Why do some auditors thrive while others struggle?
Does “looking the part” increase auditor’s career path?Master thesis Marnix Michorius
Why do some auditors thrive while others struggle?
Does “looking the part” increase auditor’s career path?Master thesis Rijksuniversiteit Groningen Master Accountancy Marnix Michorius S2743159 Van Leijenberghlaan 153 1082 GE Amsterdam +31 623414607 marnixmichorius@hotmail.nl 25-06-2018 Word count: 8511
Abstract
Auditors are evaluated by the accounting firm they work for. This rating is determined by their supervisors and other people they work with. Based on this rating, bonuses and promotion are assigned. However, this research underlines that these auditor performance ratings are influence by subjectivity of the evaluator. I found evidence that auditors can positively influence their performance rating by “looking the part” i.e. wearing the right clothes for the job. While I did not find that auditors can compensate a lack of auditing skills with their professional attire, my main analyses do show a significant positive direct influence of auditor attire on auditor performance evaluation. Furthermore, by carrying out additional analyses I found that the moderating effect of professional attire – on the relationship between auditor skills and auditor performance evaluation – depends on auditor gender. In other words, the moderating effect of professional attire is different for female auditors in comparison to male auditors. Therefore, this research provides a piece of the puzzle in discovering the subjective influencers of auditor performance ratings. It provides evidence that not necessarily always the best auditors, based on their auditing skills, get promoted or receive a bonus.
Key words: Auditor performance rating; professional attire, auditor skills, subjectivity; auditor promotion, big four, accounting, accounting firms, audit profession.
Acknowledgement: Special thanks to Dennis Veltrop for his useful feedback, and thanks to EY for the inspiring workplace
Table of content
1. Introduction ... 5
2. Theoretical background ... 8
2.1 Expectation states theory and status characteristics theory ... 8
2.2 Auditing skills, auditor performance rating and human capital theory ... 10
2.3 Professional attire and auditor performance rating ... 11
3.1 Sample ... 13 3.2 Measures ... 14 Dependent variable ... 14 Independent variable ... 14 Moderator variable ... 15 Control variables ... 15 3.3 Statistical analysis ... 16 4. Results ... 16
4.1 Descriptive statistics and correlations ... 16
5. Conclusion and discussion ... 22
5.1 Limitations ... 24
5.2 Future research ... 25
5.3 Practical implications ... 26
1. Introduction
Fraudulent reporting is of all times1. For example, in 1879, Pincoff and his co-partner fled to Belgium and later to the US when someone discovered that they were manipulating the books. Also in the last decade, firms as Enron and Worldcom have committed fraud in the financial statements (Giroux, 2008). To avoid scandals and ensure that the reported numbers are correct, the auditor searches for a sufficient amount of assurance to state that the financial reports do not contain a material deviation (NV COS 702N). The auditing profession exists to provide the users of the financial statements this assurance2. The task of the auditor is to ascertain that the represented information in the financial statements is of high quality, sufficient, correct and adequate (Saladrigues & Grañó, 2014).
In response to the increased audit litigation due to several scandals, the quality of audits has received increased attention over the last years (Vanstraelen, 2000). Audit litigation can raise questions about the quality of the audit. The best answer to these questions is high audit quality. A higher quality audit namely reduces the uncertainty associated with financial reports prepared by managers (Wallace, 1980). As a reaction on audit litigation, and to increase audit quality, governments have imposed new and more legislations. To improve audit quality and reduce fraudulent reporting the Sarbanes-Oxley Act is introduced, as well as the 53 measures and the new audit report. Due to this increase in legislation and conducting an audit has become more complex (France Picard, Durocher & Gendron, 2014).
The effectiveness of this increase in legislation might not be directly observable, because unlike most goods and services, it is difficult to directly assess the quality of audited financial statements (Wilson & Grimlund, 1990). One of the reasons is that audit quality is influenced by many different factors, such as the people who conduct the audit and the audit tests used (Francis, 2011). Auditors have to judge independently and make decision in the audit process. For example, they have to decide which audit tests to use, and these decisions are heavily based on and influenced by the expertise and experience of the individual auditor (Libby & Luft, 1993 and Nelson & Tan, 2005). Because of the fact that audit quality, with auditor performance as key driver, is very hard to observe, it is likely that both audit quality and auditor performance are influenced by other factors.
1 http://www.accounting-degree.org/scandals/
2
Although it is very hard to determine auditor performance, every auditor is evaluated on their performance by the firm they work for. This performance measure is based on ratings by their supervisor. A high probability exists that this rating is not fully based on the objective skills of the auditor, because it is hard to observe quality and the evaluator might be
subjective. This performance rating is used by audit firms to evaluate their employees, and based on this performance rating their chance on promotion is determined, based on a so-called “pyramidic staffing structure” (Nehme, 2017). In this model, success is seen as moving up in the hierarchy. Considering this performance evaluation is influenced and based on other factors than objective auditing skills, the probability exists that less skilled auditors are being promoted. For example, the research of Emby and Etherington (1996), mentions seven different skills of the auditor which could influence auditor performance, where auditing skills is only one of them.
Also Grey (1998), France Picard (2014), and Chaker and Abdullah (2011), mention skills that are important to be a successful auditor which include more than just auditing skills. Chatman (1991) states that congruence (the conformity/uniformity of perception between the employee and his or her superior) is essential for the employee to be able to achieve success. Moreover, Emby and Etherington (1996), found that each step higher up on the hierarchy requires another sort of skills, and therefore congruence has to be refitted to keep achieving success. This suggests that it might even be possible to manipulate auditor performance ratings when the auditor has the ability to establish congruence between him and his evaluating supervisor. In this research, they found that at staff level, interpersonal skills are more important than on a higher level. They also found that especially on senior level, audit engagement management skills are very important.
