W
HAT STIMULATES AUDITORS TO CHOOSE FOR COMPUTER
-
MEDIATED
-COMMUNICATION IN AN AUDIT INQUIRY
?
A
N EMPIRICAL ANALYSIS OF
TIME PRESSURE AND PROFESSIONAL IDENTITY
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Master thesis, MscA&C, specialization Accountancy University of Groningen, Faculty of Economics and Business
Final version, June 24, 2019
ROBIN HEITHUIS Studentnumber: 3539814 Putmansweg 30 7666 LX Fleringen Tel.: +31 (6)52336939 e-mail: r.b.a.heithuis@student.rug.nl Supervisor/ University dr. Dennis Veltrop Word count: 7774
Acknowledgment: helpful comments on earlier drafts were given by Jorn Molenkamp, and I thank him for providing me access to the EY auditors. I also want to thank Dennis Veltrop for helping me through the entire process of writing this thesis.
ABSTRACT
Manuscript Type: Empirical
Research Question/Issue: This paper recognizes the increase use of computer-mediated-communication (CMC) in an audit inquiry. Where several papers have shown that this can have negative effects on audit quality, there is no insight in what motivates the choice for CMC yet. In the audit literature, time pressure is linked to various audit quality reducing acts. This thesis proposes that time pressure has an effect on the choice for CMC, but also that the professional identity of the auditor may moderate this effect.
Research Findings/Insight: A study of 131 Dutch auditors shows that time pressure doesn’t have a significant effect on the choice for CMC, but that the professional identity of the auditor significantly reduces the choice for CMC in an audit inquiry.
Theoretical/Academic Implications: Based on the social identification- and professional identity theory, this study shows that auditors who identify themselves as a professional auditor are more likely to seek direct contact with clients (rather than engaging in CMC) in carrying out their audit work. This underlines the importance of professional identities for audit work, as studies have proven that CMC reduces audit quality in studies.
Practitioner Implications: Audit firms and auditors should be aware of the importance of professional identity in the audit profession. This awareness can be created by audit firms through training and education in professional skills.
Keywords: time pressure, professional identification, auditor-client interaction, computer-mediated-communication, face-to-face communication
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INTRODUCTION
The task of an auditor is to provide assurance that the management has, in its financial statements, presented a ‘true and fair’ view of a company’s financial performance and position (Trompeter & Wright, 2010). It is therefore crucial that auditors gather audit evidence from the management to support the audit report. (Francis, 2011). Auditors “being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence” lies at the heart of auditors’ professional skepticism (IAASB, 2014; IFAC, 2012; PCAOB, 2017). Whereas recent research increasingly acknowledges the way in which audit evidence is gathered (i.e. face-to-face or via email) fundamentally impacts auditors’ assessment of audit evidence (Bennett & Hatfield, 2013), little is known about what factors drive the way individual auditors’ gather audit evidence. This is an important issue, not only because audit inquiries via email have been found to seriously reduce auditor professional skepticism (Bennett & Hatfield, 2018), but also because computer-mediated-communication (hereafter CMC) is an ever increasing phenomenon in the auditors’ work-life (Heller, 2010).
One of the procedures that is extensively used throughout an audit is the audit inquiry. Inquiry consists of seeking information of knowledgeable persons, both financial and nonfinancial, inside or outside the entity. There are standards which require auditors that they consider the reactions and responses and asking follow-up questions, which is known as a key aspect of professional skepticism (AICPA, 2013). These follow-up questions are a way to discover issues, for example the circumvention of controls or possible indicators of fraud (PCAOB, 2017). The client can intentionally convey information in a way that distorts the reasonable view of the financial reports. It is therefore important for auditors to observe and hear more subtle cues that can signal deception. Behavioral science has found that cues such as speech disruption (“uh” or pauses), a higher-pitched tone of voice, and less eye contact are linked to deception (Vrij & Semin, 1996).
