The moderating effect of firm-level positions on the relationship between perceived time pressure and individual audit quality:

(1)

The moderating effect of firm-level positions on

the relationship between perceived time

pressure and individual audit quality:

Survey research among auditors in the Netherlands

MSc Accountancy

University of Groningen

Faculty of Economics and Business

June 2018

S. N. Bakker

s2351110

Spicastraat 190

9742 LW Groningen

06 27 44 70 93

suzanne_bakker@outlook.com

Supervisor: I. Mostert MSc

Co-assessor: dr. D.B. Veltrop Msc

Word count:10.514

(2)

(3)

Abstract

The goal of this study is to investigate the relationship between perceived time pressures and individual audit quality. An important extension of this study is the presence of the moderator firm-level position. This study is quantitative in nature, in which survey research is used among auditors working at Dutch Big Four audit firms. A sample of 126 respondents is used for statistical testing. A significant inverted U-shaped relationship is found between perceived time pressure and audit quality reduction behavior. The findings did not support the hypothesized moderating effect of firm-level positions on the relationship between time pressure and audit quality reduction behavior. An additional analysis, in which the moderator firm-level position was replaced with tenure, also did not found significant results. The findings are helpful in creating awareness of the constrains of time pressure in the road towards the establishment of higher audit quality. The implications of the findings for future research are to be disclosed.

Key words: Perceived Time Pressure, Individual Audit Quality, Agency Theory, Firm-Level

Position, Human Capital Theory, Dutch Big Four Audit Firms.

Acknowledgements:

First of all, I would like to take the opportunity to thank my supervisor, I. Mostert MSc, for all her support during the writing of this thesis. I highly appreciate all the feedback and quick responses she gave me. This was an important factor in making the research to a success. Secondly, I would like to thank Dr. D.B. Veltrop MSc for all the help in the planning phase, in which the research model was established. Thirdly, I am very grateful I got the opportunity to write my thesis at KPMG. I would like to thank J. Verhoeven and W. Prins from KPMG for their effort in the external supervision. Lastly, I am particularly thankful for all the respondents of the survey. Without all the respondents, this research could not have been executed. All in all, I wrote this thesis with great pleasure. It allowed me to research a hot topic in the audit profession, which was particularly interesting.

(4)

‘‘The quality of the audit should be first priority, in which the engagement team

should have sufficient time budgets to execute a proper audit.’’

(5)

1. Introduction

Currently, the concept audit quality is a hot topic. One of the causes of the current debate in the Netherlands is the publication of the critical report of the ‘Autoriteit Financiële Markten1’

(AFM) in the end of June 2017. This report concerned, among other things, the quality of the audit procedures of the Big Four2_{audit firms. According to the AFM, these audit firms are}

lacking the feeling of urgency to implement changes in their audits (AFM report, 2017). The AFM requires reforms in the procedures of auditors, in which additional appropriate audit evidence needs to be collected. Furthermore, cultural- and behavioral reforms are necessary in the guidance on quality by the board, the guidance on a quality directed culture and the monitoring of development in the audit profession (accountant, 2017). As such, in order to meet the quality standards, reforms are needed. In the report of 2017, the AFM observed that 59% of the 32 audit dossiers of the Big Four firms did not meet the quality standards needed for a statutory audit and therefore, the AFM imposed fines on the Big Four audit firms. This is despite the areas of improvement achieved by the audit firms with regard to these reforms as part of the negative report published by the AFM in 2014 (AFM report, 2014). However, the Big Four audit firms are not in complete agreement with the negative conclusions of the AFM. EY and PwC objected the fines imposed by the AFM based on the shortcomings presented in the audit reports. They argued that the AFM could not just form their conclusions on the quality of the audits, based on some few mistakes made in only a few individual dossiers. On the 20th_of

December 2017, the court pronounced that the AFM could not judge that the quality assurance systems of the whole audit firm are inaccurate (Knoop & Piersma, 2017). Consequently, the judge places the responsibility of mistakes made in audits at the individual auditors. Making it the individual auditors working on an engagement, that drive the quality of the audit. Therefore, this research will examine individual audit quality.

On top of this, the Big Four audit firms have criticized the work methods of the AFM. Auditors use professional judgement in the audit process, which is the degree to which individual auditors can practice their own knowledge, experience, views and responsibility in the assessment of risks. This is essential in order to obtain a true and fair view of the company’s financial performance (Ivan, 2016). Nevertheless, the AFM desires a more rules based approach in the planning and organizing of the audits, in which the professional judgement of the individual auditors is restricted (Taminiau & Heusinkveld, 2017). This desire for a rules-based approach increases pressure on the administrative function of individual auditors. Furthermore, due to the stricter quality requirements imposed by the AFM, the audit firms are obligated to spend more time on audit procedures in order to obtain sufficient and appropriate audit evidence. Almost simultaneously with the report of the AFM in June 2017, the NBA3_published

the audit culture-measure4_{. The report concludes that time pressure is still an ongoing constraint}

in the quality of audits. Auditors declared in this research that often insufficient time was scheduled for the engagement and managers did not react to the signals of time pressures (accountancy cultuurmeter, 2017). Such time pressures can have significant positive or negative influences on the audit procedures. Consequently, this research will explore the different perceived effects extracted from time pressures.

1_{The AFM is responsible for monitoring the financial markets, in which the AFM aims to contribute to the efficient} operation of these markets. For the audit sector in specific, the AFM supervises the audit firms in the statutory audits and whether they comply to the law (‘Wet toezicht accountantsorganisaties’) (AFM, 2018).

2_{The global audit market is dominated by four big audit firms, namely Deloitte, PwC, EY and KP MG, based on} global revenues (ICAS, 2017).

3_{The NBA is the professional organization of auditors in the Netherlands, in charge with the proper execution of} the profession by her members (the registered auditors and administrative auditors) (NBA, 2018).

4_{The audit culture measures is based on the outcomes of a survey distributed among 90 audit firms. The central} questions is based on the quality of the individual auditor in an audit (accountancy cultuurmeter, 2017).

(8)

7

As concluded in the audit culture-measure (2017), there is some contrast between the lower and higher firm-level positions and the needed time to conduct an audit engagement. In the execution of an audit engagement, the team consist of several auditors from different firm-level positions. All these auditors in a team have different responsibilities and execute different audit procedures. Staff in lower firm-level positions potentially need additional time to gain knowledge of a certain client, for example with regard to this specific client’s administrative organization and internal controls (OA/IC) (Yan & Xie, 2016). This could possibly put pressure on the auditor, who is obligated to execute the proceedings in the planned time and budget set by the engagement manager. Additionally, lower positioned staff may have less influencing power in the establishment of realistic time schedules (Liyanarachchi & McNamara, 2007). This could potentially influence time pressure. As such, time pressures could be perceived differently among auditors in varying firm-level positions. Conclusively, the firm-level position in audit firms, the time pressure among these auditors and the ongoing debate about audit quality motivated the following research question: ‘What is the moderating effect of firm-level positions on the relationship between perceived time pressures and individual audit quality?’.

