The Impact of Auditor Workload on Quality Threatening Behaviour and the Moderating Effect of COVID-19

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Master Thesis MSc Accountancy Van Karnebeekstraat 69B Zwolle

Supervisor: Dhr. Veltrop joram_pieltjes@hotmail.com

18-01-2021 06-42949780

7667 words S3192954

The Impact of Auditor Workload on Quality

Threatening Behaviour and the Moderating Effect of

COVID-19

Joram D. Pieltjes

University of Groningen Faculty of Economics and Business

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Abstract

For a long time, researchers are examining the relationship between auditor workload and quality threatening behaviour. This is caused by the generally accepted opinion that these concepts need to improve and are of significant importance to the audit profession. I study the relation between auditor workload and quality threatening behaviour. Furthermore, I want to contribute to the auditing literature, by examining the impact of the current COVID-19 crisis on this relation. These concepts were tested using multiple regression analyses. Data were used from four surveys with a total sample size of 515 Dutch auditors. This study found evidence that auditor workload has a significant positive impact on quality threatening behaviour. However, no evidence was found that the COVID-19 crisis moderates the relationship between auditor workload and quality threatening behaviour. On the other hand, an additional analysis did find a direct negative effect between the COVID-19 crisis and quality threatening behaviour. Further research may look into the cause of this direct relationship between COVID-19 and quality threatening behaviour.

Keywords: Auditor Workload; Quality Threatening Behaviour; COVID-19; Individual

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1. Introduction

Due to the outbreak of the COVID-19 virus, the situation of many companies around the world is changing. Employees must work from home, public spaces are closed, and physical contact must be reduced (Rijksoverheid, 2020). Because of this change, companies need to be more creative to continue their normal business activities. According to Sweet (2020): “The COVID-19 pandemic is also having a significant impact across the audit profession”. This is supported by the fact that auditors are experiencing problems in meeting deadlines and gathering audit evidence. Furthermore, auditors find an increase in risk of going concerns and incomplete liabilities (Sweet, 2020). The outbreak causes audit firms to rely on digital resources, to keep in touch with clients and employees and to be able to continue their work on auditing activities (Padar, 2020).

Before this outbreak, auditors used to visit their clients and inspect production facilities (Castka, Searcy and Fischer, 2020) to obtain more information about the company and gather evidence for the audit. In addition, auditors used to work at the office for team meetings and to complete other tasks necessary in the audit process. This ‘on-site work situation’ completely changed due to COVID-19 and forced audit firms to comply to new measures from governments (FRC, 2020) and regulators (PWC, 2020). In the Netherlands, for example, this led to largely closed offices, the creation of home offices, and online client/employee meetings instead of face-to-face contact (NBA, 2020).

Hence, COVID-19 caused auditors to radically change the way they perform their audits. They changed from an ‘on-site close work situation’ to an ‘online distant work situation’, with a decrease in client and colleague contact and a change in evidence gathering (Luo and Malsch, 2020). Logically, new challenges are arising due to this change in work conditions. The audit quality process can be determined by the nature of the interactions and the auditor/manager relation (Arel, Brody and Pany, 2005). Research suggests, that it is important to have face-to-face contact, because auditors need to read the client and have to be able to develop a good connection with the client, which improves the process of evidence gathering (Bennett and Hatfield, 2018). Due to COVID-19, real face-to-face contact is not possible, and auditors have to switch to online communications, which impacts the process of evidence gathering and performing the audit. Surprisingly, auditors are relying more on information gathered from third parties instead of from the client during the COVID-19 crisis (PWC, 2020).

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One of the biggest challenges for the audit profession in these challenging times is to ensure that auditors continue to carry out high quality audits, despite changes due to COVID-19 (NBA, 2020). Although the impact of the COVID-19 crisis on the audit profession is undeniable, it is important to consider that even before the COVID-19 crisis high level of workload among auditors was viewed as an important driver of auditors to engage in quality threatening behaviour (DeZoort and Lord, 1997; Beekes, and Ururuka, 2014; Persellin et al. 2019). This is arguably even more prominent in these challenging times. Research demonstrates that excessive workload can, for example, lead to burnouts (De Vries and Herrijgers, 2018), de-motivation, employee turnover and overall lower task performance (Quratulain and Khan, 2015). It is safe to say that excessive workload is a recurring problem in the audit profession as well and is often addressed by regulators (AFM and NBA). Excessive workload is an important topic for audit research, because it influences the audit process and the audit quality (PCAOB, 2013). Earlier audit research concluded that excessive workload results in dysfunctional auditor behaviour (Kelley and Seiler, 1982) and decreased auditor performance (Fogarty et al. 2000).

Hence, an important question that arises is: if under normal circumstances high levels of workload among auditors leads to quality threatening behaviour among auditors, how does the COVID-19 crisis impact this relationship? Drawing from research on auditor workload, quality threatening behaviour and acknowledging the importance of COVID-19 for audit work, this study contributes to the existing literature by further examining the relation between auditor workload and quality threatening behaviour. Hence, the research question which will be examined is:

What is the impact of Auditor Workload on Quality Threatening Behaviour and what is the influence of the COVID-19 crisis on this relation?