In conclusion, this rating system provides the opportunity for someone to get
promoted on the basis of having outstanding skills required for that specific level and having a high degree of congruence with their supervisor, while maybe lacking auditing skills. The fact that these hard auditing skills are intra-personal causes that these skills are not directly observable by other team members and supervisors (Bunderson, 2003) and therefore the supervisor who has to make a performance evaluation, has to rely on indirect cues to draw their inferences. These auditing skills, necessary to conduct a good audit, will be discussed in the theory section. It seems clear that the probability exists that performance evaluations by the supervisor are influenced by other factors and because of the promotion system auditors with insufficient auditing skills could get promoted.
One of the factors the performance evaluation of the auditor can be influenced by is the impression that the auditor makes. Gurney, Howlett, Pine, Tracey and Moggridge (2016) found evidence that impressions formed by individuals are based on nonverbal behaviour. One of the two influencers they explicit highlight that does influence performance perceptions is professional attire. Several research outcomes support this reasoning. For example,
individuals are considered to have greater expertise, knowledge and credibility when dressed smartly (Dacy & Brodsky, 1992). Already small differences in clothing can have impact on how individuals are perceived. Howlett, Pine, Orakcioglu, and Fletcher (2013) found that participants of their research perceived a man wearing a made-to-measure suit as being more confident, more successful, more flexible in personality and more likely to earn a high salary compared to somebody wearing a standard suit. These research outcomes might also be applicable to audit practice. For example, when showing up at an audit engagement, most people make initial decisions about you in the first five minutes they meet you (Lorenz, 2008). Does your clothing say “I’m an up-and-comer or do you look like your inept?”
(Lorenz, 2008). The importance of professional attire is even more obvious as employees are more frequently advised to dress for success to build their careers. Surveys of employers also frequently support the importance of dressing up (Cardon and Okoro, 2009). A recent survey has shown that 41% of the employers stated that more professional dressed employees are more likely to be promoted. This number rises even higher to 55% in certain industries such as the financial services (Haefner, 2008).
However, professional attire is not often mentioned as a success factor, while it might have a significant impact on the performance rating of the auditor. A reason for this could be that auditors are not enough aware of this. Thereby, the influence of professional attire of the auditor has been very little researched and the research that exists dates mostly from the 90’s (Anderson, Johnson & Reckers, 1994; Pentland 1993; Gutierrez & Freese, 1999). Due to this, there seems to be a gap in the existing literature.
To fill this gap in the existing literature, this research seeks to find evidence on the
influence of professional attire and tests whether professional attire can influence auditor performance rating. This research will do so by providing clarity on the attire topic. With this clearance, auditors will be able to strengthen their lead or maybe even compensate for their lack of skills.
In conclusion, the current literature has not shown a clear distinction of how
professional attire influences the relationship between auditing skills and auditor performance ratings. However, such a clearance could deliver a significant attribution to both academic
literature as practice. The probability exists that professional attire can compensate for a lack of auditing skills. Therefore, attire can be seen as a crucial moderator. The questions are, how strong is the effect of professional attire? And to what extent does this (in)directly boost your performance rating? Can professional attire even compensate for a lack of auditing skills?
Therefore, the following research question will be answered in this research:
“What is the influence of professional attire on the relationship between auditing skills and auditor performance ratings?”
After this introduction, the theoretical background and the mentioned variables will be
discussed where after the hypotheses will be formulated. Thereafter, the research method will be explained. In the fourth section the results are provided and in the last section the
conclusion and discussion will be given. Here reasons will be provided for the results found followed by the main limitations and recommendations of the study.
2. Theoretical background
This section will provide further information about the theory behind the research model. The basic relationship of this model is the influence of auditing skills of the auditor on the
performance rating of the auditor. In addition, it will be examined what the moderating effect of professional attire is on this relationship. Thereby, it will be examined if there is a direct relationship between professional attire and auditor performance ratings. The aim of this chapter is to explain the relationship of the research model with theoretical substantiation, to provide the reader of definitional clarity and to formulate the hypotheses that will be tested.
2.1 Expectation states theory and status characteristics theory
The expectation states theory explains how implicit expectations form the basis of expected competence individuals hold for one another (Berger & Conner, 1974). Expectations states theory – and with it status characteristics theory – describes how people assign status to a person based on different status characteristics (Berger, Fisek, Norman, & Zelditch, 1977). Particularly, these theories describe two types of status characteristics, namely diffuse and specific status characteristics. While specific status characteristics are particularly informative on individuals’ abilities for a task at hand, diffuse characteristics do not have strong bearing to
individual ability per se (Berger & Zelditch Jr., 1985). Auditor skills are examples of specific status characteristics, whereas gender and age are regarded as diffuse characteristics. More generally, diffuse status beliefs can be defined as “widely held cultural beliefs that link greater social significance and general competence, as well as specific positive and negative skills, with one category of a social distinction compared to another” (Ridgeway, 2001, p. 638). These beliefs arise from repeated interactions among group members where one group member is observed to have a sort of structural advantages over other members of a group. They are perceived as having advantages influencing members of other groups. If such advantages are observed in multiple contexts, a status belief is created (Ridgeway, 2004).