As noted, for the audit inquiry computer-mediated-communication (CMC) has become more popular among audit team members (Brazel & Agoglia, 2004). Partners in audit firms are more and more concerned about the use of CMC by staff auditors in client interaction. Although CMC could be more efficient for simple tasks as document requests, audit partners highlight that they prefer face-to-face (FTF) communication when it comes to tasks such as investigating fluctuations or a proposed adjustment to the client (Westermann, Bedard, & Earley, 2015). In this vein, interviews with audit partners indicate that staff auditors are less engaged in
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relationship-building statements and don’t learn to “read the client” when there is less face-to-face communication (Bennett & Hatfield, 2013). Bennet and Hatfield (2018), for instance, found that auditors who communicate FTF produce more follow-up questions and are more skeptical than auditors communicating electronically. Besides, Saiewitz and Kida (2018) show that, compared to audio or visual inquiries, client responses are more biased towards information that supports the client’s position when an auditor asks information via e-mail. These studies consistently show that CMC generally undermines critical audit inquiry.
Whereas most of the research on CMC has focused on the negative effects on audit quality, there is very little knowledge about what drives the choice for CMC by auditors. There are some mixed findings in computer sciences regarding gender and the use of CMC (Ian Robertson, Calder, Fung, Jones, & O’Shea, 1995; Nash & Moroz, 1997), as well as communication research showing how communication apprehension and interaction involvement are related to one’s attitude towards the use of CMC (Campbell & Neer, 2011). However, these studies failed to predict CMC attitudes. Thus, studying what factors drive an auditors’ use of CMC instead of FTF for audit inquiries is not only conceptually interesting, it is also practically relevant for the audit profession, given the prominence of CMC in audit work (Bennett & Hatfield, 2013, 2018; Saiewitz & Kida, 2018).
Given that CMC is generally seen as more efficient in carrying out audit inquiries, time pressure can potentially have an effect on the choice for CMC instead of FTF communication. The time-pressured auditor will have to prioritize time-saving actions and could therefore be expected to choose for the least time consuming way of communication even it may undermine audit quality (Svanström, 2016). Indeed, previous studies have shown that time pressure is linked to various types of audit quality reducing actions such as premature signing off on an audit programme step, making superficial reviews of client documents, failing to research on an accounting principle, rejecting awkward-looking items from a sample, accepting weak client explanations, and putting more trust in the audit client than is reasonable (Broberg, Tagesson, Argento, Gyllengahm, & Mårtensson, 2017; Otley & Pierce, 1996; Pierce & Sweeney, 2004; Svanström, 2016). Where the existing literature states that using CMC can be effective for simple audit tasks, in complex and unique tasks the use of CMC is less appropriate (Bennett & Hatfield, 2018). My expectation therefore is that auditor time pressure may increase the chance of an auditor choosing for CMC instead of FTF communication in complex audit tasks.
While time pressure may increase the chance of an auditor choosing for CMC in an audit inquiry, other features may reduce this effect. One potential crucial factor is an auditor’s
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professional identification. Professional identification refers to the extent to which a professional employee experiences a sense of oneness with their profession (Hekman, Steensma, Bigley, & Hereford, 2009). Auditors who identify with their profession are more likely to adopt the profession’s norms and values. As a consequence, professional identification endorses professional behavior and auditor’s objectivity (Johnstone, Warfield, & Sutton, 2001). Previous papers have shown that professional identification of the auditor moderates negative effects in decision-making during the audit (Bamber & Venkataraman, 2007; Hekman et al., 2009). My expectation is that professional identification influences the auditors’ choice for CMC under time pressure. Or, in other words, my prediction is that auditors that strongly identify with being an auditor are less likely to engage in CMC when faced with time pressure.
Resulting from the above highlighted literature and expectations, the following research question has been formulated: In engaging in non-standard complex audit inquiries, what effect does time pressure have on auditors’ choice for CMC instead of FTF communication and how does auditor professional identification moderate this effect?
In the following sections, I will first discuss the prior literature and the hypotheses development. Section 3 describes the research method. Section 4 presents the results; and the discussion will be presented in section 5.
THEORETICAL
BACKGROUND
Audit inquiry is a central element in the audit process (Francis, 2011). Audit inquiry consists of seeking information from knowledgeable persons and should include consideration of client reactions and responses (AICPA, 2013). The effectiveness of the audit depends partially on the effectiveness of the client inquiry process. Messier, Glover, and Prawitt (2017) note that auditors provide direct inquiries with client personnel to discover a great deal of information, and Trompeter and Wright (2010) confirm that an audit inquiry is a frequently-used method for gathering information about unusual fluctuations and potential risk areas. In their study regarding the development of the audit inquiry, they found that technological advances and changes in firm audit approaches are two significant enables of change in audit inquiry practices (Trompeter & Wright, 2010).