The remaining part of this paper will have the following structure. The coming section addresses the extant literature and develops the hypotheses for this paper. Subsequently, the method explanation and the result section are presented. Lastly, all the previous sections are summarized in the conclusion section. This section includes the practical and theoretical implications as well.

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2. Theory and hypotheses development

In this section, the hypotheses will be developed, supported by existing literature. This establishes a link between existing literature and the expected relationship between the variables. The variables of this research are shown in the theoretical framework below (Figure1). First, the concept of quality threatening behaviour is discussed, and a definition of quality threatening behaviour is given. Second, the concept of auditor workload is discussed, and a definition is provided. These two concepts are the primary relation of the theoretical framework and, therefore, the first hypothesis is developed.

Furthermore, the effect of the COVID-19 crisis on the audit profession will be analysed in relation to the situation before COVID-19. Specifically, the impact of the COVID-19 crisis on the relation between auditor workload and quality threatening behaviour is discussed. Therefore, the COVID-19 crisis variable serves as the moderating variable of the theoretical framework of this study.

Figure 1.

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4 2.1 Quality Threatening Behaviour

Audit quality is dependent on the ability of individual auditors to detect and report a breach (DeAngelo, 1981). Audit quality may range from low to high quality and is affected by many factors, including the impact of individual auditors (Francis, 2011). Gul, Wu and Yang (2013) demonstrate that individual auditors vary significantly in audit quality output, which is caused by the personal characteristics of auditors (Nelson and Tan, 2005). Knechel et al. (2013) and Christensen et al. (2016) even claim that auditors’ individual characteristics primarily affect audit quality. Ultimately, despite the audit engagement partner signing off, it is the individual auditors’ audit procedures that result in high (or low) quality audits (Kilgore, Harrison and Radich, 2014). This importance of individual auditors performing audits is generally acknowledged in audit research, judged by the recent number of studies examining individual auditors’ impact (Chen, Sun and Wu, 2010; Gul, Wu and Yang, 2013; Cahan and Sun, 2015; Su and Wu, 2019).

Furthermore, the importance of individual auditors is also approached in a negative way, because the individual impact of auditors on audit quality is associated with dysfunctional and quality threatening behaviour (Donnelly, Quirin and O’Bryan, 2003; Svanström, 2016). In this research, the definition of quality threatening behaviour of Pierce and Sweeney (2004) will be followed. In their research, quality threatening behaviour is defined as: “A group of specified behaviours, each of which has the potential to reduce audit quality”. Examples of quality threatening behaviour are premature sign-off (Alderman and Dietrick, 1982), failure to investigate questionable items (Peytcheva and Gillett, 2012) and overcharging clients (Pruijssers, van Oosterhout and Heugens, 2013). These different examples of quality threatening behaviour differ in frequency and impact on audit quality (Malone and Roberts, 1996; Willett and Page, 1996). This is caused by quality threatening behaviour being a dispute between cost and quality (Kelley and Margheim, 1990; Malone and Roberts, 1996; Otley and Pierce, 1996). These are a few examples of quality threatening behaviour, however there are multiple other studies examining examples of quality threatening behaviour (Rhodes, 1978; Coram, Ng, Woodliff, 2004).

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5 2.2 Auditor Workload

This research will follow the definition of workload by Manurung et al. (2018): workload is the individual capacity needed in completing a number of jobs that must be completed within a specified time limit. This indicates that perceived workload can differ for people and that workload is connected to time pressure. Previous research suggests that excessive workload is experienced at staff up to and including partner level (Fogarty et al. 2000). Hence, excessive workload is an important problem, due to the fact that it can impact all function levels. Extant research demonstrates that excessive workload is linked to employee emotional exhaustion (Cordes and Dougherty, 1993). In addition, excessive workload can result in strains, such as fatigue, stress and depression (Greenhaus and Beutell, 1985; Macdonald, 2003). In organizational behaviour, it is acknowledged that these results of excessive workload have a negative impact on employee performance (Chu and Spires, 2001; DeDreu, 2003). This is caused by excessive workload negatively impacting the decision-making process of an individual (Svenson and Edland, 1987). In research by Cianci and Bierstaker (2009) it is found that bad auditor circumstances, experiencing for example stress and anxiety, results in lower quality of reporting information and lower task performance.

In addition, prior research suggests that excessive workload has a negative influence on auditor morale and commitment to the job (Cordes and Dougherty, 1993; Johnson-Moreno, 2003). In other words, excessive workload can result in lower motivation to adequately carry out the work (Ryan and Deci, 2000). It influences the way employees are approaching and carrying out their work (Olafsen and Halvari, 2017). In conclusion, these examples impact the effort of employees in their work. Subsequently, McNair (1991) argues that the quality of the final audit is directly impacted by the actual versus necessary effort to complete audit tasks. This is supported by the claim that excessive workload leads to less audit effort. Excessive workload can result in situations where auditors do not experience the possibility to extent audit procedures. In the situation of investigating questionable items, high workload can cause auditors to omit this audit procedure, due to a lack of time (Chang, Luo and Zhou, 2017).

Due to this excessive workload, situations arise where auditors need to balance quality and profitability objectives (Trompeter, 1994). This impact can lead to individual auditors making decisions to meet deadlines to commit to profitability objectives. On the other hand, it can lead to individual auditors making decisions to completely perform required audit activities and fail to meet deadlines (Lambert et al. 2017). In the situation of meeting deadlines, auditors are not able to perform all the required activities within their specified time limit. Therefore, auditors

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are taking shortcuts to be able to complete all tasks (Bowrin and King II, 2010; Sundgren and Svanström, 2014; Persellin et al. 2019).