This research makes several contributions to current literature. First of all, Lopez and

Peters (2012) examined time constraints and the difficulties auditors face in order to discover and disclose audit exceptions. These pressures are determined to have negative influences on the audit quality of individual auditors. On top of this, McDaniel (1990) concluded that as time pressure increases, audit effectiveness will decrease. On the other hand, time budgets and consequently, time pressure might also increase efficiency (Pachella, 1974; McDaniel, 1990). Otley and Pierce (1996) also state that the use of specific time budgets, from which time pressure could arise, can lead to increased performance levels. Yet, when budgets become too narrow, they could be perceived as impossible to attain, reducing motivation and leading to lower performance levels. This might indicate that an optimal level for time pressure exist. These conflicting theories about the effect of time pressure on the audit quality of individual auditors, indicate the need for further research. Secondly, previous research could be rather outdated or not fully generalizable to the Dutch population. Currently new standards and regulations with respect to the audit profession have developed, influencing the obtained effects in previous research. In the end of 2016, the international audit and assurance standards board (IAASB)5_{revised their standards. These standards require auditors to provide more relevant}

information to the users of the financial statements (IAASB, 2016). On top of these changes in international standards, the AFM and the NBA are supervising the needed reforms in the audit profession in the Netherlands. Specifically, in contrast to the work of Coram, Ng and Woodliff (2003) (Australia), Gul, Wu and Yang (2013) (China), Otley and Pierce (1996) (Ireland), this research examines data among Dutch audit firms. The Dutch environment, in which the AFM practices a strict monitoring function, could put pressure on the administrative and control function of auditors. Therefore, this research explores the effects of time pressure in this increased supervisory environment. Lastly, this research will extent current literature with the presence of a moderator, namely firm-level position. In addition to research from the NBA (accountancy cultuurmeter, 2017), Liyanarachchi and McNamara (2007) suggested the need for research between time pressure and the different perceptions from managers in upper firm-level positions versus staff in the lower firm-firm-level positions of the audit firm.

The remainder of this research is structured as follows. In the second section, the theoretical background is presented, including the hypotheses. In the third section, the research methodology and measurement of the variables is described. The fourth section shows the results of the research. The fifth section discusses the results and presents the limitations and opportunities for further research.

5_{The IAASB is the independent standard setting board that contributes to the public interest by describing} high-quality standards for the auditing profession (IAASB, 2016).

(9)

8

2. Theoretical Background

In section 2.1 a review of previous literature will explain different views of time pressure on individual audit quality. Additionally, different functional levels are examined. Agency theory and human capital theory are integrated in the literature review in order to explain respectively the need for auditors and differences firm-level positions. Consequently, this will contribute to the development of the hypotheses. Section 2.2 provides the conceptual model.

2.1 Literature Review and Hypotheses Development

2.1.1 Time Pressure

Time pressure is expressed as a function of two elements; time budget pressure and time deadline pressure (Svanström, 2016). First of all, in the execution of an audit engagement, auditors are expected to accomplish the required audit procedures in the budgeted time. This budgeted time is determined by the obtained audit fee from a client. These audit fees, and accordingly the time budgets, are therefore the input for the establishment of the maximum time to be spend by staff on audit procedures. Hence, time budget pressures is explained as the insufficient allocation of time to execute the required audit procedures (Svanström, 2016). In the execution of the proceedings auditors are, among other things, being judged by their attainment of these time budgets (Otley & Pierce, 1996). Therefore, time budgets are considered to be an important element in the achievement of a successful career. Specifically, the achievement of time budgets can be a benchmark for promotions or even the continuous employment at this specific firm (Fleming, 1980). Secondly, auditors are working with deadlines in which the audit procedures need to be executed, an opinion needs to be formed and the annual report of the client needs to be signed. These deadlines put pressure on the involved auditors. Time deadline pressures arise when it is complicated to execute the audit procedures by the enforced deadline (Svanström, 2016). Consequently, the establishment of time budgets and deadlines at the optimal level are important aspects for individual auditors in the planning phase of the audit. When these time budgets and deadlines are set at inappropriate levels, this could lead to time pressures.

When auditors are faced with time pressures, they could either behave more functionally or dysfunctionally (Svanström, 2016). This is also represented in the model identified by Rodell and Judge (2009). They defined the challenge-hindrance occupational stress model in order to make a distinction between two types of stressors: challenge stressors and hindrance stressors. Challenge stressors are seen as work demands that create opportunities to grow and are valued by auditors as rewarding job events (Cavanaugh et al., 2000). These stressors could be perceived as events of functional behavior arising from time pressure, in which auditors will try to work harder, use more efficient audit techniques and allocate more time properly (Svanström, 2016). Hindrance stressors concern work demands that hinder opportunities to grow as a person, are unappreciated and are an obstacle to perform the required work. These stressors could be seen as negative effects arising from time pressure and are considered as dysfunctional behavior. Conclusively, when time pressure is seen as a manageable pressure in accomplishing audit procedures, this pressure can be perceived as challenging. Time pressure seen as unmanageable and unattainable to execute the required audit procedures, can therefore be perceived as hindrance. Hence, auditors can perceive time pressures differently.

2.1.2 Audit Quality

In the context of this research individual audit quality is considered as the outcome of what external auditors produce in audit engagements. Accordingly, the first question to consider, is what defines high individual audit quality? This is a challenging question and an uniform definition of what defines audit quality is difficult to formulate, since each stakeholder has different interpretations of what defines audit quality. On top of that, absolute assurance cannot

(10)

9

be given due to cost-quality considerations, which makes an unique definition of high audit quality difficult to establish. Nevertheless, DeAngelo (1981) identified audit quality as ‘an auditors ability to discover breaches of accounting standards and the auditor’s incentive to report such breaches’. This is a common approach to address audit quality, in which audit quality can be measured based on earnings management indicators, restatements and abnormal accruals (Svanström, 2016). On top of this, Francis (2004) identified audit quality on a continuum varying from really low to really high. In line with this definition and as an alternative approach to define audit quality, dysfunctional behavior (audit quality reduction behavior (AQRB)) could be used as a proxy for high individual audit quality. AQRB is located at the very lower end of this continuum of audit quality.

