Master thesis MSc Accountancy Supervised by Dennis Veltrop June 22, 2020 8,043 words Aquamarijnstraat 839 GRONINGEN e.j.hooghiemstra@student.rug.nl 0651174813 S2757699
To Strive or to Struggle?
The Influence of
Reviewing in Audit
Firms
Egbert J. Hooghiemstra
University of GroningenABSTRACT: The reviewing process is a significant and important process within audit firms. Reviewing is set up to monitor audit quality and to develop and coach auditors from all levels. Research demonstrates that reviewing may increase auditor’s on the job learning. However, other work suggests that auditors’ vitality – feeling active and energized, may also decrease as a result of high levels of reviewing within audit firms. Because of these contradicting effects, the purpose of this paper is to study the effect of reviewing on learning and vitality – collectively referred to as thriving at work – on auditors’ audit quality threatening behaviour. To study why and when reviewing within audit firms may undermine rather than increase the quality of auditors’
performances, I introduce the personality trait auditors’ locus of control as a key moderator that may explain why some auditors thrive why others struggle. Regression analyses of survey data among 162 Dutch auditors from both non-Big Four as Big Four firms indicate that there is a direct negative influence of the experience of learning and audit quality threatening behaviour. However, I do not find a significant moderating effect of locus of control. In addition, I do not find any significant evidence that supports my hypotheses that predicted an effect of reviewing on the experience of learning, experience of vitality and quality threatening behaviour respectively. Limitations and implications for research and practice are discussed.
KEYWORDS: auditors; reviewing; thriving at work; learning; vitality; audit quality threatening behaviour; locus of control.
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INTRODUCTION
The role of auditors is conventionally described as the generation of trust in financial statements by users, which leads to an increased efficiency of capital markets. Without audits, the reliability of financial statements would decline heavily and information asymmetry between users and firms would increase in severity, leading to significant higher agency costs (Hellman, 2006; Wallace, 1980; Sweeney & Pierce, 2004). Due to the introduction of SOX following the scandals and stock crashes in the beginning of the 21st century, regulators, market participants and the public have gained an even bigger understanding and appreciation of the crucial role auditing plays (Defond & Francis, 2005).
The auditing output process can be described as a "complex sequential decision processes used by auditors to reach an opinion on the financial statements” (Felix & Kinney, 1982, p. 245). To gain a reasonable extent of reliability of financial reports, it is important that individual auditors perform adequately and obtain a reasonable extent of audit quality
(Sweeney & Pierce, 2015). Factors that threaten audit quality, such as biasing sample selection and accepting weak client explanations, have been referred to in audit literature as audit quality threatening behaviours (AQTB) (Malone & Roberts, 1996;
Otley & Pierce, 1995; Sweeney & Pierce, 2015). AQTB is a significant issue for the audit profession. This is confirmed by Herda et al. (2019), who state that investors and creditors rely on the information from financial reports and AQTB jeopardizes their trust in these reports.
To conduct its complexity and to monitor the amount of audit quality, audit firms possess elaborate internal review processes (Trotman & Yetton, 1985; Libby & Trotman, 1993; Brazel et al., 2004). These processes consist of senior staff reviewing the performance of less experienced staff, while this senior staff is again reviewed by progressively more experienced audit staff (Solomon 1987; Harding & Trotman, 1999).
Internal reviewing within audit firms is not only regarded as a control to monitor audit quality (Nehme, 2017), but also as a mechanism for developing and coaching auditors (PWC, 2020; Brazel et al., 2004). In audit literature, a big role for reviewing auditors is supported by many studies. Both Bamber and Bylinkski (1987) and Arens and Loebecke (1988) state that review on performance is amongst others essential to evaluate and develop inexperienced
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staff in audit firms. Consistent with the critical role reviewing plays in audit firms, over 30 percent of supervisors’ hours are allocated to review their subordinates (Fargher et al., 2005; Jenkins et al., 2017). More recently and in the light of auditor judgments, Bonner (2008) suggests that the process of reviewing forms a mechanism that reduces the risk of poor judgemental decisions. This makes reviewing within the organization a significant part in the process of auditing, for both the audit firm and the auditor.
Although reviewing can reduce the risk of wrong auditor judgments and help auditor development, its negative aspects may also undermine auditor motivation and satisfaction. For example, Ilgen et al. (1979) emphasized that negative feedback is often wrongly perceived and may therefore lead to suboptimal consequences. Specifically, scholars have noticed that relationships between auditors and their supervisors worsen after negative feedback, while they additionally attempt to manage their supervisors’ perception (Fedor & Ramsay, 2007; Andiola & Bedard, 2018). On top of that, while monitoring with reviewing auditors can have its positive effects, some scholars claim that organizational monitoring can lead to
counterproductive job performance (Alge & Anthony, 2010; Nicol & Macfarlance-Dick, 2006). This can be attributed to the fact that monitoring might strip employees from their ability to behave autonomously, which decreases their motivation towards and their satisfaction in their job (Chua & Iyengar, 2006).
Thus, reviewing can make auditors strive, but may also lead to auditors struggling. Auditors are thought to benefit from reviewing because they have performance recognized by more skilful auditors and receive feedback accurately and timely (Grant & Higgins, 1989). Above that, well-being can be improved by deriving satisfaction from being better able to cope work pressure and gaining knowledge of one’s improved performance (Aielllo & Shao, 1993; Stanton, 2000). On the other side, reviewing is also considered to increase employees’ workload and raise the level of work demand (Smith et al., 1992). Additionally, well-being is possible to decrease due to losing satisfaction and motivation by not performing
autonomously (Chua & Iyengar, 2006; Holman et al., 2002). Based on this, I ask the question in this paper whether auditors strive in audit firms, where continuous reviewing takes place.
Personal characteristics such as locus of control, are often mentioned in auditor-centred literature. The extent of this literature has specifically been growing around the beginning of the 21st century (Abdolmohammadi et al., 2004; Nelson & Tan, 2005; Grahita & Sukirman, 2017). Locus of control is well-known to play an important role in the individual’s perception of reviewing (Andiola, 2014; Shrauger and Schoeneman, 1979; Stone et al., 1984).