These are examples of excessive workload resulting in improper auditor behaviour, also known as quality threatening behaviour. This behaviour can result into inadequate audit procedures and in the extreme even into audit failures (Jones, Norman and Wier, 2010; Chang, Luo and Zhou, 2017). Based on the literature and findings discussed above, the first hypothesis of this study is developed:

H1: Auditor workload is positively associated with quality threatening behaviour

2.3 COVID-19 Crisis

Due to the social distancing guidelines, caused by the COVID-19 virus, face-to-face appointments with audit clients are cancelled or held online, via email or videocalls (Castka, Searcy and Fischer, 2020). The difference between face-to-face versus online contact is a well-known and researched area, also well-known as the social presence theory (Short, Williams and

Christie, 1976).The social presence theory originally discusses the effectiveness of telephone

versus face-to face contact and has changed in recent years to a more modern view of online (mail, videocalls) versus face-to-face contact (Bennett and Hatfield, 2018). Social presence theory is defined as: “the capacity of a medium to transmit information about facial expression, direction of looking, posture, dress and non-verbal cues” (Short, Williams and Christie, 1976). The greatest concern for the audit profession, with regard to COVID-19, is the impact of the social distancing guidelines on auditors (Albitar et al. 2020). Downey and Bedard (2019) argue that communications within teams are a critical part of the audit process. In normal times, audit team members can support each other more easily by asking questions face-to-face. However, the outbreak of COVID-19 and auditors being unable to meet at the office, caused a disruption in communication and support between audit team members (Luo and Malsch, 2020). In their research, Luo and Malsch (2020) also found that auditors are concerned with monitoring, coaching and communication issues between team members during COVID-19. They argue that monitoring is a great example of an internal control of a team to prevent bad audits and that efficient communication benefits the workload. Every step of the audit is reviewed by someone higher in rank and for some tasks there are multiple reviewers to ensure audit quality. However, due to the COVID-19 crisis and the online communication methods, auditors are likely to experience more problems in monitoring and reviewing each other’s work.

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Furthermore, auditors are more likely to find asking a colleague for advice disturbing in the online environment. Therefore, auditors are more reserved in asking colleagues for advice in the online work environment (Luo and Malsch, 2020). Baltes et al. (2002) found that in most situations, online contact is experienced as less efficient and that it leads to less satisfied and clear answers. They also found that online support is experienced less helpful than face-to-face support and that employees still have to find a solution themselves. This lack of social support of team members and colleagues is causing an increase in perceived workload (Luo and Malsch, 2020). Hence, the audit team is an important factor in the social support of all team members. King (2002) claims that “the audit team is a psychological force that influences auditor behaviour”. Therefore, the current absence of face-to-face social support may negatively influence the workload demands of auditors. Hence, the COVID-19 crisis might strengthen the impact of auditor workload, because of the fact that auditors do not experience the social support of the audit team and auditors have to face these new challenges. Therefore, the influence of the COVID-19 crisis, which leads to monitoring, reviewing and communication issues, might have a greater impact on the relationship between auditor workload and quality threatening behaviour. The absence of monitoring and reviewing work, or the problems connected to these audit steps, might influence the effort and performance of auditors and eventually the audit quality. In sum, the COVID-19 crisis might cause auditors to focus on their well-being in this crisis and less on the actual job of an auditor.

Based on the literature provided above, the second hypothesis is developed. The impact of the COVID-19 crisis on team support and communication might negatively impact auditors’ work conditions and performance. Therefore, I believe that the COVID-19 crisis moderates the relationship between auditor workload and quality threatening behaviour:

H2: The COVID-19 crisis strengthens the relationship between auditor workload and quality threatening behaviour

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3. Research Methodology

3.1 Data collection

The data in this research was gathered using a survey among 141 Dutch speaking auditors in the Netherlands. Survey data was gathered with three other master students. Anonymity and confidentiality of the data is guaranteed and in line with the policies of the university of Groningen and the Dutch government. The respondents must meet two conditions to be included in this research. First, the respondents need to have at least two years of experience as an auditor. Since auditors with at least two years of experience are better able to answer the audit related survey questions. Second, they have to work as an auditor who perform audit procedures. Eventually, 141 auditors confirmed they wanted to fill in the survey. Thereafter, the survey was sent to the auditors using an online tool. The survey was returned by 127 auditors, which resulted in a response rate of 90,07 %.

Furthermore, in order to measure the impact of the COVID-19 crisis on the relationship between auditor workload and quality threatening behaviour as well, this study compares the current COVID-19 survey with the pre COVID-19 period. The pre COVID-19 period consists of surveys from April 2019, November 2019 and April 2020. These three surveys were returned by 388 auditors, which resulted in a combined dataset with data from 515 auditors.

A dummy variable was created to distinguish between the COVID-19 and pre COVID-19 period and to be able to compare the survey answers in the two different periods. The survey from November 2020 is considered as the COVID-19 survey and the other three surveys are considered as pre COVID-19 survey. In order to compare these results, all the survey constructs and items and are exactly the same in every survey. Therefore, a significant deviation in the answers can only be caused by the COVID-19 crisis. This is due to the fact that the COVID-19 crisis is the only deviating variable between the surveys.

