Management control in audit firms

A qualitative examination
Breda Sweeney
Department of Accountancy and Finance, National University of Ireland,
Galway, Ireland, and
Bernard Pierce
DCU Business School, Dublin City University, Dublin, Ireland
Keywords: Auditors, Behaviour, Control
Abstract: Audit firms face a constant conflict between the business of auditing and the
profession of auditing, which is manifested at audit senior level in the pressure to perform quality
work within specified time limits. Prior quantitative studies have reported high levels of qualitythreatening behaviour (QTB) at senior level and the importance of examining contributory
factors has been highlighted. Semi-structured interviews were conducted with audit seniors in
four of the (then) Big Five firms and findings suggest that key variables (time pressure,
participative target setting, and style of performance evaluation) have been inadequately
operationalised in previous studies and that two distinct forms of QTB exist: deliberate and
inadvertent. Propositions are developed for variables associated with both forms of QTB, which
provide direction and focus for future research.

Introduction
Previous studies have shown that audit seniors engage in a wide variety of behaviours that
threaten audit quality (Alderman and Deitrick, 1982; Otley and Pierce, 1996a; Malone and
Roberts, 1996), collectively referred to as quality threatening behaviour, or QTB (Pierce and
Sweeney, 2004). QTB is defined as any behaviour by auditors which has the potential to
adversely affect audit quality and includes such behaviours as prematurely signing off tests
without completing all the work, biasing sample selection and making unauthorised reductions in
sample sizes. The majority of prior studies have been carried out in the US, almost all have used
either survey questionnaires or experiments to collect data, and some have sought to explain the
occurrence of QTB using multivariate models.
Pierce and Sweeney (2004) adopted the latter approach and in common with prior research,
although the resulting regression model was significant, its explanatory power was low. A likely
reason for the low explanatory power of these models is the use of outdated variable measures,
many of which were developed over a decade ago, which fail to take into account changes that
have taken place in the audit environment. There is, therefore, a need for research of a more in-

depth nature to refine previous models of dysfunctional behaviour and to develop a deeper
understanding of variables that have been highlighted by earlier quantitative studies. However,
there are major challenges involved in using in-depth methods of research on sensitive topics and
this has been highlighted by a severe shortage of field studies on areas that could be perceived as
threatening for the audit profession (Gendron and Bedard, 2001).
The purpose of this study is to develop a deeper understanding of control system variables
previously shown to be related to the incidence of QTB in audit firms, and to inductively develop
a series of propositions relating to those variables that may be generalisable to other settings.
Audit firms represent a particularly interesting and important environment for study of control
systems, due to the conflict that exists between audit cost and quality (McNair, 1991) and the
fact that audit quality, which is unobservable to the public, is difficult even for auditors
themselves to measure (Power, 2003). This presents both an opportunity and an incentive for
audit firms (and individual auditors) to sacrifice the invisible audit quality in favour of
reducing cost. Concerns about audit quality and criticisms of the auditing profession have
escalated in recent times due to the Enron collapse in 2001 (Lin et al, 2003), thus underlining the
need for further examination of how firms manage the cost-quality conflict.
The paper is organised as follows. Contingency theory provides a suitable framework for the
interpretation of findings and development of testable propositions, and relevant aspects of this
literature are summarised at the outset. The background to the study is completed by a review of
prior empirical studies of control systems in the audit environment. Following the literature
review, the variables examined in the study are identified and the research method is described.
The findings are then presented and the final section presents a discussion of the findings,
together with an assessment of their implications and suggestions regarding the focus of future
research.
Contingency theory of management control
Different theories adopting economic and behavioural views of organisations are used in the
management control literature to gain a better understanding of control issues in organisations.
This study is set in the behavioural management control literature and a contingent view of
control systems is adopted. In the context of management control, contingency theory holds that
the most appropriate control system in any organisation is contingent on the circumstances
within and surrounding the organisation. Contingency theory is based around three building
blocks (Otley, 1980): contingent variables (the environment or organisation context), which
impact on the organisational control package, which in turn impacts on an outcome variable
(some measure of organisational effectiveness). Contingency theory is logically appealing but
has been subjected to much criticism on a number of fronts[1]. These criticisms, however, are
generally based on certain aspects of the theory or the conduct of specific studies, rather than
with the idea of contingency theory itself (Hopwood, 1989).
Management control in audit firms