In order to explain the need for high audit quality and independent external auditors, agency theory is considered. This theory is based on the separation between ownership and control in organizations, in which the principals (i.e., owners of a firm) delegate their control of decisions to the agents who manage the firm (Fama & Jensen, 1983). The information needs of corporate stakeholders explain the demand for disclosures of the firm, especially reliable financial reporting. Agency theory explains the information asymmetry problems between the principals and the agents of the organizations, in which both parties are striving to receive maximum benefits (Homayoun & Homayoun, 2015). On the contrary, stewardship theory explains why managers are expected to behave in line with the objectives of the principals instead of maximizing their own benefits (Davis et al., 1997). However, in order to explain the need for external auditors and to address possible existing information asymmetry problems, the agency perspective is considered in more detail. In order to diminish the information asymmetry (agency) costs, Shapiro (2005) described the option to establish proper governance mechanisms to monitor agents. One of these monitoring mechanism is the use of external independent auditors. These auditors are the cornerstone in the enlargement of confidence and trust in the presented financial information by companies, on which investors and other stakeholders form their opinions. Consequently, auditors are required to execute sufficient and appropriate proceedings in order to form a conclusion. The executing of audit proceedings and the administrative recording of these proceedings could possibly put pressure on the auditors.

In line with agency theory, high audit quality is contemporary of great concern. However, audit quality is contingent to many different facets, possible leading to quality compromises. In current literature, time pressure is considered an important factor when dealing with audit quality compromises (McDaniel, 1990; Ot ley and Pierce, 1996; Durham et al. 2000). Time pressure is a within-firm pressure influencing the quality of auditor’s judgement (Knechel et al., 2013). On top of the importance expressed in literature, time pressure is also identified by the NBA as an existing pressure affecting audit quality (accountancy cultuurmeter, 2017). It is especially important to research the effect of time pressure in the Netherlands, as a result of the improvement initiatives from the NBA (NBA, 2014), the AFM (AFM report, 2017) and the Big Four audit firms themselves (Accountant, 2017). These required improvements put pressure on the individual auditors in the execution of the audit procedures. Additionally, current literature identifies conflicting results in the relationship of time pressure and its effects on audit quality. This makes research concerning the effect of perceived time pressure on the individual audit quality particularly interesting. Especially, with the recent pronouncement of the court in the Netherlands in which the responsibility of high audit quality is placed at the individual auditors level instead of audit firm level. Therefore, audit firms need to reconsider the influences on individual audit quality.

As seen in the challenge- hindrance model from Rodell and Judge (2009), time pressure could be perceived as a positive or a negative influence on work outcomes. Accordingly, time pressure perceived as challenging, is seen as influencing positive work outcomes. Additionally, McDaniel (1990) found results for the increased efficiency in audit procedures when time

(11)

10

pressure increases. In agreement with this, Glover (1997) recognized that time pressures have the possibility to improve auditors focus on the relevant matters and information. This increased efficiency in the decision making process, creates opportunities for auditors to potentially produce higher audit quality. In contrast to research suggesting a positive relationship between time pressure and audit quality, Rodell and Judge (2009) also identified hindrance. Time pressure perceived as hindrance due to the arise of unwanted work events, is seen as influencing negative work outcomes. In line with this, McDaniel (1990) also concluded that the effectiveness of the audit outcomes will decrease as time pressure increases. This will result in lower audit quality due to the inability to reach the end goal of obtaining sufficient and appropriate audit evidence. Additionally, Bazerman and Tenbrunsel (2011) also identified the negative effects of time pressure, arguing that time pressure could be a potential causes of unethical (dysfunctional) behavior. Decision-makers are more likely to rely on their intuitive system of processing information without careful thinking, the more busy and rushed these decision makers are. This would suggest the decreased quality of the outcome of audit procedures. The decision-making processes of individuals is thus affected under forms of time pressure (Durham et al., 2000).

Research of Durham et al. (2000) explains that time pressure is efficient up to a certain level. Consequently, this thesis does not distinguish between the positive or negative influences from time pressure on audit quality, but it suggest the existence of both effects. A more efficient decision making process could be one of the results of time pressure, due to the increased drive to process information faster and more critically. However, when time pressure increases further, decision making and the information processed could be altered to cope with the time pressure. Ultimately, when time pressures are that high, the decision maker is not able cope with the pressure anymore, which will decrease the efficiency of audit procedures. On top of this research from Durham et al. (2000), Otley and Pierce (1996) identified that the perceived attainability of time budgets are an important aspect in relation with performance outcomes of audit procedures. First of all, when time budgets are set at difficult to attain levels, but are still achievable, the motivation to complete the proceedings are the highest. This will ultimately increasing the performance outcomes of these auditors. Instead, when time budgets are set too low, time pressures are perceived to be non-existent, leading to lower performance levels due to reduced incentives to execute the audit proceedings. Lastly, when time budgets are established at unattainable levels, the motivation to complete the proceedings in the given time is reduced. This will lead to auditors who give up trying to cope with the pressures and consequently, reduced performance outcomes.

Consequently, when considering all previous research, time pressures seen as manageable pressures in accomplishing audit procedures are perceived to be of positive influence on work outcomes. This is based on a more efficient decision making process and an increased focus on the relevant procedures. Time pressures seen as unmanageable and unattainable to execute the required audit procedures will therefore be perceived to be of negative influence on work outcomes. Accordingly, it is expected that as time pressure increases from the zero point, this will progressively be considered as a positive influence on auditors audit quality. Up to the extent that time pressure is extremely high and passes this optimal level. After this optimal point, auditors perceive time pressure as unattainable and time pressure negatively influences individual audit quality. This negative influences of perceived time pressure on individual audit quality could be particularly important in an environment in which the administrative function and monitoring of auditors is gaining importance (AFM, 2017). The following hypothesis is formulated:

H 1: The relationship between perceived time pressure and individual audit quality is

(12)

11 2.1.3. Firm-Level Position

In all Big Four audit firms there is a degree of tabular structure in firm-level positions. Most auditors enter these Big Four audit firms after they have completed their education and are at the start of their professional careers. They enter the firm in the lowest positions (i.e., assistant and trainee level) and mature in firm-level position (i.e. executive levels) as they develop themselves. These auditors progress in the audit firm through hierarchical functions. All these functional levels involve different audit procedures and different responsibility levels. Consequently, auditors in different firm-level positions have different levels of knowledge, ability, experience and social skills (Maijoor & Van Witteloostuijnm, 1996; Libby & Luft, 1993). Though, Rhode (1978) found that time pressure exist among all auditors, independent of the responsibility level. It is therefore important to set time targets at the appropriate level, such that the targets help in the execution of audit proceedings and if necessary in the planning of corrective actions (Otley & Pierce, 1996). In contrast to Rhode (1978), time pressure could be existent among all auditors, but perceived differently in varying firm-level positions. Various explanations can lead to differences observed from time pressure among firm-level positions.