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9 3.2 Measures

3.2.1 Dependent variable: Quality Threatening Behaviour

The construct of quality threatening behaviour was measured by the questions in the study of Herrbach (2001). Furthermore, additional questions of quality threatening behaviour constructs by Otley and Pierce (1995) and Pierce and Sweeney (2004) were used, in combination with the questions of Herrbach (2001). Quality threatening behaviour is a relatively sensitive topic for auditors, as they have to admit that they have not followed the rules and procedures properly. Therefore, this construct may involve a social desirability bias (Otley and Pierce, 1995). Participants were asked to be honest about ‘bad behaviour’ and may have responded partially honest. To limit this bias, anonymity and confidentiality were guaranteed in this study. Furthermore, the responses of the survey were directly sent to the research supervisor. Although this bias cannot be prevented, its impact will be minimized by these measures.

The questions about quality threatening behaviour were introduced with a short text, before the actual questions were asked: Listed below are behaviours some auditors claim to have experienced in their jobs. Could you indicate how often you have acted in the following manner in carrying out an audit. Hereafter, the eight questions from the constructs of Herrbach (2001), Otley and Pierce (1995) and Pierce and Sweeney (2004) were displayed: (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 program step without completing the work; (7) greater than appropriate reliance on client work; (8) personally engaged in underreporting of time (i.e., deliberately failing to record the full amount of time spent on a task). This construct contained a response format of a seven-point scale with 1 (meaning never) and 7 (meaning very often). Furthermore, the Cronbach’s alpha of this construct was measured, resulting in a Cronbach’s alpha of 0.802.

3.2.2 Independent variable: Auditor Workload

The construct of auditor workload was measured by the questions in the study of Spector and Jex (1998). Their construct contains multiple different topics. However, in this study only the Quantitative Workload Inventory (QWI) topic was used to measure auditor workload. The other topics of Spector and Jex (1998) were not related to the topics in this study. The QWI measures the quantitative workload of employees, where each question refers to the perceived amount of work. The questions are either speed or volume related, which means that workload is measured by the amount of work and how often employees have to work quickly.

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The QWI construct contains five questions: (1) how often does your job require you to work very fast; (2) how often does your job require you to work very hard; (3) how often does your job leave you with little time to get things done; (4) how often is there a great deal to be done; (5) how often do you have to do more work than you can do well. This construct contained a response format of a seven-point scale with 1 (meaning never) and 7 (meaning very often). Furthermore, the Cronbach’s alpha of this construct was measured, resulting in a Cronbach’s alpha of 0.795.

3.2.3 Moderating variable: COVID-19

The COVID-19 crisis was used as a moderating variable in this research. Due to the recent developments of the COVID-19 crisis, no existing constructs were available to measure the impact of this variable. This is not a major problem, because this study developed a good alternative. This study made use of a comparison between pre COVID-19 and COVID-19 measures from different surveys. The previous surveys measured different topics, including auditor workload and quality threatening behaviour. The previous surveys date from April 2019, November 2019 and April 2020 (before COVID-19) and the current survey dates from November 2020 (during COVID-19). This study compared the results of all studies, related to the constructs of auditor workload and quality threatening behaviour. In the case of a significant difference, it is caused by the COVID-19 crisis, because this is the only difference between the surveys. Therefore, by comparing the results of all studies it is possible to conclude if the COVID-19 crisis has a significant impact on the relation between auditor workload and quality threatening behaviour.

3.2.4 Control variables:

In this study, multiple control variables were included, such as age, gender, busy season, seniority and marital status. In this paragraph I will elaborate on why these controls are included and I will explain their possible effect.

First, age was included as a control variable. This control is connected to the work experience of auditors. Svanberg and Öhman (2013) found that age and work experience, in an audit context, are highly correlated and that these concepts can be considered as the same construct. The direction of this variable is not convincingly supported by the literature. This variable, therefore, will be analysed with a two-tailed test.

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Furthermore, gender was included as a control variable. Extant research has shown that overall, females score higher in ethical decision making than males (Barnett, Bass and Brown, 1994; Pierce and Sweeney, 2010). This study controlled for gender, due to the fact that ethical decision making is associated with the degree of quality threatening behaviour (Pierce and Sweeney, 2006; Sweeney, Pierce and Arnold Sr, 2013).

Busy season was included as a third control variable. Busy season is the first quarter of the year in which most audits occur. This is due to the end of the reporting period of most companies. In this period, auditors have to issue many audit reports for these companies. Busy season was included as control variable due to the multiple surveys which were used in this research. This research made use of four surveys, of which two were conducted during busy season and two were conducted outside busy season. This research measured workload and without controlling for busy season, auditors most likely experienced more workload during the surveys which were conducted during busy season. This could impact quality threatening behaviour and therefore busy season was included as a control variable.

Following Beekes, Otley and Ururuka (2014), quality threatening behaviour may differ across all hierarchical levels in an audit firm. In other words, a possible difference can arise between for example associates and senior managers, and their engagement in quality threatening behaviour. Therefore, this study controlled for seniority.