Audit firms are concerned with controlling the cost and quality of an audit. Given their labour
intensive nature, control of time has been found to be the dominant form of cost control in audit
firms (Rhode, 1978). The greatest difficulty in controlling audit quality is the ambiguity of
outputs, resulting in uncertainty for auditors as to whether they have conducted a good audit
(Power, 2003). Added to this problem is the potential conflict between cost and quality (McNair,
1991). Often, increasing the quality of an audit involves investing more time in the audit that
leads to further costs, and Management aggressive audit fee competition (Beattie and Fearnley,
1998) increases the difficulty of control in audit recouping these additional costs. Empirical
studies in audit firms have drawn on contingency theory to develop a better understanding of the
suitability of time budgets in audit firms (Otley and Pierce, 1996a; Pierce and Sweeney, 2004).
These studies were based on large samples and identified high levels of dysfunctional behaviours
in Big Four audit firms that were statistically associated with time budget pressure. Other
variables associated with dysfunctional behaviour have also been examined and multivariate
models have been constructed using multiple regression analysis (Pierce and Sweeney, 2004;
Malone and Roberts, 1996), but the explanatory power of these models has been low.
A feature of previous studies of dysfunctional behaviour in audit firms is the proliferation of
variables examined. These variables can be divided into four general categories as presented in
Table I.
Many of the variables identified as antecedents to dysfunctional behaviour were first identified in
studies in the 1980s (Alderman and Deitrick, 1982; Kelley and Margheim, 1987). The audit
environment has changed considerably since then and little attention has been given to these
changes in subsequent studies. Data collection in the majority of studies was by means of a
postal questionnaire (for example, Otley and Pierce, 1995, 1996a) or experimental case approach
(for example, McDaniel, 1990;
Margheim and Pany, 1986). Opportunities to gain a richer understanding of the environment
through other methods such as interviews have been explored to only a very limited extent
(Herrbach, 2002), reflecting the sensitivity of the topic that seriously limits opportunities for
using face-to-face interviews.
The current study was designed to address this deficiency by conducting an in-depth qualitative
investigation of specified variables and the nature of their relationship with auditor QTB.
Variables selected for the study were those for which strong theoretical foundations exist in the
management control literature and for which consistent evidence of an association with auditor
QTB has been reported in prior, quantitative studies. These variables are set out below.
Examples of previous studies

Individual level variables (type A behaviour, need for approval, need for achievement, locus of
control, self-esteem, ethical beliefs, organisational commitment, professional commitment,
professional pride)
Superior level variables (leadership style, supervisor approval of behaviour)
Control system variables (time pressure, participative target setting, budget emphasis, style of
evaluation, quality control)
Contextual variables (size of the firm, grade of the auditor, accountants job function, audit area,
firm culture, level of firm structure over procedures, perceived environmental uncertainty, risk of
task, type of test, fixed fee v. non-fixed fee client, level of client influence over time budget,
client issue of debt, size of client)
Time pressure
Most previous studies have equated time pressure with time budget tightness and conflicting
evidence has been reported regarding the type of relationship that exists between time budget
tightness and QTB. Kelley and Margheim (1990) found evidence of an inverted U-shaped
relationship, where increases in budget tightness up to a certain level are associated with
increases in QTB, but further increases in budget tightness beyond this level are associated with
decreases in QTB. Other studies reported evidence of a positive linear association between
budget tightness and QTB (Otley and Pierce, 1996b; Pierce and Sweeney, 2004). Complexities
relating to the motivational impact of budget tightness and the optimal degree of budget tightness
in general have received considerable attention in the management control literature (Emmanuel
et al, 1990).
DeZoort and Lord (1997) identified time deadline pressure as a form of time pressure, and Pierce
and Sweeney (2004) found both time deadline pressure and time budget tightness to be
significant variables in explaining QTB. Time deadline pressure was operationalised as adequacy
of time booking to job, pressure to work on another assignment and client imposed deadline.
Prior findings provide some insights into the complexity of time pressure but characteristics
other than level and type (deadline or budget) have not been previously addressed.
Participative target setting
Participative target setting has been given little attention in previous studies and where
examined, it has been simply expressed as participation in setting budgets (Otley and Pierce,
1996b; Pierce and Sweeney, 2004). Conflicting findings have been reported regarding a possible
relationship with QTB and no evidence was found in support of a relationship between time
budget tightness and budget participation (Pierce and Sweeney, 2004), suggesting that even
where auditors report that they participate in setting the budget they have no real influence.
Argyris (1952) defined pseudo-participation as the promise of influence but after the event the
subordinate believes that he or she had no real influence. The benefits of participation are held to

be vertical information sharing, co-ordinating interdependence and improving motivation and

attitudes (Shields and Shields, 1998). Shields and Shields (1998) identified the antecedents of
these benefits/reasons for participation to be information asymmetry along with task and
environmental uncertainty, and task interdependence. The existence of these antecedents in audit
firms has not been previously examined. If participation is implemented in situations where it is
not considered appropriate, such as where the antecedent conditions do not exist, it can result in
budgetary slack (Hopwood, 1974; Schiff and Lewin, 1970) or excessively tight budgets (Otley,
1978). The complexity of this variable suggests that the nature and impact of auditor
participation in setting targets warrants further investigation.
Style of performance evaluation
Given that audit firms are labour intensive and audit quality is difficult to measure, pressure for
performance has been found to result from the use of time budgets to control audit cost (McNair,
1991). Previous studies have found that ability to meet time budgets is a primary criterion for
favourable performance evaluations in audit firms (Kelley and Seiler, 1982) and that the majority
of auditors are unable to meet their budgets without engaging in some form of dysfunctional
behaviour (Otley and Pierce,
1996a). Hirst (1981) and Govindarajan (1984) suggested that a budget-constrained style of
evaluation (Hopwood, 1972) is inappropriate under conditions of high uncertainty. Pierce and
Sweeney (2004) found that non-accounting style of evaluation (Hopwood, 1972) and frequency
of written evaluations were significant variables in explaining QTB. Their findings revealed that
the importance of meeting time budgets is now balanced with other less objective criteria for
performance evaluation such as effort put into the job. Style of evaluation is an important factor
in determining how this balance is portrayed to auditors and may impact upon individual auditor
behaviour. Also, Dirsmith and Covaleski (1985) found that feedback on performance was
communicated informally to staff members, suggesting that the impact of informal evaluations
should be given greater attention.
Objective of the study
There is, therefore, consistent evidence from prior research in different international settings of a
significant association between those variables and audit senior QTB as shown in Figure 1.
The current study was motivated by a need to progress beyond this, and the objective of the
study was therefore to develop a deeper understanding of the variables, their antecedents and the
nature of their relationship with organisational effectiveness in Big Four audit firms. In terms of
the contingency framework, the study therefore addresses specific control variables that are part
of the organisational control package, the antecedents of these controls (contingent variables) and
investigates possible direct or moderating linkages with organisational effectiveness (represented
in this study by avoidance of QTB). The study concentrates on the level of audit senior, which
has been identified as the most pressurised position in the audit firm hierarchy (Kelley and