First of all, to understand why firm-level position could impact the influence of perceived time pressure on audit quailty, the human capital theory is discussed. This theory explains the existence of different levels of human capital based on firm-level positions in an audit firm. The human capital of a firm is typically defined as investments employees make in themselves in order to enlarge the outcomes of the firm (Olaniyan & Okemakinde, 2008). The objective of an audit firm is to deliver high quality service outcomes, in which the quality of the audit is a leading indicator. Maijoor and Van Witteloostuijn (1996) added that knowledge and adequate skills in order to fulfill the needs for high quality outcomes are essential to an auditor. Human capital theory differentiates between two types of human capital, namely industry-specific and firm-specific human capital (Becker, 1964). Pennings et al. (1998) explained the two variables in relation to the audit profession. Whereas industry-specific capital is developed in, for example, education and experiences in the industry, firm-specific capital is developed in the audit of a specific audit client and has less value outside the firm. When auditors enter the audit firm in the lower positions, they are relatively unexperienced. These auditors need to gain experience in the execution of audit procedures, i.e., understanding of client’s OC/IC, accounting policies applied, industry specifics and other skills necessary to complete the audit (Yan & Xiel, 2016). These extra efforts needed to execute the audit proceedings according to standards, can lead to greater workloads and increased perceived time pressures (Yan & Xiel, 2016). As auditors mature in their firm-level positions they will develop more firm and client-specific knowledge through the experiences on audit engagements and on-the-job-learning, which will increase their human capital level (Pennings et al., 1998; Libby & Luft, 1993).

Secondly, besides differences in human capital, McNamara and Liyanarchchi (2008) argued that lower firm-level position auditors are more likely to have less control over their audit procedures, due to a lack of making power. These auditors have less decision-making power in the establishment of time budgets and in decision-making adjustment to these budgets (McNamara & Liyanarchchi, 200327). This could possibly increase perceived time pressure in lower firm-level positions. This is due to the fact that auditors could perceive that time budgets are set at unreasonable levels, which would increase the negative effect from perceived time pressure in the obtainment of high individual audit quality.

Thirdly, lower firm-level positions in audit firms mostly execute the actual testing of the records (Otley & Pierce, 1996; Willet & Page, 1996). This is accompanied with increasing administrative proceedings, due to the stricter quality requirements of the AFM (AFM report, 2017). The actual testing and administrative proceedings need to be executed in the established

(13)

12

time budgets and time deadlines, possibly increasing perceived time pressure on the lower firm-level positions.

Fourthly, Shapeero et al. (2003) argued that auditors in lower firm-level auditors might be less confident in their job and have increased perceived pressure to show their auditor competence and skills. On top of that, Gaernter and Ruhe (1981) indicate that auditors in higher firm-level positions have developed the personal characteristics that allow them to handle difficult situations. These personal characteristics contain hard-driving skills, persistence to perform, involvement in his or her work and an enlarged feeling of time urgency. These difference in confidence level, in pressure to perform and in personal characteristics can lead to difference in handling time pressure in the performance of audit procedures.

Lastly, auditors in higher firm-level positions have the sufficient amount of experience. These higher firm-level auditors have the potential advantage to focus on the main audit task, which is acquiring sufficient and appropriate audit evidence to form an opinion with the financial statements. Therefore, it could be expected that these auditors will face less negative effects perceived from time pressure in the execution of audit procedures due to the focus on the main task.

Conclusively, it is expected that as auditors mature in their firm-level position, they perceive time pressure to a higher extent as challenging and this will have a positive effect on relationship with audit quality. These auditors are better able to cope with time pressure because these auditors have different levels of human capital, decision-making power, audit proceedings, confidence levels, personal characteristics and experience levels. Additionally, this will also contribute to a weakened negative effect perceived from hindrance factors of time pressure on audit quality from auditors in upper firm-level positions. To disclose this expected relationship, the following hypothesis is constructed:

H 2: Firm-level position is expected to moderate the curvilinear relationship between time

pressure and individual audit quality, such that the negative effect of time pressure is stronger for low firm-level positions than for high firm-level positions.

2.2 Conceptual Framework Firm-level position Time pressures H1 ∩ H2+ Individual Audit quality

(14)

13

3. Research Methodology

The first section provides a description of the data collection method and the corresponding sample used in this research. The second section, describes the measurement methods of the variables. The last section of this chapter presents the statistical model.

3.1 Research Setting, Sample and Procedure

This study relies on survey based data from individual auditors working at Dutch Big Four audit firms (EY, Deloitte, PwC & KPMG). This research in the Netherlands could be particularly interesting, due to the unique environment in which the AFM practices a strict monitoring function. The Netherlands is a precursor in intensifying audit regulations, standards and monitoring. Therefore, this research could be of interest and exploratory for other environments facing the same presence of monitoring authorities and increased regulations. This research limits its sample to only Big Four audit firms. This is due to the negative reports from the AFM (report AFM, 2017), in which the main focus of investigation were the Big Four audit firms. These firms endure the most (negative) publicity from these reports, audit the most large corporate firms and therefore, play an important role in the public debate concerning individual audit quality. This sample of respondents is well spread throughout the Netherlands to enlarge the representativeness of the sample and to exclude place specific bias.

For this research, a group of eight master students each collected ≥ 20 respondents. All these respondents were personally asked or e-mailed by the master student to enlarge the response rate. If respondents were personally asked by two members of the group, it was assured that these respondents were only e-mailed once. In order to increase the response rate, two follow-up emails were send in the two weeks following the initial e-mail. A benchmark report was send to the respondents with the results of their outcome with respect to the average responses. This was performed for respondent satisfaction purpose and in order to increase the response rate. In total data is obtained from 141 respondents from the total sample of 173 auditors. Hence, the total response rate was 82%. However, as this research only focuses on Big Four audit firms, non-Big Four audit firms (15) were excluded from the dataset. This led to a total of 126 respondents. Out of these 126 respondents, six respondents were obtained from auditors working in audit firms on Aruba. The Central Bank of Aruba (CBA) and the AFM are appointed as the central bank and/or monitoring authority in this jurisdiction in the Bilateral Memorandum of Understanding (MoU – AFM & CBA, 2015). Therefore, the same regulations and standards are being monitored in Aruba. Consequently, the responses obtained from respondents in Aruba are included in the dataset.

The survey was send by e-mail to the research sample. This e-mail contained a link to the online survey in Qualtrics. Qualtrics is an online software method, designed to simplify the construct and the distribution of a survey (Qualtrics, 2018). In this online link, the purpose of the study is shortly explained. Thereafter, the respondent could fill out the survey in approximately fifteen-twenty minutes. Also, the confidentiality of the respondents answers was communicated at the beginning of the survey. To collect all responses from Qualtrics, a direct download was made in excel, excluding confidential information. This download is used as input for the testing of the hypotheses in SPSS (statistics computer program). The output shows that the following percentage were obtained per firm-level position: 43% trainee, 33% senior, 12% manager, 4% senior manager and 8% partner. Furthermore, the average age of the respondents was 30 years and 33% of the respondents were female.