Given the importance of audit inquiry, I will first discuss how the communication medium can affect this aspect of the audit.
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CMC vs. FTF communication in Audit Inquiry
The use of CMC is growing in a rapid rate in most industries (Heller, 2010). In audit teams it becomes more routine that auditors choose for CMC (Brazel & Agoglia, 2004), which is a consequence of the development of electronic workpapers (Agoglia, Hatfield, & Brazel, 2009). Other upcoming technologies are the “remote audits” and “distributed teams” that also results in an increased use of CMC among auditors (Teeter, Alles, & Vasarhelyi, 2014). Carlisle (2018) found that staff auditors use CMC for nearly half of all communications with the client. Although the increased use of CMC during the audit has improved audit efficiency and reduced the time and cost of travel (Brazel, Agoglia, & Hatfield, 2009), CMC can also have negative consequences compared to FTF communication.
In FTF communication there is an opportunity for immediate feedback and multiple cues, such as body language and tone of voice (Vrij & Semin, 1996). Bennet and Hatfield (2018) found that audit partners are concerned about the extent to which staff-level auditors are choosing for CMC instead of FTF communication. While staff and partners agree on the use of CMC for data-gathering tasks such as requesting a list of journal entries or the minutes of a board meeting (document requests), they disagree about the form of communication when it comes to tasks such as asking questions about a perpetrated fraud, investigating fluctuations, or communicating a proposed adjustment to the client (Bennett & Hatfield, 2013, 2018). Bennet and Hatfield (2018) found that staff auditors are in general more comfortable using CMC in a wider variety of audit situations. In addition, Bennett and Hatfield (2018) found in their study that auditors communicating FTF provide more follow-up questions and are more skeptical than auditors communicating electronically. A lack of sufficient professional skepticism is cited by Beasley, Carcello, and Hermanson (2001) as one of the most important reasons that auditors fail to detect material misstatements. From another perspective, Saiewitz (2018) found that clients view FTF requests as more important and urgent than CMC requests. Two other empirical researchers, Saiewitz and Kida (2018), have examined whether receiving an auditor inquiry via e-mail has a different effect on the client response compared to FTF communication. They found that if an auditor asks for information via CMC, client responses are more biased towards the information that supports the client’s position as compared to FTF.
In complex and unique problem solving tasks communication mediums with reduced channels (no audio or visual channels) can be classified as the wrong choice to gather sufficient audit evidence (Bennett & Hatfield, 2018). In the next paragraph the issue of time pressure in
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auditing will be presented, together with the expected effect on the choice for CMC in an audit inquiry.
CMC in an Audit Inquiry as Explained by Time Pressure
Time pressure is defined as “the extent to which employees feel that they need to work at a pace faster than usual or have insufficient time to finish their work tasks”(Prem, Ohly, Kubicek, & Korunka, 2017: 110). Pierce and Sweeney (2004) found that time pressure has increased in audit firms and is way too high. Audit firms are in general hierarchically structured. Appointments with partner and manager levels are usually internal promotions based on performance ratings (Mcnamara & Liyanarachchi, 2008). An important criterion in obtaining a good rating is time budget achievement. For this reason, auditors feel considerable pressure to meet time budgets (Broberg et al., 2017). Where the audit literature distinguishes time budget pressure and time deadline pressure (when it is difficult for an auditor to complete work before a required deadline), these concepts are strongly related. In earlier studies (Broberg et al., 2017; Svanström, 2016) the concept “time pressure” refers to both budget pressure and deadline pressure.
Multiple studies have shown that time pressure has negative effects on individual decision-making in the working-place (Mcnamara & Liyanarachchi, 2008; Svenson & Edland, 1987). This negative impact on decisions has several causes: (1) decision-makers are less likely to select alternatives with the highest expected value when under time pressure; (2) makers do not consider the consequences of their actions under time pressure; and (3) decision-makers are less likely to help others under time pressure (Moberg, 2000).