The expectation states and status characteristics theory share an important basic assumption: the burden of proof assumption (Berger, 1972; Webster & Driskell, J. 1978). This assumption describes that if a diffuse status characteristic is activated in the task situation and has not been previously dissociated from a characteristic predictive of success, and if there is no other social basis of discrimination between one person and another person, then at least one consistent component of diffuse status characteristic will become relevant to characteristic predictive of success in task situation. However, status characteristics theory states that, despite the fact that certain status characteristics may be unrelated to the task at hand, the person will form expectations and act as if the information is relevant (Simpson & Walker, 2002).
This assumption is part of the status organising process, where individuals make inferences about one another’s status in a social environment, such as an audit firm. This process connects previously unconnected status information to the immediate situation (Berger et al., 1977). This creates, due to assumptions, expectations of the performance of the auditor. These performance expectations, in this research seen as auditor performance ratings, are, as mentioned in the introduction, very likely to be influenced by other factors than
auditing skills, where the burden of proof assumption serves as the theoretical base for this. Performance expectations are namely based on a combination of both diffuse and specific information, and value will be attached to the particular state of the status characteristic that the person possesses and are aggregated (Berger, Ridgeway, Fisek & Norman, 1998). This aggregation of status information represents each person’s level of ability or performance expectancy relative to the others (Berger et al., 1998). Individuals’ performance expectancy determines their positioning in the power and prestige order (Berger et al., 1998). Those who possess higher performance expectancies will be placed higher in this order, and a higher positioning provides advantages (Ridgeway & Berger, 1986; Ridgeway, Berger & Smith,
1985). These group members will have greater opportunities to perform, to influence others of the group and most important, to have their performances positively evaluated (Ridgeway et al., 1986; Berger et al., 1974; Berger et al., 1977).
2.2 Auditing skills, auditor performance rating and human capital theory
In addition to expectation states theory, the relationship between auditing skills and auditor performance rating can be explained by human capital theory. Since humans exist, their capital is used for work (Goldin, 2014). Human capital can be defined as “the skills the labour force possesses” and is regarded as a resource or asset (Goldin, 2014). This theory describes how all characteristic of human workers are valuable for the performance they deliver. These characteristics, such as several skills and knowledge, can contribute in achieving higher audit quality and auditor performance. To boost these characteristics, investments in human capital such as education, training and health are helpful. These investments increase an individual’s productivity (Goldin, 2014). However, these investments are useful until a certain extent. Schultz (1961) explains the working of the human capital theory more extensive. On the one hand, Schultz (1961) shows that skills do contribute to better performance and provide the ability to perform at work. On the other hand, it shows that within human capital there are various anomalies. Such an anomaly can lead to inequality between persons. For example, unequal competences and skills. This means that the probability exists that auditors have unequal auditing skills. In this research, the main focus is on compensating inequality in auditing skills. For this reason, human capital theory is very suitable.Because the auditing profession is performed by people, more competent people with better auditing skills deliver higher audit quality (Francis, 2011). Auditing skills are very important for auditors, as they are used to perform audit tasks (Francis, 2011). Ahadiat and Martin (2015) mentions that managers of the biggest accounting firms think additional skills, which are not auditing related, are more important than auditing skills themselves. However, Ahadiat and Martin (2015) find that basic, auditing skills are more important, especially when entering the profession. Among this line of reasoning, De Lange and Jackling (2009) show evidence from a survey that both professionals and graduates agree on the importance of technical skills, i.e. auditing skills. Moreover, Ahadiat (2010) found that professionals
identified auditing skills as highly important. One of the major drivers of audit quality are the skills and personal qualities of audit partners and staff (Oliverio, 2007).
Although it is clear that auditor skills are very important and auditors are acquired to have a certain set of skills to properly conduct their work, the point can be taken that there is variation in auditing skills between auditors. The relationship, also according to the human capital theory, between investments in people (such as education and training) and higher performance to a certain extent is stated (Huselid, 1995). It seems clear that higher audit skills will contribute to higher performance. As a result of higher auditing skills and higher
performance, the auditor performance rating might also increase. However, this rating may be influenced by many more factors. This is because, as earlier mentioned, an increase in audit skills is very hard to observe. Auditor performance ratings might be influenced by several other factors. For example, by psychological well-being (Robertson and Cooper, 2010), posture and clothing (Gurney et al. 2016) or conscientiousness and neuroticism (Akhtar, 2018). To show if, and how strong the relationship is between auditing skills and auditor performance ratings, and to determine the range for subjective judgement by a supervisor who has to review your work performed, this hypothesis is formulated:
H1: Auditing skills are positively related to auditor performance ratings
By accepting or rejecting this hypothesis it underlines that, and more importantly to what extent, auditing skills have a direct influence on the auditor performance rating and in that way distinguishes the possibility of subjective judgement by the supervisor.
2.3 Professional attire and auditor performance rating
The expectation states theory states that, together with the burden of proof assumption, a perceived status can be influenced by several indirect cues. A supervisor determining an auditor performance rating might be drawing his inference on these cues. As stated in the introduction, professional attire can be one of them. Professional attire can be seen as a diffuse status characteristic. Since there is space for subjective judgement on performance ratings, and professional attire seems to have effect on this judgement, a direct relationship between professional attire and auditor performance rating might exist.