Seiler, 1982). Consistent with almost all of the previous research that formed the background to
the study, the current investigation was carried out in Big Four audit firms.
Research method
Qualitative approach
The study adopted a qualitative approach using 25 semi-structured interviews with auditors in
their third and fourth years of employment in four of the (then) Big Five
firms in Ireland in 2000. Previous studies conducted in a wide variety of international settings,
including Australia (Coram etal., 1999), New Zealand (Cook and Kelley, 1991), USA (Kelley
and Margheim, 1990), UK (Willett and Page, 1996), France (Herrbach, 2002) and Ireland (Otley
and Pierce, 1996a), have shown a high level of consistency between the Big Four audit
environments in different countries. In particular, strong similarities have been reported in
relation to variables that are of specific interest to the current study, including organisational
structure, formal control systems, and pressure to simultaneously control costs and maintain
professional standards. The data collection was carried out by the first author, who is a qualified
accountant, and both authors analysed the data. Face-to-face interviews of approximately 50
minutes were conducted with each auditor in an off-site setting. The number of interviewees was
determined during data collection at the point where no new insights were being obtained from
interviewees and saturation (Lincoln and Guba, 1985) was reached. As previous studies did not
find inter-firm differences between Big Five firms (Otley and Pierce, 1996a), analysis is
conducted at the level of the individual and no comparison is made between firms.
Power (2003) referred to the difficulty of conducting fieldwork in auditing, and in an analysis of
a number of field studies suggested that many of these studies were actually research by stealth
which had been conducted on the margins of more orthodox work (p. 380) in order to
legitimate the research. In carrying out this research and in communications with the firms, the
researchers discussed the study openly and did not disguise the research topic or link it to
research on any other topic. The participating firms accepted the need for research in this area,
even though it could be perceived as threatening for the audit profession. Approximately equal
numbers of third and fourth year auditors were selected by the researchers at random from staff
listings for interview, reflecting a roughly even gender balance. An effort was also made to
ensure that auditors from each of the main audit specialisms were selected, and demographic
details of interviewees gender, firm (referred to as A to D), length of experience in years, and
audit specialism are set out in Table II. Permission was obtained from the firms to contact by
phone any auditors who were selected for the study, but the identity of participants was not
disclosed to the firms.
Semi-structured interviews were conducted using an interview guide, (sections of the interview
guide relevant for this paper are reproduced in the Appendix) which was divided into a number
of sections, each section containing general questions and potential probes, and was based on

examples of interview guides in the literature (e.g. Lillis, 1999; Patton, 1990). The interview
guide approach enables the interviewer to have a list of areas for questioning but at the same
time allows probing of questions in more depth depending on the answers provided by the
interviewee. Smith (1972) described this approach as:
... a process in which the interviewer focuses her questions on some limited number of
points. She may range quite widely around a point, but this would be done only as a means of
getting the required information on that particular point (p. 119).
The interview guide approach ... helps minimise bias through the prespecification of nondirective questions and probes (Lillis, 1999, p. 87) and the preconditioning reduces the tendency
to resort to unplanned, non-neutral probes during the interview (McCracken, 1988). Patton
(1990) recommended that:
... good questions should, at a minimum, be open-ended, neutral, singular, and clear (p. 295).

These principles were used in the design of questions.

Before commencing, each interviewee was assured of the confidentiality of the study and their
permission obtained to record the interview. Because of the sensitivity of some of the interview
questions, it was emphasised that no other individual would have access to the tapes and that the
anonymity of participants would be fully respected. All interviewees gave permission to tape the
interview and no interviewee asked for the tape to be turned off at any stage. A relationship of
trust was established by the common professional ground and the assurance of confidentiality
(Beattie and Fearnley, 1998). Throughout the interviews, the researcher found no evidence of the
questions being perceived as overly confrontational in any way, and interviewees seemed relaxed
and willing to answer questions honestly.
While recognising that no single research method can be truly objective, it is important to
document all the steps taken to increase objectivity as far as possible and to be constantly alert
for subjectivity at data collection and analysis stages (Patton, 1990). Previous field research has
been criticised for failing to attend to such research criteria as validity and reliability (McKinnon,
1988). Several steps were taken to limit bias and increase objectivity both during the interview
and in analysing the interview data. Firstly, the interview guide was used to ensure consistent and
complete coverage of all the themes in each interview. Secondly, as well as taping the interviews,
notes were also taken during the interview to keep a record of important points that needed
clarification or that appeared to conflict with other points. Following each interview, notes were
made by the researcher (as recommended by Patton, 1990) on such issues as the level of rapport
built up, interviewees reaction to questions, initial impressions, and any other points about the
context of the interview which the researcher considered should be noted. Thirdly, transcripts of
the first two interviews were reviewed by a colleague (who was not involved in the research)
with particular emphasis on objectivity and freedom from bias in questions. Fourthly, to limit
bias in data analysis a structured analytical method was used with both researchers involved in
analysing the data, and this is described below.
Analysing the data
Field researchers face challenges in making sense of qualitative data (Llewelyn, 2003) and the
importance of a disciplined approach to data analysis is well documented in the qualitative
research literature (for example, Patton, 1990; Miles and Huberman, 1994). Lillis (1999)
suggested that:
... the credibility and veracity of [any] work relies on the attention to the rigorous, complete and
impartial analysis of the available data (p. 81).
The first step in data analysis after transcribing the tapes and saving each of the transcripts in
separate Microsoft Word documents consisted of preparing contact summary sheets for each
interview as recommended by Miles and Huberman (1994). Brief answers to each of the
questions on the interview schedule were included in the contact summary sheets and the
transcripts were then coded. This involved importing the Word document containing the
transcript into the software qualitative analysis package NUD-IST (Non-numerical Unstructured

Data - Indexing, Searching and Theorising) and assigning codes to each sentence. NUD-IST was
used for organising, searching and retrieving data. As each interview was coded, codes were
refined, which
was a straightforward process using NUD-IST, as any transcripts already coded were easily
adjusted. Miles and Huberman (1994) suggested that:
... those codes that survive the onslaught of several passes at the site, and several attempts to
disqualify them, will turn out to be the conceptual hooks on which the analyst hangs the
meatiest parts of the analysis (p. 70).
An initial set of descriptive codes was created before the fieldwork by both researchers as
recommended by Patton (1990) and these were refined as the interviews progressed. Following
each interview, the interview was transcribed, a contact summary sheet prepared, and the
transcript coded before the next interview. This helped to ensure that the researcher focused
attention on key themes and learned from the previous interview.
In analysing the data, the researchers read fully through each of the coded transcripts three times.
Consideration was given to the appropriateness of the coding for each sentence and agreement
was reached between the two researchers on the coding used. A report was then printed on NUDIST of all the sentences relevant to each code. Each of these sentences was again reviewed by
both researchers to determine the appropriateness of the coding. For presentation of findings,
sentences which appeared to represent a particular code/theme were used to present the thick
description (Denzin, 1994, p. 505) in the findings section. Patton (1990) suggested that:
... sufficient description and quotations should be included to allow the reader to enter into
the situation and thoughts of the people represented (pp. 429-430).
Miles and Huberman (1994) recommended a number of ways of drawing and verifying
conclusions, one of which is pattern analysis. Pattern analysis commenced during data collection
and following each interview the researcher sought to identify key patterns emerging from the
findings. Adding evidence to confirm a pattern and being open to any evidence that disconfirms
it, is important in forming conclusions as it helps to protect against presenting unreliable
evidence (Miles, 1979). Regarding the quality of the findings presented, the researchers checked
to ensure there were no contradictory statements made by the same interviewee and that the
evidence presented to back up each finding appeared to be reliable. Following the first draft of
the thick description prepared from the individual reports of each code, each of the transcripts
was fully read again to ensure that each of the quotations selected was considered in context and
further revisions were made in the presentation of findings. To help ensure a rigorous, complete
and impartial analysis of the findings (Lillis, 1999) an interviewee-specific summary of key
findings was prepared and this is set out in Table II. Tabulations present the reader with an
opportunity to gain a sense of the flavour of the data as a whole (Silverman, 2000, p. 185). As

recommended by Miles and Huberman (1994), some quantitative analysis of our findings was
carried out using frequency counts to test for possible bias and to get an indication of the
robustness of the findings. These frequency counts have not been reported, as describing and
identifying the range of behaviours and opinions has been held to be of greater importance in
qualitative research than quantification of the findings (Walker, 1985).
Findings
Findings are presented in this section, grouped under the specific variables examined in the
study. The number in brackets after each quotation refers to the interviewee
number as set out in Table II. There were no discernible differences in findings between auditors
in the third and fourth year or between male and female auditors. Table II summarises the
antecedents, type, moderators and impact of time pressure identified by each interviewee, and
findings on these areas are expanded upon in the following sections.
789
Time pressure
Types of time pressure. The findings indicate that auditors are faced with a number of time
targets and that time pressure can result from one or a combination of the following: external
time deadlines (ED), internal time deadlines (ID), and time budgets (B) (Table II). There was
general agreement among auditors that overall, time pressure had increased in audit firms in the
three years prior to the study (data were collected in 2000) and that the basic distinction in types
of time pressure was between pressure to have the work completed by a certain date (deadline
pressure) and pressure to control the number of hours charged to a job (budget pressure). This
distinction constitutes an important finding, given that most previous studies of auditor time
pressure concentrated entirely on time budgets (e.g. Otley and Pierce, 1996b). Deadline pressure
was perceived by most interviewees to be more acute than budget pressure when audit firms are
operating at full capacity:
Budgets have never been the main goal... you only have two weeks to do this job so you have to
get in and out, so it is more the deadline (15)[2].
Yes if you do blow your budget you will have to go and explain it, actually ironically its very
rare that you blow your budget ... you actually physically cant because you dont have enough
hours to blow it (2).
The findings indicate that audit firms are placing reduced emphasis on budgets, and on some jobs
budgets are not even set, consistent with the current emphasis in the budgeting literature on a
movement away from budgets (Hope and Fraser, 1997,1999).
Only a minority of auditors referred to budget pressure (Table II) and those that did considered
that it applied mainly to smaller audits where it was more difficult for the firm to obtain other

profitable work. All auditors referred to pressure from internal and external deadlines (Table II).
Type of time pressure was perceived to influence the level of time pressure as in general, auditors
found external deadlines tighter than internal targets or budgets and were more likely to cut
corners as a result of external deadlines, as these deadlines were perceived to be non-negotiable:
If it is the case where [on] the 16th of March you have to have whole loads of accounts sent off
to the UK for a plc definitely you have to have that done come hell or high water. And where
corners have to be cut they will be if you have to get the accounts off. So maybe quality will
suffer if that is the case, if it is just an internal thing you know you can push them off (13).
The increased visibility of external deadlines compared to internal targets appears to increase the
level of tightness associated with them.
Perceived causes of time pressure. The main cause/antecedent of time pressure and in particular
of internal deadlines was perceived to arise from an imbalance in the supply/demand of
staff/audits as increases in the volume of audit work were not matched with the same increases in
levels of staffing (Table II):
They [management] will try and restrict your hours but they understand that we are all working
as hard as we can, so if we do go over we have no desire to work overtime. However, it seems to
be inevitable at the moment given the amount of jobs versus the amount of staff and I think they
know that (25).
Many interviewees commented on the imbalance in audit work and staffing, an example of
which was an increase of 27 per cent in the volume of business over the previous three years
compared to an increase of only 10 per cent in the level of staffing over the same period. Audit
firms are now operating at full capacity and resources are perceived to be stretched to the limit as
all staff work to extremely tight internal deadlines to complete their audit work. This is
exacerbated by difficulties in attracting suitable staff, resulting in the recruitment of
inexperienced staff:
The quality of staff they have taken in mightnt be as good as it should be purely because it is
being driven by the market... It is more difficult to recruit to as high a standard as it used to be
and thats desperate measures ... the attitude as well... of new staff they know they dont have to
be there (15).
This was thought to lead to further time pressure for seniors as it takes longer to explain the audit
work to juniors, and also increased time pressure for juniors as they are slower doing their work.
The improved employment market has led to staff shortages and the increased time pressure
resulting from staff shortages has led to higher auditor turnover, which then becomes a vicious
circle with further staff shortages and further increases in turnover:
People are just tired and really annoyed ... there is a strong atmosphere of you can only do it for
three, three and a half years. You dont want to do it for any longer. You know its not a [question

of] people find[ing] auditing boring. Its ... I dont really want to work every weekend of my life
(2).
A second perceived cause of time pressure was client-induced pressure (Table II), which was
strongly felt to influence all types of time pressure. Interviewees maintained that the audit firm
very often had to accept audit fee reductions, unrealistic time deadlines, changes in timing of the
audit work, and lack of client preparation, given the competitiveness of the current environment.
The reluctance of clients to accept increases in audit fees was frequently compared to their
acceptance of increases in taxation or consultancy fees. The audit fee was perceived to impact on
even a managers ability to influence the time target:
They [managers] are getting it from partners, if they can feed it up along the line and say here is
a realistic budget, this is what the fee should be, go out and get that fee or else we dont do the
job ... Instead it comes down to here is the fee, here is the budget and work around that (5).
The level of client preparation for the audit was thought to depend on the timing of the audit and
its proximity to the year-end. Many interviewees accepted time pressure as a fact of life in
business and acknowledged that because clients are under time pressure themselves, they ...
dont have time for attending to questions from auditors so they are keen to have the jobs done
quicker (3). Difficulty in obtaining information from the client and the timing of receipt of
information were perceived to lead to additional time pressure and in turn, dysfunctional
behaviour:
The client has given you some kind of reconciliation and you have been asking for the
reconciliation for four weeks and you are doing something else and this is like your job that you
have to finish up, it is looming over you all the time and he faxes you in a bit of paper, like there
is something there and you know you should ask for more backup but you go - ah I will just put
it on the file and reference it in, like the director or manager will have a query anyway and if
they ask for the backup fair enough you will get the backup, but if you can get away with not
doing the work (18).
A further cause of time pressure mentioned by a number of auditors was the new risk-based audit
approach (Table II) that was introduced shortly before the study and auditors were still on a
learning curve at the time of the study. It was acknowledged that ... down the line they feel the
controls approach will yield savings in terms of budgets (10). The new audit approach was also
linked to an emphasis on cost-reduction as it was perceived to be important from the firms
perspective that they re-coup their investment in audit technology.
A number of other perceived causes of time pressure were identified as audit-specific influences,
pressure from international auditors, the volume of technical material, the bargaining power of
the manager in getting staff for the job, the employee grading system where auditors from the
same intake can have different charge-out rates depending on their educational background, and
the amount of time spent by the manager on review (Table II). Audit-specific influences included