3.2 Measurement of the Variables

Appendix 1 shows an overview of the measurement of the dependent, independent, moderator and control variables.

(15)

14 3.2.1 Time Pressure

To measure perceived time pressure from individual auditors, four items from Kinicki and Vecchio (1994) were used: ‘the time deadlines for completing work are too unreasonable’, ‘I have to rush in order to complete my job’, ‘there is not enough time to do my work’, and ‘I am constantly working against the pressure of time’. These items were measured on a 7-point Likert scale, ranging from 1 = strongly disagree to 7 = strongly agree. The Cronbach’s alpha was 0.89.

3.2.2 Audit Quality

Audit quality is difficult to measure, as it is open to interpretations of different users of audit reports (management, monitoring authorities, investors, society, audit firms, individual auditors). Therefore, indirect proxies are often used to measure individual audit quality. This thesis used an alternative measurement of audit quality, in which high audit quality is measured based on the absence of negative outcomes. Different researchers have used measures based on what ‘is not’ high audit quality instead of what ‘is’ (Knechel et. al., 2013). In the current literature two types of dysfunctional behavior are center of attention when measuring what is not high individual audit quality, namely under reporting of time and audit quality reduction behavior (AQRB) (McNamara & Liyanarchchi, 2008). Under reporting of time is specified by Otley and Pierce (1996) as recoding less time than actually spend on a specific audit task or engagement and is driven in order to avoid extra budget time costs. However, this type of dysfunctional behavior is not considered as an immediate threat to audit quality (Otley & Pierce, 1996). Consequently, the focus of this research will be on AQRB. AQRB is defined by Malone and Roberts (1996, pp. 49) as ‘actions taken by an auditor during an engagement which reduce evidence gathering effectiveness inappropriately’. Auditors engage in these AQRBs as strategic reactions when they perceive time pressure on the engagement (Corem et al., 2004). Consequently, instead of the inverted U-shaped relation hypothesized between perceived time pressure and individual audit quality, an U-shaped function is hypothesized between perceived time pressure and AQRB. This is due to the assumption that high audit quality is based on the absence of AQRB. Otley and Pierce (1996) identified audit quality reduction behavior as a function of five AQRBs. These behaviors include: ‘accepting weak client explanations’, ‘made superficial reviews of client documents’, ‘failed to research an accounting principle’, ‘reduced work below a reasonable level’ and ‘signed of prematurely’. Additionally, they identified another item ‘personally engaged in underreporting of time’, which was also used by Pierce and Sweeney (2005). On top of this, previous researchers have used the additional factors ‘failing to pursue a questionable item’ and ‘greater than appropriate reliance on client work’ (Herrbach, 2001; Pierce & Sweeny, 2005). Consequently, all eight factors are included in the survey as an proxy for individual audit quality. These eight items were measured on a 7-point Likert scale, ranging from 1= never to 7 = often. The Cronbach’s alpha was 0.77.

3.2.3 Firm-Level Position

Firm-level position is defined as the current functional position of the auditors in the audit firm. This information is extracted from LinkedIn profiles in an excel file. Thereafter, the data is anonymized. To control for differences in firm-level position between Big Four audit firms, all functional levels are scaled down towards five firm-level positions based on EÝs functional model (trainee (1)-, senior (2)-, manager (3)-, senior-manager(4)- and partner-level(5)). This is in accordance with the functional levels used by McNamara and Liyanarchchi (2008). EY is chosen as the reference point as it is easier to scale the functional levels down than upwards (See Appendix 2). For KPMG this means that senior and supervisor levels are seen as senior level, assistant manager and manager are considered manager level. For Deloitte and PwC this means that assistant-manager and manager are considered manager level. The trainee and senior

(16)

15

functional levels are more responsible for the administrative function and the actual testing of the records and hence scaled under the lower firm-level positions. Whereas the manager, senior manager and partner levels are considered higher firm-level positions, because they suggested to have more decision-making power and have the responsibility for the main task of obtaining appropriate and sufficient audit evidence. Directors are scaled under the partner-level, as they are considered to have approximately the same responsibility level.

3.2.4 Control Variables

In order to control for effects of other variables, this research will include four control variables. These control variables are gender, turnover intention, job autonomy and professional identification.

The first control variable is the gender of the auditor. Srinidhi et al. (2011) found that enlarged earnings quality was present among female directors compared to male directors. This suggest differences between gender on the individual audit quality of auditors, as earnings quality is a determinant of audit quality (Francis, 2013). On top of this, previous studies have shown that females are generally more risk averse and also have the tendency to behavior more ethically than males (Chin & Chi, 2008). This will influence the possibility of auditors behaving more dysfunctionally in order to cope with time pressure and hence, decrease individual audit quality. In order to control for gender differences, a dummy variable is created with 1 = female and 0 = male.

The second control variable used is auditor’s turnover intention. Auditors who have the intention to leave the company within the next three years, could perceive time pressure differently than auditors who have the intention to stay in the audit firm. Malone and Roberts (1996) indicate that when auditors have a higher intention to leave the firm, these auditors could engage in more audit quality reduction behaviors. This would be a sign of lower individual audit quality. The auditors intention to leave is measured with three items adopted from Cohen et al. (2017): ‘I often think about leaving the firm’, ‘I will probably look for a job outside of this firm within the next three years’ and ‘I am tempted to investigate other job openings’. These items were measured on a 7-point Likert scale, ranging from 1= never to 7 = often. The Cronbach’s alpha was 0.85.

The third control variable used is the auditor’s job autonomy. Job autonomy reflects the magnitude to which an auditor is able to establish his or her own work methods (Wang & Cheng, 2010). Herrbach (2010) explains that job autonomy is negatively related to audit quality reduction behaviors, due to the fact that auditors with high job autonomy have increased possibilities to adapt their work methods to a particular circumstance. Wang and Cheng (2010) use Spreitzer’s (1995) three item scale to measure job autonomy, including: ‘I have significant autonomy in determining how I do my job’, ‘I can decide on my own how to go about doing my work’ and ‘I have considerable opportunity for independence and freedom in how I do my job’. The items were measured on a 7-point Likert scale, ranging from 1 = strongly disagree to 7 = strongly agree. The Cronbach’s Alpha was 0.82.