Auditors have to make judgments and decisions about whether to require a client to correct a detected misstatement. These judgments and decisions can threaten the outcome of the engagement and the validity of the audit opinion (Herrbach, 2001). There are multiple studies that examine auditor’s decisions and the impact on audit quality. Malone and Roberts (1996:1) described reduced audit quality behavior as “actions taken by an auditor during an engagement which reduce evidence gathering effectiveness inappropriately”.
Several studies have shown that the auditors’ perception of time pressure is positively associated with reduced audit quality behavior. Evidence from a study by Pierce and Sweeny (2004) suggests that dysfunctional behavior is significantly related to time pressure. Besides, a research done by Svanström (2016) found that audit quality is at risk when auditors experience high levels of time pressure. The auditor that feels a higher level of time pressure will have to
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prioritize time-saving actions. The audit quality reduction behaviors that are presented in the above stated papers are; superficial review of client documents, acceptance of weak client explanations, failure to research an accounting principle, failure to pursue a questionable item, and a false sign-off (Malone & Roberts, 1996; Otley & Pierce, 1996; Pierce & Sweeney, 2004; Svanström, 2016).
Given that the time-pressured auditor will have to prioritize time-saving actions (Svanström, 2016), and CMC communication is more efficient and less time-consuming than FTF communication (Brazel et al., 2009), it is plausible that the time-pressured auditor will use CMC in an audit inquiry instead of FTF communication. Based on the above the following hypothesis is formulated:
Hypothesis 1. Time pressure is positively associated with the extent to which an auditor chooses for CMC instead of FTF communication in an audit inquiry.
The Moderating Role of Professional Identity of the Auditor
Professional identities or role identities are practically important in the workplace because they influence work-related performances. Specifically, these identities are described by Farmer & Dyne (2010: 504) as “behavioral expectations with special emphasis on meanings and expectations one attributes to oneself in a role (and that others attribute to one)”. Similarly, professional identification can be formally defined as the extent to which an auditor experiences a sense of oneness with the audit profession (Hekman et al., 2009). Identification not only creates one’s self-perception in relation to other group members or one’s self-perception in relation to non-group members (Brewer, 1979; Turner & Hogg, 1987), it also leads professionals to internalize professional norms into their self-concept. Ashfort (2008: 338) describes this as “defining oneself in terms of a collective or role encourages one to enact the values, beliefs, and norms of that collective or role”.
The professional identity of an auditor is especially important cause clients (organizations) and auditors tend to be rival groups, meaning that the goals and values of organizations and auditors may not necessarily align (e.g. the client wanting to have their financial statements approved and the auditor ensuring that there are no material misstatements) (Bamber & Venkataraman, 2007). In the audit profession there is a general agreement about what it means to be a professional auditor, and that this identity directly influences behavior (Empson, 2004). Auditors who strongly identify with being an auditor care a lot about providing the highest
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quality service, as defined by the professional standards, almost regardless of cost or revenue consideration (Freidson, 2001).
Prior research regarding the professional identity of auditors found several consequences of auditors’ behavior. Herrbach (2001) found that the aspects that are dealing with the professional identity of the auditor have the most effect on audit quality. Auditors that consider their role as a professional auditor in a proper way are more likely to engage in independent decision making (Warren & Alzola, 2009), and in multiple papers is shown that a higher professional identification results in less negative auditor decisions (Bamber & Venkataraman, 2007; Hekman et al., 2009; Johnson, Morgeson, Ilgen, Meyer, & Lloyd, 2006). Engaging in CMC as a result from time pressure – thereby not adhering to the highest professional standards – goes against the professional standards of professional skepticism. Given the fact that the use of CMC during an audit inquiry is likely to undermine audit quality (Bennett & Hatfield, 2018), I anticipate that auditors who have a strong professional identity are less likely to engage in CMC as a result from time pressure. To conclude, this results in the following hypothesis:
Hypothesis 2. The relationship between time pressure and the extent to which an auditor chooses for CMC instead of FTF in an audit inquiry will be moderated by the professional identity of the auditor, meaning that, this relationship is weaker for auditors that have a professional identity.
The conceptual model of this study is shown in figure 1.
