Time pressure, stress and professional
commitment:
Can all auditors deal with it?
MSc Accountancy and Controlling
Master thesis Marsha Beukeveld S2548208 Schutselaan 11, 7741 AN Coevorden +31630759860 m.a.m.beukeveld@student.rug.nl Supervisor: Veltrop, D. Second Assessor: Mostert, I.
Third Assessor: Burgers, I. Word count: 8,874
2 Abstract
Due to major scandals in recent years, stakeholders are expecting audits that are of high quality. The individual performance of an auditor has become very important as a result of these scandals. The profession of accounting is now faced with pressure to produce high quality audits. Auditors are faced with time pressure since the level of time pressure has risen in the accounting profession and this is higher than optimal. Furthermore, auditors have to deal with levels of stress given that the accounting profession is stressful by nature. This study investigates if there is a relationship between time pressure and stress and whether professional commitment influences this relationship. Moreover, the impact of stress on the individual performance of an auditor will be examined. An online survey has been used to conduct data. This survey was completed by 142 auditors. The results of this study provides evidence that there is a positive relationship between time pressure and stress. Outcomes of these study show that professional commitment has no significant effect on the relationship between time pressure and stress. The findings of this study provide also evidence for a U-shaped relationship between stress and the individual performance of an auditor.
Keywords: Audit quality, Individual Performance, Time pressure, Stress, Professional Commitment
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Table of Contents
Introduction ... 4 Theory ... 8 Audit quality ... 8 Time pressure ... 9 Stress ... 11 Professional commitment ... 12Stress and the individual performance of an auditor ... 14
Methods ... 17
Procedures and Participants ... 17
Measures ... 17 Audit quality ... 17 Time pressure ... 18 Stress ... 18 Professional commitment ... 18 Reliability analysis ... 19 Control variables ... 19 Company ... 19 Gender... 19 Age ... 19 Results ... 21 Discussion ... 25
Limitations and Direction for Future Research ... 27
Practical Implications ... 28
References ... 29
4 Introduction
Nowadays, stakeholders demand audits that are of high quality (Martin, 2013). Due to major scandals in auditing, audit firms are faced with more pressure to produce audits that are of high quality (Liyanarachchi and McNamara, 2007). Trust in the universal profession of auditing is being undermined in consequence of corporate scandals, such as Enron and WorldCom and as consequence of this the need for high quality audit performances at the individual level has heightened (O’Leary, 2004; Kalbers and Cenker, 2008). To serve audits that are of high quality, potential misstatements have to be detected by an auditor (Zhang, 2007). The confidence of investors in the financial statements will rise due to higher audit quality (Chen, Sadique, Srinidhi and Veeraraghavan, 2017). The mission of auditors is to serve the interest of the public by providing an audit whose quality is high (Draeger, Herrmann and Lawson, 2016). To preserve and protect the interest of stakeholders, audits that are of high quality are crucial since independent assurance concerning the credibility of financial accounting information of the management will be delivered (DeFond and Zhang, 2014) particularly when the governance practices of the organization are lacking (Husnin, Nawawi and Salin, 2013).
The auditing profession has faced many changes in the last decades. Since 2002, by introducing the Sarbanes-Oxley Act, regulators are independent and the government has to supervise the auditing profession (Knechel, 2016). Auditors are becoming increasingly important because more and more is expected of them. Auditors are expected to meet the high standards set by regulators and to meet the expectations of the stakeholders (O’Leary, 2004). As a consequence of increasing regulatory practices, the complexity and amount of audit tasks are increasing, requiring more learning and effort on the auditors’ part (Alissa, Capkun, Jeanjean and Suca, 2014). Although high quality is expected from accounting firms, the quality of the BIG 4 accounting firms in the Netherlands turns out to be just below par1. Research by the Authority of Financial Markets
(AFM) has shown that the effective operation of the companies’ internal control is not adequately monitored. Furthermore, analytical procedures and detailed controls are not performed properly. For each occupational group, a significant work outcome is their job performance. The potential for errors, loss of credibility and legal liability will be created by poor performance. Therefore, the quality of audits relates to job performance (Kalbers and Cenker, 2008). The need
5 for audit performances that are of high quality at the firm and individual level have enhanced by recent scandals such as Enron (Liyanarachchi and McNamara, 2007). Regulators pointed out that the quality of an audit will be affected by a wide range of factors that are inter-related, under which auditors’ professional qualities and skills (Hossain, Yazawa and Monroe, 2017). Kalbers and Cenker (2008) have found that job performance at the individual level has major effects for the quality of an audit. Despite these findings, academics in the auditing profession have mainly performed research focusing on the effect of the interdependence of auditors, the way in which regulators influence the audit performance and the influence of characteristics of individual auditors (DeFond and Frances, 2005; Francis, 2011; Gul et al., 2013; DeFond and Zhang, 2014). Little attention has been paid to the individual performance of auditors.
DeFond and Francis (2005) have argued that determinants of the quality of audits are to a greater extent significant at the individual auditor level. Regulators and scholars have studied the importance of theoretical knowledge and knowledge of standards of auditing by individual auditors (Francis, 2011). High-quality audits are taken off by competent auditors (Francis, 2011). Despite these findings, it is still unclear why some qualified auditors have more success than other qualified auditors in carrying out high quality audit work.