The last control variable used in this research is professional identification. Aranya et al. (1981) explained that professional identification of auditors is based on their commitment and involvement with the audit profession. Malone and Roberts (1996) argue that professional identification would reduce job related stressors and hence, explain a decline in audit quality reduction behaviors. Bamber and Iyer (2002) used a 5 items to measure professional identification distracted from the organizational identification scale. The following items are included: ‘when someone criticizes the audit profession, it feels like a personal insult’, ‘I am very interested about what others think about the audit profession’, ‘when I talk about the audit profession I usually say ‘we’ rather than ‘they’’, ‘when someone praises the audit profession, I would feel like a personal compliment’, and ‘if a story in the media criticized the audit

(17)

16

profession, I would feel embarrassed’. The items are measures on a 7-point Likert scale, ranging from 1 = strongly disagree to 7 = strongly agree. The Cronbach’s Alpha was 0.77.

3.3 Statistical Model

A linear regression is performed in order to test the hypotheses. The relationship of time pressure (TP) on individual audit quality, measured as AQRB, and the moderating effect of

firm-level position (FLP) are researched in this regression. The control variables gender (GEN), turnover intention (TURN_INT), job autonomy (JOB_AUT), and professional identification (PROF_ID) are inserted to control for the influence of these variables on AQRB. Consequently, this leads to the following statistical model:

AQRB = β0 + β1TP + β2TP2+ β3FLP + β4TPFLP+ β5GEN+ β6TURN_INT + β7JOB_AUT+

β8PROF_ID + e

Where e stands for the error term. In order to examine the curvilinear effects of time pressure on individual audit quality, the linear term TP and quadratic term TP2_{are added to the model.}

The hypothesized moderating effect of firm-level position on the relationship between time pressure and individual audit quality is presented by the interaction term TPFLP.

(18)

17

4. Results

The first section provides the descriptive statistics. In the second section a linear regression is performed in order to test the hypotheses. The last section provides the results of the additional test in order to examine differences in the proxy of the moderating variable.

4.1 Descriptive Statistics

First of all, the means and standard deviations of the responses per variable are included in Table 1. Audit quality reduction behavior has a 2-point lower maximum, 5 instead of 7. Time pressure is, on average, still an ongoing constraint as the mean score of time pressure is 4.71. Respondents in this survey mostly occupy a lower firm-level position, with 75% of the respondents in the trainee and senior functional level (See Appendix 3). The turnover intention is moderate, with a mean of 3.47. The degree to which respondent feel like they have autonomy in their job and identify with the audit profession are both more inclined towards the positive optimum, mean of 4.46 and 4.42 respectively.

Secondly, a correlation analysis was performed to examine the statistical relationships between the variables in the model, see Table 1. As shown, time pressure and firm-level positions are considered to have significant relations with audit quality reduction behavior. Time pressure is considered to have a positive relation with AQRB, hence as time pressure increase AQRB will increases. Firm-level position negatively relates with AQRB, accordingly as auditors obtain higher firm-level positions AQRB will decrease. On top of this, the control variables turnover intention and job autonomy have a significant relation with AQRB. Turnover intention has a positive correlation with AQRB and job autonomy has a negative relation with AQRB. Furthermore, firm-level position negatively correlates to time pressure and gender and turnover intention both positively correlate to time pressure. Finally, gender negatively correlates to firm-level position and job autonomy positively correlates to firm-level position. Lastly, a multicollinearity analysis was executed in order to research the inter-correlations among the variables in the model (See Appendix 4). The VIF statistics of the variables are all between 1.1 and 1.5. Consequently, the results show no multicollinearity problems. This illustrates that there are no linear relationships between the independent variable, the moderating variable and the control variables. Additionally, a robustness check was performed in order to examine the assumption of homoscedasticity in the linear regression. The results of Levine’s heteroscedasticity test does not give statistic significant results. This suggest that the results are robust and the assumption of homoscedasticity holds.

Table 1 – Descriptive Statistics & Correlation Matrix

M SD (1) (2) (3) (4) (5) (6)

(1) Audit Quality Reduction Behavior (2) Time Pressure (3) Firm-Level Position (4) Gender (5) Turnover Intention (6) Job Autonomy (7) Professional Identification 2.64 4.71 2.01 0.33 3.47 4.46 4.42 0,82 1.24 1.20 1.48 1.10 1.03 0.27** -0.20* 0.05 0.36** -0.18* 0.03 -0.21* 0.39** 0.35** -0.09 0.09 -0.19* -0.04 0.35** 0.09 0.03 -0.11 -0.07 -0.03 -0.17 0.14 Note. N = 126 *p < 0.05 **p < 0.01

(19)

18

4.2 Testing Hypotheses

Table 2 presents the results of the liner regression analysis. Model 1 includes the control variables. In Model 2 the linear term of time pressure is included. The squared time pressure, representing the curvilinear relationship, is added in Model 3. Model 4 incorporates the moderator firm-level positions. The interaction term of time-pressure and firm-level position is added in Model 5. The variables time pressure and firm-level position are standardized in order to produce accurate results, due to the different scales used for both variables. With standardization the mean is presented as the zero point and the standard deviation is set at one. The first hypothesis predicted an U-shaped relation between perceived time pressure and AQRB. The results show a positive coefficient (b = 0.88, p = 0.020) for the linear term, which presents the increase in AQRBs when time pressure increases. The quadratic term is negative (b = -0.07, p = 0.04). These results show an increase AQRB when time pressure increases, up to a certain point from which time pressure is considered to less positively or even negatively influence AQRB. Consequently, an inverted U-shaped relation exists between time pressure and AQRB, where an U-shaped function was hypothesized. Accordingly, the results from the linear regression analysis did not support the U-shaped relationship between perceived time pressure and AQRB as predicted in the first hypothesis .

In the second hypothesis firm-level position is predicted to moderate the curvilinear relationship between perceived time pressure and individual audit quality. The results show no significant relationship between the interaction term on AQRB (b = -0.04, p = 0.612). Subsequently, the findings did not support the second hypothesis and hence, firm-level position did not moderate the relationship between perceived time pressure and AQRB.