Figure 1. Conceptual model
Time pressure Audit inquiry
via CMC
Professional identity
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METHOD
Sample and Procedures
The participants in this study were recruited from different accounting firms located in the Netherlands. Auditors were personally approached by members of the research team. An email with an invitation for the survey was sent to auditors with different ranks and experience. I contacted auditors with a minimum work experience of 2 years. An important reason for this is that they can adequately assess the complex audit cases that were presented (i.e. face-to-face or computer-mediated). Participation in the study was completely anonymous, but all auditors ha the opportunity to receive a personal benchmark report in which their individual scores are benchmarked against the scores of other participants.
The survey with an invitation link is sent to 136 auditors. Auditors received a first reminder one week after the survey was sent out and a second reminder was sent after two weeks. 114 of the 136 invited auditors completed the survey (response rate = 83%). In addition, the auditors that have completed the survey and indicated they wanted to receive a personal benchmark report had the possibility to invite colleagues to participate in the research by forwarding the survey link. As a consequence, the final sample consisted of 131 auditors. Regarding the auditors, the average age was 31 years, 27,5 % were women, and the average tenure is 7,5 year.
Measures
Audit inquiry via CMC. The extent to which an auditor chooses for CMC in an audit inquiry is measured by a six item scale that is developed by Bennett and Hatfield (2018). Auditors were asked to complete six statements about six audit situations in which client interaction is required (audit inquiry). In these audit situations the audit staff could choose to communicate with the client via e-mail or choose for FTF interaction. The six statements are included in the appendix. Auditors used an eleven-point scale (1 = definitely in person, 11 = definitely via mail) to report the level of agreement with each item. As noted by Bennet and Hatfield (2018), rather than a mechanical combination of auditors’ responses across the different cases, this unique method attempts to measure an auditors’ face-to-face communication with the client across a range of
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complex audit situations. To ease interpretation I have calculated the average across the six audit cases (with an absolute minimum score of 1 and an absolute maximum score of 11)1.
Time Pressure. Auditor time pressure is measured with a five item scale that is developed by Spector and Jex (1998) and is often used in the audit literature (Broberg et al., 2017; Svanström, 2016). Examples of questions are “How often does your job require you to work very hard?” and “How often does your job leave you with little time to get things done?”. Auditors used a five-point scale (1 = once per month or never, 5 = several times a day) to answer these questions. This is a measure that is often used in the audit literature (Broberg et al., 2017; Svanström, 2016). The Cronbach alpha = 0.81.
Professional identification. Auditors completed Bamber and Iyers (2007) six item scale to measure professional identification. This scale is rephrased from an organizational orientation to a professional orientation to consist with Russo (2005). Examples of statements in this part of the survey are: “The audit profession successes are my successes” and “When someone criticizes the audit profession, it feels like a personal insult”. A seven-point scale (1 = strongly disagree, to 7 = strongly agree) is used to measure the level of professional identification (Cronbach alpha = 0.82).
Control variables. First of all, I controlled the extent to which an auditor provided quality threatening behavior (QTB) during an audit, measured by a seven-point scale (1 = never, 7 = very often). Bennet and Hatfield (2018) found in their research that auditors using CMC are less skeptical and endanger the audit quality. To control for quality reducing acts QTB is added to the regression analysis. Secondly, the influence of the auditor’s ability to plan is added as a control variable. Prior literature finds that auditors who are better at time management are more professionally skeptical (Anderson-Gough, Grey, & Robson, 2002). These auditors may therefore have a lower overall tendency to engage in CMC. Therefore, the variable ‘Planning’ is added.
1 Whereas auditors might provide different answers across the different audit cases (i.e. as a compilational
construct), the Cronbach alpha (measures the extent to which the answer on the audit cases converge) still reads 0.60.
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RESULTS
Descriptive Statistics
Table 1 reports the results of the analyses, descriptive statistics and correlations among study variables. Results indicate that QTB is positively related to time pressure (r = .28, p < 0.01), that planning is positively related to professional identity, and negatively related to QTB (r= .27, p < 0.01 & r = -.31, p < 0.01). This indicates that auditors that experience more time pressure are more often involved in QTB’s during an audit, and that auditors with a higher professional identity are more likely to effectively plan their work. Also, auditors with higher ability to plan are less involved in QTB’s.