In audit firms, time pressure has risen and is distant higher than optimal (Pierce and Sweeney, 2004). Kelley and Margheim (1990) have shown that time pressure is very important in accounting. As a result of amendments and regulatory updates, an increasing time deadline pressure is experienced by auditors at all levels (Robertson, 2007). Individual auditors are more often exposed to pressure and responsibility transferred through audit firms via deadlines, tight budgets and different standards concerning efficiency (McNair, 1991). This requires more from auditors and puts a greater pressure on them, since this can influence the reputation of individual auditors (Nehme, Mutawa and Jizi, 2016). The reputation of and trust in auditors can only secure the quality of an audit (Liyanarachchi and McNamara, 2007). Recent research has shown that auditors experienced only ‘sometimes to regularly’ enough time scheduled for a task2.
The profession of accounting is stressful by nature (Collins and Killough, 1989). In which way stress is a crucial component in the practices of accounting is illustrated by Weick (1983). Nowadays, many auditors are faced with stress. Recent research carried out by Careersinaudit.com
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6 has shown that one third of the auditors experience stress every week and more than half of the auditors experience stress once a month3. Therefore, it is important to examine what the impact is
of stress on the individual performance of an auditor. Physiological stress occurs through time pressure and this can change the behavior of individuals, which successively increases risk-taking behavior (Starcke, Wold, Markowitsch and Brand, 2008; Buckert, Schwieren, Kudielka and Fiebach, 2014) and hampers strategic thinking (Leder, Häusser and Mojzisch, 2013). It is likely that stress occurring from the need to deal with a limited amount of time can affect the performance of those functions (De Paola and Gioia, 2016). Stress is often experienced in circumstances when decisions and performances have to be made under restrictions (Conte, Scarsini and Sürücü, 2016). These restrictions will result in reduced capacity to filter information correctly, potentially increasing errors and distractions (Moody and Galletta, 2015). Choo (1986) has found that until a moderate level of stress is reached, the performance of an auditor will be influenced positively. Beyond that level, it decreases.
Due to stress-induced stimulation, some people may perform better while others perform worse than they would in situations without time pressure (Rastegary and Landy, 1993). The profession of accounting is faced with an increasingly demanding set of factors that is often driven globally, such as greater degrees of training and professional knowledge, higher ethical conduct expectations which are escalating, and a quite variable auditor’s workforce branching out to specialist areas such as risk management and financial planning (Gendron, Suddaby and Qu, 2009). Latham and Locke (2006) stated that individuals who are committed, are more motivated and are inclined to perform better. Auditors who have a high professional commitment should do their work in such a way that is in the interest of the public and away from behavior that can damage the accounting profession in the long run (Lord and DeZoort, 2001). So, professional commitment can influence the quality of the audit because that is in the interest of the public.
Absorbing time pressure is one of the conditions an auditor must possess to be successful in the profession of accounting (DeZoort and Lord, 1997). Responses to stress by individuals are different when they have to deal with time pressure and other limitations (Verplanken, 1993). Andreas (2016) stated that auditors who are highly committed to their profession are inclined to deal better with time pressure. These auditors try to finish their task within the time deadline and will otherwise ask for an extension of time to complete their work in a careful way. Gendron et al.
7 (2009) found that highly committed auditors are highly motivated and want to stay in the profession, resulting in a lower level of experienced stress. Hence, it is interesting to examine in which way professional commitment influences the relation between time pressure and stress. By adding professional commitment as a moderating variable, something new is added to the previously investigated relationship between time pressure and stress. Contributing to the existing literature (Svenson and Maule, 1993; Hammond, 2000; Starcke, Wold, Markowitsch and Brand, 2008; Buckert, Schwieren, Kudielka and Fiebach, 2014).
This research investigates three questions: (1) to what extent and in which way time pressure influences the level of stress experienced by an auditor, (2) how this influences the performance of an individual auditor, and (3) in which way professional commitment moderates the relation between time pressure and stress.
The remainder of this thesis is structured as follows. In the next chapter, theoretical insights will be discussed and hypotheses will be formed. Next, the methodology of this research that will be used for the statistical analysis will be described. Subsequently, the empirical findings of this investigation will be discussed and this paper concludes with a summary and discussion of the main findings of the study.
8 Theory
Audit quality
DeAngelo (1981) defines audit service quality “to be the market-assessed joint change that a given auditor will both (a) discover a breach in the client’s accounting system, and (b) report the breach” (p. 186). The independence of the auditor determines whether these misstatements are reported, entails one of the two components in which audit quality can be divided (Knechel, Krishnan, Pevzner, Schefchik and Velury, 2013). Knechel et al. (2013) stated that the other component of the quality of an audit is that an auditor acts appropriately upon the discovery of a breach. An important driver of individual auditors’ audit quality is behavior which is linked to the suitable performance of audit work programmes (Herrbach, 2001). In auditing Bedard, Deis, Curtis and Jenkins (2008) define this other component as quality threatening behavior (QTB), or each intentional action that is taken by an individual auditor during a commitment that inappropriately diminishes evidence collecting. Examples of behaviors that can be defined as quality threatening are: signoffs on steps of audits that are false, carrying out a review of evidence of audit that is superficial, or suppressing evidence of the audits that is questionable (Peytcheva and Gillett, 2012).
Research by Knechel, Krishman, Pevzner, Shefchik and Velury (2013) concluded that an audit that is ‘good’, is one where the process of the audit is well-designed and carried out by auditors who are well-mannered, motivated and skillful, comprehend the underlying doubtfulness of the audit and conform suitably to the customers’ unique circumstances. Kalbers and Cenker (2008) stated that the performance of a job is related to the quality of an audit. A lack of performance might increase the change of inaccuracies, legal liability and damage of credibility.
The overall quality of an audit is potentially affected by different aspects of the audit (Knechel, et al., 2013). Consequently, the quality of an audit, legal exposure, revenues and even continued existence are influenced for a major part by the job performance of an individual auditor (Kalbers and Cenker, 2008). DeAngelo (1981) has examined that higher quality audits are executed by Big 4 auditors. These auditors have “more to lose” because in comparison with other firms they have larger portfolios of clients and therefore the quality of their earnings will sooner be affected unfavorably. Hence, by compromising its independence, the loss of a larger audit firm is bigger (Eshleman and Guo, 2014). Boone, Khurana and Raman (2010) have stated that the quality of audits in Big 4 companies is higher because they can invest more in audit technology and in training programs that are of high quality.
9 There is very little research done focusing on the audit quality at the individual auditor level. Francis (2004) has found that previous research that is examined to analyze the quality of an audit, is mostly conducted at the audit firm or city-based practice organization degrees. Audit quality might be affected by different aggregation levels, such as office, team, and individual (Knechel, Vanstraelen and Zerni, 2015). Previously studies have found that the quality of an audit can be influenced by diversity across individual auditors (DeFond and Francis, 2005; Francis, 2011). DeFond and Francis (2005) have stated that audit quality has to be analyzed at the individual auditor level because that strengthens its power, since the audit quality determinants are there to a greater extent meaningful. Nelson (2009) notes that in the end, the skills of individual auditors determine the quality of an audit. Furthermore, cognitive abilities, risk preferences, incentives, and expertise are factors that can differ across individual auditors (Knechel, 2000). The decision to choose specific auditors may be influenced when they are confronted with time pressure (DeZoort and Lord, 1997). Research of Francis (2011) demonstrates that the theoretical knowledge of standards and auditing by individual auditor is important for the quality of an audit and that audits of higher quality are performed by more competent auditors. While Blankley, Hurtt and MacGregor (2015) have found that it is increasingly being acknowledged that when it comes to the performance of an auditor that regulation and arising complexity also increases individual auditor’s time pressure.
Time pressure
DeZoort and Lord (1997) have defined time pressure as “one’s perception concerning his/her ability to fulfil a task that is assigned inside a prescribed deadline”. Time pressure is a relevant concept, since the timely completion of a task is a major attribute of task performance. In all disciplines in accounting, time pressure is applicable (Pietsch and Messier, 2017). Time pressure is also applicable in auditing, since most audit tasks have to be finished inside a certain time frame to conform to the client’s regulatory and reporting deadlines and to budgetary constraints. In audit firms, time pressure is much higher than optimal as consequence of an increase in reporting deadlines (Pierce and Sweeney, 2004). Adequate evidence has to be collected by auditors to meet professional standards while audit costs are decreasing (Pietsch and Messier, 2017). Limited time and resources to execute required audit tasks, together with the awareness that time budgets in the audit firm are used as a performance measurement tool, leads to tension
10 between auditors (McNamara and Liyanarachchi, 2008). Auditing research demonstrated that one of the most important reasons for quality-threating behavior by auditors is time pressure (Pietsch and Messier, 2017). Bollard, Liu, Nursimulu, Rangel, and Bossaerts (2007) and Kocher, Pahlke, and Trautmann (2013) have found that individuals’ attitude toward risk can change caused by time pressure.
In case an auditor has difficulties with completing the work before a required deadline, time pressure will rise. Also, time pressure can increase when the hours that are allocated by the auditor firm to complete specified procedures are inadequate (Svanström, 2016). As a consequence, auditors have insufficient time to carry out their work properly and then they are confronted with a choice that will undeniably be disappointing. They can either execute and hand in an audit that is rushed and of lower quality or have to inform their clients when they cannot meet the deadline to gather sufficient information for a high-quality audit (Lambert, Jones, Brazel and Showalter, 2017).
When a person is in the understanding of being rushed or hurried, time pressure is seen as a feeling of stress explicit in the time literature (Ackerman and Gross, 2003). Time pressure is a common topic in the psychological literature, demonstrating that time pressure is damaging quality of decision-making (Diederich, 1997; Busemeyer and Diederich, 2002; Diederich and Busemeyer, 2003). In addition, studies found that people’s behavior differs due to differences in the meaning and riskiness of time pressure factors (Coram, Ng and Woodliff, 2004). Some research demonstrates that time pressure influences individual performance while other studies do not find this link (De Paola and Gioia, 2016). It is likely that auditors are not capable to execute the job that is anticipated from them when they are confronted with pressures (Gundry and Liyanarachchi, 2007). For instance, Braun (2000) found that auditors confronted with time pressure are evaluating evidence less critically and that the cues that are related to qualitative facets of misstatements are left out as a result of time pressure. Consequently, this will result in audits that are of lower quality. These outcomes are not in line with the expectations and standards of stakeholders and regulators (O’Leary, 2004). Choo (1995) has found that task performance in auditing can be influenced by time pressure because auditors are using the patterns of cues in a different manner when they are confronted with time pressure. As auditors are confronted with a moderate level of time pressure then auditors gave more weight to the most important cues (Choo, 1995). When auditors
11 experienced a high level of time pressure it is likely that they ignored the cues that are relevant (Choo, 1995).