First of all, attire is suggested as a significant component to boost your actual performance (Riordan, 1989). This direct relationship can be explained by the concept of enclothed cognition (Adam and Galinsky, 2012), which states that people adopt the traits they associate with the clothes they wear. They found that performance increases when wearing
the correct clothes, and vice versa, which is evidence that attire does positively influence your actual performance. Moreover, attire is one of the first observations a person has of someone else, and the observer can identify characteristics about the individual through their clothes (Gurney et al., 2016). Therefore, attire might not only influence your performance, it might also influence auditor performance ratings.
As mentioned before, Dacy and Brodsky (1992) found that people who dresses up smartly are viewed as having greater expertise, knowledge and credibility. A reason for this is that because professional attire can exert intrapersonal effects on individuals, and
characteristics about the individual can also be identified by observers through their clothing, which impacts how they are perceived (Gurney et al. 2016). Violette and Chene (2008) found that accounting firms think students’ attire is very important and functions as a presage for their competences because they are not able to gauge their actual competences in the recruitment process, and therefore all of this is based on their perceived performance. This implies that attire might have a direct positive influence on the perceived performance, which might also apply later on, when an auditor gets rated by the firm. Ahadiat and Martin (2015) found that wearing business attire is highly important when employees are being considered for promotion. Promotion can be seen as a sign of higher performance, which might be perceived even higher due to their attire. In this way, professional attire of the auditor can have a direct positive influence on the performance rating of the auditor.
H2: Professional attire has a direct positive influence on auditor performance ratings
2.4 Professional attire as a moderator
The burden of proof assumption highlights that expected competences are likely to impact performance evaluations auditors hold for one another. It is important to realize, however, that senior auditors cannot fully objectively evaluate more junior auditors and perfectly see the inter-personal auditors skills a more junior auditor has (Nehme, 2017). So their judgement and decision making is not fully objective and might be influenced by other factors than the auditing skills the junior auditor have shown. This is also a central element of expectation states and status characteristics theory, in which performance expectations are based on imperfect inferences. For this reason, the professional impression an auditor makes might play a crucial moderating role for whether auditors’ actual skills are being picked up. Research, indeed, demonstrates that auditors who look attractive, are physically fit and well-dressed
tend to be viewed as more competent and that this may influence their career success (Rosch, 1988; Riordan, 1989). Appearance matters a lot and especially in the corporate field.
Individuals’ personal and professional relations and image are built on the way he or she looks (Raj, Khattar & Nagpal, 2017). Professional attire can even boost the creditability of the auditor (Lightstone, Francis & Kocum, 2011). A person’s dress code makes others around aware that there is a sense of professionalism which many do not possess or are unaware of (Raj, Khattar & Nagpal, 2017). In a way ‘looking professional’ – a diffuse status
characteristic – may increase others’ attention towards an auditor’s audit skills – a specific status characteristic. Anderson et al. (1994) found evidence for the fact that practicing auditors will assign lower ratings to peers who exhibit a poor physical appearance.
Since evidence has been found for professional appearance positively influencing auditor performance rating, and evidence has been found that well-dressed auditors to be viewed as more competent, professional attire might be able to influence the auditor performance rating. Given the fact that auditor performance ratings are influenced by more factors than only by auditing skills, the expectation is that professional attire might be able to compensate lower auditing skills or even boost auditor performance rating in combination with higher auditing skills. In conclusion, the expectation is that professional attire negatively moderates the relationship between auditing skills and auditor performance rating.
H3: Professional attire will negatively moderate the relationship between auditing skills and auditor performance rating
3. Methodology
3.1 Sample
The study was conducted by means of a survey, mainly completed by the big four auditors in the Netherlands. 178 auditors were invited, of which 142 responded. This resulted in a response rate of almost 80%. The sample consists of personally approached auditors, which explains the high response rate. The sample consists of auditors from all function layers, from staff to partner and from different regions in the Netherlands. To increase participation all respondents were provided with the option to receive a personalized benchmark report in which their individual answers were compared against the average of all auditors participating in this research.
3.2 Measures
Dependent variableThe dependent variable of this research is auditor performance rating. This variable is measured by three questions. First of all, the performance rating itself from the employer is used. This first measure is based on the research of Fletcher (2008). The first question to measure this performance rating is: “Select the choice which comes closest to your rating during your last performance evaluation”, which was measured by a 4 point-scale with the answer possibilities being below standard, equal to standard, above standard and excessive above standard.
Additionally, the participant was asked to give an estimation of the probability they think their chance on promotion is in comparison with their peers. This question was measured on a 7-point scale (1= very low, 7= very high) and was based on the research of Viator (2001). Finally, the respondents were asked to compare their own performance with their peers, by means of a slider ranging from 0 to 100 where 0 represents the worst score, 50 is average and 100 the best. When a respondent indicated 70 for example, it means that he thinks he scores 20 % higher in performance than average. Before aggregating the different items into one measure for an auditor’s performance rating, the items were separated to make the range of the items commensurate. After testing for reliability of this measures, a Cronbach’s alpha of 0.83 was calculated. This means that the questions used to measure the variable are internally consistent and have convergent validity.
Independent variable
The independent variable of this research is auditor skills. This variable was measured with a brief knowledge test comprised of 14 items. These items were taken from the CPA (Certified Public Accountant) exam that is required for auditors by the NBA (Dutch profession
organization for auditors). First of all, the participants were asked to answer five statements which measured their direct knowledge with true or false statements. These statements were based on an example test of the NBA knowledge test. Furthermore, the auditor was asked to answer four more questions. These questions were based on examples of the course “frequent do’s and don’ts in auditing” from the PE academy, which is an institute which provides permanent education points and is a highly certified institute. This institute provides certified PE points to the auditors, which they are required to get a certain amount of every 3 years3.