Hypotheses Tests
First, the assumptions for a linear regression are checked and satisfied. Table 2 shows the results of the linear regression analysis. Hypothesis 1 predicted that the time pressure that an auditor experiences is positively related with the extent to which an auditor chooses for CMC in an audit inquiry. However, the results indicate that time pressure does not have a significant, direct effect on the choice for CMC in audit inquiry. Hypothesis 2 predicted that the professional identity of the auditor moderates the effect of perceived time pressure and the use of CMC in an audit inquiry. The predicted relationships were tested using moderated multiple regressions analyses following the procedure outlined by Aiken and West (1991). As shown in Table 2 (Model 2), professional identity is negative and significant (β = -.21, p < 0.10). This result indicates that auditors who strongly identify with their role as a professional auditor use CMC less frequently in an audit inquiry. The two-way interaction (Model 3) of time pressure and professional identity doesn’t show a significant effect. Finally, the control variables QTB and planning (Model 1) both have a positive and significant effect (p < 0.05) on the use of CMC in an audit inquiry. This indicates that auditors with more QTB’s during an audit more often use CMC during an audit inquiry.
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Descriptive Statistics and Correlation Matrix
Variable Mean SD MIN MAX 1 2 3 4 1 Audit inquiry CMC 3.28 1.26 1.0 7.0 2 Time pressure 5.05 0.85 2.4 7.0 -.02 3 Prof. Identity 4.30 1.14 1.0 6.4 .13 -.07 4 QTB 2.52 0.82 1.0 5.5 .12 .28* -.16 5 Planning 4.42 1.04 1.5 7.0 .14 -.16 .27* -.31* * p < 0.01 Table 2 Regression Analysis CMC
Step and variables Model 1 Model 2 Model 3
B SE B SE B SE Intercept 1.54* (.69) 1.35 † (.69) 1.35 † (.69) Control QTB .28* (.14) .28 † (.14) .28 † (.14) Planning .23* (.11) .28* (.11) .28* (.11) Main effects Time pressure -.06 (.11) -.08 (.12) Professional identity -.21 ** (.11) -.22 **(.11) Two-way interaction
Time pressure x Professional identity .06 (.11)
R2 .05 .08 .08
Adjusted R2 .03 .05 .04
† p < 0.10 * p < 0.05
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Supplementary analyses
I performed supplementary analyses in order to clarify the role that other measures linked to time pressure play in this model. First of all, I examined an alternative model that positions “work hours” as the main cause for the use of CMC in an audit inquiry instead of time pressure. The results of this alternative model, however, don’t lead to another conclusion: work hours don’t have a significant effect on the use of CMC in an audit inquiry. It is however noteworthy that the professional identity of the auditor is negatively correlated and highly significant (p < 0.01). These results are shown in Table 3.
Second of all, I executed a model with the independent variable professional identification as dummy variable. This means that when the auditor identifies themselves below the median (4.4) with the audit profession value = “-1” and above the median value = “1”. The results for professional identification and interaction term are approximately equal. It is remarkable that time pressure has a negative effect (β = -0.06), but that the dummy for time pressure has a positive effect (β = .12).
Table 3 Regression Analysis
CMC
Step and variables Model 1 Model 2 Model 3
B SE B SE B SE Intercept 1.29* (.70) 1.11* (.71) 1.11 (.72) Control QTB .32* (.14) .29* (.14) .29* (.14) Planning .27** (.11) .32** (.11) .32** (.11) Main effects Work hours .05 (.11) -.01 (.48) Professional identity -.24** (.11) -.24** (.11) Two-way interaction
Work hours x Professional identity -.02 (.11)
R2 .06 .09 .09
Adjusted R2 .05 .06 .06
* p < 0.05 ** p < 0.01
14 Table 4 Regression Analysis
QTB
Step and variables Model 1 Model 2 Model 3
B SE B SE B SE Intercept 3.60* (.30) 3.40* (.31) 3.39* (.31) Control Planning -.25* (.07) -.20* (.07) -20* (.07) Main effects Time pressure .19* (.07) .20* (.07) Professional identity -.07 (.07) -.06 (.07) Two-way interaction
Time pressure x Professional identity -,04 (.07)
R2 .01 .16 .16
Adjusted R2 .01 .14 .13
* p < 0.01
Finally, I executed a model where QTB is the dependent variable. Table 2 shows that there is a relationship between the control variable QTB and time pressure. Prior research has shown that time pressure is linked to various QTB’s (Broberg et al., 2017; Svanström, 2016). Looking at the correlation in Table 2, it might be interesting to test the association between time pressure and QTB. Table 4 shows the results for the relationship between time pressure, professional identification and QTB’s. The amount of time pressure that an auditor experiences is positive correlated and highly significant (p < 0.01) with the amount of QTB’s by the auditor. In addition, the control variable ‘Planning’ is negatively and highly significant associated (p < 0.01).
DISCUSSION
In this study, I explored the effect of time pressure on the use of CMC in an audit inquiry, and the moderating effect of professional identity of the auditor. The use of CMC is rapidly growing during audits and can enhance efficiency and effectiveness. However, on the negative side, recent research shows that the use of CMC can undermine the audit quality (Bennett & Hatfield, 2018; Saiewitz & Kida, 2018). Relatively little is known about the motives of an
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auditor to choose for CMC in an audit inquiry. Several studies in the field of auditing have shown that the time pressure an auditor experiences can lead to quality reducing acts (Mcnamara & Liyanarachchi, 2008; Pierce & Sweeney, 2004, 2007; Svanström, 2016). This study generally confirms this relation. In addition, I also found that professional identification of an auditor has a significant influence during the audit. A stronger identification with the audit profession leads to a higher chance that the auditor will choose for FTF communication in an audit inquiry.
Theoretical implications
This paper adds to the already existing literature by emphasizing the main reasons for an auditor to use CMC in an audit inquiry. During the past years, researchers have put substantial effort into trying to understand the effects of the use of CMC. For example, Bennett and Hatfield (Bennett & Hatfield, 2013, 2018) consider how the auditor is affected by the use of CMC, while Saiewitz and Kida (2018) look at how client management is affected by the communication medium. However, as noted, the underlying incentive for auditors to choose for CMC instead of FTF is still very much unclear. This is the first empirical study that analyzes communication mode motives during the audit on an individual level.
First of all, the results of this study demonstrate that auditors who strongly identify with being an auditor are less likely to engage in CMC when carrying out complex audit work. Research has shown that professional identification results in less negative auditor decisions and in more independent decision making (Hekman et al., 2009; Warren & Alzola, 2009). This study contributes to older research in showing that the main reason for an auditor to communicate FTF is not extrinsic (the time pressure that an auditor perceives) but more intrinsic (the professional identity of an auditor). This study highlights the importance of professional identity of auditors and the impact on their behavior.
Second of all, this study shows that time pressure is still a concern in the audit firm as audit quality appears to be at risk when auditors become time-pressured. Auditors that experience a higher extent of time pressure will have to prioritize time-saving actions. This subsequently leads to quality reducing acts during an audit (Mcnamara & Liyanarachchi, 2008; Pierce & Sweeney, 2007; Svanström, 2016). In addition, the results indicate that an auditors’ ability to plan lowers the QTB’s when an auditor perceives a higher extent of time pressure. This study highlights that time pressure is threatening the quality of an audit. This underlines the importance of an auditor’s ability to plan and this is also essential for academics since relatively
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is known about the effect of the auditor’s ability to plan on the audit. Besides the link between time pressure and an audit’s quality, this study shows that time pressure is not a driving factor for using CMC in an audit inquiry.
Practical implications
The results of this study have several practical implications. First of all, this study helps to explain that auditors with a stronger professional identity choose more often for FTF communication. An appropriate delivery of professional skills are listed as a core competence by the AICPA (2013). One implication for audit firms is that they should focus on adequate training and attention to professional communication skills. This is in line with Saiewitz and Kida (2018), who advocate the education of staff auditors about the potential effects of communicating in a less professional manner. At the same time, an implication of the results is that regulatory bodies need to be aware of the fact that the professional identity of an auditor plays a role in the growing use of CMC. Policy makers can implement policies that provide more guidelines regarding the choice for CMC in an audit inquiry.
Second of all, this study may shed light on the importance of time pressure in auditing practice. Several big4 firms state that they are concerned about time pressure, and improved the work-life balance for their auditors (EY, 2019; KPMG, 2019). However, the results of this study highlight that time pressure is still one of the reasons for QTB’s during an audit. This shows that audit firms should still be highly aware of the consequences of time pressure during an audit.
In the last place, the results emphasize the importance of the auditor’s ability to plan. In previous research, better time management has already been associated with more professional behavior (Anderson-Gough, Grey, & Robson, 2002). This study has found that an auditors’ ability to plan controls the association between time pressure and QTB. Training and education can help auditors and audit firms to increase their abilities to plan.
Limitations and Future Directions
This study is subject to several limitations. Given the characteristics of this study, attention should be paid to interpreting and generalizing results from this study. This explicitly means that the cross-sectional design of this study limits the ability to draw empirical conclusions about the direction of causality. Also, the group of participants does not only consist of staff auditors, but also of auditors of higher ranks (manager, senior manager, partner). They don’t execute the audit tasks named in the survey. It is possible that they don’t have experience with
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these tasks and choose for other answers then staff auditors would do. Besides, the sample profile consists only of auditors from 4 audit firms. This limits the generalizability to Big-4 audit firms operating in environments similar to that of the Netherlands.
Additionally, it is possible that the survey methodology leads to a biasing factor due to common method variance. This is an inherent problem in all survey research, but the nature of the questions about QTB and CMC may be added to the risk that auditors underreport undesirable behavior. All measures for analyses were collected by surveys filled out by individual auditors. However, common method bias cannot explain for any significant interaction effects (Podsakoff, MacKenzie, & Podsakoff, 2012). In addition, there are several non-statistical techniques used that reduce the potential of common bias (Podsakoff et al., 2012). For example, I assured the auditors that their participation was anonymous.
As far as I know, this study provides the first empirical evidence on the motives for CMC in an audit inquiry. My first recommendation for future research is to choose for another research methodology. E.g.: experiments or observe auditors that work at a client’s office. This experimental design would allow auditors and clients to fully interact, measuring a joint outcome. Future research may gauge other contextual conditions, such as the use of CMC in interplay between auditors or the use of other textual devices (e.g. WhatsApp) in client-interaction.
To further understand the use of CMC during an audit, there are several interesting opportunities for research. For instance, it would be interesting to examine the use of CMC between auditors in an audit team and the consequences for audit quality. In this research, I only focus on time pressure and professional identification and their influence on the use of CMC during an audit. Future research may look for other extrinsic factors than time pressure: education or training for example. It is also possible that other intrinsic factors (e.g. job satisfaction are linked with the use of CMC. Future research can cover these types of variables.
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A
PPENDIX
Original item Adapted Comments
During discussions with payroll staff, the audit team learns that an employee had been fired for stealing inventory from the company. The staff/senior has a couple of questions to ask the Plant Controller to verify this information. How would you ask these questions?
During discussions with payroll staff, the audit team learns that an employee had been fired for stealing inventory from the company. The audit team has a couple of questions to ask the Plant Controller to verify this information. How would you ask these questions?
Variable/scale: Computer- Mediated-Communication (CMC) Bennet & Hatfield, AOS, 2018 Some of the items refer to simple information gathering. Benet & Hatfield, highlight the distinction
between more
complex issues and
The audit team noticed that while the accounts receivable balance at year-end has increased, the allowance for doubtful accounts has not. They would like to know the policy on how the allowance is calculated by management. If given this task, how would you ask how the estimate was calculated?
The audit team noticed that while the accounts receivable balance at year-end has increased, the allowance for doubtful accounts has not. They would like to know the policy on how the allowance is calculated by management. How would you ask how the estimate was calculated? During testwork regarding revenue, you noted that one large
sale was not accounted for in the proper period. The audit team has an audit adjustment to propose to management. If given this task, how would you communicate the details of the adjustment and proposed entry?
19 In discussing the performance of the company during the
audited year, the CFO said that it had been a strong year for the company. However, the audit team noted that Inventory Turnover had decreased, indicating that inventory was moving more slowly than in prior years. If given this task, how would you follow-up to ask about inventory levels during the year?
Original simply requesting info. For each provided statement, participants responded using a scale of 1-11 where 1 represents
'Definitely Meet In-Person' and 11 represents
'Definitely E-mail Request'.
The staff is in the process of clearing review for the engagement. For one review note, it asks the staff to check with the Accounts Payable Clerk to make sure there have not been any changes to the accounts payable process. How would you
typically communicate with him/her to obtain this information? Original
When working on an audit engagement for the first time, how would you generally interact with members of client personnel during an average day in audit fieldwork?
20
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