Auditors’ performance will mostly be affected by time pressure since this will increase their engagement in behaviors that are dysfunctional (Margheim, Kelley and Pattison, 2011). Research of Alderman and Tracy (1982) have examined that time pressure created conditions where auditors engage in dysfunctional behavior. Under these conditions, compulsory auditory procedures have been signed off prematurely and the reported time spent on audits by an individual auditor fails frequently because they do not reported all the time they spent. This is in agreement with earlier research indicating that the effort of auditors diminishes if they are confronted with time pressure as auditors have to choose between performing their audit in the way that is expected of them and not meeting the deadline or meeting the deadline and executing their audit in a way that will result in an audit that is of lower quality (Gold, Knechel and Wallage, 2012).
Stress
The accounting profession is usually considered as an occupation that is stressful (Weick, 1983). Lazarus (1966) defined stress as “a physiological reaction to an events’ demand that challenges the ability of a person to manage it”. An imbalance among the resources of an individual and the appraisals of environmental demands causes stress (Lazarus and Folkman, 1984). Stress can occur as an interaction between an environment and a person. It is potential that stress occurs in a situation when a circumstance in the environment is observed as offering a request which threatens to surpass the competences and resources of a person to complete it, during circumstances to which a person anticipates a significant difference in costs and benefits in achieving the request versus not achieving it (McGrath, 1976).
One of the most prominent stressors for an individual is time pressure (Bakker and Demerouti, 2007). George (1974) concluded that a stressful condition occurs when someone has to make a decision. Here, stress is caused by managing the lack of knowledge concerning choices or the inability to process all the information that is available. Stress can be increased through time pressure because people can experience an intense sense of failing when they are unable to process all important information to make complex decisions (George, 1974). Robinson and Godbey (1997) have found that time pressure will result in stress because people can experience feelings that they have to handle too much work and that they do not have enough time for this or for doing
12 other things. De Paola and Gioia (2016) supported this by stating that today’s society is typified by strong competition, rapid adjustments in innovation and technology are made and require accomplishments as fast as possible. It is likely that this creates a feeling of stress among people because many activities and decisions are made under constraints of time (De Paola and Gioia, 2016). All things considered, De Paola and Gioia (2016) stated that time pressure can affect the level of individual experiences of stress.
In the profession of auditing, auditors experience each year the long hours and workloads that are concentrated at the busy season. In this busy season the level of stress will extend and the performance of an auditor is likely to decline (Jones, Strand and Wier, 2010).
When there is something in an individuals’ environment that confronts this person with a constraint, or a request or a possibility for a way of behaving it can be defined as a stressor (McGrath, 1976). When auditors have less time to complete a task, they will focus on the penalties resulting from not fulfilling the complete task in the time allocated for it and, possibly creating feelings of stress for certain auditors (Bennett and Hatfield, 2017). A conflict between an overwhelming workload of auditing within a limited time frame and restrained auditing resources will result in stress among auditors (De Paola and Gioia, 2016). The shared consequences of time pressure cause stress at the individual level (Yan and Xie, 2016). Hence, a positive relationship between the experienced time pressure by an auditor and the perceived level of work stress of an auditor is expected.
H1: Auditor time pressure will positively affect work stress level of an auditor.
Professional commitment
Next, the effect of professional commitment on the relationship between time pressure and stress will be examined. Factors that are intended to compose professional commitment are the dedication to a professional career, recognition with the profession, and the admission of the ethics and goals of the profession (Sorensen and Sorensen, 1974). Aranya, Pollock and Amernic (1981) have described professional commitment, in the literature of accounting, as a belief in and adoption of professions’ values and aims, a willingness to maintain effort that is respectable for the accounting profession, and the willingness to keep a professions’ membership. The development of professional commitment probably takes place during the process of socialization that comes
13 along when entering the profession (Aranya, Lachman and Amernic, 1982). Auditors who are high committed to their profession are more likely to perform and behave in a way that is in the interest of the public and away from a way of behaving that has the potential to harm the accounting profession (Lord and DeZoort, 2001).
Lord and DeZoort (2001) have shown that highly professionally committed auditors in the U.S. that are enforced with no pressure, sign off assets that are questionable on lower balances in comparison with auditors that are low committed to the profession. An outcome of professional commitment is considerable sensitivity to cases regarding professional ethics (Aranya, et al., 1981). In the accounting profession there are societal and professional norms where auditors are exposed to and where they have to act upon (Svanberg and Öhman, 2013). Time pressure is one of the significant deficiencies in the profession of auditing (DeZoort and Lord, 1997). Auditors who wish to be successful in their profession should be capable to absorb time pressure (Kelley and Seller, 1982). Cox (1978) stated that stress is a perceptual symptom that depends on the individual as a result of an interactional approach between a person and the environment. Stressful situations cannot be established because it differs per person when a situation is experienced as stressful, for some person a condition is experienced as stressful but may not be stressful to some other (Larson and Murff, 2006).
Auditors that are highly committed to their profession are more responsive in creating efforts to rise the values of the profession equally to improve their job performance (Larson, 1977). Low and Tan (2011) have found that the performance of an auditor will improve when they are prepared for possible constraints of time in planning an audit. This increase in performance is caused by the fact that auditors are now more focusing on meeting the objective of the audit by developing and making use of more efficient and effective audit procedures. Besides, Sonnentag and Spychala (2012) have found that when employees are confronted with time pressure, they will evaluate their capabilities and will use these in the best possible way to complete the tasks that are necessary. These people will take initiative to improve and develop capabilities to perform the tasks in the best way possible, likely increasing performance increase.