These questions together measured auditor skills. The auditor skills were determined as the more correct answers, the higher the auditor skills and vice versa. The measure existed of fourteen different items, where no items were deleted. For example, “a signed engagement letter has to be received back from the client, before the audit can be started”, and also “If the audit complies to all laws and regulations, sufficient proceedings are conducted” with three options, are examples of questions asked.
Moderator variable
The moderating variable in this research is professional attire. This variable was measured by three questions. These three questions are measured on a 7-point Likert scale (1= strongly disagree, 7= strongly agree) and based on the research of Peluchette, Karl, & Rust (2006). They research individual differences in beliefs and attitudes regarding workplace attire, and also whether their participants use professional attire to manage the impressions of others and to what extent they believe that it positively impacts their workplace outcomes. The questions asked are the following: “In my opinion, my attire influences the impression others have of me”, “I use my attire to influence the impression others have of me” and “I use my attire to achieve certain goals in my working relationship, such as expanding my network and beam authority”. The Cronbach’s alpha is 0.830 which indicates that the internal consistency of the questions is highly sufficient.
Control variables
For this research, control variables were used to mitigate unwanted effects on the dependent variable. First of all, there was controlled for the years of auditing. This is because years of generic auditing experience increases the technical competence of auditors (Reheul et al., 2017) and more experienced auditors are better able to pay selective attention to relevant information (Reheul et al. 2017). Furthermore, a female dummy variable was taken into account. Earlier research has shown that, for example, female auditors are more accurate and effective information processors in complex audit tasks (Chung and Monroe, 2001) and that female auditors exhibit higher audit quality (Ittonen & Peni, 2012; Hardies, Breesch & Branson, 2013; Hardies et al. 2015). Moreover, they are less likely to engage in audit quality reduction behaviour (Sweeney et al, 2010). In conclusion, the auditor performance rating can vary depending on gender. Lastly, the variable big-4 or non big-4 is taken into account. This is because larger audit firms provide higher-quality audits than smaller auditing firms do
(Davidson & Neu, 1993), and as the audit quality is established by the people working at the audit firms (Francis, 2011), performance expectations will be higher at the larger audit firms and therefore a big-4 or non big-4 control variable is taken into account.
3.3 Statistical analysis
The abbreviation of the variables is shown in the table below: TABLE 1
Description of variables
Variable Label Description
Dependent variable
Auditor performance rating APR The performance of the auditor evaluated by the firm
Independent variable
Auditor skills AUSK The intra-personal auditor skills
Moderating variable
Professional attire PROFAT The extent to which auditors use their attire to influence and impress others.
Control variables
Big 4 or non big-4 BIG-4 Big-4 (1) of non big-4 (0)
Years of auditing YEOA The number of years’ experience in the audit
profession
Female dummy FEDU Female (1) or man (0)
Based on the least-square method, the following model is established:
𝐴𝑃𝑅
$= 𝛽0 + 𝛽1
∗𝐴𝑈𝑆𝐾 + 𝛽2
∗𝑃𝑅𝑂𝐹𝐴𝑇 + 𝛽3
∗𝐴𝑈𝑆𝐾
∗𝑃𝑅𝑂𝐹𝐴𝑇
+ 𝛽4
∗𝐵𝐼𝐺 − 4 + 𝛽5
∗𝑌𝐸𝑂𝐴 + 𝛽6
∗𝐹𝐸𝐷𝑈 + 𝜀
$The 𝛽 in this model stands for the coefficients where the 𝜀 stands for the error.
4. Results
4.1 Descriptive statistics and correlations
Table 2 below provides the descriptive statistics and the correlations between the variables used in this study. The table shows that there are several significant correlations between the variables. A correlation indicates to what extent a change in one variable influences the other variable. First of all, professional attire has a positive, significant effect on auditor
performance ratings (r = .17, p < .05). Also, the female dummy correlates positively with professional attire (r = .17, p < .05) and negatively with years of experience in auditing (r = -.22, p < .01). Lastly, there exists a negative significant correlation between the size of the firm, Big-4 or non big-4, with years of experience in auditing (r = -.48, p < .01). There is no signal of multicollinearity because all the VIF scores are far below 10 (Sinan & Alkan, 2015).
Note: n=138, * = p < .05 (2-tailed), ** = p < .01 (2-tailed).
4.2 Results
The results established from the regression analysis on auditor performance ratings, are shown in table 3 below. Model 1 includes only the control variables. Model 2 includes the basic relations between auditor skills and auditor performance ratings, and the relationship between professional attire and auditor performance rating. Model 3 includes the two-way interaction term between auditor skills and professional attire.
Looking at model 1, there are significant relationships on the years of auditing and big-4 variable. The second model is established to test the relationship between auditor skills and auditor performance ratings, which is related to hypothesis 1. No significant relation has been found between those variables (r= -.22, p = .71.) and therefore, hypothesis 1 is rejected.
Furthermore, the relationship between professional attire and auditor performance ratings is tested in model 2. The model reports a positive significant direct relation between professional attire and auditor performance ratings (r = .12, p .02). This means that
professional attire can be used to positive influence auditors’ performance rating. This means that hypothesis 2 can be accepted. In addition, the model reports an adjusted R-square of 8% where the R-square is 11% and the F-value is 3.44. This means that 8% of the variation in
4 The reason that this value is .0 is because all individual items are standardized.
TABLE 2 Correlations
Variable Mean Std. D 1 2 3 4 5 6
1 Auditor performance rating 0.004 0.86 -
2 Auditor skills 0.66 0.11 -0.10 -
3 Professional attire 4.57 1.36 0.17* 0.03 -
4 Years of auditing 6.88 8.25 -0.15 -0.05 0.05 -
5 Female dummy 0.30 0.46 0.03 0.08 0.17* -0.22** -
auditor performance rating is explained by the independent variables and the control
variables. Thereby, the delta R-square is .03, which means that 3% of the variation in auditor performance rating is explained by the independent variable.
Model 3 was established to test the moderating influence in this model, and is called the two-way interaction term. The main line of reasoning was that professional attire could compensate for a lack of skills. However, no significant relation from the interaction term on auditor performance rating could be reported (r = .02, p = .68). Based on this finding,
hypothesis 3 has to be rejected.
Note: * p < .10, ** p < .05, *** p < .01 two-tailed.
4.3 Additional analyses
With regard to the result that professional attire does not have a moderating effect on the relationship between auditor skills and auditor performance rating, an additional analysis is conducted. In table 3, the main results are presented on the hypotheses formulated in this research. However, no result could be found on the moderation effect. In this additional analysis, the effect of gender will be tested more on this moderation effect. In other words, does the moderating effect of professional attire differ for men and females?
TABLE 3 Regression results
Variable Model 1 Model 2 Model 3
Intercept 0.71 (0.26)*** 0.33 (0.53) 0.75 (0.26)***
Controls
Years of auditing -0.24 (0.08)*** -0.26 (0.08)*** -0.26 (0.08)***
Percentage female -0.01 (0.16) -0.07 (0.16) -0.06 (0.16)
Big-4 or non big-4 -0.79 (0.27)*** -0.79 (0.27) *** -0.81 (0.27)***
Main effects
Auditor skills (H1) -0.22 (0.60) -0.03 (0.07)
Professional attire (H2) 0.12 (0.05)** 0.16 (0.07)**
Two-way interaction
Auditor skills x professional attire (H3) 0.02 (0.07)
𝑅? 0.08 0.11 0.12
Adjusted R-square 0.06 0.08 0.07
Δ R square 0.08 0.03 0.00
F-value 3.827** 3.44** 2.87**
Several survey outcomes have shown that females have a significant less chance on career success, they are already behind at the start (Pillsbury, Capozzoli & Ciampa, 1989; Trapp, Hermanson & Turner, 1989). Other research of French, Robins, Homer and Tapsell, (2009) has shown that for men grooming can have a positive effect on performance where women can have a positive effect by having a very attracting personality. Lai, Srinidhi, Gul and Tsui (2017) researched the structure of several boards. The outcome was that female board directors deliver higher audit quality, however when conducting the literature review, evidence for a clear explanation of female increasing audit quality has not been found yet. Anderson et al. (1994) researched gender, family setting and appearance of the auditor. However, the only relation that was tested for appearance was a negative one and tested for females. Moreover, research has shown that the effects of attire, and judgements made on attire are stronger for women than for men (Gurney et al., 2016). This means that, for both men and females’ other types of attire could have a positive influence on their performance rating. To test if this relationship exists, two different ways of testing are used. The first way this relationship was tested, is by a gender dummy. Table 4 presents the results of this additional analysis. Model 1 and model 2 show the results using this gender dummy, where female is 1 and male is 0. The result of this three-way interaction between skills, attire and gender (r = .23, p = .22) indicate that there is no significant effect from the gender dummy on the interaction effect. Although this relationship is not significant, the p-value of .22 is not very far from being significant. Thereby, a part of the data gets lost by using a dummy because of using 0 and 1 because it is tested one-sided.
Therefore, the other way of testing the effect of gender on the moderator was done with a gender variable using effect coding were female is 1 and man is assigned -1. The results in the table show that in both models, the control variables years of auditing and big-4 or non big-4 are significant. Moreover, a significant relationship in the three-way interaction has been found (r= .18, p = .09). This means that gender has a significant effect on the moderation effect of professional attire on the relationship between auditor skills and auditor performance ratings.
Note: * p < .10, ** p < .05, *** p < .01 two-tailed.
To gain further insight in the nature of this interaction effects, both three-way interactions are plotted. Figure 1 shows the interaction nature of the female dummy. Looking at the
interaction plot in figure 1, there seems to be space for subjectivity in auditor performance ratings. More specifically, the plot shows two interactions for both man and female. First of all, it shows that the higher the auditor skills are, and the lower the female dummy, the lower the space to positively influence the performance rating with professional attire.