Table 2 – Results of Linear Regression for Audit Quality Reduction Behavior

Model 1 Model 2 Model 3 Model 4 Model 5

Intercept Control Variables Gender Turnover Intention Job Autonomy Prof. Identification Main Effects Time Pressure

Time Pressure x Time Pressure Firm Level Position

Time Pressure x Firm-Level Position

2.11*** 0.04 0.20*** -0.13** 0.09 2.30*** -0.05 0.18*** -0.13** 0.07 0.12 3.93*** -0.01 0.19*** -0.15** 0.09 0.88** -0.07** 3.74*** -0.04 0.19*** -0.12* 0.09 0.84** -0.07** -0.11 3.89*** -0.04 0.19*** -0.12* 0.09 0.92** -0.07** -0.13 -0.04 Adjusted R2 ∆R2 0.140*** 0.168 0.148 0.014 0.172** 0.030 0.181 0.016 0.176 0.002 Note. N = 126 *p < 0.10 **P < 0.05 ***P < 0.01

(20)

19

4.3 Additional Testing

In addition to the results presented in section 4.2, a supplemental linear regression is executed. In this regression the moderating variable firm-level position is replaced with years of experience in the professional audit sector, i.e. tenure. Auditors who have worked multiple years in the audit sector are suggested to have different responses to the work environment (Gavin & Greenhaus, 1976). The auditor learns from experience and will react differently to any situation in the work environment. McEnrue (1988) explains that due to more experience in the audit profession, the auditor is able to improve his or her skills in the execution of the audit procedures. On top of this, NG and Feldman (2010) explain that tenure is considered to be an indicator for work experience, in which auditors have developed an enlarged set of skills, knowledge and experience. This is in line with the arguments provided for firm-level position and its hypothesized effect on the relationship between perceived time pressure and individual audit quality. Therefore, a linear regression analysis is performed to examine whether a significant moderating relation exist with tenure.

First of all, the tenure of an auditor in the professional audit sector is extracted from LinkedIn profiles in an Excel file. Table 3 shows the general information with respect to the total years of experience in the audit profession. The results conclude that the average total years of experience in the audit sector is characterized with an average of 7 years, a minimum of 0.17 years and a maximum of 40.75 years.

Secondly, a correlation test and a multicollinearity test are conducted, to examine the relationship between the variables in the model (See Appendix 5 and 6). Tenure is negatively correlated with AQRB and time pressure. Additionally, gender is negatively correlated with tenure and job autonomy is positively correlated with tenure. In order to exclude the possibility of linear relations between these variables, a multicollinearity test is executed. The VIF statistics of the variables are again all between 1.1 and 1.5, which suggest no interrelations between the variables.

Thirdly, the linear regression is performed in order to test the effect of the hypothesized moderator tenure (TEN). This leads to the following new statistical model:

AQRB = β0 + β1TP + β2TP2+ β3TEN + β4TPTEN+ β5GEN+ β6TURN_INT +

β7JOB_AUT+ β8PROF_ID + e

The input for the variable tenure is winsorized at 30 years to give extreme values less meaning and for anonymity considerations. Hence, the outliers are identified and tenures with values above 30 years are replaced with 30. Next, the standardized values of time pressure and tenure are used in the linear regression. Table 4 presents the outcomes of the linear regression. The result of the interaction term on the relationship between perceived time pressure and AQRB is not significant (b = -0.03, p = 0.74). Consequently, the results did not support the moderating effect of tenure on the relationship between perceived time pressure and AQRB.

Table 3 – General Information Experience Respondents

N Min Max Mean SD

Total years of experience in audit sector 173 0.17 40.75 6.88 8.25

Note. This table is based on the total sample of auditors (173), instead of the 126 responses used for

statistical testing. An anonymized and standardized dataset for audit tenure was received for testing purpose, which led to the inability to infer the general information from the sample used for statistical testing.

(21)

20

Table 4 – Results of the Additional Linear Regression

Model 1 Model 2 Model 3 Model 4 Model 5

Intercept Control Variables Gender Turnover Intention Job Autonomy Prof. Identification Main Effects Time Pressure

Time Pressure x Time Pressure Tenure

Time Pressure x Tenure

2.18*** 0.01 0.20*** -0.14** 0.09 2.35*** -0.08 0.18*** -0.13** 0.07 0.11 4.25*** -0.04 0.19*** -0.16** 0.09 0.99*** 0.02** 4.12*** -0.06 0.19*** -0.14** 0.09 0.97*** -0.08** -0.12 4.21*** -0.06 0.19*** -0.14** 0.09 1.02*** -0.09** -0.14 -0.03 Adjusted R2 ∆R2 0.141*** 0.169 0.146 0.012 0.181** 0.040 0.186 0.011 0.180 0.001 Note. N = 126 *p < 0.10 **P < 0.05 ***P < 0.01

(22)

21

5. Discussion

First of all, the results of the executed research are described. Secondly, the practical and theoretical implications based on the findings are described. Thirdly, the limitations of this research and thoughts for future research are presented. Lastly, the overall conclusion of this study is provided.

5.1 Findings

This research explored the relationship between perceived time pressure and individual audit quality. Additionally, this research extended this model with the presence of the moderator firm-level position, in order to examine the hypothesized differences between functional positions in audit firms. A linear regression analysis is performed in order to examine the expected relationships.

The results present, in line with the expectations, the still ongoing constraint of time pressures on auditors. The recent published report on the 16th_{of May 2018 by the NBA and}

Nyenrode also explained that this current researched theme is still an existent pressure among auditors (De Vries & Herrijgers, 2018). Knoop and Piersma (2018) describe that the demand from the monitoring authority, the AFM, to improve the audit quality leads to increasing pressures among auditors. This should be an indicator for the audit profession and the audit authorities that the expectations with regard to sufficient evidence gathering procedures and high audit quality outcomes is difficult to accomplish with the current time deadlines and budgets. Fairly, the authorities and the public have the right to expect high audit quality from the audit firms, however against what means? The audit firms have limited manpower, expense and time budgets to assure absolute certainty that the financial statements are true and fair. It is a cost-benefit analysis, in which high audit quality is the standard. Nonetheless, the constant time pressures should be taken into account, due to the fact that time pressures could have negative consequences on individual audit quality if these pressures are increasing from the zero point. The audit authorities, audit firms, investors and society should take this signal seriously in their road towards higher audit quality outcomes and the enlargement of trust in the audit sector. The focus should be on the cultural- and behavioral-changes in the audit firms, to address the ongoing problems with time pressure among auditors, according to the Monitoring Committee Accountancy (MCA) (2018). In their report they explain that the suggested cultural- and behavioral-reforms from 2014 are still a work in progress and that the improvements in the audit sector are definitely not finished. The MCA suggest that auditors should share their vulnerabilities with respect to time pressures with each other, communicate flaws and dilemma’s and create the same work mind among the employees in the audit firm, policy makers and audit clients. .

