' personal values and the ethical orientation that those values dictate, and judgments in ethical dilemmas typical of those that accountants face. Using an experimental task consisting of multiple judgments designed to vary in "moral intensity" (Jones, 1991), and unique as well as tried-and-true approaches to variable measurements, this study examined the judgments of more than three hundred participants in our study. ANCOVA and path analysis results indicate that: (1) Ethical judgments in situations of high moral intensity are affected by personal values and by environmental variables, such as the professional code of conduct (direct and indirect effects) and previous ethics instruction (direct effect only). (2) Corporate ethical culture, and a relatively strong firm rules-orientation, affect auditors'' idealism but not relativism, and therefore indirectly affect ethical judgments. Jones'' (1991) moral intensity argument is supported: differences in the characteristics of specific judgment tasks apparently result in different decision processes.
This study examines the impact of the strength of an accounting firm’s ethical environment (presence and reinforcement vis-à-vis
the presence of a code of conduct) on the quality of auditor judgment, across different levels of audit expertise. Using a
2 × 2 full factorial ‹between subjects’ experimental design, with audit managers and audit seniors, the impact of different
levels of strength of the ethical environment on auditor judgments was assessed with a realistic audit scenario, requiring
participants to make judgments in respect of an inventory writedown. Based on prior research, and as hypothesized, participants
possessing greater auditing experience made higher quality technical judgments. While there were no significant differences
between the quality of audit judgments made by participants in the stronger ethical environment, over-all results indicate
that managers are more sensitive to differences in the strength of the ethical environment than seniors. This is consistent
with the hypothesis, and with prior research which suggests that the impact of the code will only be significant if it has
been bilaterally internalized by individuals. This has important implications for accounting firms and regulators, given that
the International Standard on Quality Control 1, requires the communication and reinforcement of ethical principles as part
of firms' quality control processes. It suggests that firms will need to carefully consider the means by which they communicate
and reinforce ethical principles, as it is possible to differentially impact auditors of different rank.
Previous studies have consistently reported high levels of quality threatening behaviours in response to traditional budgetary controls at audit trainee levels in Big Four audit firms. Partners simultaneously occupy positions as owners and members of top management, and their perspectives on these behaviours and control procedures that may mitigate potential consequences are therefore important. These perceptions, which have been missing from prior research, were investigated using semi-structured interviews with 12 audit partners from three of the Big Four firms. The findings suggest the existence of previously unidentified controls at partner level that become embedded in the procedures and routines through which potential cost-quality conflicts are managed. At the same time as cost-quality conflicts created by the formal budgetary control system are increasingly being seen by partners to be pushed up the hierarchy, changes in audit methodology and operating procedures are perceived to facilitate a strengthening of the impact of other less formal controls at lower levels. Many of these constitute examples of clan controls and include the influence of partners’ experience and intuition over a wide range of organisational activities, informal communication and signalling both within the partnership and between partners and staff, and the management of internal and external relationships. The study highlights the importance of these controls in achieving a balance between trust-building and additional monitoring.
Public accounting firms face an inherent dilemma, wherein conflicting cost and quality goals are create a setting where social ambivalence thrives. This paper explores this dilemma, using an interpretative framework and data collected through interviews. The results suggest that, rather than directly addressing this dilemma, audit firms promote an attitude of compromise within individual audit staff members. This compromise, though, is never openly discussed, hence in Argyris' words (Accounting, Organizations and Society (1977) pp. 113–123), a double bind exists within the control system: the undiscussable remains undiscussable. Blending auditor comments with related research, it is suggested that the social ambivalence, through undiscussability, is translated into ethical ambivalence (Jansen & von Glinow, Academy of Management Review (1985) pp. 814–822), resulting in individualized reconciliations of the cost/quality dilemma. The discussion ends with implications for research and practice.
As Giddens has observed “Nothing is clearer than that gender is a matter of learning and continuous work, rather than a simple extension of biologically given sexual difference” (1991, p. 63). In this paper, we discuss the processes of professional socialization implicated in the reproduction of gender relationships in UK offices of two multi-national audit firms. The gendering of audit firms is viewed as connected not simply to important elements of the formal organizational structures, such as temporal organization and appraisal processes, but also to the tacit, informal components, such as the correct form of socializing involved in `getting in and getting on' [Sociology 28 (2) (1994) 479] within Big Five audit firms. Our focus is upon practices, including the discursive practices trainees pick up and mobilize during their everyday interactions. In our conclusion, we signal how informal and formal organizational processes are intertwined so as to reproduce gender domination, and comment upon the problems that policy initiatives and reforms face in attempting to redress organizational gender imbalances.
Control is important within public accounting firms for a variety of reasons. Yet professional pronouncements are limited in providing guidance to auditors in the form of formally stated rules and requirements. The purpose of this article is to examine the non-formalized, non-rule oriented approaches employed in large public accounting firms to effect control. More specifically, it is directed towards understanding the possible roles of informal and nonformal communications and mentoring in managing public accounting firms.Based upon evidence gathered using a naturalistic, qualitative research methodology, it is concluded that: (1) informal communications exist in public accounting firms, play a limited role in informing organizational members of the politics and power within the organization, and are of some benefit to lower level individuals; and (2) nonformal communications and mentoring are involved with the performance of audit tasks, socialization of the individual firm, and instruction as to politics and power within the organization, and benefit the protege, mentor and firm, though at some cost. Implications of the study are also explored.
Prior research has highlighted the problem of dysfunctional reactions to control systems. Studies carried out in auditing firms have revealed high levels of budget pressure leading to a variety of dysfunctional behaviours which can be difficult to control. This study examines how subordinates' reaction to control systems is influenced by the leadership behaviour of supervisors. Data were collected by means of a questionnaire sent to all audit seniors in three Big Six audit firms. Two forms of dysfunctional behaviour were measured: under-reporting of time and audit quality reduction behaviour. A leadership style characterized by high structure and low consideration was found to be associated with the highest level of dysfunctional behaviour for all behaviours examined, while the lowest level of dysfunctional behaviour was associated with a style depicting low structure and high consideration. Perceived environmental uncertainty was found to moderate these relationships, and to exercise a stronger moderating effect for audit quality reduction behaviour than for under-reporting of time.
This paper reports the results of an experiment examining whether social influence pressures within the accounting firm affect auditors' willingness to sign-off on financial statements that are materially misstated. We also evaluate the effects of organizational commitment, professional commitment, and moral development as three variables that may impact individual responses to social influence pressure. A sample of 171 auditors from one international firm participated in a between-subjects experiment with obedience pressure from superiors and conformity pressure from peers as the social influence pressure treatments. The results indicate that obedience pressure significantly increased auditors' willingness to sign-off on an account balance that was materially misstated, although conformity pressure did not. The findings also supported the predictions for organizational commitment. However, the predicted effects for professional commitment and moral development did not emerge.
This essay discusses an important series of formative contributions to contextualist and critical research in auditing. A small number of relatively recent papers question rationalized accounts of the audit process and explore the complex ‘back stage’ of practice. These papers are interpreted as contributions to our understanding of the production of legitimacy around four substantive themes: the audit process and formal structure; auditing as a business; working papers and image management; new audits. The papers also point to the socially constructed nature of professional inference and suggest a fruitful basis for taking these research efforts forward.