Furthermore, it also shows that when the higher the auditors skills and the higher the female dummy, the more space for influencing the performance rating with professional attire. However, this relationship is not found significant. With regard to the plot in figure 2, the general trend is that the higher the auditor skills are, the lower the auditor performance rating. Also, the higher the auditor skills, the lower the space to positively influence the performance ratings. Although a general trend is that higher auditor skills cause a lower performance rating, the plot shows that auditors having a higher professional attire will experience a much
TABLE 4
Additional analysis for the conditional moderating effect of professional attire
Variable Model 1 : female dummy Model 2: Female dummy Model 3: Female effect coding Model 4: Female effect coding Intercept 0.75 (0.26)*** 0.71 (0.27) 0.75 (0.26)*** 0.75 (0.26)*** Controls Years of auditing -0.26 (0.08)*** -0.25 (0.08) -0.26 (0.08)*** -0.25 (0.08)*** Female dummy -0.06 (0.16) -0.02 (0.16)
Big-4 or non big-4 -0.81 (0.28)*** -0.76 (0.28) *** -0.83 (0.28)*** -0.77 (0.28)***
Female effect coding -0.01 (0.08) 0.02 (0.09)
Main effects
Auditor skills (H1) -0.02 (0.08) -0.00 (0.08) -0.05 (0.08) -0.05 (0.08)
Professional attire (H2) 0.16 (0.07)** 0.13 (0.07)* 0.12 (0.09) 0.04 (0.10)
Two-way interaction
Auditor skills x professional attire (H3) Auditor skills x gender
Professional attire x gender
0.02 (0.07) 0.00 (0.00) -0.03 (0.16) -0.01 (0.08) 0.00 (0.00) -0.03 (0.16) 0.04 (0.07) -0.02 (0.08) -0.06 (0.09) 0.16 (0.10) -0.03 (0.08) -0.13 (0.10) Three-way interaction
Auditor skills x professional attire x gender 0.23 (0.19) 0.18 (0.10)*
𝑅? 0.12 0.13 0.12 0.14
Adjusted R-square 0.07 0.07 0.06 0.08
Δ R square 0.00 0.01 0.00 0.01
F-value 2.45** 2.33** 2.208** 2.301**
lower decrease in performance rating, both female and man. Thereby, the plot shows that the increase in auditor skills has a stronger effect on the performance rating of females than on the performance rating of man, when professional attires are lower. Thereby, the plot shows that the effect of higher auditor skills on performance rating is stronger for man with higher professional attire.
FIGURE 1
Graphical presentation of the interaction effect between auditor
skills, professional attire and female dummy
0,35 0,5 0,65
Low Auditor skills High Auditor skills
A u d it or p er for m an ce r at in
g (1) High Professional attire, High
Female dummy
(2) High Professional attire, Low Female dummy
(3) Low Professional attire, High Female dummy
(4) Low Professional attire, Low Female dummy
FIGURE 2
Graphical presentation of the interaction effect between auditor
skills, professional attire and gender
5. Conclusion and discussion
This research has examined the impact of professional attire on the performance rating of the auditor. The reason for this research started from the burden of proof assumption, which indicated that there was space for subjectivity in auditor performance ratings. In line with this, the first hypothesis shows that auditor performance ratings are not fully influenced by auditor skills. Even though this relationship is not significant, it indicates that there are other factors influencing auditor performance ratings. This assumption gets underlined even more by the significant relationship of hypothesis 2 which shows that professional attire has a significant, positive relationship on auditor performance rating. This underlines the number one
assumption in this research, auditor performance ratings can be influenced by subjectivity. Furthermore, another goal of this research, extending the assumption that performance ratings are influenced by subjectivity, was to find a moderating effect of professional attire on the relationship between auditor skills and auditor performance ratings. However, no significant moderating effect is found. This means that no interaction between these variables exist, which means that it is not possible to compensate for a lack of skills with professional attire.
0 0,5 1
Low Auditor skills High Auditor skills
A u d it or p er for m an ce r at in g
(1) High Professional attire, Higher % female
(2) High Professional attire, Higher % man
(3) Low Professional attire, Higher % female
(4) Low Professional attire, Higher % man
As mentioned in the research of Francis (2011), higher auditing skills will lead to higher audit quality. However, auditors are not fully evaluated on their performance measured as their contributing to the audit. This means that not necessarily the best auditor gets
promoted, because the indicator for promoting, the performance rating, is not fully based on auditor skills. However, the research does not show that less skilled auditor can use their professional attire to compensate for a lack of skills. Nevertheless, it is possible to boost your rating more positively.
In line with research of Wright (1986) and the first and second hypotheses of this research, auditor performance ratings are influenced by other factors than auditing skills only. In the research of Wright (1986) is mentioned that these ratings are influenced by several factors, which is in line with the burden of proof assumption. He mentions, in general sense, that auditor performance ratings are influenced by “business sense” and “profession traits”. The research outcome of hypothesis 2 is in line with this and contributes to the literature by finding evidence that indeed, if you want to, it is possible for an auditor to positively
influence their performance rating with their professional attire. The findings of Rosch (1988) and Riordan (1989) have shown that well-dressed auditors are viewed as more competent. This finding gets underlined by this research and extended by the fact that evidence is found for not only being viewed as more competent, but also evaluated as more competent. This finding shows that professional attire can function as a diffuse status characteristic, as
mentioned in the expectation states theory. However, no evidence was found that professional attire can compensate for a lack of skills. Although this moderation effect is not found
significant, in an additional analysis, the moderation effect is found to be significant for gender. As suggested, gender could have a significant impact on the moderation effect of professional attire on the main relationship between auditor skills and performance ratings. After testing for gender in two different ways, as an additional analysis, evidence is found for the effect of gender on this moderation. Thereby, the plots of the relationships provide very valuable insights in this relationship. This research provides evidence for the fact that auditor performance ratings are influenced by other factors than auditor skills, it shows that
professional attire has a significant influence on auditor performance ratings, but no evidence is found for the main line of reasoning, that professional attire can compensate for a lack of skills
The results show that the moderating effect of professional attire does depend on gender. In other words, the interaction between professional attire and auditor skills is different for gender. This is in line with the theoretical suggestion that diffuse and status
characteristics interact, but the general distinction can be made on gender which is also suggested in the theory. Even though no general moderation effect has been found, this finding provides a good starting point for further research.