Furthermore, the results support a curvilinear relationship between time pressure and AQRB. However, the sign of the relationship was the opposite of what was expected. Based on the assumption that high individual audit quality was the opposite of audit quality reduction behavior, an U-shaped relation between time pressure and AQRB was hypothesized (Durham et al., 2000; Otley and Pierce, 1996; McNamara & Liyanarchchi, 2008). However, the results showed a significant inverted U-shaped relationship between time pressure and AQRB. Accordingly, when time pressure increases from the zero-point upwards, AQRB will also increase. AQRB will increase up to its top, when time pressure will increase after this point, AQRB will decrease again. An explanation for this somewhat conflicting result could be due to the false assumption that AQRB is the opposite of high audit quality. This is in line with the results of Kelley and Margheim (1990). They also found an inverted U-shaped relation between time pressure and AQRB. Their findings showed that as time pressure increases from the zero-point upwards, auditors engage in more AQRBs. This is due to the fact that when auditors perceive time pressure as challenging, auditors feel like they can influence the outcome and still

(23)

22

cope with the pressure. Consequently, this will result in more AQRBs to cope with the increasing pressure. Auditors will perform this kind of behavior up to the point in which time pressure is that high, such that these pressures are perceived as unattainable. At this point auditors will quit trying to cope with the pressures and the number of AQRBs is likely to fall. Even though the curvilinear relationship is still present between time pressure and AQRB, it does behave opposite of what was expected.

The hypothesized moderating effect of firm-level position on the relationship between perceived time pressure and individual audit quality (AQRB) was not supported. This suggest that the functional level in which auditors are positioned, does not influence the amount of time pressure auditors endure in order to establish high audit quality outcomes. This is in line with Rhode (1978), who concluded that time pressure are existent among all auditors. However, the absence of an even distribution between respondents among the firm-level positions could be a possible explanation of the absence of a significant relation. From the total responses used for statistical testing, 75% was distributed among the trainee and senior firm-level positions. Thereupon, it is difficult to test for differences between firm-level positions, as both trainee and senior levels are scaled under the lower-firm level positions of the audit firms. Additionally, as auditors grow in the firm-level positions, they will gain new responsibilities with regard to, for example, the complete execution of the audit procedures, evidence gather activities and the people in the organization (Gaertner & Ruhe, 1981). Additionally, auditors in the upper-level positions are generally more responsible to maintain the client-auditor relationship, have multiple clients at the same time and have more decision-making power in the strategic directions of the company (KPMG, 2018). This entire set of new responsibility levels is accompanied with new time pressures. This could be a possible explanation for the absence of an effect of the moderator firm-level position. Consequently, the results explain the ongoing constraints of time pressure among auditors in all firm-level positions in the professional audit sector.

An additional analysis was executed in order to examine the effect of possible limitations with the moderator firm-level position. In this additional linear regression analysis, the moderator firm-level position was replaced with tenure of the respondent in the audit profession. Nevertheless, the results showed again no significant relation with the moderator tenure on the relationship between perceived time pressure and AQRB. The absence of this relationship could possibly be due to similarities between the two tested moderators firm-level position and tenure. The Big Four audit firms have a similar career path from trainee to partner level. These career paths are to some extent also linked to the tenure in the audit profession. Therefore, this could explain the absence of an effect of tenure on the relationship between time pressure and AQRB.

5.2 Theoretical and Practical Implications

This study contributes to the field of auditing and accounting with regard to the role of time pressures among auditors and the influence of this pressure on individual audit quality. The theoretical contribution is based on the finding of a significant curvilinear relationship between time pressure and AQRB. This finding contradicts previous researches that have only examined the simple linear relationship of time pressure on audit quality (Glover, 1997; Bazerman and Tenbrunsel, 2011; Lopez and Peters, 2012). As shown in the results, when time pressure increases from the zero point upwards, this will lead to increased AQRBs. These negative behaviors are the most important results for practitioners, because these behaviors have a negative influence on the overall audit quality. AQRBs represent actions from the auditor, in which a lower level audit quality is accepted in order to handle the pressure and still realize the established time budgets and deadlines. For practitioners it is important to recognize the time pressures auditors face in their attempt to reduce these AQRBs and increase audit quality.

(24)

23

Moreover, practitioners need to focus on the execution of reforms needed in the audit sector in order to address the issues related to constraints on audit quality.

Furthermore, this study was executed in an environment in which many reforms in the audit sector are currently occurring. The negative reports published by the AFM, the increased publicity towards the quality of the audits and recent published articles concerning the many pressures auditors face during their proceedings, resulted in a novel environment. This research environment makes the initial theoretical contribution to literature with respect to time pressures and the effects on audit quality in an increased monitoring environment. Practitioners and especially, audit firms need to take their environments into account when implementing changes in their firms.

Lastly, this research provides an initial theoretical contribution on the moderating effect of firm level position on the relationship between time pressure and individual audit quality. The absence of significant results for firm-level position indicate that time pressure is a constraining factor on audit quality for all firm-level positions held within the firm. A potential practical implication of this finding is that these pressures are imbedded within the audit culture and work environment. This is in line with the report published by the MCA (2018) which highlights time pressure as one of the topics which have been unsatisfactory improved by the audit firms as part of the improvement initiatives of the accounting firms. Audit firms should focus on the constraints among all firm-level position and consider the different responsibility levels in facing in tackling the issues of time pressure.

5.3 Limitations and Future Research Directions

This research also has some limitations. First of all, the measurement of individual audit quality raises several questions. Individual audit quality in this study is measured based on audit quality reduction behaviors. This approach is based on the possible reduction of audit procedures in the engagement. Consequently, respondents needed to fill out their degree to which they have executed these negative behaviors in an audit engagement. However, respondents could be reluctant to answer these questions with complete honesty, as these behaviors are not in line with their employers standards or with national legislation. The results of this study present a 2-point lower maximum (5 instead of 7) for audit quality reduction behavior. This could be an indication that respondents were reluctant to fill out high expressions of their own audit quality reduction behaviors. This possible bias could decreases the effect of time pressure on individual audit quality. Furthermore, as discussed, the assumption that audit quality reduction behavior is the opposite of high individual audit quality appeared to be false. Consequently, future research could take these limitation into account and could consider alternative methods to measure individual audit quality. A direct measurement method for high individual quality could be developed instead of the using this negative approach of measuring audit quality. .

The second limitation is with respect to the moderator, firm-level position. In order to have a representative outcomes, the respondents should be evenly spread throughout the firm-level positions. However, the outcomes show that quite a large group, 75% of the respondents, are positioned in the trainee or senior firm-level position. Only 25% of the respondents are manager, senior-manager or partner. This makes the representative testing of the moderator firm-level position difficult and enlarges the possible bias in the results. On top of this, the respondents are not evenly spread among the Big Four audit firms. 97% of the respondents are from three Big Four audit firms. An equal distribution among the Big Four audit firms is desirable to exclude bias among these three audit firms. However, these audit firms face the same constraints from the monitoring authorities and are similar in their firms characteristics (report AFM, 2017; McKenna, 2017). Therefore, similar results can be expected with the inclusion of an even spread among the Big Four audit firms. To conclude, future research should secure the accomplishment of enough respondents in the upper firm-level positions and a

The moderating effect of firm-level positions on the relationship between perceived time pressure and individual audit quality: