Otley Audit Review

Accounting, Auditing & Accountability Journal
Auditor time budget pressure: consequences and antecedents

David T. Otley Bernard J. Pierce
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David T. Otley Bernard J. Pierce, (1996),"Auditor time budget pressure: consequences and antecedents", Accounting,
Auditing & Accountability Journal, Vol. 9 Iss 1 pp. 31 - 58
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Ali N. Azad, (1994),"Time Budget Pressure and Filtering of Time Practices in Internal Auditing: A Survey", Managerial
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Auditor time
Auditor time budget pressure: budget pressure
consequences and antecedents
David T. Otley
The Management School, Lancaster University, Lancaster, UK, and 31
Bernard J. Pierce
Dublin City University Business School, Dublin City University,
Dublin, Ireland
The management control literature has, over a number of years, reported

evidence of undesirable behaviour in response to control procedures. Studies
carried out in auditing firms in the USA have identified specific types of auditor
dysfunctional behaviour, and suggested that these behaviours are strongly
linked to the control system in general and to audit time budgets in particular
(Alderman and Deitrick, 1982; Commission on Auditors’ Responsibilities
Report, 1978). The current study extends this area of research by examining
budget attainability in greater detail. Specifically, the study sets out to examine
whether the inverted U-shaped relationship between budget tightness and
dysfunctional behaviour (suggested by the industrial psychology literature and
empirically supported by a previous study of auditors in a USA setting) exists
in a different setting. Recognizing the importance of perceived budget
attainability, the study goes beyond previous studies by examining three
possible antecedent variables affecting budget attainability. The findings are
combined to suggest ways in which audit firms might effectively seek to reduce
the incidence of dysfunctional behaviour.
The study was designed in recognition of the facts that:
• earlier findings from the USA suggest that auditors’ reactions to tight
budgets may have important implications for audit quality and that the
area merits further research;
• there is no published evidence to indicate how auditors outside the USA
behave as budgets are perceived to become tighter;
• it is generally accepted that audit budgets are becoming increasingly
difficult;
• no previous study investigated possible antecedent variables of
perceived attainability of audit time budgets;
• the only previous study which examined auditor dysfunctional
behaviour at different levels of budget difficulty (Kelley and Margheim,
1990) concentrated on the behaviour of staff auditors.
Accounting, Auditing &
The current study was therefore designed to focus on audit seniors, since this Accountability Journal, Vol. 9
No. 1, 1996, pp. 31-58. © MCB
position has been found to be the one in which an auditor feels the most University Press, 0951-3574
AAAJ pressurized in an audit firm (Kelley and Seiler, 1982) and, due to the absence of
9,1 on-the-job supervision, offers considerably more scope for dysfunctional
behaviour than that experienced by staff auditors.
Background
Independent audit exists because of the presence of information asymmetry
32 between management and shareholders. Independent monitoring of the
accuracy of financial information produced by management can help reduce the
risk of shareholders suffering agency losses. However, the quality of the audit
cannot be verified by the shareholders and other users of financial information,
so any judgement regarding the value of the audit must therefore be based, at
least partly, on the perceived reputation of the auditor (DeAngelo, 1981).
This reputation is closely linked to the public perception of the auditor as a

professional person. However, as Roslender (1992) points out, many practising
auditors are employees of large firms, and as such do not experience the degree
of autonomy and freedom traditionally associated with professional persons.
Instead of the collegiate form of control associated with small medical and legal
practices, these professional employees are guided by formal rules and
procedures which govern their professional conduct and provide a framework
for progression within the firm. The professional socialization of auditors,
which places heavy emphasis on examination success and time management,
plays a key role in determining who holds senior positions in the profession.
Although no previous studies have been published in relation to the
environment in which auditors operate in Ireland, anecdotal evidence suggests
strong similarities with the UK. Similar structures are known to exist within both
the profession and the large audit firms, and similar technical and ethical
guidelines apply. Notable features of the UK audit environment in recent years are:
• relaxation of ethical guidelines regarding advertising of professional
services;
• over-capacity in many audit firms due to corporate failures resulting
from economic recession;
• careful monitoring of audit fees by clients;
• widespread use of audit tendering which can often result in low-
balling[1] (Beattie and Fearnley, 1994).
The number of students for whom new training contracts were registered with
the Institute of Chartered Accountants in Ireland showed a noticeable decline
from 1989 onwards. By 1993, these had dropped by 27 per cent compared with
1989 levels[2].
There is now evidence that severe competition in the marketplace is resulting
in reduced audit fees. For example, MacErlean (1993) reported reductions in the
UK of as much as 33 per cent of the previous year’s fee. While there has
generally been heavy downward pressure on fees in recent years, particularly
large reductions have been found in first-year fees for firms seeking
appointment to a new client (Beattie and Fearnley, 1994). This increasing Auditor time
competition in the marketplace has given rise to cost-quality dilemmas for budget pressure
auditors (McNair, 1991). Costs, which are largely driven by professional hours
and are subjected to precise measurement, are closely linked to short-term
profitability. Quality, however, cannot be measured with the same precision and,
although vital for long-term success, does not usually show a visible link with
short-term profits. Economic considerations may therefore lead to quality 33
compromise.
Evidence from studies of the auditor’s work environment within the firm
suggests that, in general, it may not be conducive to a functional resolution of
the cost-quality dilemma. Audit firms generally operate a hierarchical
structure, in which trainees report to seniors, who in turn report to managers.
The top management positions are occupied by partners who collectively own
the firm. Appointments to partner and manager levels are usually internal
promotions based on performance ratings. An important criterion in obtaining
a good rating is time budget achievement (Kelley and Seiler, 1982). There is
therefore considerable pressure to meet time budgets, especially at trainee and
senior levels. Since time budgets are usually closely related to fees, this pressure
can give rise to conflict and dilemmas.
Pressure is also increasing at the higher levels of audit manager and partner
(Cook and Kelley, 1988). Miller (1992) noted that pressure on engagement
partners to retain clients may result in audit firms suffering agency losses when
these partners engage in self-serving behaviour leading to substandard audits
which may ultimately damage the firm’s reputation. In common with
organizations in many other settings, budget difficulties experienced at the
lower levels of senior and staff auditor are usually undiscussable (McNair,
1991). The formal control system seems to combine with a set of informal and
subtle signals to ensure that budget problems are transferred down to be
confronted at the individual auditor level.
A further important feature of the audit firm setting relates to the
background of senior management. It has been pointed out (Roslender, 1992)
that whereas qualified accountants are usually proficient in the technical skills
of accounting and related areas, a major deficiency in the training of
professional accountants exists in the area of social and behavioural skills.
These skills are likely to be particularly relevant in the complex control
environment of the audit firm.
Audit seniors are thus placed in a position that is becoming increasingly
pressured. In order to preserve their own chances of advancement within the
firm, they may feel that they have to demonstrate that they can manage the
tasks which are assigned to them to time and within budget. If this cannot be
achieved in a functional way, then it is likely that they will continue to report
that they are meeting their targets by exploiting various types of dysfunctional
behaviour. In so doing, they will be behaving in an analogous manner to other
employees and managers placed in similar positions, and regardless of their
AAAJ supposedly different professional status. This study seeks to explore the degree
9,1 to which these extant pressures manifest themselves in such behaviour.
Budget tightness
Targets which are quantified and specific are an important element in an
effective management control system (Emmanuel et al., 1990). Provided such
34 targets are set at appropriate levels of difficulty, they facilitate the evaluation of
performance and the planning of corrective action when necessary. There is
also considerable evidence in the psychological literature that the use of precise
and quantified targets can result in better performance than when no such
targets are set (Tosi, 1975). This, however, is contingent on the motivational
capacity of the targets, which depends on the extent to which they are accepted
and internalized by subordinates.

The expectancy theory of motivation (Lawler, 1973; Vroom, 1964) identifies
two key variables associated with effective motivation, i.e. valence attached to
successful task performance and the probability that extra effort will result in
success. Auditors are generally in no doubt that meeting time budgets is vital
for a successful career (Commission on Auditors’ Responsibilities Report, 1978).
There is therefore strong evidence that meeting budgets in this setting is clearly
associated with valuable rewards. The second factor which is relevant to the
motivational impact of budget targets relates to the perceived attainability of
those targets. Research evidence has shown that the use of specific, difficult
targets can lead to higher performance levels than moderate or easy targets
(Chow, 1983; Hofstede, 1968; Stedry and Kay, 1966). These studies have also
shown, however, that as soon as a budget becomes so tight that it is perceived
to be unattainable, its motivational impact is reduced, and eventually
subordinates give up trying to meet it, often performing at a lower level than if
a less difficult target had been used. The evidence therefore suggests that
budgets will provide the highest positive motivation when they are set at the
most difficult level that is seen as achievable by subordinates.
Achieving maximum motivational benefits from budgetary targets is
therefore contingent on the use of tight, yet attainable, budgets. This is
complicated by the fact that this level is likely to vary between individuals and
may be affected by other factors. A further complication is that to motivate
maximum performance, the budget needs to be set at a target level, thus giving
rise to an anticipated adverse variance (Hofstede, 1968). This leads to a conflict
between the planning function of budgets and the control function.
Previous studies
The first major attempt to measure auditor dysfunctional behaviour was an
extensive survey of CPAs conducted by Rhode, the results of which were
summarized in the Commission on Auditors’ Responsibilities Report (1978).
Together with a subsequent replication and extension of the study by
Alderman and Deitrick (1982), the findings highlighted a high incidence of
premature sign-off, i.e. the signing off of an audit step as having been completed
without carrying out the work or noting the omission. Since this type of Auditor time
behaviour directly undermines the auditor’s control system, it constitutes an budget pressure
immediate and serious threat to the quality of the audit.
A variety of other types of behaviour which also threaten audit quality has
also been identified (Kelley and Margheim, 1987). This includes behaviour such
as failure to research an accounting principle, superficial reviews of documents,
acceptance of weak client explanations and reduction of work on an audit step 35
below acceptable levels. These behaviours also pose a direct threat to the
reliability of audit records which form the basis of the audit opinion and,
together with premature sign-off, are included under the heading of audit
quality reduction behaviour.
A second form of dysfunctional behaviour is under-reporting of time, which
occurs when auditors complete chargeable work on their own time, and is
usually motivated by a desire to avoid or minimize budget over-runs
(Commission on Auditors’ Responsibilities Report, 1978; Lightner et al., 1982,
1983). Although this type of behaviour does not pose an immediate threat to
audit quality, it may lead to undesirable consequences such as inaccurate staff
evaluations, lost revenue for the firm, unrealistic future budgets and audit
quality reduction behaviour on future audits.
Cook and Kelley (1991) attempted to establish a guideline regarding the
optimum level of budget tightness. A large majority of auditors indicated that
the optimal time budget should be “attainable with reasonable effort”.
Regarding the interpretation of “reasonable effort”, most respondents from a
sample of auditors from the USA and New Zealand felt that budgets should be
attainable more than 75 per cent of the time by an average auditor. The
researchers concluded that in practice, the level of budget difficulty was felt to
be considerably greater than this.
The pressure created by the perceived rigid application of excessively tight
time budgets has consistently been associated with dysfunctional behaviour.
The Commission on Auditors’ Responsibilities Report (1978) identified
premature sign-off as the most serious issue uncovered by the study, and there
was clear evidence that budget pressure was the primary factor causing such
behaviour. Subsequent studies confirmed that auditors generally perceive
budget pressure to be a major cause of dysfunctional behaviour (Alderman and
Deitrick, 1982; Kelley and Seiler, 1982; Lightner et al., 1982, 1983), and that this
budget pressure is rapidly increasing (Cook and Kelley, 1988).
Time budget pressure has therefore been consistently linked with
dysfunctional behaviour by auditors, including those types of behaviour which
constitute a direct and serious threat to audit quality. In view of this,
surprisingly little research has examined the nature of this relationship. An
important study was carried out by Kelley and Margheim (1990), however, in
which auditor dysfunctional behaviour was measured at different degrees of
budget tightness. The findings showed evidence of an inverted U-shaped
relationship for both audit quality reduction behaviour and under-reporting of
time. This suggests that, as budget pressure is increased, dysfunctional
AAAJ behaviour will tend to increase, but that as soon as a point is reached where the
9,1 time budget is seen as unattainable, auditors will give up trying to achieve it,
and the frequency of dysfunctional behaviour will tend to fall. Dysfunctional
behaviour is therefore expected to be at its lowest for very easy and very
difficult time budgets.
These findings suggest important implications for the auditing profession.
36 The conclusion that dysfunctional behaviour tends to increase as budget
pressure increases is particularly worrying, since budget pressure has been
shown to be rapidly increasing (Cook and Kelley, 1988). The finding of lower
dysfunctional behaviour at very high levels of budget pressure is more likely
due to feelings of disillusionment and indifference than to any moral or ethical
objection to such behaviour, and suggests that the quality of work carried out in
such circumstances may also be suspect.

In view of the negative consequences which have been linked to perceived
budget difficulty, it seems desirable that research should be directed towards
developing an understanding of the factors which influence perceptions of
budget difficulty. The literature does not reveal any evidence of empirical
testing of such variables in an audit setting. However, findings from other work
settings and anecdotal evidence from audit settings suggest three possible
antecedent variables:
(1) the perceived influence of clients over time budgets;
(2) the perceived influence of the audit programme on time budgets;
(3) the level of senior participation in setting budgets.
Hypotheses
Psychological evidence suggests that as budget targets become tighter, the
performance aspirations of budgetees will increase until budgets become so
tight that they begin to appear unattainable. After this point, aspiration levels
fall, thus giving rise to the presence of an inverted U-shaped relationship
between budget tightness and performance aspirations (Hofstede, 1968; Stedry,
1960). In the context of the current study, these findings would suggest that
relatively easy budgets will be associated with low performance aspirations
and relatively little, if any, dysfunctional behaviour. As budgets become tighter,
aspiration levels will increase, and auditors will increasingly resort to
dysfunctional behaviour in an effort to realize those aspirations. At a certain
point, budgets are perceived as becoming unattainable, even with a high level of
dysfunctional behaviour. The effort involved in finding ways of concealing such
behaviour is no longer worthwhile; aspiration levels will fall and dysfunctional
behaviour will also fall.
Evidence in support of these relationships in an audit setting in the USA was
presented by Kelley and Margheim (1990), who reported the presence of an
inverted U-shaped relationship between budget tightness and staff auditor
dysfunctional behaviour. Given the importance of the findings, the current
study sought to test these relationships in a non-US audit environment. A
further extension was introduced by selecting audit seniors as the target group Auditor time
for the study. The audit senior is regarded as the most pressurized position in budget pressure
the firm (Kelley and Seiler, 1982), is not subject to on-the-job supervision, and is
usually involved in more responsible and less well-structured tasks than staff
auditors. The pressure to engage in dysfunctional behaviour and the scope for
such behaviour may therefore be greater at senior level. The following
hypotheses will therefore be tested: 37
H1: As budget tightness increases, audit quality reduction behaviour by
audit seniors will initially increase, reach a maximum point and then
fall.
H2: As budget tightness increases, under-reporting of time by audit seniors
will initially increase, reach a maximum point and then fall.

It is generally recognized that clients can have a major influence over the audit
budget. Findings from a study of budgeting practices in large US auditing
firms by Fleming (1980) revealed strong evidence of pressure from clients to
keep fees low despite inflation, increasingly complex operations and
additional auditing and accounting requirements. In a study involving
auditors from New Zealand and the USA, Cook and Kelley (1991) concluded
that for both groups, fee pressures were clearly identified as the main cause of
budget pressure. MacErlean (1993) reported sizeable audit fee reductions in
the UK as a result of client pressure. The Commission on Auditors’
Responsibilities Report (1978) concluded that client-imposed budget pressure
was a major cause of sub-standard audits. It is therefore expected that as the
perceived influence of clients over time budgets increases, the perceived
attainability of those budgets will decrease. Accordingly, the following
hypothesis will be tested:
H3: As the perceived influence of clients over audit time budgets increases,
the perceived attainability of those budgets will decrease.
Audit assignments are usually planned in detail, and these detailed plans for
every section and task of the audit constitute the audit programme (Fleming,
1980). It has been suggested that budgeting procedures should ensure that time
budgets are based on a realistic estimate of the time required to complete the
tasks set out in the audit programme, and that undesirable behaviour could be
reduced if this link is clearly visible to audit staff (Commission on Auditors’
Responsibilities Report, 1978; Cook and Kelley, 1991). The extent to which the
audit programme is seen to be linked to the budget is likely to influence
perceptions regarding the attainability of those budgets. It is therefore
hypothesized that:
H4: As the perceived influence of the audit programme over audit time
budgets increases, the perceived attainability of those budgets will also
increase.
Organization theory literature has provided evidence that participation by
budgetees in setting budget targets can be beneficial. In particular, it can lead to
AAAJ better communication, more relevant budgets and greater acceptance and
9,1 commitment to the budget as an attainable target (Hofstede, 1968). Previous
research indicates that audit seniors usually prepare the initial draft of the
budget from previous year’s recorded actual time (Fleming, 1980). This,
however, is not indicative of participation in the true sense, since this can often
be largely a mechanical exercise. The important issue is how much influence
38 seniors perceive they have when faced with difficult budget decisions. It is
expected that as the level of participation increases, there will be a greater
likelihood that budgets will be accepted as attainable targets. Accordingly, it is
hypothesized that:
H5: As the level of senior participation in setting time budgets increases,
the perceived attainability of those budgets will also increase.
Research method
The target group for the study was audit seniors employed by three of the
Big Six firms in Ireland. No previous findings were available regarding the
incidence of dysfunctional behaviour in this setting, or the presence of the
inverted U relationship being addressed by this study. However, regular
comment in professional journals and the financial press suggests that the
market for audit services in Ireland is under the same kinds of competitive
pressures as those being experienced in the UK and the USA.
By prior agreement with senior management, a survey questionnaire was
sent to all audit seniors in three Big Six firms in Ireland[3]. Owing to the
sensitive nature of the data, questionnaires were anonymous and
participants were given a guarantee of confidentiality regarding their
responses. Respondents were requested to mail completed questionnaires
directly to the researcher using postage-paid envelopes, and a follow-up
letter was sent to all subjects two weeks after the initial request. From a total
of 356 questionnaires distributed, 260 usable responses were received,
representing a response rate of 73 per cent. Demographic details of
respondents are shown in Table I.
Variable measurement
Details of variable measurement, together with relevant descriptive statistics,
are given below.
Budget tightness. For the purposes of testing H1 and H2, budget tightness
was measured using responses to a question adapted from the work of Kelley
and Seiler (1982) and Kelley and Margheim (1990) (see question 1 in Table II).
This measure facilitated the required analysis and comparison with previous
findings. The response is summarized in Table II. These findings provide a
strong indication that time budgets are generally seen as being very demanding
targets, with 45 per cent of respondents perceiving them to be either very tight,
practically unattainable or impossible to achieve.
Firm A Firm B Firm C Pooled
Auditor time
budget pressure
Total questionnaires sent 89 125 142 356
Usable responses 56 92 112 260
Response rate (%) 62.9 73.6 78.9 73.0
Respondents’ sex:
Male 39 (70%) 62 (67%) 78 (70%) 179 (69%)
39
Female 17 (30%) 30 (33%) 34 (30%) 81 (31%)
56 (100%) 92 (100%) 112 (100%) 260 (100%)
Respondents’ age:
Mean 24.8 24.4 25.2 24.8
Standard deviation 1.4 2.2 2.0 2.0
Period working in
professional accounting (years)
Mean 3.4 3.6 3.3 3.5
Standard deviation 1.3 1.6 1.3 1.4
Period with current employer
(years) Table I.
Mean 2.8 3.3 3.0 3.1 Demographics of
Standard deviation 0.9 1.6 0.7 1.1 respondents
Respondents
(per cent) Score
Question 1. In general, were the time budgets for jobs you worked on
in the last year:
Very easy to attain 0.4 5
Attainable with reasonable effort 25.0 4
Attainable with considerable effort 29.6 3
Very tight, practically unattainable 28.5 2
Impossible to achieve 16.5 1
Mean score = 2.6; SD = 1.04
Question 2. How often do you achieve your time budgets?
Nearly always 17.3 5
Often 26.2 4
Sometimes 29.6 3
Rarely 13.8 2
Never 13.1 1
Question 3. If you did not under-report any time, how often would
you meet budget?
Often 10.5 4 Table II.
Sometimes 25.6 3 Descriptive statistics
Rarely 22.1 2 for three questions
Never 31.7 1 used to measure
Mean score = 2.4; SD = 1.31 budget attainability
AAAJ Budget attainabil ity. H3, H4 and H5 involved the dependent variable
9,1 budget attainability. This variable was measured by means of a composite
score obtained by combining the score for budget tightness discussed above
with responses to two other questions which were developed by the
researchers specifically for this study, i.e. questions 2 and 3 in Table II. Thus,
a respondent who reports minimum budget difficulty would be recorded as
40 15, while maximum difficulty would score three. Although any one of the
three measures would have given much the same result (see correlation
coefficients in Table III), it was felt that a composite score provided a more
reliable overall measure of budget difficulty (as evidenced by a Cronbach
alpha of 0.85).
ATTAIN ACHBUD NOURT
ATTAIN 1.00 0.64 0.67

ACHBUD 1.00 0.65
NOURT 1.00
Table III.
Three components of Note: ATTAIN = “In general, how attainable were the time budgets for jobs you worked on
the budget attainability in the last year?”
score: Pearson ACHBUD = “How often do you achieve your time budgets?”
correlation coefficients NOURT = “If you did not under-report any time, how often would you meet budget?”
Question 2 (Table II) sought to establish the frequency with which respondents
meet their budgets. Again, the findings provide evidence of tight budgets, with
27 per cent of respondents never or only rarely achieving budget. A further
finding of interest was that frequency of budget achievement was positively
correlated with overall evaluation ratings (Pearson correlation coefficient =
0.40, p < 0.001). Seventy-three per cent of respondents who nearly always met
their budget reported above average ratings in their most recent formal
performance evaluations, while only 22 per cent of respondents who rarely or
never met budgets reported above average ratings. Respondents who reported
below average ratings generally had a poor budget record, with 59 per cent
never or only rarely meeting budget. It was therefore not surprising that in
response to a direct question regarding the perceived importance of budget
achievement in performance evaluation, 69 per cent of respondents felt it was
either very important or quite important.
The third question relating to budget attainability (question 3, Table II) asked
respondents how often they would meet budget if they did not under-report any
time. The findings show a noticeably lower frequency than that found for
question 2 in Table II, with almost 54 per cent of respondents reporting that
they would never or rarely meet budgets in such circumstances. Results of a
paired-samples t-test provided evidence of a significantly lower mean score for Auditor time
question 3 responses than for question 2 responses (t = 11.36; p < 0.001). budget pressure
Further analysis of frequencies indicated that if all hours worked were to be
correctly recorded, 52 per cent of respondents felt they would meet budget less
frequently than they do at present.
Influences over time budgets. It has previously been suggested (e.g.
Commission on Auditors’ Responsibilities Report, 1978; Fleming, 1980) that 41
auditors’ budgets may be excessively influenced by client pressure to keep fees
as low as possible, and that budget preparation should be tied in more closely
to the estimated time to complete the audit programme. It has also been shown
(Fleming, 1980; Kermis and Mahapatra, 1985) that the previous year’s actual
figures can have a strong influence on audit budgets. The survey questionnaire
therefore listed three possible influences over time budgets, and participants
were asked to indicate the perceived extent of each influence. Descriptive
statistics are shown in Table IV.
Influence Mean score SD
To what extent do each of the following influence the

time budgets which are set for your clients?
Last year’s reported actual 3.81 0.93
Estimated time to complete audit programme 2.87 1.04
Fees expected by clients 4.33 0.79 Table IV.
Perceived influences
Note: Scale 1-5 : 1 = Not at all; 5 = Very great over time budgets
These findings suggest that, of the three influences listed, seniors perceive the
fee expectations of clients as having the strongest impact on budgets. The
previous year’s actuals are also perceived to have a strong influence, but the
estimated time to complete the audit programme has the lowest perceived
influence. One-way ANOVA results confirmed the existence of significant
differences in the mean scores of the three influences (F = 148.08; p < 0.001),
with fees expected by clients showing a significantly stronger influence than
the other two influences, and last year’s reported actual significantly stronger
than estimated time to complete audit programme. Further evidence regarding
the perceived impact of each of the three influences is seen in the fact that only
29 per cent of respondents felt that the audit programme had either a
considerable or a very great influence over the budget. The equivalent figure for
the previous year’s recorded actuals was 70 per cent, and for client fee
expectations 84 per cent. Forty-five per cent of respondents rated client fee
expectations as the strongest of the three influences, while 53 per cent rated the
audit programme as the least important influence.
AAAJ Participation. A measure of participation was developed specifically for the
9,1 study, based on the work of Brownell (1981, 1983). The measure was designed
to include participation in setting time budgets, and also the general goals and
standards which respondents are expected to achieve. The response, which is
summarized in Table V, reveals a perception of very limited levels of
participation in setting time budgets and targets in general.
42
Respondents
(per cent) Score
Question 4. To what extent do you influence the goals and standards

you are expected to achieve?

To a very great extent 6.9 5
To a considerable extent 18.5 4
To some extent 28.7 3
To a very limited extent 27.4 2
Not at all 18.5 1
Question 5. How often do you feel you have a significant influence
when time budgets are being prepared for your jobs?
Often 11.2 4
Table V. Sometimes 16.2 3
Descriptive statistics for Rarely 27.3 2
two questions used to Never 32.6 1
measure participation Mean score = 2.4; SD = 1.38
These findings show that 60 per cent of respondents feel that they rarely or
never have a significant influence over their time budgets, and 46 per cent feel
they have only very limited or no influence at all over goals and performance
standards in general.
Dysfunctional behaviour. Two types of dysfunctional behaviour were
measured: audit quality reduction behaviour (AQRB) and under-reporting of
time (URT)[4]. AQRB was measured using responses to questions 6 and 7,
reproduced in the Appendix, the wording of which was based on the work of
Alderman and Deitrick (1982) and Kelley and Margheim (1987, 1990).
Descriptive statistics are presented in Table VI. Although the mean scores of
around 2 for specific forms of AQRB are indicative of the “Rarely” category, a
significant minority of respondents reported frequencies of “Sometimes” or
higher (see Appendix)[5].
The evidence regarding premature sign-off suggests a higher incidence of
such behaviour than that reported in US studies. For example, Kelley and
Margheim (1987) reported that 70 per cent of staff auditors had never in their
entire careers engaged in premature sign-off. In the current study, 40 per cent of
respondents indicated that they never engage in such behaviour, but in
response to a further question, only 5 per cent of auditors felt that seniors in Auditor time
general never sign off prematurely. budget pressure
In general terms, the level of AQRB to which respondents admitted was higher
than expected, based on evidence from elsewhere. For example, 28 per cent of
seniors admitted to premature sign-off at least sometimes (Appendix). The
percentages of respondents who admitted to engaging in the specified types of
behaviour during the past year, at least sometimes, were: accepted weak client 43
explanations, 37 per cent; made superficial reviews of client documents, 41 per
cent; failed to research an accounting principle, 29 per cent; reduced work on an
audit step below a reasonable level, 33 per cent; signed off prematurely, 26 per cent.
Under-reporting of time was measured by asking seniors directly how often
they engage in such behaviour. Fifty-five per cent of respondents admitted to
engaging in such behaviour, at least sometimes (mean response 2.87 on a scale

of 1-5 where 1 = never and 5 = nearly always). In response to a further question,
however, regarding seniors in general, 90 per cent of respondents stated that, in
general, seniors under-report at least sometimes, and almost two-thirds of
respondents indicated a higher level of URT by seniors in general than the level
to which they themselves admitted (mean response 3.89). There is therefore
evidence of widespread URT among respondents. Kelley and Margheim (1990)
reported that under-reported time amounted to 3.2 per cent of chargeable time
for their sample of US staff auditors. In the current study under-reported hours
amounted, on average, to 10.9 per cent of chargeable time. Although these
figures are not strictly comparable due to measurement differences (Kelley and
Margheim (1990) calculated URT percentage based on one recent audit for each
respondent, whereas in this study URT percentage was based on under-
reporting in general by each respondent), they are consistent with the general
pattern of results, which suggested a higher level of dysfunctional behaviour
than that reported in earlier studies.
Results
Mean frequencies of AQRB, measured on a scale of 6-30, for different levels of
budget tightness, are shown in Figure 1. The graph presents a pattern of
increasing AQRB as budgets tighten, for all levels of tightness, and provides no
Mean SD
Have you ever signed off prematurely? 2.06 1.15

During the past year, have you:
Table VI.
Accepted weak client explanations? 2.18 0.87 Descriptive statistics for
Made superficial reviews of client documents? 2.26 0.90 audit quality reduction
Failed to research an accounting principle? 1.94 0.88 behaviour (AQRB)
Reduced work below a reasonable level? 2.12 1.10 (response to questions 6
Signed off prematurely? 2.01 1.18 and 7, reproduced in the
Note: Type of behaviour (scale 1-5: 1 = never; 5 = nearly always) Appendix)
AAAJ Mean AQRB
9,1
19.05
44
11.78
11.74
10.21
10.00
A B C D E
Budget tightness
Notes:
Time budgets were perceived to be:
A = Very easy to attain (n = 1)
Figure 1. B = Attainable with reasonable effort (n = 65)
Budget tightness and C = Attainable with considerable effort (n = 77)
mean audit quality D = Very tight, practically unattainable (n = 74)
reduction behaviour E = Impossible to achieve (n = 43)
(AQRB) Only one respondent was included in category A. Although shown on the graph for
the sake of completeness, this category was omitted from the statistical analysis
evidence of the hypothesized inverted U-shaped relationship. AQRB was found

to be strongly correlated with budget tightness (Pearson correlation coefficient
= –0.49, p < 0.001). One-way ANOVA analysis indicated that there was a
significant difference between the means of the four budget tightness categories
(category A was omitted from the analysis as it contained only one respondent),
(F ratio = 48.10, p < 0.001). Tukey analysis showed that the mean AQRB of
respondents in category E was significantly higher (at the 0.05 level) than that
of respondents in all other categories, but that there was no significant
difference in the mean AQRB levels of the other groups. These results suggest
that AQRB levels are relatively stable and may not change significantly until
budgets approach impossible levels, at which stage the frequency of such
behaviour shows a sharp increase.
Mean URT frequencies were also calculated for each of the budget tightness
categories and plotted as shown in Figure 2. The pattern of URT behaviour as
budgets were perceived to become tighter was generally similar to that found for
AQRB. Not only did the frequency of URT fail to show a decreasing trend as
budgets were perceived to approach impossible levels, but it displayed an
accelerating rate of increase (Pearson correlation coefficient = 0.62, p < 0.001).
One-way ANOVA analysis confirmed the existence of significant differences in the
mean URT by different budget tightness categories (F ratio = 61.79,
p < 0.001). Tukey analysis showed that mean URT levels were significantly higher
Mean URT Auditor time
budget pressure
4.70
3.00 45
2.62
1.83
1.00
A B C D E
Budget tightness
Notes:
A = Very easy to attain (n = 1)
B = Attainable with reasonable effort (n = 65)
C = Attainable with considerable effort (n = 77) Figure 2.
D = Very tight, practically unattainable (n = 74) Budget tightness and
E = Impossible to achieve (n = 43) mean under-reporting
Only one respondent was included in category A. Although shown on the graph for of time (URT)
(at the 0.05 level) for respondents in category E than those in all other categories
and for respondents in categories C and D than those in category B. The pattern
for URT is therefore only partly in line with H2. Although, as expected, URT
increased as budgets were perceived to become tighter, it did not display a
decreasing pattern as budgets were perceived to approach impossible levels, but
instead showed an accelerating rate of increase. Possible reasons for these
findings and implications for audit firms are presented in the discussion section.
H3, H4 and H5 suggested that the variables “influence of client fee
expectations”, “influence of audit programme” and “participation”, respectively,
would each have a significant association with the perceived attainability of
budgets. Pearson correlation coefficients were computed for each of the
variables as follows:
• influence of client fee expectations (r = –0.39, p < 0.001);
• influence of audit programme (r = 0.41, p < 0.001);
• participation (r = 0.70, p < 0.001).
Multiple regression analysis was carried out, using budget attainability as the
dependent variable and the three variables specified in the hypotheses as
independent variables, the results of which are summarized in Table VII.
An inspection of scatterplots of residuals against dependent variable
revealed no evidence of a breach of assumptions regarding constant variance
AAAJ and normality. Using the Kolmogorov-Stairnov statistic to test fit, a p value of
9,1 0.48 was computed. There was therefore no evidence to suggest that the
distribution of residuals differed significantly from a normal distribution.
Variance inflation factors were generally low (see Table VII), suggesting that
the results of the analysis were not affected by multicollinearity problems.
The results indicated that the fit of the overall regression model was good
46 (adjusted R2 = 0.54), and that a significant relationship existed between budget
attainability and influence of client fee expectations (H3), influence of audit
programme (H4) and participation (H5). The findings therefore support H3, H4
and H5.
Variance
Independent Expected Standard inflation
variable sign Coefficient error t-value Sig. t factor
Participation + 0.84 0.066 12.68 0.000 1.23

Influence of audit programme + 0.58 0.138 4.22 0.000 1.13
Influence of client fee
Table VII. expectations – –0.48 0.186 –2.57 0.011 1.16
Regression model for Constant 4.41 1.072 4.12 0.000
the dependent variable
of budget attainability Note: Adjusted R2 = 0.54; F = 100.01; significant F = 0.000
Separate analyses, similar to those reported above, were carried out using the
data for each of the three firms participating in the study. In each case, the
relationships between budget attainability and AQRB and URT were similar to
those shown in Figures 1 and 2 in relation to the pooled data. There was
therefore no evidence of an inverted U-shaped relationship in any of the three
firms for either type of dysfunctional behaviour. One-way ANOVA analysis
showed that there was a significant difference in the mean URT reported by
respondents from the three firms (firm A being significantly lower than firm B,
but neither significantly different from firm C). Although there was no
significant difference in overall AQRB, firm A respondents reported the lowest
mean score for each of the six behaviours used to compute AQRB. For three of
the six behaviours, the difference was significant at the 0.05 level. Individual
regression analyses showed that the model of budget attainability presented in
Table VII was generally a good fit for each of the three firms (adjusted R2 for
firm A = 0.55, firm B = 0.46 and firm C = 0.61).
Discussion
The evidence from this study suggests a higher level of under-reporting of time,
premature sign-off and other forms of audit quality reduction behaviour than
that reported in earlier US studies. This is clearly illustrated by a comparison
with the findings of Kelley and Seiler (1982), as shown in Table VIII.
Percentage of audit seniors who at least sometimes respond
Auditor time
to tight budgets in the indicated manner budget pressure
Kelley and Seiler This study
Response to tight budgets (1982) (1995)
Request and obtain a budget increase 57 36

47
URT by working on personal time 33 54
Shift time to non-chargeable 19 40
Work harder but charge all time properly 90 75 Table VIII.
Reduce the quality of audit work 10 36 Auditors’ responses to
tight budgets: comparison
Note: Responses are not mutually exclusive. Participants were requested to indicate the with Kelley and
frequency of each response Seiler (1982)
These findings suggest that participants in this study are less likely to respond
to tight budgets in a functional manner (i.e. request a budget increase or work
harder) and more likely to respond in a dysfunctional manner than their US
counterparts. The time period between the studies could be a contributing
factor, since time pressure on auditors has been found to be increasing over time
(Cook and Kelley, 1988). However, the frequency of dysfunctional behaviour
reported in more recent US research using very similar methodology (e.g. Kelley
and Margheim, 1990) still appears to be considerably lower than that found in
the current study.
Importance of research design

Since it seems extremely unlikely that respondents to the current study would
overstate the extent of their own dysfunctional behaviour, these findings
suggest either that US studies have understated the frequency of dysfunctional
behaviour or, alternatively, that auditor behaviour is, in fact, different in the
two environments. Studies in this area involve extremely sensitive questions,
which request auditors to admit to unethical behaviour. As Buchman and
Tracy (1982) pointed out, questioning the frequency of PMSO amounts to
asking “Did you cheat on required audit procedures and lie about it in the
working papers?”. In designing studies, there is therefore a need to be mindful
of the danger of response bias (understatement of dysfunctional behaviour
frequency by respondents) and non-response bias (failure of the worst
offenders to respond at all).
A number of US studies reported response rates considerably below that
achieved in the current study (e.g. Alderman and Deitrick, 1982; Kelley and
Seiler, 1982; Raghunathan, 1991). The danger of understatement due to non-
response bias must therefore be greater. Although confidentiality of responses
was usually guaranteed in studies of this nature, questionnaires were not
always anonymous (e.g. Kelley and Margheim, 1987, 1990, Kermis and
Mahapatra, 1985; Raghunathan, 1991). In designing the current study, the view
AAAJ was taken that a guarantee of anonymity would reduce considerably the
9,1 likelihood of bias since the survey included questions where, as Buchman and
Tracy (1982) pointed out, a yes answer would constitute an admission of
wrongdoing which violates professional auditing standards, the code of ethics
and the firms’ stated policies. The danger of response bias due to deliberate
understatement should therefore be reduced.
48 Other studies have used experimental designs, based on the use of
hypothetical cases (e.g. Kermis and Mahapatra, 1985; Margheim and Pany,
1986). Using these designs, participants were asked how they would behave in
a hypothetical situation. The stresses and pressures of the audit environment
have frequently been highlighted in the literature, and it appears unlikely that
experimental designs can realistically capture these pressures to the extent that
participants will select the dysfunctional option as often as they would in real
audit situations. One study of the effects of time pressure using experimental
design (McDaniel, 1990) did not offer participants the opportunity to under-
report time or sign off early. For all these reasons, the possibility of
understatement in the current study appears to be considerably less than in
many of the previous studies. This may help explain the noticeably higher
frequencies of dysfunctional behaviour.
Differences in the work environment

However, it is also possible that the higher levels of reported dysfunctional
behaviour may be related to important differences in the work environment.
There is evidence, for example, that although US auditors face demanding
budgets, meeting those budgets may not always be critically important for a
good performance evaluation (Cook and Kelley, 1991). In contrast, however,
findings from the current study suggest that Irish auditors perceive budget
achievement to be of considerable importance. For example, when asked the
question: “Under the present system for arriving at an overall evaluation of
performance, how important is time budget achievement?”, 69 per cent
indicated either quite important or very important, 25 per cent of some
importance, and 6 per cent of little or no importance.
Many respondents in the current study felt that their supervisors approved of
under-reporting of time. For example, 63 per cent indicated that they have been
either instructed or encouraged by their supervisors to URT. The equivalent
figure in a US study which asked a similar question was only 33 per cent
(McNair, 1987). Ninety-five per cent of respondents believe that seniors engage
in URT, to varying degrees. Under-reporting of time was found to be strongly
correlated with supervisor approval (r = 0.56) and with the perceived level of
URT by seniors in general (r = 0.52). The influences of peer pressure, which has
been found elsewhere to be important in the URT decision ( Poneman, 1992),
and supervisor approval may therefore be stronger in the environment in which
the current study was conducted.
Other differences may relate to the fact that the problem of auditor
dysfunctional behaviour has been highlighted by research studies in the USA
over a number of years. US firms may therefore have taken measures to forbid Auditor time
explicitly certain behaviours, stipulate punishments and sanctions against budget pressure
offenders, and perhaps tighten controls to help reduce the frequency of such
behaviour. This heightened awareness may have succeeded in reducing the
frequency of dysfunctional behaviour, and would almost certainly increase the
reluctance of respondents in admitting to such behaviour.
49
Absence of inverted U
An important finding from the current study was that the level of AQRB
(Figure 1) and URT (Figure 2) was found to show either a stable or an increasing
trend as the perceived tightness of budgets increased, and that the frequency of
both types of behaviour showed a statistically significant increase as budgets
were perceived to approach impossible levels of difficulty. This was contrary to

expectations based on organization theory literature. It was also contrary to
empirical findings from a study of US auditors by Kelley and Margheim (1990).
Figure 3 shows a comparison between findings from the current study and
those reported by Kelley and Margheim (1990) in relation to URT.
To facilitate comparison, URT is expressed in percentage form (i.e. chargeable
time under-reported as a percentage of total time). The trend is similar to that
Mean URT (percentage)

25 Key 24.6
Kelley and Margheim (1990)

This study
20
15
10 9.8
7.4 7.8
5
4.9
3.7
1.7
1.4 1.3
0
A B C D E
Budget tightness
Notes:
A = Very easy to attain (n = 1) (n = 7)
B = Attainable with reasonable effort (n = 65) (n = 25)
C = Attainable with considerable effort (n = 77) (n = 38) Figure 3.
D = Very tight, practically unattainable (n = 74) (n = 9) Budget tightness and
E = Impossible to achieve (n = 43) (n = 6) mean under-reporting of
Actual numbers for this study in first set of parentheses; for Kelley and Margheim’s time (URT) percentage:
(1990) study in second set of parentheses comparison with Kelley
Only one respondent was included in category A. Although shown on the graph for and Margheim (1990)
AAAJ reported earlier, based on a five-point frequency scale (Figure 2). Figure 3
9,1 suggests that, although reported URT in the current study is noticeably higher,
a similar pattern was found in both studies up to the point where budgets are
seen as “very tight, practically unattainable”. Beyond that point, very different
patterns emerge, in that the present study found an accelerating upward trend at
the point where Kelley and Margheim found the commencement of a downward
50 trend. It appears very unlikely that the measurement differences between the
two studies (i.e. Kelley and Margheim measured URT percentage on a specific
recent audit by each respondent, whereas this study measured URT percentage
in general for each respondent) could cause such widely divergent findings at the
“impossible” level of budget difficulty.
Figure 4 presents a similar comparison in relation to AQRB. Both studies
used the same specific forms of AQRB (see Appendix, question 7). However,
whereas the incidence of these types of behaviour as presented in Figure 1 was
measured using a one-to-five frequency scale, the Kelley and Margheim study
measured AQRB by using the mean number of types of AQRB reported by
AQRB
5 Key 4.65
Kelley and Margheim (1990)
This study
4
3.28
3.45
3
3.00
2.38
2
1.65 1.70
1
0.73 0.81
0.37
A B C D E
Budget tightness
Notes:
Mean AQRB is based on the mean number of types of AQRB reported by respondents
(scale 1-5)
A = Very easy to attain (n = 1) (n = 7)
B = Attainable with reasonable effort (n = 65) (n = 25)
Figure 4. C = Attainable with considerable effort (n = 77) (n = 38)
Budget tightness and D = Very tight, practically unattainable (n = 74) (n = 9)
mean audit quality E = Impossible to achieve (n = 43) (n = 6)
reduction behaviour
(AQRB): comparison Actual numbers for this study in first set of parentheses; for Kelley
with Kelley and and Margheim’s (1990) study in second set of parentheses
Margheim (1990) Only one respondent was included in category A. Although shown on the graph for
respondents at each level of budget difficulty. For the purposes of this Auditor time
comparison, therefore, AQRB reported in the present study was expressed in a budget pressure
manner consistent with Kelley and Margheim (i.e. taking the number of types
of AQRB reported by each respondent, the mean was computed for all
respondents in each category of budget tightness). The results are presented in
Figure 4.
The same basic trend emerges as that originally presented in Figure 1, which 51
was based on a frequency scale of one-to-five for each of the components of
AQRB. A comparison of the two studies again shows that although the initial
patterns are similar, very different findings emerge as budgets are seen as
approaching impossible levels of difficulty.
Figures 3 and 4 both indicate higher reported levels of dysfunctional
behaviour in the current study than those reported by Kelley and Margheim
(1990). To some extent, this may be caused by the fact that Kelley and
Margheim’s AQRB data related to one recent audit, whereas AQRB in the
current study was based on all audit work carried out in the preceding year.
This would help account for higher AQRB, as measured for the purposes of
Figure 4, since it would appear reasonable to expect the number of types of
AQRB to be higher in a longer time period. As in the case of URT, however, it
appears extremely unlikely that this measurement difference between the
studies is responsible for the wide divergence in the findings for AQRB as
budgets are perceived to approach impossible levels (Figures 3 and 4).
It would appear that respondents in the current study find budgets more
demanding than participants in other studies. In a study of auditors in New
Zealand, where there was evidence that budget achievement was considered
very important in performance evaluation, it was generally felt that budgets
should be achievable with “reasonable effort” (Cook and Kelly, 1991). A total of
93 per cent of seniors and staff in that study felt that budgets should be
achievable more than 50 per cent of the time and 46 per cent felt they should be
achievable more than 75 per cent of the time. Table IX shows a comparison of
the current study’s findings with those of two other studies: Cook and Kelley
(1991) who used two samples of auditors, one from the USA and one from New
Zealand, and Kelley and Margheim (1990) who used a US sample. The findings
suggest perceptions of higher levels of budget tightness than those reported in
earlier studies.
An alternative interpretation is that although exactly the same descriptions
of budget tightness were used in the three studies (except that Cook and Kelley
omitted the “impossible to achieve” category), respondents’ selection of budget
tightness categories may be based on different criteria. It may be, for example,
that respondents to the current study use different and more lenient yardsticks
for assessing budget difficulty, and are therefore likely to rate a given budget as
more difficult than their US counterparts. There may also have been some
element of deliberate bias by respondents who perceived the study (the first of
its kind in Ireland) as a means of highlighting budget difficulties, and may
therefore have deliberately overstated the degree of budget tightness. These
AAAJ Kelley and Cook and Kelley This study
9,1 Margheim (1990) (1991) (1995)
Perceived budget tightness USA New Zealand USA Ireland
Impossible to achieve 7 N/Aa N/Aa 16.5

52 Very tight, practically
unattainable 11 15 36 28.5
Attainable with
considerable effort 45 34 34 29.6
Attainable with
reasonable effort 29 41 25 25.0
Very easy to attain 8 10 5 0.4

100 100 100 100
Table IX.
Perceived budget Notes: a This category was not used in the Cook and Kelley study.
tightness: comparison The Kelley and Margheim study measured budget tightness for a specific recent
with previous studies audit, whereas the other studies in the table measures budget tightness as
(% respondents) experienced generally by respondents in their current job position
suggestions would lead to the conclusion that budget tightness has been
overstated and that, in reality, budgets may not yet have reached that level of
difficulty which is associated with a downward trend in dysfunctional
behaviour.
The relative importance of budget achievement in overall performance
evaluations, which was mentioned earlier, may also be a relevant factor in
explaining the absence of an inverted U relationship. Although audit time
budgets in the USA are perceived to be demanding, there is evidence that
budget achievement is not seen as a rigidly applied criterion for a successful
career (Cook and Kelley, 1991). In this situation, it is possible that when budgets
reach near impossible levels, auditors no longer feel pressure to meet them and
may instead concentrate on other key dimensions of performance. Evidence
from the current study suggests that budget achievement is seen as critically
important for a good overall performance evaluation, and that considerable
peer pressure exists to meet budgets. Externally, the environment is also
competitive, with limited job opportunities available and reputation therefore
critically important. In these circumstances, auditors may be slow to abandon
aspirations of budget achievement.
A further possible reason for the absence of an inverted U may relate to the
choice of subjects for the study. Staff auditors, who were the focus of the Kelley
and Margheim (1990) study, are subject to on-the-job supervision by the audit
senior. Scope for dysfunctional behaviour may therefore be limited, and the
levels of such behaviour required to meet very tight budgets may carry a high
risk of detection. Seniors, however, are not subject to on-the-job supervision, and
may therefore perceive a lower likelihood of detection. The potential
consequences of a good or bad budget record are also more immediate in that
seniors are closer to important career decisions. The senior is also aware of Auditor time
having to face the audit manager and partner to explain budget over-runs. For budget pressure
these reasons, the senior may be more likely to have both the scope and
motivation to engage in increasing levels of dysfunctional behaviour even when
budgets are perceived to approach impossible levels.
The possibility of response bias and non-response bias was discussed earlier
as possible explanations for the generally higher reported levels of 53
dysfunctional behaviour in the current study. Such bias is particularly relevant
in the context of the present discussion, i.e. the continuing upward trend in
dysfunctional behaviour as budgets approach the impossible category. If such
bias exists, it is logical to assume that this would be the category which is most
affected. (The Kelley and Margheim (1990) study found only six respondents
who felt that budgets were approaching impossible levels.) By reducing the
likelihood of response bias and non-response bias, the design of the current
study is likely to have contributed to a more accurate picture of dysfunctional
behaviour at high levels of budget difficulty than that depicted by previous
research.
Since the divergence from earlier findings related to the “impossible”
category (n = 43), this group was compared with all other subjects (n = 217)
across a range of variables. T-test results showed that, while there was no
significant age difference, the “impossible” group had spent less time working
in a professional accounting environment ( p = 0.004), reported lower overall
performance evaluation scores ( p = 0.000) and were less likely to aspire to a
career in a professional accounting firm. Their behaviour may therefore be
driven by short-term considerations, with a focus on avoiding budget-related
confrontations with management and securing acceptable alternative
employment.
Antecedents of budget attainability

The findings provide strong evidence that the perceived attainability of budgets
is linked closely to the incidence of dysfunctional behaviour. The second part of
the study was designed to examine the key influences on budget attainability.
All three variables included in the analysis were found to be significant in the
regression model for budget attainability, i.e. influence of client fee
expectations, influence of audit programme and participation.
The perceived influence of client fee expectations on budgets was found to be
significantly greater in one of the three participating firms (firm C). There was
also evidence that respondents from firm C hold significantly more negative
impressions of the budget, such as believing that the budget interferes with the
proper conduct of an audit and that there is a basic conflict between the idea of
budgetary control and the gathering of reliable audit evidence. In order to
encourage more positive perceptions of the control system by their staff, it
therefore seems important that audit firms should take measures to limit the
perceived influence of clients in the budget preparation process. Examples of
how this might be achieved are provided by the other two significant variables
AAAJ in the analysis, i.e. by encouraging higher levels of audit senior participation,
9,1 and by emphasizing the link between the audit programme and the time
budget.
The survey questionnaire also requested participants to rate the influence of
previous years’ reported actuals on budgets. As shown in Table IV, previous
years’ actuals were generally considered a more important influence than the
54 audit programme, but less important than client expectations. The analysis
reported in Table VII was repeated, with the inclusion of influence of the
previous years’ reported actuals as an independent variable. The results
showed no significant change from the earlier result presented in Table V,
suggesting that when the influences of client expectations and audit
programme are taken into account, the perceived influence of previous years’
reported actuals adds little or nothing by way of explanatory power over the
dependent variable “budget attainability”.
The implications of these results for practice are that it is important for
management to realize that the manner in which budgets are constructed and
interpreted may provide signals which are influential in the individual auditor’s
dysfunctional behaviour decision. In particular, it is important that where the
requirements of the audit programme come into conflict with the fee
expectations of clients at any stage during the planning or conduct of the audit,
this conflict is resolved openly and is not allowed to filter down to individual
auditor level.
Consistent with this is the fact that participation by audit seniors in setting
personal goals and targets in general and audit time budgets in particular was
also found to be significantly related to budget attainability. The critical part of
the budget preparation exercise appears to be the transition from the first draft,
usually prepared by the senior, to the final approved budget. Many seniors
perceive that participation stops short of this point, and as a result, difficulties
in meeting budget are often considered by seniors to be undiscussable. This is
reflected in the correlation between various responses to excessively tight
budgets and the general level of participation. Functional responses were
positively correlated with the level of participation: request and obtain an
increase in the budget (r = 0.40); work harder but charge all time properly (r =
0.41), while dysfunctional responses showed negative correlations; under-report
chargeable time by performing work on personal time (r = –0.49); shift
chargeable time to a non-chargeable code (r = –0.37); shift chargeable time to a
different client (r = –0.27); and reduce the quality of work to meet budget (r =
–0.48). When the sample was dichotomized into high- and low-participation
groups, t-test results showed significant differences (p < 0.01) for each of these
six responses. Providing greater opportunity for meaningful participation,
particularly at the final stages of budget preparation, would therefore appear to
offer audit firms considerable scope in reducing negative reactions to budgets.
Although the findings do not offer a complete solution to the fundamental
problem of reconciling audit quality with cost pressures, they do suggest ways
of addressing it. By reducing the influence of client fee expectations, economic
considerations will play a less significant role in the audit process. Greater Auditor time
participation by seniors in building a budget based on the requirements of the budget pressure
audit programme will ensure greater prominence for audit quality. This shift in
emphasis may require firms to adopt a more flexible view of the link between
time budgets and audit pricing. This decoupling of the control and pricing
functions of budgets may result in an increased incidence of writing off
irrecoverable costs, which effectively constitute marketing/business 55
development costs. This approach seems to offer scope for addressing long-
term quality concerns, while at the same time ensuring that assignments are
competitively priced to maintain and develop audit clients.
Conclusion
The main strengths and limitations of the study are important considerations in
interpreting the findings. Since all auditors at senior level in three of the Big Six
firms were included and a high response rate achieved, the study can justifiably
claim to have achieved broad coverage. Furthermore, since the study involved
practising auditors whose responses were based on real audit experience, it
avoided many of the problems associated with experimental design involving
students or inexperienced auditors responding to hypothetical situations. The
study did, however, suffer from some limitations. In particular, the use of a
survey is a limited method of data collection in that it does not facilitate follow-
up or probing questions. In addition, cross-sectional analysis does not support
conclusions regarding causality. Although strictly speaking the findings are not
generalizable outside the participating firms, the broad coverage of the study
and the strong similarities between large and medium audit firms suggest that
the findings may have much broader applicability.
The findings from this research differ from previous findings in at least four
important ways. First, the incidence of dysfunctional behaviour appears to be
very much higher than that reported previously. Second, the level of such
behaviour was found to show a sharp increase as budgets were seen to approach
impossible levels, whereas previous findings showed a decrease at this point.
Third, the level of budget difficulty as perceived by seniors appears to be much
greater than that reported in earlier studies. Fourth, the study produced evidence
of three statistically significant influences over the attainability of time budgets.
This last is particularly important, given the importance of budget attainability
and the absence of previous findings in this area.
These findings appear to have important implications both for the auditing
profession and for future research. For audit firms, there is a need to recognize
that audit quality may be increasingly threatened by behaviours which are
motivated by the performance evaluation system. The current economic and
social environment in which auditors operate seems to present a set of
conditions likely to exacerbate this threat. The key importance of time budgets
and the use made of budgetary information in the evaluation of performance
warrant careful consideration. Firms need to pay particular attention to budget
preparation procedures, and be mindful of the need to ensure that budgets are
AAAJ seen as reasonable by audit seniors. In this regard, the findings suggest that
9,1 budget preparation procedures should be designed to provide for greater levels
of participation by seniors and reduce the perceived influence of client fee
pressure.
The findings also have implications for future research effort in this area. This
is highlighted by the divergence from previous results, particularly in relation to
56 the level and pattern of dysfunctional behaviour. The causes of this divergence
cannot be firmly established from this study, but it appears reasonable to
suggest that research design issues, cultural and environmental differences, the
level of staff surveyed and the time period between the studies may all be
contributory factors. This can only be clarified through further research.
Further scope for additional research exists in relation to the central element
in the auditor’s control system, i.e. the time budget. A more comprehensive
model of budget attainability needs to be developed by introducing additional
variables to those presented in this study. In addition, budget preparation
procedures need to be examined in order that audit firms might be encouraged
to give due recognition to those variables which have been found to be
significant in creating a positive perception of the time budget as a helpful
control device, rather than a rigid performance yardstick which must be
achieved at all costs.
Notes
1. Low-balling refers to the practice of reducing the first year’s fees in order to secure
appointment to a new client, in the expectation that fees will be increased and other work
will be obtained from the client in future years.
2. These figures were supplied to the researchers by the personnel partner of one of the Big
Six firms.
3. Pre-testing included a review of the questionnaire by three experienced academics and
three practising auditors. Pilot testing was conducted using a sample of 20 audit seniors
who were requested to complete the questionnaire and offer comments and suggestions for
improvement. These procedures led to a number of refinements.
4. URT in this study was intended to refer to chargeable time, and not time worked to make
up for inefficiencies or slack. The questionnaire was worded accordingly, and feedback
during pre-testing, pilot testing and from respondents to the main survey indicated that
this was the interpretation generally used. It may be argued that URT demonstrates
commitment to the firm and is not dysfunctional. However, URT is likely to perpetuate
artificially low budgets, which may in turn lead to serious forms of quality reduction
behaviour in future periods. URT also deprives the individual auditor of free time and can
sometimes deprive the firm of income.
5. Although a sizeable majority of respondents answered either never or rarely to each of the
behaviours set out in the Appendix, further analysis showed that only 35 per cent of
respondents answered either never or rarely to all behaviours. Approximately two-thirds of
respondents, therefore, admitted to engaging, at least sometimes, in behaviour which
directly threatens audit quality. Additional analysis (not reported in the paper) indicated
that when the never and rarely responses are excluded, the pattern of behaviour is very
similar to that reported in Figures 1 and 2. For the purpose of hypothesis testing, however,
the full distribution of responses was used, since to truncate this would distort the data
and make the results incomparable with previous work.
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Appendix: Relevant questions reproduced from the survey questionnaire

(Percentages indicate the percentage of respondents under each frequency)
Question 6
Please tick one answer on each line.
NA = nearly always; O = often; S = sometimes; R = rarely; N = never
NA O S R N
Scores: 5 4 3 2 1
In your work as auditor, do you ever sign off
a required audit step not covered by another
audit step, without completing the work or
noting the omission of procedures? 5% 8% 15% 32% 40%
Question 7
During the past year, how often have you acted
in the following manner when carrying out an audit?
(a) accepted weak client explanations 0% 6% 31% 38% 25%
(b) made superficial reviews of client documents 0% 7% 34% 36% 23%
(c) failed to research an accounting principle 0% 4% 25% 33% 38%
(d) reduced the amount of work performed on an
audit step below what you considered reasonable 3% 10% 20% 31% 36%
(e) signed off on an audit programme step without
completing the work or noting the omission 5% 9% 12% 30% 44%
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Accounting, Auditing & Accountability Journal

Auditor time budget pressure: consequences and antecedents

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The management control literature has, over a number of years, reported

This reputation is closely linked to the public perception of the auditor as a

and internalized by subordinates.

such circumstances may also be suspect.

will initially increase, reach a maximum point and then fall.

the perceived attainability of those budgets will also increase.

ATTAIN ACHBUD NOURT

ATTAIN 1.00 0.64 0.67

Influence Mean score SD

To what extent do each of the following influence the

Question 4. To what extent do you influence the goals and standards

you are expected to achieve?

engaging in such behaviour, at least sometimes (mean response 2.87 on a scale

Have you ever signed off prematurely? 2.06 1.15

evidence of the hypothesized inverted U-shaped relationship. AQRB was found

Participation + 0.84 0.066 12.68 0.000 1.23

Request and obtain a budget increase 57 36

frequency of each response Seiler (1982)

Importance of research design

Differences in the work environment

were perceived to approach impossible levels of difficulty. This was contrary to

Mean URT (percentage)

Kelley and Margheim (1990)

Impossible to achieve 7 N/Aa N/Aa 16.5

Very easy to attain 8 10 5 0.4

Antecedents of budget attainability

Spring, pp. 263-71.

Appendix: Relevant questions reproduced from the survey questionnaire

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