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This personality trait is generally defined as the factor that influences how individuals
perceive themselves (Hiller & Hambrick, 2005; Rotter, 1966). Scholars generally distinguish this locus of control into two broad categories: an internal locus of control and an external locus of control (Phares, 1976; Biondo & MacDonald, 1971; MacDonald, 1970). Individuals with the latter trait generally assume that outcomes are attributable to aspects outside their circle of control (Boone & Hendriks, 2009; Rotter, 1990), whereas internals spend more effort to positively change situations and have a pro-active attitude, also towards feedback situations (Jugde & Bono, 2001; McKnight & Wright, 2011). Individuals with an internal locus of control are thought to be significant more sensitive to outside control and are more likely to accept the feedback received. Moreover, they are more able to change their performance as they value their ability to control their environment more than externals (Steiner, 1970; Lewis & Blanchard, 1971; Stone et al., 1974). For these reasons, I anticipate that individuals with an internal locus of control are more likely to see the positive effects from having their work continuously reviewed.
Auditors with an internal locus of control are more open to processing feedback properly and to developing their job performance, but the locus of control is also believed to be linked to employee well-being (Spector, 1988; Spector et al., 2002). This is in line with the thriving at work literature, a subject that has gained increasing interest from organizations and its employees (Spreitzer & Porath, 2014) and has become a trend in the last decade (Jiang et al., 2019). Overall thriving at work has a positive effect on task performance, job satisfaction and subjective health (Kleine et al., 2019). Thriving at work is in audit literature characterized as a referral to a positive psychological state, distinguished as a joint experience of vitality and learning (Spreitzer et al., 2005). The individual’s locus of control affects these
subdimensions differently. Jorgensen and Johnson (1997) found that a combination of high support and an internal locus control leads to a higher psychological well-being, thus vitality, while several major psychosocial studies show that an internal locus of control negatively affects individuals’ learning processes (e.g. Lefcourt, 1976; Rotter, 1966). With respect to these claims, I can extend this paper by stating that the individual’s extent of locus of control leads to a different extent of thriving at work.
This paper aims to investigate and obtain more insight into the relation between reviewing, thriving at work and audit quality threatening behaviour, while the moderating effect of locus of control will be discussed. Consequently, the relation between thriving at work and audit quality will be examined. The research question can therefore be separated
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into four parts: (1) how does auditors’ thriving at work relate to reviewing, (2) how is the relation between reviewing and thriving at audit firms influenced by the auditors’ locus of control, (3) how does auditors’ thriving at work influence audit quality threatening behaviour, and (4) how is the relation between reviewing and audit quality threatening behaviour
influenced by the auditor’s locus of control? Data is collectesd by surveys sent to several Dutch audit firms, both Big Four as non-Big Four firms. The sample for this study consists of 201 auditors with more than two years of experience in an audit firm.
The remainder of this paper is as follows. First, an overview of relevant literature will be provided, combined with the development of the hypotheses. Thereafter, the research method will be described, followed by a section about the research design. The last section will be a summary of the results found and a discussion of their limitations and theoretical and practical implications.
LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT
The framework that is used in this paper is shown in Figure 1, as a theoretical model. In this chapter, the relation between reviewing in audit firms and audit quality threatening behaviour (AQTB) is explained. Second, I discuss the relation between reviewing and
thriving, followed by explanation of the relation between thriving and AQTB. Lastly, I argue that there is moderating role for locus of control on the relation between reviewing and thriving.
Reviewing and AQTB
In order to assess the reliability of firms’ financial statements, auditors need to gather
sufficient appropriate evidence. However, auditors can both intentionally and unintentionally
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apply certain behaviour that reduces this gathering inappropriately (Malone & Roberts, 1996; Bedard et al., 2008). The term audit quality threatening behaviour (AQTB) has been used in literature to classify this behaviour (McNair, 1991; Herrbach, 2001). Specific examples include involving deliberate reduction in quality by auditors (Otley & Pierce, 1995), signing off prematurily (Herda et al., 2019), biasing sample selection and accepting weak client explanations (Sweeney & Pierce, 2015).
In response to this behaviour, audit firms include controls to monitor auditors’ individual behaviour. Reviewing is one aspect of this whole performance feedback process (Andiola, 2014; Gibbins & Trotman, 2002; Libby & Luft, 1993) and an important part in supporting auditors to achieve their goals and advance a higher level (Accounting Office Management & Administrative Report, 2006). Consequently, the review process enhances monitoring and developing auditors in audit firms (Nehme, 2017; Brazel et al., 2004).
Reviewing in audit firms is in audit literature regarded as the process of reviews conducted by more senior associates and managers (Rich et al., 1997) and has been an significant part of the audit process for a long time (e.g. Mautz & Schauf, 1961).
In audit literature, many benefits of the review process are examined (Reimers & Fennema, 1999). Amongst others, scholars note its positive influence on audit quality
(Trotman & Yetton, 1985; Trotman 1985). Hyatt & Taylor (2013) emphasized that reviewing should be held in high regard when it comes to avoiding false sign-off activities, therefore stating that reviewing reduces audit quality threatening behaviour. Reviewing is said to reduce the risk that auditors do not comply with professional standards, although it is not only the reviewing process that reduces the risk. It should be clear that also the follow-up procedures are essential (Brumfield et al., 1983). Additionally, while review processes can reduce
variance and improve accuracy in decision making within teams, it also causes reviewees and reviewers to be more accurate on information, leading to more consistent auditor judgments. Above that, inconsistent information was more considered while auditing, leading to more professional-sceptic behaviour towards client explanations, which is an example of AQTB reduction (Libby & Trotman, 1993; Sweeney & Pierce). Based on this, I present the following hypothesis:
H1: Reviewing is negatively associated with audit quality threatening behaviour. Reviewing and Thriving
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Prior studies have described that reviewing, as a part of feedback, positively affects thriving at work, because feedback keeps work-related activities directed toward desired personal and organizational goals. (Spreitzer et al., 2012; Kleine et al., 2019). Other scholars link reviewing specifically to one of the two subdimensions of thriving at work: the
experience of learning and the experience of vitality respectively (Spreitzer et al., 2005). This paper makes also use of this approach. In audit literature, the experience of vitality refers to experiencing the positive feeling of having energy available (Nix et al., 1999), while the experience of learning can be defined as acquiring and practicing knowledge and skills (Elliott & Dweck, 1988).
Audit firms apply reviewing and other ways of performance feedback under the implicit assumption that reviewing and other feedback improves the performance and
development (Brown & Porter, 2006). Reviewing plays a critical role in virtually all theories on the experience of learning (e.g. Nadler, 1979; Ilgen et al., 1979), as the mechanism provides and identifies areas of needed improvement by assessing the past efforts (Van der Vegt et al., 2010; Vroom, 1964). This critical role is supported by the study of Malone et al. (2010), which shows that mentorship, including reviewing, is a significant part to the the experience of learning, as it “provides guidance through academic and career milestones, models professional values, and facilitates technical skill development” (Remaker et al., 2019, p. 2). On top of that, based on the law of effect (Thorndike, 1913), reviewing can enhance and stimulate development because it reinforces positive performances and punishes the
“incorrect” behaviour (Church, 1963).
On the other hand, reviewing can relate differently to the experience of vitality. Reviewing reduces the level of individual autonomy, which may lead to a decrease in
employee’s satisfaction and motivation (Chua & Iyengar, 2006; Holman et al., 2002; Rovniak et al., 1998; Kasser & Ryan, 1999), two predictors of subjective vitality (Gagné et al., 2003). This is in line with the self-determination theory, which states that the experience of vitality is increased when individuals can behave autonomously (Ryan & Frederick, 1997; Deci & Ryan, 1985; Ryan & Deci, 2000), thus when they are intrinsically motivated because
“intrinsic motivation underpins behaviour enacted out of feelings of fun rather than pursuing goals separate from the enjoyment of the activity” (Vlachopoulos, 2012, p.181). In addition, reviewing, as a part of feedback, may also lead to an increase in perceived pressure for auditors, which leads to a paradoxical effect on vitality (Ashton, 1990). For example, when
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reviewing lowers the likelihood of performing at a certain level, an individual’s motivation to perform decreases significantly (Ammons, 1956; Baumeister, 1984; Eysenck, 1982).
To summarize, because reviewing provides guidance in an individual’s career and facilitates technical knowledge, it is likely that reviewing leads to an increase in development and thus enhances the experience of on the job learning. Therefore I anticipate that reviewing is positively associated to learning. On the other hand, I hypothesize that the experience of vitality is likely to be decreased when reviewing takes place, because autonomy is reduced, which is likely to lead to a decrease in the experience of vitality. Based on this, I c the following:
H2a: Reviewing is positively related to learning. H2b: Reviewing is negatively related to vitality. Thriving and AQTB
In social and behavioural literature, thriving at work in relation to job performance has been a relevant subject for several decades (Brown et al., 2017). In a broad psychological environment, thriving at work can be conceptualized as a physical, psychological or social state that leads individuals to grow personally and to function more competently (O’Leary & Ickovics, 1995). Again, this paper takes the definition of thriving at work by Spreitzer et al. (2005), which is the joint experience of learning and vitality.
The experience of learning on the job, thus the work-related development of an indivdual, is signifcant for job performance within organizations. The general consensus in learning literature is that learning and developing in organizations is essential and a requisite for successful performance in organizations (Garvin, 1993; Hardy, 1996; Jashapara, 1993). Moreover, the experience of learning is high likely to positively affect intellectual capabilities and performance (Rose et al., 2009; Watkins & Marsick, 1996). Organizations that have made learning a priority have seen it pay off through an increase in job satisfaction (Leslie et al., 1998; Rowden & Conine, 2005), which consequently improves work-related behaviour (Benkoff, 1997; Wilson & Frimpong, 2004; Judge et al., 2001). On top of that, scholars state that long-term survival and achieving greater performances depend on the individuals’ extent of learning wihtin an organization (Montes et al., 2005). Therefore, it can be stated that an experience of learning enhances job performance and reduces quality threatening behaviour.
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Positive states, such as the experience of vitality, are claimed to be crucial for task performance and optimal functioning (Fredrickson, 2001). The experience of vitality, defined as the individual’s availability of energy, is highly relevant to employees, as it reduces the possibility of absence of energy (Demerouti et al., 2001), stress (Sonnentag et al., 2010) or disengagement (Schaufeli et al., 2009; Owens, 2016). This can be supported by several findings in literature: positive emotions cause amongst others an increase in
individuals’psychological resilience (Fredrickson & Branigan, 2005) and an improved thought-action repertoire (Tugade & Fredrickson, 2004). Additionally, the experience of vitality can also lead to an increase in commitment to the employee’s organization (Kleine et al., 2019), which in turn reduces the risk of errors in job performance (Mowday et al., 1979). Based on the above, I hypothesize the following:
H3a: Learning is negatively related to audit quality threatening behaviour. H3b: Vitality is negatively related to audit quality threatening behaviour. Locus of Control, Reviewing and Thriving
Although relatively little is yet known about what distinguishes an auditor whose job performance is relatively superior (McKnight & Wright, 2011), it is widely accepted in psychology literature that reviewing can be perceived differently due to the individual’s locus of control (Davis & Davis, 1970; Baron et al., 1974; Ilgen et al., 1979).
For instance, individuals with a more internal locus react much more proactively towards negative reviewing than individuals with an external locus of control (Shavit & Rabinowitz, 1978). Although externals do not blame themselves less when failing (Fitch, 1969; Gilmer & Minton, 1974), internals act much more vigorous to improve after feedback is received (Shavit & Rabinowitz, 1978). Externals appear to believe much more that outcomes of feedback is attributed to superiors’ decisions and peers’ behaviour rather than their own decisions and behaviours (Boone & Hendriks, 2009). This is supported by a study of Leone and Burne (2000), who claim that the locus of control measures the extent of perceived
responsibility by the performer. On top of that, internals are believed to possess a higher sense of commitment, which leads to the state that they take given feedback within an organization more seriously (Mowday et al., 1979).
Additionally, the auditor’s locus of control is a personality trait which is likely to affect an auditor’s work-related behaviour (Elias, 2018; McKnight & Wright, 2011). An
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auditor with an internal locus of control is expected to be more successful within its
profession, because internals are expected to be more proactive involved and exercise more initiative (Chen & Silverthorne, 2008; Hyatt & Prawitt, 2001).
Next to a relation with work-related behaviour, the individual’s locus of control is related to their extent of thriving at work. Individuals that possess a more internal locus of control tend to have more a feeling that their actions are autonomous (Kernis et al., 1989), and in line with the self-determination theory (Ryan & Frederick, 1997; Deci & Ryan, 1985; Ryan & Deci, 2000; Vlachopoulos, 2012), this enhances the experience to vitality, one of the two subdimensions of thriving (Spreitzer et al., 2005). Nix et al. (1999) provide additional evidence, as they emphasize that an individual with an internal locus of control tends to be more invested and have more positive experiences, eliciting a higher experience of vitality. Moreover, individuals with an internal locus of control tend to promote more experiences of learning, the other subdimension of thriving at work (Spreitzer et al., 2005), because they perceive their own actions as caused by internal forces rather than external factors (Kleine et al., 2019). Since an internal locus of control can lead to a more autonomous feeling and a higher level of self-determination, an internal locus of control could also positively affect the relation between reviewing and the two subdimensions of thriving, learning and vitality.
To summarize, individuals with an internal locus of control react more positively on reviewing and other feedback measures, because they take feedback more seriously, act more proactively and vigorously and show more commitment towards the organization. Also toward thriving at work, an internal locus of control is stated to be positively associated. Firstly, because individuals with an internal locus tend to promote more experiences of learning. Second, because internals tend to have a higher autonomous sense, they are more invested in the organization and experience therefore more vitality. Additionally, they tend to have a more autonomous sense in their job, leading to a higher experience of vitality. Given these previous studies above mentioned, I hypothesize the following:
H4a: An internal locus of control strengthens the relation between reviewing in audit firms and learning at audit firms.
H4b: An internal locus of control strengthens the relation between reviewing in audit firms and vitality at audit firms.
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By extension, taking the moderating role of the internal locus of control together with the indirect relation between reviewing and AQTB, I hypothesize the following moderated mediation hypothesis:
H5a: The indirect association between reviewing and AQTB through the experience of learning will be stronger for auditors with an internal locus of control.
H5b: The indirect association between reviewing and AQTB through the experience of vitality will be stronger for auditors with an internal locus of control.
RESEARCH METHOD
Data CollectionA survey has been used to answer this study’s hypotheses. The data used in this study is based on responses from auditors working at both Big Four and non-Big four audit firms in the Netherlands. The sample consisted of auditors with two or more years of experience as an auditor in at an audit firm. This is consistent with other studies in audit literature (Frecka & Reckers, 2010; Collins & Killough, 1992). The respondents consisted of auditors that were personally approached by students doing an internship at an audit firm. In this study, the majority of the respondents is an auditor working for a Big Four audit firm. All participants were assured that their responses were anonymous and the data obtained data was only for research purposes. The e-mail including an invitation link was sent in March 2020, followed by a reminder a week later. Of the 201 questionnaires distributed to the auditors who agreed on participating, 162 valid and completed responses were returned, resulting in a response rate of 81%, which is acceptable and relatively high in the 21st century.
Dependent Variable
Audit Quality Threatening Behaviour
The dependent variable audit quality threatening behaviour (AQTB) was measured using a subscale by Herrbach (2001). This scale was also used by Otley and Pierce (1995). The scale represents eight behaviours that threaten audit quality. These behaviours are: (1) reduction of work below what is considered reasonable, (2) superficial review of client document, (3) acceptance of weak client explanation, (4) failure to research an accounting principle, (5) failure to pursue a questionable item, (6) signed off on an audit programme step without completing the work, (7) greater than appropriate reliance on client work and lastly
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(8) personally engaged in underreporting of time (i.e., deliberately failing to record the full amount of time spent on a task). On each behaviour the respondents had to state the likelihood of occurrence, through a five-point Likert scale.
Independent Variable Reviewing
Reviewing in audit firms is the process of conducting reviews by more senior
associates and managers (Rich et al., 1997). This independent variable was measured using a scale of Van der Vegt et al. (2010), which reflects the quantity of feedback and reviewing perceived by the respondent. Items used read as follows: (1) “I receive individual feedback about my own performance” and (2) “I regularly receive feedback about how good or bad I performed”. For both items the respondent had to assess the extent of occurrence, on a five-point scale ranging from (1) never to (5) always.
The scale of reviewing initially contained also a third item, provided by Van der Vegt et al. (2010) which was “when I do not perform well, I am held responsible as an individual”. However, this decreased the item-total correlation below a sufficient level, which therefore is regarded as unreliable (Ferketich, 1991). This item may also have measured more the
accountability aspect of rewieing, where the perception of reviewing is more relevant in this study. Omitting this item led to a relevant increase of the Cronbach’s α (from .581 to .722).
Mediator
Thriving at work was measured using the scale of Porath et al. (2016). The scale respective contains five items about the subdimension experience of learning and five items on the subdimension experience of vitality. This is taken from the characterization of thriving at work by Spreitzer et al. (2005), as a referral to a positive psychological state distinguished as a joint experience of vitality and learning (Spreitzer et al., 2005). Regarding learning, the five items were: (1) “I find myself learning often”, (2) “I continue to learn more as time goes by”, (3) “I see myself continually improving”, (4) “I am not learning” (reverse code) and (5) “I have developed a lot as a person”. Second, regarding vitality the five items were as follows: (1) “I feel alive and vital”, (2) “I have energy and spirit”, (3) “I do not feel very energetic” (reverse code), (4) “I feel alert and awake” and (5) “I am looking forward to each new day”. Respondents had to assess these statements with their opinion, on a five-point scale ranging from (1) strongly disagree to (5) strongly agree. To work properly with the dataset, the data
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from the “I am not learning” and “I do not feel very energetic” was reversed, as these items are stated in an opposite manner.
Moderating Variable
In this paper, the moderating effect of the locus of control was measured by a scale taken from a study of Spector (1988)1. In line with De Hoogh and Den Hartog (2009), the following four items were used to measure internal locus of control: “a job is what you make of it”, “on most jobs, people can pretty much accomplish whatever they set out to
accomplish”, “if you know what you want out of a job, you can find a job that gives it to you” and “most people are capable of doing their jobs well if they make the effort”. And the other four items were used to measure the external locus of control: “when it comes to landing a really good job, who you know is more important than what you know”, “getting the job you want is mostly a matter of luck”, “it takes a lot of luck to be an outstanding employee on most jobs” and “promotions are usually a matter of good fortune”. Respondents were given a seven-point scale ranging from 1 (strongly disagree) to 7 (strongly agree). The higher the scores, the higher an internal locus of control is indicated.
To increase the Cronbach’s α to a sufficient level of at least .7 (Nunnaly & Bernstein, 1994), one item measuring internal locus of control was omitted (Cronbach’s α from .655 to .731). The item deleted was “most people are capable of doing their jobs well if they make the effort”.
Control Variables
For this study I control for the auditor’s tenure as an auditor. The longer the auditor is active as an auditor, the more likely it is that the auditor will perform adequately, which leads to a lower level of audit quality threatening behaviour (Mansi et al., 2004; Chen et al., 2008; Lim et al., 2010; Sundgren & Svänstrom, 2014; Yuniarti, 2011). In addition, I control for the age of the auditor because age is positively correlated towards audit quality threatening behaviour, such as unethical decision making (Clarke et al., 1996; Su, 2006; Pierce & Sweeney, 2010). For example, Posner and Schmidt (1987) found that young managers felt significant more pressure to compromise ethical and personal principles for the sake of the organization.
1 The overall original Rotter (1966) locus of control measure has very low face validity for auditors. Items such
as “One of the major reasons why we have wars is because people don't take enough interest in politics.” are items that may arouse irritation. Therefore, the choice was on Spector’s scale (1988).
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Additionally, I control for gender and audit firm size, based on their recognized relationships with audit quality threatening behaviour (Breese & Branson, 2007; Kung et al., 2001; Abughazaleh et al., 2015). Age and tenure are both measured in years, where gender is a dummy. For gender, 0 is a male respondent and 1 stands for a female. Audit firm size is also a dummy, where 0 means a non-Big Four firm and 1 a Big Four firm.
RESULTS
Demographic sample characteristics are presented in Table 1. Results show that 72.2% of the respondents were male, which means that women were underrepresented in the sample. However, this relatively small female share is in line with the Dutch gender distribution according to the Dutch body for accountants (NBA, 2018). Most of the respondents are from a Big Four audit firm (85.2%) and are unmarried (71.0%). The criterium that all respondents should have at least 2 years of experience in the audit profession, is reached, where even 22.8% of the respondents has 11 years or more experience. As Table 1 shows, respondents are from all different levels in audit firms, which reflects sufficiently the auditors work force.
TABLE 1
Distribution of the Demographic Sample Characteristics
Characteristic Frequency Percentage Characteristic Frequency Percentage
Gender Seniority
Male 117 72.2% Junior 14 8.6%
Female 45 27.8% Medior 57 35.2%
Audit firm size Senior 45 27.8%
Big Four 138 85.2% Very senior 22 13.6%
Non-Big Four 24 14.8% Partner 24 14.8%
Age Marital status
≤ 30 years 95 58.6% Married 47 29.0%
31 – 35 years 28 17.3% Unmarried 115 71.0%
36 – 40 years 11 6.8% Tenure at current firm
41 – 45 years 11 6.8% 2 – 5 years 93 57.4%
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≥ 51 years 11 6.8% ≥ 11 years 37 22.8%
N=162
Table 2 shows the descriptive statistics of the variables used in the model, including the control variables. The average age of the auditors that responded is 32,8 (SD = 29) where the youngest auditor was 24 years old and the oldest 56 years old. The tenure of the
respondents ranges from 2 years to 31 years, where an average of 7,9 years is reported (SD = 5). The scores of reviewing, learning and vitality are all above the midscale-point of 4
(respectively μ = 5.410, μ = 6.006, μ = 5.024). The average respondent is likely to have an internal locus of control (μ= 5.172, SD = 5,333).
TABLE 2
Descriptive statistics of the sample
Variable Mean Median St. deviation Minimum Maximum
AQTB2 2.092 2.000 0.819 1.0 5.0
Reviewing 5.410 5.667 1.01 1.0 7.0
Learning 6.006 6.000 0.796 1.4 7.0
Vitality 5.024 5.000 0.995 2.0 7.0
Internal LOC3 5.167 5.333 0.987 2.0 7.0
Age (in years) 32.654 29.000 8.171 24.0 56.0
Tenure (in years) 7.830 5.000 6.634 2.0 31.0
Big four dummy 0.852 0.000 0.356 0.0 1.0
Female dummy 0.278 0.000 0.449 0.0 1.0
N=162
2 AQTB is an abbreviation for audit quality threatening behaviour 3 Internal LOC is an abbreviation for internal locus of control
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Table 3 presents the correlation between the variables included in the variables. On the diagonal axis the Cronbach’s α is shown. Table 3 shows that AQTB negatively correlates with learning (r = -.278, p < 0.001), vitality (r = -.201, p < 0.05) and the internal locus of control (r = -.262, p < 0.001). On the other side, age positively correlates with the internal locus of control (r = .232, p < 0.01) and tenure (r = .776, p < 0.001).
Hypothesis Testing
To test the different associations between the independent, dependent and control variables, multiple regression analyses were performed. The results of these analyses are shown in Table 4, 5, 6 and 7. Table 4 presents the regression analysis with audit quality threatening behaviour (AQTB) as dependent variable. Table 5 shows the results from the regression analysis on learning and vitality. This table also includes the moderating effect of the internal locus of control on the relation between reviewing and the two subdimensions of thriving at work: learning and vitality. Table 6 and 7 present the moderating mediation analyses of the framework, where Table 6 includes learning and Table 7 vitality.
Control variables
The effects of control variables on AQTB, learning and vitality are shown in Table 4
and 5. Model 1 in Table 4 presents solely the outcomes of the multiple regression using all
4 See footnote 2 5 See footnote 3
TABLE 3
Correlation Analysis Variable 1 2 3 4 5 6 7 8 1. AQTB4 (.866) 2. Reviewing -.024 (.722) 3. Learning -.281*** .208** (.853) 4. Vitality -.205** -.185* .298*** (.871) 5. Internal LOC5 -.259** -.112 .352*** .553*** (.731) 6. Tenure -.182* -.419*** -.141 .369*** .208** 7. Age -.104 -.467*** -.229** .377*** .226** .774***8. Big four dummy -.185* .204*** .257** -.036 .053 -.100 -.380***
9. Female dummy -.085 .083 .089 -.062 -.184* .172* -.168* .181*
Scale reliabilities (Cronbach’s α) appear in parentheses on the diagonal *** p < .001, ** p < .01, * p < .05
16
control variables (age, tenure, Big Four dummy and female dummy) with AQTB as dependent variable. Table 4 shows that none of the control variables have a significant effect on AQTB, except for audit firm size. This dummy relates significant negatively on AQTB in the first model (β = .493, p < .05), the second model (β = .476, p < .05) and the fourth model (β = -.459, p < .05). These models show therefore a relatively strong evidence that in Big Four firms less likely audit quality threatening behaviour is experienced.
In addition, Table 5 represents the outcome of the multiple regression with learning and vitality as dependent variables. The first and second model show both a significant positive effect of audit firm size on learning (β = .436, p < .05; β = .415, p < .05). Based on these results, it can be stated that in a non-Big Four audit firm, it is more likely that auditors obtain an experience of learning. Moreover, a small significant positive relation is found between age and vitality in the fourth model (β = .036, p < .05), the fifth (β = .036, p < .05) and the sixth model (β = .024, p < .1). This gives some small evidence that the older the auditor is, the more likely the auditor is to experience a feeling of vitality.
Direct effect of reviewing
To test hypotheses 1, 3a and 3b, multiple regression analyses were performed on AQTB. The results of these analyses are shown in Table 4, where model 1 presents the results of the effects of the control variables on AQTB. Hypothesis 1 predicted a negative relation between reviewing and audit quality threatening behaviour. Results support quite weakly hypothesis 1, but these are not significant (β = -.073, p > .05).
TABLE 4
Regression Analysis on Audit Quality Threatening Behaviour
Model 1 Model 2 Model 3 Model 4
Intercept 2.962*** 3.459*** 4.730*** 3.403***
Controls
Age -.008 -.011 -.012 -.003
Tenure -.019 -.022 -.019 -.017
Big four dummy -.493* -.476* -.366 -.459*
Female dummy -.157 -.159 -.142 -.158
17 Reviewing -.073 Learning -.290*** Vitality -.128 R2 .084 .091 .156 .104 Adjusted R2 .060 .062 .129 .075 F-value 3.577** 3.131** 5.770*** 3.614**
Based on two-tailed tests *** p < .001, ** p < .01, * p < .05 N = 162
Direct effect of reviewing on learning and vitality
Hypotheses 2a and 2b both test the direct effect of reviewing on learning and vitality, respectively. Hypothesis 2a posits that there will be a positive effect of reviewing on the experience of learning. Hypothesis 2b however, expects a negative effect of reviewing on the experience of vitality. Results around these hypotheses are shown in Table 5, where Model 1, Model 2 and Model 3 use the experience of learning as dependent variable. The experience of vitality is used as dependent variable for Model 4, Model 5 and Model 6. The direct effect of reviewing on the experience of learning is shown in Model 3. The results show that reviewing strongly and positively is related to the experience of learning, but also insignificantly (β = .556, p >.05). Therefore, hypothesis 2a needs to be rejected. Model 5 also demonstrates a not significant result followed by a multiple regression analysis to test the effect of reviewing on the experience of vitality, although the effect is negative as hypothesis 2b posited (β = .003, p > .05).
Direct effect of learning and vitality
Hypothesis 3a stated that the experience of learning decreases the amount of AQTB, whereas hypothesis 3b predicted a decrease in AQTB due to the experience of vitality. Model 3 supports hypothesis 3a strongly with a significant result (β = -.290, p < .001). Therefore, this model demonstrates that a learning experience leads to a decrease in audit quality threatening behaviour. Model 4 shows support for hypothesis 3b, although the relation is again not significant (β = -.128, p > .05).
TABLE 5
18
Learning Vitality
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6
Intercept 6.098*** 5.479*** 1.477 3.441*** 3.464*** 2.871***
Controls
Age -.015 -.011 -.015 .036* .036* .024****
Tenure .000 .003 -.005 .022 .022 .018
Big Four dummy .436* .415* .276 .261 .261 .028
Female dummy .051 .091 .176 -.007 -.008 .183
Main effect
Reviewing .091 .556 -.003 -.110
Moderating effect
Reviewing x Internal LOC -.083 .021
R2 .087 .099 .270 .163 .163 .390
Adjusted R2 .064 .070 .483 .142 .137 .632
F-value 3.730** 3.426** 8.139*** 7.670*** 6.098*** 14.080***
Based on two-tailed tests
**** p < .1, *** p < .001, ** p < .01, * p < .05 N = 162
Moderating effect of internal locus of control
Hypotheses 4a and 4b are based on the moderating effect of internal locus of control (LOC). To test the moderating effect with a multiple regression analysis, the PROCESS tool (Hayes, 2018) was utilized in combination with SPSS. Model 3 and Model 6 in Table 5 show the results around the moderating effect of the internal locus of control. Hypothesis 4a
predicted that an internal locus of control strengthened the relation between reviewing and learning. However, no evidence was found to support this hypothesis (β = -.083, p > .05). For Hypothesis 4b, positing that an internal locus of control moderates the relation between reviewing and vitality positively, I cannot find supporting evidence too (β = .021, p > .05). Therefore, both hypotheses 4a and 4b are rejected.
19
Hypothesis 5a predicts that an internal locus of control moderates the indirect
mediating effect of reviewing on AQTB through the experience of learning. Hypothesis 5a is comparable to hypothesis 5b, but the latter uses the experience of vitality as mediator. These moderated mediation analyses were again conducted with the PROCESS macro tool (Hayes, 2018), which was run in SPSS. The control variables age, tenure, the big four dummy and the female dummy were again included.
Table 6 demonstrates the indirect moderating effect of auditors’ internal locus of control on AQTB. The upper half of Table 6 shows the indirect moderating effect through the experience of learning. The level of the internal locus of control used is the mean score, added with two levels that were respectively one standard deviation above and below the mean. The confidence interval includes zero and therefore support evidence can be found when the internal locus of control is a at mean level. This moderating effect is surprisingly negative (β = -.037), which means that the internal locus of control indirectly weakens the relation between reviewing and AQTB, through learning. However, at other levels of the internal locus of control, results are not significant.
The lower half of Table 6 shows results of the indirect effect of the internal locus of control, when the experience of vitality is used as a mediator. Again, the confidence level is zero for each level of internal locus of control. Also, the effect of the internal locus of control is shown with the mean score for internal locus of control, one level adding one standard deviation to the mean and one level subtracting one standard deviation. No significant results can be found to support hypothesis 5b. Therefore, this hypothesis is rejected.
TABLE 6
Indirect moderated effect of internal locus of control on audit quality threatening behaviour through learning Level of internal locus of control Boot indirect effect Bootstrap at 95% confidence interval
Lower bound Upper bound
4.333 (-1 SD) -.056 -.174 .003
5.333 (M) -.037 -.091 -.001
20 Bootstrap sample size is 5,000.
N = 162
Additional analyses
Moderated mediation with thriving at work
As is stated in the literature framework, thriving at work is the variable that combines the experience of learning and the experience of vitality. Therefore, after obtaining the results of Table 6 and 7, showing a significant negative effect of the experience of learning, it could be interesting to gain insight in the combined effects of these subdimensions as mediator. Table 8 shows the results of the moderated mediation analysis including thriving at work as the mediator. The confidence level is again zero for each value of the locus of control. The results show a negative indirect effect of the internal locus of control on the relation between reviewing and AQTB through thriving at work, but these results are not significant.
Bootstrap sample size is 5,000 N = 162
Indirect moderated effect of internal locus of control on audit quality threatening behaviour through vitality Level of internal locus of control Boot indirect effect Bootstrap at 95% confidence interval
Lower bound Upper bound
4.333 (-1 SD) .003 -.034 .031
5.333 (M) -.000 -.021 .019
6.000 (+1 SD) -.002 -.021 .025
TABLE 7
Indirect moderated effect of internal locus of control on audit quality threatening behaviour through thriving at work
Level of internal locus of control Boot indirect effect Bootstrap at 95% confidence interval
Lower bound Upper bound
4.179 (-1 SD) -.025 -.102 .016
5.167 (M) -.017 -.058 .008
21
Whereas the paper is focussing on the moderating effect of locus of control on the relation between reviewing and thriving at work, audit literature also describes the relevance of the audit firm size regarding reviewing and thriving at work. Specifically, the difference between Big Four – KPMG, PricewaterhouseCoopers, Deloitte and EY –audit firms and non-Big Four audit firms is often expressed (Westermann, 2015; Blokdijk et al., 2006. Nehme, 2017). Supported by the strong significant effects in the previous analyses, I replaced the internal locus of control with the big four dummy as moderator to the effect of reviewing on the subdimensions learning and vitality. Consequently, three control variables remain in the analysis: age, tenure and the female dummy. Results of the re-ran regression analysis are shown in Table 9 in Appendix B. The plot resulting from the analysis in Figure 2 shows that the relation between reviewing and the experience of learning is barely affected by the moderating effect of the big four dummy, however this is not significant (β = .004, , p > .05).
On the contrary, the plot in Figure 3 presents a moderate negative moderating effect of the big four dummy, but also this effect is likewise not significant (β = -.155, p > .05).
Therefore, it can be concluded that the big four dummy does not add significant results to this paper.
FIGURE 2
Big Four audit firm Non-Big Four audit firm
Experienc e o f learn in g
22
DISCUSSION AND CONCLUSION
Recent research has shown that reviewing is a significant process within audit firms that auditors perform (e.g. Jenkins et al., 2017; Fargher et al., 2005; Bonner, 2008; Andiola, 2014) Also, in literature can be found that reviewing might enhance thriving at firms for employees. On the contrary, other scholars state that reviewing possibly causes a decrease in thriving, mainly due to its effect on one of its two subdimensions, the experience of vitality (e.g. Vlachopoulos, 2012; Holman et al., 2002). Consequently, thriving at work is
hypothesized to decrease behaviour that threatens audit quality (AQTB) because positive states, such as learning and vitality, are claimed to be essential for optimal functioning (e.g. Frederickson, 2001; Kleine et al., 2019; Schaufeli et al., 2009). On top of that, the employee’s locus of control has been stated as having a moderating effect on the relation between
reviewing and thriving. This is based around papers of Chua & Iyengar (2006), Ryan & Non-Big Four audit firm
Experienc
e
o
f v
itality
Big Four audit firm
23
Frederick (1997) and Elias (2018), amongst others. Therefore, the purpose of this paper was to measure when reviewing was most likely to affect AQTB, through the variable thriving at work, what purpose the locus of control has on the relation between reviewing and thriving and how thriving affects AQTB. Firstly, I predicted a negative relation between reviewing and AQTB. Above that, I hypothesized that reviewing is positively related to learning but
negatively to vitality, as learning and vitality are the two subdimensions of thriving at work (Spreitzer et al., 2005), and that these two subdimension were again negatively related to AQTB. Additionally, I predicted a strengthening moderating effect of employees’ internal locus of control on the relation between reviewing and learning, and on reviewing and learning. Based on the results from the 162 auditors, all having at least 2 years of experience, this paper finds that the experience of learning indeed leads to a decrease in behaviour that threatens audit quality. On top of that, results surprisingly show that an internal locus of control weakens the relation between reviewing and AQTB through learning. These results contribute to existing literature and have significant implications for future research.
