The Effect of Risk of Misstatement on the Propensity to Commit Reduced Audit Quality Acts under Time Budget Pressure

Abstract

This paper examines the effects of time budget pressure and risk of misstatement on the propensity of auditors to commit reduced audit quality (RAQ) acts. Understanding the different conditions under which time budget pressure can impact on auditors' behavior is important because of the emphasis on meeting budgets in practice. A 2×2×2 mixed design was used with two between-subjects variables for time budget pressure and risk and a repeated measure for the type of RAQ (accepting doubtful audit evidence and truncating a selected sample). The dependent variable was the propensity to commit RAQ. The results support the contention that, under time budget pressure, the likelihood of RAQ is lower when the risk of misstatement is higher. However, this effect was observed for only one of the two RAQ acts examined, suggesting that these RAQ acts are not seen to be the same by auditors. Different risk responses conditioned on the type of RAQ may be indicative of a strategic response to use of RAQ under time budget pressure.

Explaining the influence of time budget pressure on audit quality in Sweden

“…If auditors report less time than the time actually spent on an assignment, then the time budget could be tightened in the future by creating even more pressures which, in turn, could lead to audit quality-reducing behaviours. Moreover, disputes between auditors and their clients (Palmrose, 1986) and acceptance of doubtful and/or weak client explanations (Coram et al, 2004;Malone & Roberts, 1996;Otley & Pierce, 1996a, 1996bKelley & Margheim, 1990) have been claimed to signal reduced AQ.…”

“…That is, if the individual auditor is comfortable with the audit, he or she is confident that a quality audit has been performed. This means that, besides TBP, individual characteristics, such as gender (Ittonen et al, 2013;Ittonen & Peni, 2012;Giacomino & Eaton, 2003), position (Gundry & Liyanarachchi, 2007;Liyanarachchi & McNamara, 2007) and experience (Cianci & Bierstaker, 2009;Coram et al, 2004) can have an impact on AQ. Therefore the following control variables have been used: -Gender (GEN): Ittonen et al (2013) suggest that behavioural differences between females and males may influence the quality of auditing.…”

“…In terms of well-being, Umans et al (2016) find a relatively high level of job satisfaction among auditors. Nevertheless, various studies show that, due to TBP, auditors might not be able to perform the work that is expected from them (Gundry & Liyanarachchi, 2007), which leads to lower AQ because of less effective evidence gathering (Coram, Ng, & Woodliff, 2004;Pierce & Sweeney, 2004;Otley & Pierce, 1996a;Kelley & Margheim, 1990;McNair, 1987).…”

“…The relationship between TBP and AQ has been discussed in the literature (Bowrin & King, 2010;Liyanarachchi & McNamara, 2007;Coram et al, 2004;Coram, Ng, & Woodliff, 2003;Otley & Pierce, 1996a). However, the studies mentioned have been performed with small samples and have focused on Anglo-Saxon countries.…”

Pengaruh Supervisi Dan Kepuasan Kerja Terhadap Tindakan Yang Menurunkan Kualitas Audit

“…Coram et al (2004) (Pierce dan Sweeney, 2006). Tindakan ini dilakukan agar jumlah jam kerja yang dibebankan pada pekerjaan audit menjadi lebih rendah dari pada yang seharusnya.…”