Lastly, this study controlled for marital status. Due to COVID-19, auditors are working most, if not all, of the time from home. If your spouse is working from home as well, this might entail problems, such as ‘home office space’ and getting distracted by each other’s videocalls. To prevent that marital status impacts this research, marital status is added as a control variable.

3.3 Data Analysis

The conceptual framework of this research consists of three variables, an independent, a dependent and a moderating variable. In the results section of this research, data analyses were executed between these variables. These analyses were executed to be able to find the directions and the level of relationship between the variables. Hence, the analyses result into significant or insignificant results and provide a positive or negative direction.

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The first step consisted of an overview of the distribution of demographic sample characteristics. After this step the descriptive statistics were presented to provide further information about the variables. Then, a correlation table was presented to provide statistics about the underlying relations between the variables. After the correlation analysis, the regression analyses were performed. Lastly, this study conducted robustness checks and additional analyses.

The first regression analysis was used to examine the effect between auditor workload and quality threatening behaviour. This analysis also controlled for the effects of multiple control variables, such as age, gender, busy season, seniority and marital status. This analysis was conducted with a multiple linear regression analysis. The second regression analysis examined the effect of the COVID-19 moderator on the relation between auditor workload and quality threatening behaviour. To be able to measure this effect, an interaction effect between auditor workload and the COVID-19 dummy was created. First, the variable auditor workload was changed to a standardized variable for comparison with the COVID-19 dummy variable. Thereafter, the interaction variable was created by multiplying the standardized auditor workload variable and the COVID-19 dummy variable. Lastly, this interaction effect was included in a multiple linear regression analysis.

4. Results

4.1 Distribution of the Demographic Sample Characteristics

In Table 1 an overview of the demographic sample characteristics is presented. The sample consists of 515 auditors (N=515) and the table presents data about gender, marital status, period, age, busy season and seniority. Most of the respondents are male (69,3%), compared to only 30,7% female. Furthermore, only 15,2% of the respondents are married, which may be caused by the low mean of age (31.41 years). The period of this research is divided in a COVID-19 period and a pre COVID-19 period. 75,3% of the data is related to the pre COVID-19 period and 24,7% is related to the COVID-19 period. Due to confidentiality, age is presented as a Z-score and, therefore, only the mean of this data is presented in the table. Furthermore, a distinction is made between the surveys conducted during busy season and outside busy season. Most of the respondents participated in a survey during busy season (58,8%) and 41,2% of the respondents participated in a survey outside busy season. Lastly, most auditors have either a medior or senior position in the audit firm, however every function is represented.

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13 Table 1

Distribution of the Demographic Sample Characteristics

Characteristic Frequency Percent Characteristic Mean Frequency Percent

Gender Male Female Marital Status Married Unmarried Period COVID-19 Pre COVID-19 357 158 78 437 127 388 69,3% 30,7% 15,2% 94,8% 24,7% 75,3% Age Busy Season Yes No Seniority Starter Junior Medior Senior Very Senior Partner 31.41 303 212 4 58 187 141 57 68 58,8% 41,2% 0,8% 11,3% 36,4% 27,2% 11,1% 13,2% N=515 auditors

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14 4.2 Descriptive statistics

In Table 2 the descriptive statistics of all the variables are presented. The winsorizing method was used before the analysis. Winsorizing has been applied to the constructs of auditor workload and quality threatening behaviour (QTB). These two constructs were measured on a 7-point scale and a frequency analysis showed that there were a few strongly deviating responses. The other constructs were checked as well, however this study found no evidence that winsorizing these variables would be appropriate and necessary. The findings of the winsorizing method were not deleted from the dataset; however, they were replaced by the mean plus three times the standard deviation or the mean minus three times the standard deviation. The primary variables, workload and quality threatening behaviour, are presented first. Both variables were measured on a seven-point scale. The mean of auditor workload (µ = 4,929) is well above the scale midpoint, which indicates that auditors experience high workload. Furthermore, the mean of quality threatening behaviour (µ = 2,371) is well below the scale midpoint, which indicates the presence of quality threatening behaviour, to a small extent.

Table 2 Descriptive Statistics

Variable Min Max Mean SD

Workload 2,40 7,00 4,929 ,863 QTB 1,00 5,00 2,371 ,785 Z_Age -2,765 3,692 ,00 1,00 Busy Season ,00 1,00 ,588 0,493 Female ,00 1,00 ,307 ,462 Seniority 1,00 6,00 3,76 1,213 Marital Status COVID-19 1,00 ,00 6,00 1,00 2,18 ,247 1,739 ,431 N= 515 auditors

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15 4.3 Correlation Analysis

In Table 3 the correlations between all the variables are presented. This includes the dependent (QTB), independent (Workload) and the moderating variable (COVID-19). Furthermore, a few control variables are added for reliability, which are Age, Busy Season, Female, Seniority and Marital Status. A significant correlation between a control variable and the dependent variable (QTB) affirms controlling for the variable. This is supported by the general understanding that a control variable must not impair the accuracy of the statistical analyses. Workload and quality threatening behaviour are positively correlated (p ≤ 0,01). The COVID-19 variable is negatively correlated with QTB (p ≤ 0,01) and workload (p > 0,05). Furthermore, the control variable age is negatively correlated with quality threatening behaviour (p ≤ 0,01). Busy season is positively correlated with quality threatening behaviour (p ≤ 0,01). The control variable female is negatively correlated with quality threatening behaviour, however, not significant. This variable is still used in this research, due to the small deviation of a significant value. Lastly, seniority and marital status are both negatively correlated with quality threatening behaviour (p ≤ 0,01) and therefore, important to include in the analyses.