Improved performance, greater satisfaction and better judgement are outcomes in the accounting profession as a result of professional commitment (Bline, Duchon and Meixner, 1991). Auditors that are highly committed have more motivation to complete their tasks and stay in the profession and as a result they experience a lower level of stress (Gendron, et al., 2009).
14 Considering the fact that the accounting profession is faced with high time pressure (Pierce and Sweeney, 2004), it is expected that auditors who are highly committed to their profession are less likely to be stressed by time pressure. This prospect is based on the fact that highly committed auditors know that time pressure is common in the profession of auditing. These auditors have to deal with time pressure in order to maintain in the profession of auditing and when they are highly committed their willingness to maintain in the profession is greater (Aranya, Pollock and Amernic, 1981). Given that DeZoort and Lord (1997) have shown that one of the significant deficiencies in the auditing profession is time pressure, auditors who are highly committed to their profession experience a lower level of stress as he knows what to expect in the profession of auditing. Therefore, the expectation is that professional commitment will ensure that time pressure does not lead to stress.
H2: Professional commitment will negatively moderate the relationship between time pressure and experienced work stress by an auditor.
Stress and the individual performance of an auditor
Different circumstances during the execution of work will influence the performance of an individual (Kalbers and Cenker, 2008). Bakker and Demerouti (2007) have found that time pressure is one of the most prominent stressors for an individual and that poor well-being for the employee results from this. At the audit firm level the quality of an audit can be damaged by workload (López and Peters, 2012). For personal growth, performance, development and change, stress is intended to be essential but stress does place a strain on an individual (Bakker and Demerouti, 2007). Undesirable behavior and feelings are caused by the perceived degree of stress by an individual (Behestifar and Nazarian, 2013). Selye (1975) stated that not every type of stress is wrong, and that some quantity of stress is even fundamental to well-being.
The Yerkes-Dodson law (1908) has theorized the relation between performance and stress following an inverted U-shape. Certain stress is essential to stimulate the performance of a job to an optimal. Hence, stress can be functional (Selye, 1975). This is especially the case with the lower levels of stress, since people need some fundamental stimulus to shift into working from a rest position and therefore the performance will be increased through stress (Moody and Galletta, 2015). Furthermore Muse, Harris and Field (2003) have examined that a certain amount of stress
15 is necessary to challenge an individual and that through this their performance will increase. The Yerkes-Dodson law (1908) supposes that to a point, job performance rises as a result of a working environment that is perceived as stressful and thereafter an overload of stress takes place which functions as a damage to performance. At higher levels of stress, the capability of an individual to process information is hampered as a consequence of stress and provokes a sense of concern or anxiety, which interferes with performing that is of a lower degree (Suri and Monroe, 2003). Besides, the ability to filter information correctly and locate desired information will be reduced as consequence of the decreased capacity to process information. Therefore, it is less reasonable that they will accomplish their tasks successfully, decreasing their performance (Moody and Galletta, 2015).
The optimum level of stress and performance is different for each individual auditor. When the performance of an auditor is at the highest point for a given threshold of stress, the optimum level occurs (Choo, 1986). Choo (1986) stated that the experienced extent of stress, at the optimal level, is manageable for a person and resulting in performance of the highest level for that person. This is consistent with research conducted among salespeople by Onyemah (2008). He found that when salespeople are feeling a high level of stress, they are stimulated to do their best and excel in their work. Furthermore, a curvilinear has been found between stress and performance in research conducted among students (Westman and Eden, 2007; Keeley, Zayac and Corriea, 2008). Concluding, the expectation is that perceived work stress experienced by an auditor will affect the performance of this individual auditor with an inverted U-shape. Figure 1 shows the conceptual model with all the three hypotheses.
H3: The perceived work stress of an auditor will affect the performance of an individual auditor with an inverted U-shape.
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17 Methods
Procedures and Participants
In this research the data was collected by conducting an online survey. This research is part of larger data collection effort. Individual master thesis students contacted auditors and asked whether they were willing to participate in this research. All students were required to find at least 20 auditors willing to participate. In total, 178 auditors agreed to participate and were sent a personal invitation to fill out an online survey.
The survey was in Dutch since all auditors who agreed to participate were Dutch speaking. An overview has been conducted from the personal details such as function, office (location) and e-mail address of all the auditors who have given permission to participate. Subsequently, all the auditors received an e-mail with the link of the survey in early April 2018. This way, all the auditors obtained access to the online survey that consisted of questions about different subjects. Pilot testing indicated that the survey took about fifteen minutes.
Auditors who took part in the survey were of all levels of functioning. The sample is wide-ranging from starters in the field of Accountancy, Associates, to the more experienced auditors such as Managers and Partners. Moreover, the most auditors who have been personally asked by one of the Master students, are working at one of the Big-4 offices in the Netherlands. By using the LinkedIn profiles of all the auditors, data of age, office, work experience and functions was collected by ourselves. This has been used to stimulate the participation by keeping the online survey as short as possible. In the end, the online survey was sent to the individual mailing addresses of the 178 auditors. 142 of these auditors completed the online survey, creating a response rate of 80%. The average age was 31 years (SD = 8.1), 91% of the participants were working in a BIG-4 company, and 33% were female.
Measures
Audit quality
To measure the individual performance of auditors, the subscale of Quality Threatening Behavior of Otley and Pierce (1995) was used (α = .89). Herrbach (2001) has used the same scale. This subscale has been used because one aspect of the quality of an audit, the suitable performance of audit work programmes, is linked to these quality threatening behaviors (Herrbach, 2001). By making use of this, eight questions have been drawn up to measure audit quality threatening
18 behavior. The questions used in the research of Otley and Pierce (1995) have been adapted in such a way that they can be measured with a 7 point Likert scale ranging from “very often” (1) to “never” (7). Higher total scores on this variable indicate higher performance of an individual auditor. An overview of the questions that are used is shown in the Appendix.
Time pressure
The Stress Diagnostic Survey of Matteson and Ivancevich (1987) contains a Time Pressure subscale. This subscale is used in this research to measure time pressure. This subscale consists of four items and measures the considered time pressure that is related to the experienced stress that is attended to the performance of their job. These four items have been adjusted so that they apply to the work of auditors. The four items that are used in this survey are: The time deadlines for completing my work are unreasonable; I have to rush in order to complete my work; There is not enough time to do my work; and I am constantly working against the pressure of time. The answers were acquired by using a 7 point Likert scale ranging from “the condition is never a source of stress” (1) to “the condition is always a source of stress” (7). By averaging the four items, the entire score of the scale was elaborated for every person. The scale has a Cronbach’s alpha of .77.
Stress
Stress was measured by using the scale that was exploited by Motowidlo, Packard and Manning (1986) that consisted of four items. The four items were: My job is extremely successful; Very few stressful things happen to me at work; I feel a great deal of stress because of my job; and I almost never feel stressed because of my work. Responses were made on a 7 point Likert scale ranging from “strongly disagree” (1) to “strongly agree” (7) with a middle point of “neither agree nor disagree” (4). The scale has a Cronbach’s alpha of .87.
Professional commitment
Professional commitment was measured by rephrasing the five items scale or organizational identification to a professional orientation (Bamber and Iyer, 2002). A similar technique to measure professional commitment was used by Russo (1998). The scale of organizational identification was developed by Aranya and Ferris (1984) and consisted of six items. For this study, only five items were used because it is difficult for an individual auditor to answer: The successes of the accounting professions are my successes. The five items used in this
19 research were: When someone criticizes the audit profession, it feels like a personal insult; I am very interested about what others think about the audit profession; When I talk about the audit profession I usually say ‘we’ rather than ‘they’; When someone praises the audit profession, it feels like a personal compliment; and If a story in the media criticized the audit profession, I would feel embarrassed. Responses were given on a 7 point Likert scale ranging from “strongly disagree” (1) to “strongly agree” (7) with a middle point of “neither agree nor disagree” (4).
Reliability analysis
In order to determine whether the various questions about one variable can be combined into one variable, a number of reliability analyses have been performed. The reliability analysis for the questions about quality threatening behavior has a high reliability (α = .77); for the questions about time pressure there is also a high reliability (α =.89); for stress the Cronbach’s alpha =.84, concluding that the reliability is high; and for the construct professional commitment it has showed that the Cronbach’s alpha =.76 and this also implies that there is a high reliability. For each variable, the various questions in the survey can thus be merged into one variable.
Control variables
Company
The quality of an audit depends on the size of the firm where the auditor is working for. DeAngelo (1981) stated that the audits that are of higher quality are performed by auditors of Big-4 firms. Therefore, one control variable in this research is the organization for which the auditor works. This is measured with a dummy variable. When the auditor is working for a Big-4 office than it is equal to 1 and another office is equal to 0.
Gender
Ittonen, Vähamaa and Vähämaa (2013) have found that the quality of auditor reports of organizations audited by female auditors were higher in comparison with organizations that are controlled by auditors who are male. As a consequence, gender is one of the control variables used in this research. This is measured with a dummy variable, 1 is equal to a female and 0 is equal to male.
Age
Older auditors often have long and better relationships with clients, making them less likely to report unfavorably about them and that is why older auditors perform audits that are of lower
20 quality (Sundgren and Svanström, 2014). In addition, Sundgren and Svanström (2014) stated that it is likely that auditors have less motivation to perform at high as possible since they are less worried about their future career. That is why age will be used as one of the control variables.
21 Results
The means, standard deviations, and Pearson zero-order correlations between all the key variables are presented in Table 1. As shown in the table, time pressure and stress are negatively related to the individual performance of an auditor. The relation between age and individual performance of an auditor is positive. This suggests that older auditors perform audits that are of higher quality. Furthermore, there is a positive relation between gender and stress. This indicates that it is more likely that a female auditor experiences a higher level of stress. Also, the table shows that it is more reasonable that a female auditor feels a greater extent of time pressure in comparison with a male auditor. The correlation between stress and time pressure implies that time pressure and stress are moderately positively correlated (i.e., they have slightly fewer than 5% variance in common).
Table 1
Correlations and Descriptive Statistics
**. Correlation is significant at the 0.01 level (1-tailed). *. Correlation is significant at the 0.05 level (1-tailed).
Moreover, there is a positive relationship between company and time pressure, indicating that auditors working in a BIG-4 company experience a higher amount of time pressure. Besides, there is a negative relation between age and time pressure, suggesting that the extent of experienced time pressure is higher for younger auditors. There is a negative relationship between gender and age. Also the relationship between gender and company is negative.
In Table 2, the results of the regression analyses used to test hypotheses 1 and 2 are presented. To separate the contributions of the various variables, three models are included. The
Variables M SD 1 2 3 4 5 6 1. Individual performance of an auditor 5.42 0.80 2. Time pressure 4.63 1.26 -.28** 3. Stress 4.74 1.14 -.15* .72** 4. Professional commitment 4.47 1.00 .00 .05 .09 5. Age 30.89 8.10 .24** -.19* -.12 .09 6. Big-4 dummy 0.91 0.29 -.20 .91* .05 -.13 -.44** 7. Female dummy 0.33 0.47 -.07 .40** .34** -.07 -.21** .05
22 control variables are included in Model 1. In Model 2, the linear terms of time pressure and professional commitment are added. The moderator professional commitment has been included in Model 3.
Support has been found for the positive relation between the experienced time pressure of an auditor and the extent of stress they are feeling as expected in hypothesis 1. The outcomes from Table 2 show that the coefficient of the linear term time pressure is positive (Model 2, b = 0.64, p < 0.01). No support has been found for the expected negative moderation effect of professional commitment on the relationship between time pressure and stress as hypothesized in hypothesis 2. This can be concluded since the results in Table 2 do not show a significant relation for the moderating role of professional commitment (Model 3, b = 0.05, p > 0.05).
Table 2
Results of Fixed Effect Regression for Stress
Model 1 Model 2 Model 3
Female dummy 0.80** 0.14 0.07 Age -0.01 -0.00 -0.01 Big-4 dummy 0.09 -0.33 -0.09 Time pressure 0.65** 0.81** Professional commitment 0.06 0.07 Time pressure x Professional commitment 0.05 Constant 4.57** 1.78** 4.74** R2 0.12 0.54 0.54 ΔR2 0.12** 0.42** 0.00** Auditors 142 142 142 †p < .10. *p < .05. **p < .01.
To determine how professional commitment moderates the relationship between time pressure and stress, an interaction plot has been drawn. This interaction plot is shown in Figure 2. In this interaction plot, the lines are almost parallel. This indicates that there is not interaction effect. The interaction plot shows that the level of stress is almost the same for auditors that are highly committed and for low committed auditors. Furthermore, the level of stress is for low committed auditors, as well as high committed auditor higher in situations with high time pressure.
23
Figure 2: Professional commitment as a Moderator of the Relationship between Time Pressure and Stress
In Table 3 are the outcomes of the regression analyses presented which are used to test the third hypothesis. To place the contributions of the diverse variables apart, three models have been added. In Model 1, the control variables are included. The linear term of stress has been added in in Model 2 and the squared term of stress has been included in Model 3.
Support has been found for a curvilinear U-shaped relationship between stress and the performance of an individual auditor. The outcomes in Table 3 show that the coefficient of the linear term of stress is negative (Model 2, b = -0.10, p < .10) and the squared term of stress is positive (Model 3, b = 0.07, p = < 0.05). This implies that “on average”, stress is negatively related to the individual performance of an auditor. This results in a lower audit quality. Although at the same time that for higher levels of stress, the individual performance of an auditor becomes to a lesser extent negative or even positive and this will result in an audit that is of higher quality. These results are in contrast with the expected relationship that has been posited in hypothesis 3.
24 Table 3
Results of Fixed Effect Regression for Individual Performance of an Auditor
Model 1 Model 2 Model 3
Female dummy -0.05 0.02 0.00 Age 0.02* 0.02* 0.02* Big-4 dummy -0.30 -0.29 -0.30 Stress -0.10† -0.06 Stress squared 0.07* Constant 5.15** 5.13** 5.05** R2 0.07 0.08 0.10 ΔR2 0.05* 0.06* 0.06* Auditors 142 142 142 †p < .10. *p < .05. **p < .01.
25 Discussion
In the profession of accounting there are almost always deadlines to complete an audit. For many auditors, their job is experienced as stressful but they have to perform high-quality audits either way. This is confirmed in an article in the NRC4 that was published on 29 May, where auditors confirm that their workload is too high. This study used an online survey that has been answered by 142 auditors to answer the question: In which way does time pressure influences stress, to what extent does professional commitment moderates the relationship between time pressure and stress and how does this influences the individual performance of an auditor? To the best of my knowledge, this is the first study that is executed in the Netherlands that investigates the relationship between auditors’ time pressure and auditors’ stress on the individual performance of auditors. In addition, the effect of professional commitment on the relationship between time pressure and stress is being examined.
The results indicate that when an auditor experiences time pressure, this significantly ensures that this auditor also experiences a higher level of work stress. This is consistent with prior research that has mainly been carried out in other professional groups, stating that one of the most important job stressors is time pressure (Robinson and Godbey, 1997; Bakker and Demerouti, 2007). Hence, these outcomes provide new insights into the accounting literature where auditors are feeling a high level of stress. The level of stress resulting from time pressure for auditors who are working in a BIG-4 company is at the same level as for the auditors who are not working in a BIG-4 company. Furthermore, findings of this research have shown that the age of an auditor has no effect on the level of stress experienced by an auditor. The level of stress resulting from time pressure differs between male and female auditors. Female auditors experience a higher level of stress in comparison with their male colleagues.
In addition, findings of this study showed a significant U-shape relation between stress and the quality of an individual auditor. This study shows that a certain level of stress results in lower performance of an individual auditors which in turns results in an audit of low quality. Besides, when auditors are feeling that their level of stress is too high, the quality of an audit is higher as a result of higher individual performance of an auditor. This does not correspond to the inverted U-shape that has been hypothesized where it was stated that some level of stress is needed to activate
26 people to perform. When this level of stress is too high then the level of performance will decrease. This can be confirmed by research of Nygaard and Dahlstrom (2002), who stated that with lower levels of stress, the performance of an individual decreases as individuals make less attempt to manage with low levels of stress. Furthermore, Leung, Huang, Su and Lu (2011) stated that the attention to the accomplishment of a task is reduced by confusion and that this will result in performance that is of lower quality. Furthermore, research showed that when there is a moderately high level of stress then the performance will increase since individuals are actively occupying in coping behaviours to diminish the damaging effect of it (Leung, et al., 2011). The last phase of the model of Selye (1974) posits that when the stress is rising to the highest level, the exhaustion phase begins, in which coping reactions flatter negative, and performance decreases.
These outcomes contribute to the accounting literature since similar research within this profession has not yet been carried out, only for salespeople (Onyemah, 2008) and students (Westman and Eden, 2007). This study is contributing to the literature since Fisher (2001) has stated that there are few studies in the accounting profession that examine the effects of stress in the environment of auditors and that it is important to examine this kind of research in different national settings (Fisher, 2001).
The quality of an audit is lower for auditors who are working in a BIG-4 company in comparison with auditors who are working in a non-BIG-4 company. This is not in line with the expectations based on research conducted by DeAngelo (1981) who stated that the quality of an audit is higher for BIG-4 companies. Brivot, Roussy and Mayer (2018) have found that the meaning of audit quality differs between BIG-4 companies and non-BIG-4 companies. Hence, it is likely that this unforeseen outcome is declared by a different meaning of audit quality.
Contrary to the expectations, the outcomes show that the quality of an audit conducted by a female auditor did not differ from the quality of an audit that is executed by a male auditor. This is in line with research conducted by Jackling and Anderson (1998) who also found no differences in the performance of males and females. Furthermore, it has been found that there is a positive relationship between age of an auditor and their individual performance. This is contrary to the expectation based on research carried out by Sundgren and Svanström (2014). This positive relationship is in line with research of Ackerman (2000). He found that the performance of an older person is higher as a result of accumulate educational and experiential knowledge.
27 The predicted negative moderation of professional commitment on the relation between time pressure and stress appears not to be confirmed. When an auditor is committed to the profession of accounting, this does not affect the degree of stress that this auditor experiences as a result of the level of time pressure this auditor feels. This can be explained by research conducted by Mathieu and Zajac (1990), as they found that people who are highly committed are feeling the effect of stress to a greater extent than the people who are less committed.
All in all, the individual performance of an audit is influenced by the age of an auditor and the company, BIG-4 or not, the auditor is working for. The amount of time pressure experienced by an auditor has influence on the degree of stress experienced by an auditor. The level of stress is for female auditors often higher than for male auditors. The degree of stress is to a certain point good for the individual performance of an auditor, but at a given moment, when there is too much stress, the individual performance of an auditor decreases. Whether an auditor is committed to the profession, this does not affect the level of stress auditors have resulting from time pressure.
Limitations and Direction for Future Research
Similar to any other studies, this study also has some limitations that deserve attention. The first one is related to the time period when it is executed. This research is conducted in April and for some auditors, this into the busy season and for other auditors the busy season has just ended. As a result, the last experiences with stress and time pressure from the auditors are probably different in comparison with work carried out in September. This can ensure that when the study is carried out again in another somewhat quieter month, other results are obtained. It is therefore reasonable to execute this research again in another month and then compare the results with each other to see if there are any differences.
In addition, the online survey was completed by relatively few auditors who work in a company that do not belong to the BIG-4. This can affect the results because BIG-4 offices are often associated with a higher level of audit quality (DeAngelo, 1981). To get a better overall picture, the auditors who are participating in the research should be more evenly distributed between auditors working in a BIG-4 office and auditors working in smaller offices. This is the same for the results that relate to the gender of the auditors. The online survey has largely been filled in by men, so the results may differ from when the male/female ratio would be better
28 distributed. Next time, participating auditors could be more carefully selected on company, gender and age to obtain an optimal sample.
This study has also a limitation associated with research based on surveys, such as the social desirability bias. Research concerning self-reported data is about personal characteristics, behaviors and attitudes and this is likely to result in socially desirable answers. Therefore, it is recommended for future research to carry out research where the researchers themselves compare valid external information about audit quality with the results of the corresponding questions about the self-reported extent of quality threatening behavior. Now, it can be checked whether socially desirable answers have been given. This reduces the chance of socially desirable results (Preisendörfer and Wolter, 2014).
Hall et al. (2005) stated that there are three dimensions of professional commitment: affective professional commitment (APC), normative professional commitment (NPV) and continuance professional commitment (CPC). Hence, another limitation for this study is that here is focused at one, general, concept of professional commitment. This concept of professional included de concepts of Hall et al. (2005) since they measure the extent to which individuals ‘want to stay’, ‘ought to stay’ and ‘have to stay’ due to an absence of alternatives. So, future research may include these three dimensions of professional commitment separately since this would yield more detailed results and could show different influences on the relation between time pressure and stress.
Practical Implications
The results of this research have implications for both practice and research. It is clear from the model that time pressure has a positive and significant influence on the level of stress that an auditor is feeling. This makes it important for an organization to have a clear understanding of the amount of time pressure of its auditors. As the degree of stress influences individual performance of an auditor, it is crucial to map to which level of stress the performance of this auditor is good and how much time pressure this auditor experiences. Future research can investigate whether there are differences in the quality of an auditor throughout the year as some periods are perceived as more stressful. Furthermore, future research may examine if professional commitment moderates the relation between stress and the individual performance of an auditor and how time pressure coexists with this relation.
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