5.1 Limitations
As in every research, this research suffers from several limitations. First of all, the survey asked the auditor to evaluate their performance. 2 out of the 3 questions asked for a subjective evaluation of the auditor self, which can be biased. However, I used multiple items using different answer scales. The combined measure demonstrates high convergent validity, which may allay some of these concerns.
Also, the variable auditor skills is measured by only 8 questions. These questions are established for CPA’s to create a certain threshold. The different levels of knowledge within audit firms might vary a lot. It could be the case that a first year auditor does have a lot of knowledge for his function level, however because of the difficult detailed questions, he might score lower than representative for him. On the other hand, the questions asked might be way easier for a partner to answer. In conclusion, it is hard to find a perfect balance in the questions asked to measure the skills of the auditor on a certain level. As a result, it is very hard to establish a benchmark that fits all, and measures the auditor skills that might be expected from the auditor on a certain level.
Another limitation of this research is that this research one focuses on one influencer of auditor performance ratings. The theory provides the general assumption that performance rating is influenced by subjectivity, and this research provides evidence for just one,
professional attire. Performance ratings could be influenced by much more factors such as teamwork and communication skills (Wright, 1986).
Also common method bias is a limitation of this research. This means that the results found is due to the study itself, rather than the actuality of the situation. Because the research can be set up in a way that it fortifies the desired outcomes, and the methods that are more likely to contradict the outcomes are, unknowingly, more likely to be left behind. For
example, the survey questions that are asked in a certain way, the way of asking the questions and the audience used in the sample. This might bias the research results.
Thereby, a limitation of this research is that the analysis has been conducted by using cross-sectional data, analysing for a specific moment and not taking into account other trends in the accounting profession. At the moment, for example, a shortage in employees exists
which can lower the auditing skills in general, and it also can decrease the motivation to perform well. These trends are not taken into account.
Lastly, the variable professional attire is measured by questions formulated in a way, in which the auditor has to give his opinion on how he thinks clothing can be used and to what extent he thinks it does influence the impression of others about them. First of all, this can be biased because people think they are better than they really are (Duttle, 2015). A limitation of this research is that professional attire is measured in a limited way. In the survey was asked, to what extent the participants use their professional attire to influence the impression of others, and to what extent they believe that professional attire influences the impression of others. This is a limitation because this research does not fully provide a practical implementation. This research provides evidence that it is possible for the auditor to influence their rating with professional attire, however it does not provide what factors of professional attire does influence the impression of the auditor. In further research, it would be very good to further deepen the professional attire variable. For example, what does the auditor exactly have to do with their professional attire, to positively influence their rating? Does the auditor have to refine his suit, or do they have to differentiate their selves with a professional attire outside the box?
5.2 Future research
This research provides some good starting points for further research. First of all, as
mentioned above, the research model could be approached from another angle. E.g. a social experiment could be set up to measure perceptions of somebody. It would be really interesting to research different auditors with different types of attire, with the same competences, in an experiment and look what parts of professional attire would be evaluated differently. This to build on the burden of proof assumption, and to extent it by exploring which factors of professional attire are influencing the subjectivity in auditor performance rating, and exploring which other factors of appearance do influence this rating.
For further research, physical attractiveness, grooming for men and personality for females can be taken into account (French et al., 2009). Also, the variable professional attire can be deepened even more. What type of professional attire does influence the auditor performance rating? And what does negatively influence the rating? Thereby, the different function levels should be taken into account, this because status itself will build a
would be really valuable for auditors because then they know, in combination with gender and personality as mentioned above, how to dress just right for the job and to boost their performance rating, which is a nice useful implication of scientific research, decreasing the gap between literature and practice.
The finding that gender does influence the moderation effect of professional attire on the relationship between auditor skills and auditor performance rating is interesting.
Implications for further research could be to research what exactly causes the differences between gender, and which elements of attire does differ for gender, and what other factors do influence auditor performance rating, but differ for gender? What also can be researched is, in which setting, which city and what type of office does influence this three-way interaction for gender both positive and negative.
Furthermore, since there is space for subjectivity in performance ratings, a research can be set up to determine to what extent several factors, do influence these ratings. In this way, an integral view on the strength of several factors can be established. With this view, both the auditor and evaluator can benefit of this. On the one hand the auditor can use these factor to influence their performance, and on the other hand the evaluator becomes more aware of the influencers. With this view, both parties do benefit from a better way to determine the auditor performance ratings, creating a better way to evaluate auditors. In conclusion, however this research is influenced by several limitations, it does provide a good starting point with a lot of possibilities for further research.
5.3 Practical implications
This research has one major practical implication. The use of the dependent variable auditor performance ratings is very business focused, which makes it practical. This is because these ratings are used in all big accounting firms. This means that every auditor can use the
outcomes of this research in their daily work. In practical terms, every auditor working in the auditing practice, can use the knowledge that their professional attire will positively influence their performance rating. This research therefore helps to reduce the gap between research and practice. This research can be used to improve the way of how auditors are evaluated and promoted. This is because the basic assumption should be that the auditor with the best auditor skills should get promotion, as the main goal of every accounting firm is to achieve the highest audit quality as possible, and higher audit skills lead to higher audit quality (Francis, 2011). With this research outcome, the evaluator and also the accounting firms can
anticipate on this and improve their way of evaluating and promoting their auditors. Although accounting firms do test knowledge on higher levels, this research and the potential for further research make them more aware of the subjective influencers of auditor performance ratings and how to improve this, to create an increase in audit quality.
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