Table 3 Correlations 1 2 3 4 5 6 7 8 1 QTB - 2 Workload ,185** - 3 COVID-19 -,302** -,036 - 4 Age -,128** -,202** -,076 - 5 Busy Season ,207** ,122** -,684** ,066 - 6 Female -,064 ,097* ,108* -,190** -,060 - 7 Seniority -,193** -,164** -,029 ,796** ,048 -,170** - 8 Marital Status -,120** -,137** ,044 ,560** ,019 -,062 ,549** - N= 515 auditors, * p ≤ 0,05 ** p ≤ 0,01 (two-tailed)

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16 4.4 Hypotheses Testing and Regression Analyses

The first hypothesis of this research predicted that auditor workload would have a positive effect on quality threatening behaviour. To test this hypothesis, a multiple regression analysis was performed with two different models. In the first model, only the control variables and quality threatening behaviour were included to examine the effect of the control variables on the dependent variable. In the second model, auditor workload was added to the regression. In Table 4 below, the two models are combined and structured by variable. The control variables Busy Season, Female and Seniority have a significant effect on quality threatening behaviour. This indicates that auditors are more likely to engage in quality threatening behaviour during busy season. Furthermore, female auditors are less likely to engage in quality threatening behaviour than male auditors. Lastly, an auditor with a high function is less likely to engage in quality threatening behaviour than an auditor with a low function. The findings in this table further show that there is indeed a positive significant relation between auditor workload and quality threatening behaviour (b = 0,13; p < 0,01). This indicates that the higher the workload of auditors, the more likely they are to engage in quality threatening behaviour. The regression analysis confirms the hypothesis and, therefore, the hypothesis is accepted.

The second hypothesis predicted that the COVID-19 crisis acts as a moderating variable and strengthens the relationship between auditor workload and quality threatening behaviour. To test this hypothesis, a new regression analysis was performed (Model 3 and 4). In the first model, only the control variables and quality threatening behaviour were included. In the second model, the standardized score of auditor workload, and the COVID-19 variable (adjusted by effect coding) were added to the regression. The standardized score of auditor workload was used to create the interaction effect. In the third model the interaction term, the product of the standardized score of auditor workload times the COVID-19 variable, was added. In Table 4 below, models 3 and 4 are combined and structured by variable. Model 1 and 2 are explained at the first hypothesis. Model 3 indicates that Seniority, Standardized workload and COVID-19 have a significant effect on quality threatening behaviour. Furthermore, the findings in this table show that there is a negative insignificant relation between the interaction term and quality threatening behaviour (b = -0,06; p > 0,10). This indicates that the COVID-19 crisis does not strengthen the relation between auditor workload and quality threatening behaviour, because the outcome of the regression analysis is insignificant and negative. Therefore, this research does not accept the second hypothesis and did not find that COVID-19 moderates the primary relation.

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17 Table 4

Regression Analyses

N= 515 auditors, * p ≤ 0,05 ** p ≤ 0,01 (two-tailed)

Model 1 Model 2 Model 3 Model 4

Intercept Controls 2,82** 2,21** 2,82** 2,80** (0,18) (0,26) (0,18) (0,18) Busy Season 0,34** 0,30** -0,03 -0,04 (0,07) (0,07) (0,09) (0,09) Z_Age 0,03 0,05 0,03 0,02 (0,06) (0,06) (0,06) (0,06) Female -0,15* -0,16* -0,13 -0,12 (0,07) (0,07) (0,07) (0,07) Seniority -0,15** -0,16** -0,14** -0,14** (0,05) (0,05) (0,04) (0,04) Marital Status -0,01 -0,01 0,01 0,01 (0,02) (0,02) (0,02) (0,02) Z_Workload 0,12** 0,09* (0,03) (0,04) COVID-19 -0,28** -0,29** (0,05) (0,05) Two-way interaction WorkloadxCOVID-19 -0,06 (0,04) Main effects Workload 0,13** (0,04) R2 0,09 0,11 0,16 0,16 Adjusted R2 0,08 0,10 0,15 0,15

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18 4.5 Robustness Checks and Additional Analyses

This study predicted that the COVID-19 crisis would strengthen the relation between auditor workload and quality threatening behaviour. The findings from the regression analyses do not find this moderating effect and, therefore, an additional analysis is performed. The original regression analysis was performed based on the data of four surveys. One survey is related to the COVID-19 period and three surveys are related to the pre COVID-19 period. An additional analysis is performed to examine if the findings were influenced by ‘the busy season’. In this new analysis only the surveys from November 2019 and November 2020 were used. The other surveys were conducted during busy season and might have an impact on the accuracy of the answers of the respondents. Therefore, this analysis is performed with data from the non-busy season period. The findings (Appendix 6.3; Table 6) show that there is still an insignificant negative outcome for this moderating effect (b = -0,08; p > 0,05). The p-value slightly increased compared to the regression on the complete dataset, however the p-value is still not significant. Hence, this study did not find that the COVID-19 crisis serves as a moderating variable. However, the COVID-19 crisis may still have a direct impact on the dependent or independent variable. Therefore, this study did an additional analysis into a direct relationship of the COVID-19 crisis. The findings (Appendix 6.3; Table 7) show that there is a direct relationship between the COVID-19 crisis and quality threatening behaviour (b= -0,54; p < 0,01). Hence, the COVID-19 crisis strongly lowers the presence of quality threatening behaviours among auditors. Furthermore, a regression analysis was performed to examine if there is a direct relation between the COVID-19 crisis and auditor workload. The findings (Appendix 6.3; Table 8) show that there is not a direct relationship between the COVID-19 crisis and auditor workload (b= 0,14; p > 0,05).