At first, I found that that an increase of the experience of learning, a subdimension of thriving, leads to a decrease in audit quality threatening behaviour. This is in line with the study of Wilson and Frimpong (2004), who claim that learning enhances work-relating
behaviour because it leads to a higher level of job satisfaction. Dutch auditors who experience a feeling of learning will perform less behaviour that threatens audit quality. The consensus in literature is therefore accepted again in 2020. Spreitzer et al. (2005) emphasize that the state of thriving at work is only achieved when vitality and learning are jointly experienced, and as this papers does not confirm any significant relations regarding vitality, nothing can likewise be confirmed about thriving at work. Also, no significant relation has been found between reviewing and the experience of learning or the experience of vitality. Although these results were not significant, it still contributes to existing literature since it shows that reviewing does not immediately lead to an increase in the experience of learning for Dutch auditors. These effects are in line with the self-determination theory (e.g. Deci & Ryan, 1985) and support the claim that some reviewing may decrease motivation and therefore vitality (e.g. Baumeister, 1984). On the other side, a decrease vitality is not significantly experienced when reviewing is performed in audit firms in the Netherlands. Therefore, it contradicts some literature that predicts direct influence of reviewing of the experience of vitality (e.g. Ashton, 1990; Ryan & Frederick, 1997; Ryan & Deci, 2000)
24
Second, I find a weakening effect on the relationship between reviewing and AQTB through learning. This result contradicts with studies of Shavit and Rabinowitz (1978) and Mowday et al. (1979), who claim that individuals with an internal locus of control act much more vigorous to improve after feedback received. Forty years later, this study presents contradictory results. Consequently, to draw a conclusion based on these results, I claim that auditors in the Netherlands with a high internal locus of control experience a weaker effect of reviewing on audit quality threatening behaviour. This can be supported by the theory that internals are more self-centred and self-determined than externals, which is in line with the self-determination theory (Ryan & Frederick, 1997; Deci & Ryan, 1985; Vlachopoulos, 2012). On the other hand, I have not found any significant results regarding the relation between reviewing and AQTB through vitality.
Third, I have not found any evidence of a moderating effect of an internal locus of control on either relation between reviewing and the experience of learning, or the
relationship between reviewing and the experience of vitality. An explanation of the absence of a significant moderating effect on the latter relation may be that individuals with an internal locus of control do not experience reviewing as important, as they tend to be more
self-centred and self-determined. This is again in line with the self-determination theory (Ryan & Frederick, 1997; Deci & Ryan, 1985; Vlachopoulos, 2012). Also, no significant results have been found regarding the effect of reviewing on AQTB. This may be explained by stating that reviewing, while it is a significant process within auditing (Bamber & Bylinkski, 1987; Arens & Loebecke; 1988), is one of the many factors to influence audit quality threatening
behaviour.
Practical Implications
The results of this paper have implications that can be found important in practice. As is shown in the results of this study, the experience of learning has a strong negative effect on the audit quality threatening behaviour. Audit firms should, therefore, focus more on the experience of learning to reduce the behaviours that threaten audit quality. Increasing the level of reviewing in audit firms may be a manner to do so, but it will not always increase the level of learning as is also shown in this paper. The questions in the questionnaire regarding the experience of learning were amongst others centred around development as a person. Therefore, to decrease audit quality threatening behaviour it may be important for audit firms to put emphasis on their employees’ general development, not only on their development as an employee.
25 Limitations and Future Research
I have recognized that this paper features its limitations. First, the sample of the data is only based on auditors from the Netherlands. Therefore, it may be hard to generalize to international context, amongst other reasons because auditors behave differently in various cultural contexts (Wang & Yang, 2012).
This paper made use of internet surveys to obtain data. Internet surveys offer its
advantages, e.g. asking complex questions in a short time, cost efficient and quick turn-around time (De Leeuw, 2005; De Leeuw, 2010). However, internet surveys have also its inherent weaknesses and those are also applicable for this paper. Surveys are reports of how
respondents value themselves, thus data is subjective (Bertrand & Mullainathan, 2001). Additionally, since all data is anonymous, I cannot test for non-response bias nor can I test for question sequence bias since I could not verify the sequence of questions answered. The questionnaire was sent in the traditional busy season for auditors (often from January to April, long hours are the norm), but this period was on top of that also the period when the COVID-19 led to serious economic uncertainties. These two events may lead to bias due to pressure perceived by respondents. Possibilities for future research arise, as it might be interested to compare data of this paper to previous or future studies in the same time span.
Future research may deepen and extend the data used to obtain more significant results, more respondents might be needed for example. Also, an experimental research may be interesting to apply in this field of literature, in stead of a questionnaire, to reduce the bias around surveys and internet surveys in particular.
I found some evidence around the differences between audit firms, as a control variable. Although the additional analyses did not report a significant result on the difference between Big Four firms and non-Big Four firms, it may be possible to extend these analyses in the future with a bigger set of data to find new insights. Additionally, because the results of this paper cannot directly be generalized for other professions, future studies could apply the same research method in other professional fields to obtain a more consensus.
26
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