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5. Discussion and conclusion

The rise of the COVID-19 crisis has changed a lot in our daily lives. From working from home till social distancing and watching press conferences till a lockdown. I decided to examine the

impact of auditor workload on quality threatening behaviour and add the impact of the

COVID-19 crisis to the relation between these two variables. In this way, I wanted to examine whether the COVID-19 crisis serves as a moderating variable. This resulted in the following research question: What is the impact of Auditor Workload on Quality Threatening Behaviour and what

is the influence of the COVID-19 crisis on this relation?

In order to answer this research question, the question was divided in two separate hypotheses. The first hypothesis, auditor workload is positively associated with quality threatening

behaviour, is confirmed in the results section. This means that higher auditor workload results

in higher engagement in quality threatening behaviour for an auditor. This is in line with previous research. For example, Otley and Pierce (1996) and Fogarty et al. (2000) found a significant positive relationship between workload and dysfunctional auditor behaviour. Furthermore, also Jones, Norman and Wier (2010) found a significant positive relationship between work pressure and audit quality. Regulators and audit firms have developed guidelines and control mechanisms to cope with the problem of excessive auditor workload and dysfunctional behaviour (López and Peters, 2012). However, this research shows that there is still a positive significant relation between auditor workload and quality threatening behaviour. This indicates that these guidelines and control mechanisms do not adequately solve this problem. In order to improve these two concepts, this relationship should be addressed as a major and systemic problem (CTA, 2020) This is an important implication for the audit profession.

The second hypothesis is, the COVID-19 crisis strengthens the relationship between auditor

workload and quality threatening behaviour. This study used multiple surveys at different

points in time to draw a conclusion about the impact of COVID-19. Using the same surveys at different points in time allows this study to draw better conclusions than data based on one point in time. However, this study did not confirm this hypothesis in the results section. This means that in this study no evidence was found that, during the COVID-19 crisis the relation between auditor workload and quality threatening behaviour is stronger than before the COVID-19 crisis. This might be caused by the fact that “when misstatement risk is high, auditors tend to choose a higher quality review format” (Agoglia et al. 2010). This is also in

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line with the findings of Coram, Ng and Woodliff (2004). They found that when the level of risk is high, auditors appear to engage less in some acts of quality threatening behaviour. The COVID-19 crisis is a new phenomenon for audit firms and, therefore, all the firms had to change their daily business activities. However, even in these uncertain times, the audit profession still needs to provide certainty to their clients which can result in relying on a higher quality review format (Agoglia et al. 2010). Furthermore, due to this uncertainty, firms might focus more on ensuring employee well-being and work conditions (PWC, 2020). This is confirmed by an additional analysis, where a direct negative relation between the COVID-19 crisis and quality threatening behaviour was found. This indicates that the COVID-19 crisis significantly lowers the presence of quality threatening behaviour among auditors.

This relation was not predicted in the original conceptual framework. However, this result can contribute to the auditing literature. Previous research mainly focused on variables with a negative impact on quality threatening behaviour (Fogarty et al, 2000; Pierce and Sweeney, 2006; López and Peters, 2012), but this research shows that COVID-19 positively impacts quality threatening behaviour. To the best of my knowledge, this is the first study which finds evidence for this relation between COVID-19 and quality threatening behaviour. The audit profession can focus more on the positive impact, instead of trying to prevent the more difficult negative impact. The audit profession needs to use the COVID-19 crisis to further develop the audit profession, for example with the use of new technologies (Appelbaum, 2020). This research shows that the COVID-19 crisis can provide companies, including audit firms, new insights into their daily work activities. Due to the different and challenging circumstances, the audit firms became much more creative. At first, I expected that the COVID-19 crisis would have a negative impact on the relation between auditor workload and quality threatening behaviour. However, the creativity of the audit firms did prove otherwise and resulted in a negative effect between COVID-19 and quality threatening behaviour. After all, it is important to conclude that the audit firms were able to adapt to this new situation and can continue their business activities despite the COVID-19 situation.

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21 5.1 Limitations and Further Research

It is important to recognize and explain limitations in your study, because there are always parts which can be improved in further research. This paragraph discusses limitations about the survey constructs and the survey composition. Furthermore, the unexpected direct negative relation between COVID-19 and quality threatening behaviour will be analyzed.

In this study, the dependent variable quality threatening behaviour is measured by the constructs of Otley and Pierce (1995), Herrbach (2001), and Pierce and Sweeney (2004). The quality threatening behaviour in their constructs is described as technical quality threatening behaviour. This concept is related to the audit procedures and the collection of evidence. On the other hand, Herrbach (2001) describes the construct of social quality threatening behaviour. Social quality threatening behaviour is related to the recognition of audit quality by the economic environment and the legitimization of the audit value. This is outside the influence of auditors and is related to how society looks at audit quality (Carpenter and Dirsmith, 1993; Herrbach, 2001). In this study, the focus is only on technical quality threatening behaviour. This is because of the fact that the respondents are auditors and they can answer survey questions about audit procedures and the collection of evidence. Further research might also examine the impact of the social quality threatening behaviour concept.

The independent variable, auditor workload, can be approached in a subjective and an objective way. Work hours, for example, is an objective characteristic of workload. On the other hand, perceived workload, is a subjective characteristic of workload (Ganster, Fox and Dwyer, 2001). In this study, the survey construct for auditor workload measures the perceived workload of auditors. Further research might examine if work hours, hence an objective characteristic, has a different impact than perceived workload. Furthermore, it might be an opportunity to combine work hours and perceived workload into one construct for workload.

This research did not find evidence that COVID-19 moderates the relationship between auditor workload and quality threatening behaviour. However, this research did find a direct negative effect between COVID-19 and quality threatening behaviour. This indicates that COVID-19 lowers the presence of quality threatening behaviour. In research by Agoglia et al. (2010), it is argued that in uncertain times audit firms tend to focus even more on audit quality. This might be an explanation for the lower presence of quality threatening behaviour. Furthermore, due to COVID-19 most auditors are working from home, which results in lower travel time to the office and clients. This saved time can be used to finish deadlines or other work (Luo and Malsch, 2020). These explanations could help to address the problem of quality threatening

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behaviour among auditors. This unexpected result can be used to further examine this direct relation. Further research might find more important implications by examining this relationship in detail.

Ball (2008) suggests that “people, including managers and auditors, do not always do what they say they do, or even what they think they do”. This might indicate that auditors might not be honest, sometimes unintentionally, while participating in for example a survey (Balafoutas et al. 2020). This research uses a survey to gather information about the concepts of auditor workload and quality threatening behaviour. The anonymity and confidentiality of this survey might help in retrieving honest answers, however socially desirable answers can still occur. Therefore, it might be a great opportunity to repeat this research in a qualitative setting. Hence, by conducting interviews or experiments to compare the results of the studies in a qualitative and a quantitative setting. In a qualitative setting, researchers can look at body language and facial expressions which may result into less socially desirable answers.

Furthermore, related to the survey composition, this sample only consists of auditors working at a Big-4 accountancy firm. Due to confidentiality, the data of a few non-Big-4 respondents were deleted and not included in the dataset to prevent the researchers to make a connection between the data and the auditor from a smaller audit firm. Therefore, this results only relate to the situation in Big-4 firms and the data cannot be generalized to other smaller audit firms. Therefore, further research can examine if these results are found at smaller audit firms as well. Moreover, this study focusses on the situation in the Netherlands and only Dutch speaking auditors were approached to participate in the study. Therefore, the results cannot be directly generalized to other countries. However, countries with similar environments as the Dutch audit firms, may have comparable results. Therefore, it might be interesting to conduct a cross-country research to compare the results of different countries.

Lastly, an important note to be added in this paragraph, is that the COVID-19 survey in this research was conducted in November 2020. This is nine months after the ‘official start’ of COVID-19 in the Netherlands. Therefore, it might be possible that in these nine months all the audit problems, related to COVID-19, are already solved by the audit firms. Further research might be able to better draw conclusions about the impact of COVID-19, if they are able to use surveys from the first couple of months since COVID-19 started. At the beginning, auditors might have experienced more problems with COVID-19, which did impact their perceived workload and engagement in quality threatening behaviour.

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23 5.2 Practical Implications

Besides the fact that this research contains several limitations, this study also contains practical implications. The results of this study are mainly applicable to Big-4 audit firms and the audit profession in the Netherlands. The re-examination of the relationship between auditor workload and quality threatening behaviour and the addition of the current COVID-19 crisis can lead to useful results and new information for the audit profession.

In January 2020, the ‘Committee of the Future of Accountancy’ (Commissie Toekomst Accountancysector; CTA) presented their report to the Dutch Lower Chamber. This report elaborates on the public responsibility of auditors and the required public oversight to prevent further distrust in auditors (CTA, 2020). The main topics covered in this report are associated with the improvement of statutory audits, the change in audit execution and the improvement

of excessive auditor workload (CTA, 2020).It is generally recognized that the audit profession

is struggling with excessive auditor workload. In this research, the results confirm that auditors are still struggling with excessive workload and the associated impact on their performance. Therefore, this study empirically supports the claims from the CTA. Excessive workload is still a major problem in the audit profession. For years, this has been an important topic for auditors, however this study proves that it is still not solved.

Furthermore, this research finds a positive significant relation between auditor workload and quality threatening behaviour. Hence, an auditor who experiences high workload is more likely to engage in quality threatening behaviour. In this study, it is argued that quality threatening behaviour negatively impacts audit quality. This makes it even more important to address this problem. The CTA report mainly focusses on improving audit quality and to achieve this, it is important to prevent auditor engagement in quality threatening behaviour.

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6.2 Conceptual Model

Auditor Workload Quality threatening

behavior COVID-19