the complexity of the clients business environment, the industry area, the clients computer
system, and the size of the audit. The complexity of the business environment has increased
considerably in the last decade, resulting in an increase in the overall time needed for audit work.
In some cases, complexity was perceived to be related to particular industries as some industries
such as financial services were thought to be more complex, and it was considered that in the
manufacturing area:
They are putting in the long hours for about two months of the year and then thats it, but in
financial services it seems to keep going on and on (15).
Improvements in clients systems were seen as offering potential to alleviate time pressure, as
the information that is available, if you know how to ask for it and they [the client] know how
to use it or use it to its best ability, can reduce the amount of work you will have to do (4). A
source of time pressure specific to external deadlines was perceived to arise from international
auditors imposing group reporting deadlines on subsidiary companies. In addition to these
causes, the increased volume of regulations and standards issued by the profession was thought
to have increased the risk of technical mistakes and increased the time needed on jobs:
The accounting standards arent getting any clearer so each time an accounting standard is
brought in there is additional work that you didnt have to do last year. So again that brings it
back to the whole budgetary process. Is that built in? (19).
Variations in charge-out rates and time spent by the manager on review were perceived to only
impact on time budget pressure. Regarding the effect of the time spent by the manager on
review:
You have a lot more time than you are budgeted for because you know the manager isnt going to
spend much time on the job. Say you have a 20,000 budget, 15 of it is yours and five is the
managers, if you know he is not going to use his five you can use more on yours (13).
AAAJ Controllability of time pressure by firms. There were conflicting perceptions of the
17 5

ability of firms to control time pressure and a wide range of justifications for its (non)

controllability. Table III sets out the main types of time pressure and the reasons why

time pressure is perceived by auditors to be controllable or non-controllable.

Some auditors were more willing to look at the position from the firms point of view and were
more sympathetic to the environment in which the firm had to operate, but 792 the majority
came to the conclusion that time pressure was generally within the control
of the firm as there were ways in which the firm could respond to changes in the environment:
I dont think it has to be accepted ... I know there are a lot of new jobs out there and a lot of new
clients and a lot of work coming in but I think it is a matter of not taking on as much work (8).

Perceived impact of time pressure on behaviour. A range of positive and negative impacts of time
pressure were identified in the study and these are summarised in Table II. There was no general
agreement on which levels of time pressure result in functional/dysfunctional behaviours, but in
general auditors believed that there was an optimal level of time pressure that had maximum
positive effects. These included greater focus on completion of work, more effective dealings
with clients, greater attention to relevant information, elimination of unnecessary work and better
communication with superiors (Table II):
It will motivate you when you have an achievable target, it will motivate you to work harder and
work better. If you have a target and you say there is no way I am ever going to meet that, your
work wont be as good even if you do get it eventually done on time. But again if you have
weeks to do it its not going to, there is a level in between (4).
The majority of auditors regarded the current level of time pressure as far higher than optimal,
though a few interviewees commented that it was around the optimal level. Excessive time
pressure was thought to have a personal impact, resulting in reduced morale and motivation,
increased health problems, tiredness and an overall lower standard of life (Table II). A number of
interviewees felt that this would result in higher turnover.
In general, as time pressure increased it was perceived that there was a greater likelihood of a
dysfunctional response:
Type of time Reasons why perceived as controllable by Reasons why perceived as non
pressure

audit firms

controllable by audit firms

External deadlines Failure to negotiate more time with external Client demands parties
Failure to refuse additional audit work Other auditors demands

Reluctance to pay higher costs Failure to refuse additional audit work

Partner greed
Failure to obtain higher audit fees Desire for full recovery of costs

Buoyant job market Recruitment of inexperienced staff

Market forces - lower audit fees and higher salaries

If somebody is under reasonable time pressure they will cope well and when it hits the pot
[becomes extreme] obviously something is going to give. Obviously the work is not going to be
to a very high standard (3).
If you have an awful lot of jobs to do and you dont have sufficient time to do them, something is
going to suffer ... you end up just tying up the figures ... you dont get a chance to consider the
big picture, the issues or environmental factors or anything like that (21).
Dysfunctional responses included biasing sample selection, greater than appropriate reliance on
client work, decreased scepticism, phantom ticking and an overall lower standard of work (Table
II). Frequent reference was made to the difficulty of measuring audit quality. Many interviewees
believed that determining the acceptable risk also determines the required level of audit quality:
If nothing goes wrong therefore the accounts are right or perceived to be right and they are
signed-off and they are published ... and okay you are under pressure to do it and maybe there are
small mistakes in it, but I guess it is all part of risk management you decide that the risk is
acceptable, it is hard to measure the quality. The quality of an audit is just to get it signed-off, get
the figures right, how much value is added to it anyway? (23).
It was acknowledged that there was no general agreement in the firms as to the level of
importance of audit work carried out at the year-end and therefore dysfunctional responses to
time pressure may not have any impact on the audit opinion:
Some managers or partners are prepared to rely on their basically - nearly even gut [instinct]
looking at the P and L and balance sheet because they were on top of things during the year and
they would have regular contact with the client and maybe year end work isnt so important to
them (9).
Other negative impacts of increased levels of time pressure were perceived to be a lower level of
training, increased responsibility and reduced levels of supervision (Table II):
I dont think they [juniors] are being given the required training (this better be confidential) ...
and even at a senior level, I have been in there three years and this is my first year as a senior,
and you are being given ridiculous stuff to do because it is being pushed all the way down. And
managers are not doing their job so they are relying on you to basically manage the job yourself,
and you know have a file ready to go to a partner review (15).
Training courses were not generally seen as effective, as ... the tendency at these things is to see
them almost as a weeks holiday (11) because of the time pressure auditors are under for the rest
of the year. Furthermore, interviewees claimed that training courses are often held during holiday
periods and no effort is made to ensure that the people who need training in a particular area are
available. Reduced training and increased specialisation were seen by auditors as restricting the
learning experience during the training contract. Inadvertent QTB due to lack of training and
increased responsibility at junior level was referred to by interviewees but it was believed that

this would be detected by the senior. However, audit seniors interviewed showed a reluctance to
report this behaviour:
I know a number of instances where juniors were caught by my level [senior] and they might
have been warned. People would be very hesitant to go straight away to a manager and say
you know they are signing-off tests and they havent done anything. I mean because it is such
a big thing they mightnt realise just coming in new (21).
Decreased supervision of juniors was also thought to have resulted from the increased time
pressure, as if you have lots to do, you dont have time to supervise the junior properly and the
junior could be doing anything (21).
Regarding the existence of a linear or an inverted U-shaped relationship between time pressure
and dysfunctional behaviour, different viewpoints were given on whether dysfunctional
behaviour would start to decrease once the time pressure reached a certain point. Most auditors
maintained that time pressure above a certain level resulted in low motivation to meet either the
deadline or the budget:
If the time budget was totally unrealistic last year you are not going to even try to achieve it (7).
Obviously then if work becomes unrealistic, it is obvious to see you might have a two week job
and there is no way it will be done in three weeks in which case people will work a certain
amount of overtime, but they are not going to kill themselves because they know it is totally
unrealistic (5).
These comments suggest that at a certain level of time pressure, auditors stop trying to meet the
time target whether it is a budget or a deadline. This would support the existence of an inverted
U-shaped relationship. Given, however, the low level of morale and motivation that would be
experienced at this point, auditors may still reduce quality but for different reasons and thus the
relationship would appear linear. Not all interviewees agreed that auditors would stop trying to
meet unrealistic time constraints, and a minority suggested that even for unrealistic time
deadlines:
It will just be a case of whoever is on the job will muck in and get it done. Obviously it may not
be to the most perfect of audits but it will probably still be up to a high enough standard to pass
file review (3).
A certain level of budget overrun was perceived to be acceptable but above that, an auditor will
have to explain any overruns and therefore even for impossible budgets, an auditor would still be
motivated to reduce time. This supports the existence of a linear relationship between budget
pressure and dysfunctional behaviour.
Moderating variables. There was no general agreement on what levels of time pressure are likely
to result in QTB, and moderating factors such as perceived controllability of time pressure and

variability of time pressure were thought to be important in determining the impact of time
pressure on behaviour (Table II).
Regarding the perceived controllability of time pressure, some auditors (Table II) believed that
time pressure perceived as uncontrollable by the firm had a more positive effect on motivation
and behaviour, as pressure from outside sources affected all levels and it was not a them and us
scenario between management and staff:
I would think that morale would be affected more by internal pressure than by external. You
know generally if people are working towards an external deadline, okay this is something that is
outside of everyones control and they would work to that ... Whereas internal pressure, I think
people resent the fact that there wasnt more staff put on it... If a manager is cutting budgets there
might be a resentment that the manager might be caring more about the budget than about the
staff (9).
Regarding the effect of the level of variability of time pressure, two aspects were considered
important by a number of auditors in moderating the relationship between time pressure and
QTB (Table II). Firstly, a low level of uniformity between auditors was perceived to lead to low
morale:
If everybody isnt as busy it has got a very bad effect, if you sort of see some people leaving at
5.30 ... and then you have other people in until 10.30 and if you are the person in until 10.30 it is
very demoralising (10).
Secondly, the constancy of the time pressure from one job to another was thought to have
adverse effects on the working environment:
The difference in the last few years is that it used to vary much more. There used to be maybe
jobs that you would do for a month where you would have serious time pressure and then the
next month you would be doing more relaxing jobs or at least you would be working normal
hours, whereas now you are going from a really stressful job to another really stressful job to
another really stressful job. So they dont have a time in between, and that creates a really bad
atmosphere (2).
In general, interviewees believed that time pressure varied far less between jobs than when they
commenced working in the firms and the busy season was seen to be continuous and year-long in
the current environment.
Participation
With regard to participation in setting time targets, interviewees considered the distinction
between budgets and deadlines important in determining the degree of possible influence by
audit seniors. In general, both internal and external deadlines were perceived to be impossible to
influence by seniors, as they were subject to constraints imposed by clients, international
auditors, low fees and staff shortages:

The trouble with it is if you are given too short a time for a job, theyll listen to you and say yea,
yea we know it should take two weeks but you only have a week, and the reason you only have a
week is because you are doing something else the following week (2).
Regarding participation in setting budgets, the findings indicate that the level of participation
varies significantly between audit seniors, even within the same firm. The following respondents
were indicative of two extreme positions in firm C:
The budget really seems to me to be set in stone and you are going to have to try to build your
work around it (10).
On some jobs I would set the budget... you would be looking at what sort of time-frame you need
on the job and what sort of staff you have (7).
Antecedent variables. Interviewees were questioned on what they perceived to be antecedents of
participation and what impact, if any, they perceived participation has on individual auditor
behaviour. As regards antecedents, the findings indicate that it is difficult to implement
participative budget-setting because the conditions suggested in the literature for successful
adoption of a participative approach are rarely present in the audit environment.
Information asymmetry between the manager and the senior, where the senior has more
information than the manager, only exists in very specific circumstances where, for example, the
senior has worked on the audit in previous years:
If you were a junior the year before and you are a senior the following year, and as a junior you
knew you were under pressure the year before and it was a seven day job and this year it is a six
day job so you might say hang on here we were under pressure last year, so it wouldnt be like
we would be putting in the detail on the budget like this section should be another hour (3).
Where this is not the case, the manager is regarded as being in a better position to provide a more
accurate assessment of the time needed. Information sharing by the subordinate with the superior
is rarely necessary as the superior generally has more information than the subordinate. Auditors
referred to situations where they were involved in planning jobs that they were not going to work
on because they were available at the time when planning was taking place and that it was just a
case of following managers instructions as to what changes to put through from last year. Even
though these auditors were involved in setting the time, they had no influence, nor had they a
stake in the budget-setting process as they were not assigned to these jobs. Where time is reduced
from the previous year and the senior was not on the job before, the senior can try to negotiate
extra time if he/she knows the time charged the year before:
It is the seniors responsibility to go to the manager and say well they had this amount of time
last year and this is what we will need this year, what is the difference, show me where there is
less work (9).

This amounts to forced participation and the senior is at a disadvantage in that he/she has no
knowledge of the accuracy of the time charged the previous year. The view was expressed that it
would be a waste of time informing the manager that the time recorded last year might not have
been accurate if that manager was on the job last year as:
If you have the same manager for a few years in a row he is going to know and if he knows then
he is the one pushing it. So it is kind of a year-on-year thing, and you often find if the manager
changes on a job then the budget changes as well (2).
Also, it was pointed out that the degree of uncertainty in the audit environment makes it difficult
to predict the amount of time needed on a job and the senior would not be in a position to reduce
this uncertainty before the job commences:
25 per cent of the time would be spent on stuff that was never even foreseen and it just came to
light within the course of the audit (19).
The previous years senior was perceived to have a role in reducing information asymmetry and
to be in a position to influence the current years time target by accurately recording time the
year before. Setting a budget often amounts to .. just a case of looking at last years and adding
on a bit or taking off a bit (3). This view was expressed by many interviewees and typified by
the following quote:
In a lot of the jobs you wouldnt have any influence, a manager just sets it and rolls it forward
from previous years. I know one or two managers who would make a conscious effort of kind of
saying just record your time on the different sections you are working on, be realistic about it
because it helps next years audit. Thats the way it should be done but in most cases it is just
roll it forward from last year (5).
Management control in audit firms
797
Because of the particular characteristics of the audit environment (rotating audit team, high staff
turnover and nature of audit work) the opportunities for genuine participation by audit staff in
preparing time targets are limited and the degree of participation is generally perceived to be low.
Perceived impact of participation on behaviour. The evidence suggests that participation is a
moderating variable in the relationship between time pressure and QTB (Table II), in that it can
lead to increased motivation to meet the time target which in turn can impact either positively or
negatively on behaviour. By adopting a participative budget-setting approach, managers
encourage seniors to take more responsibility for the budget. This could create pressure not to
blow the budget (7) because the senior would have been responsible for setting it, which in turn
could result in either functional behaviour such as working harder or dysfunctional behaviour
such as QTB. In addition, participation was found to be an antecedent to the level of budget
pressure, that could result not only in softer budgets but alternatively in tighter budget targets, in

situations where the senior wanted to impress the manager at the planning stage. Participation
was also linked with more realistic time pressure, which was considered a motivating factor in
trying to meet targets:
Indirectly if the time budget was totally unrealistic last year you are not going to even try to
achieve it, whereas if this year you have an extra staff person on board then ... it is a bit of a
motivating factor (11).
In order for participation to result in a greater commitment to meeting the target, interviewees
maintained that audit seniors need to regard planning as equally important to other audit work,
which was not perceived to be the case at present. Auditors are perceived to be so overworked
that if they are given time to plan a job ... they are going to take their foot off the gas and relax
(9). Because of this, it was perceived that managers were sometimes reluctant to assign auditors
to planning.
Style of performance evaluation
Changes inperformance evaluation system. There was evidence that a number of recent changes
have taken place in the firms performance evaluation systems. Firstly, a flattening of the
hierarchical reporting structure has occurred and many auditors referred to audits where juniors
reported to managers rather than seniors, and audits where seniors reported to partners rather
than managers. Where a junior reports directly to a manager, there is likely to be considerably
less sheltering of juniors:
It is much easier if you are new for someone who is two years ahead of you to sit down and say
do this, this and this, and this is how you do it. So if that is coming from a manager it is much
more intimidating ... and also the manager isnt on the job all the time so you might get it once ...
and there might be things in it that you just purely dont know because you have
never done it before which a senior would pick up on and get you to change. But that might not
have happened (2).
This change in the reporting structure was perceived to have implications for the level of
inadvertent QTB, as juniors ... will develop their own style of doing things much quicker (2). It
was also pointed out that sometimes juniors are not aware of the standard of work required when
they commence working in the firm and that not having a senior in the field to sit down and
explain the work could result in lower quality work:
It takes a while before they [juniors] know whats okay and whats not okay. So certainly in the
beginning they will say oh yea its fine, but its only when you sit down and look at it that you
can say well thats not okay because you are not supposed to do that, whereas it will be a
manager doing that to them which is much more intimidating (2).
A second major change is that the formal element of performance evaluations is considered to be
of less importance than was previously the case, due mainly to staff shortages and the buoyant

job market. For promotion to manager, one auditor described the situation as being ... more
sticking it out and putting in your time - kind of civil service type (8):
I think everyone has to keep everyone happy all the time otherwise they will just leave because
they will be fed up. There are so many jobs out there, promotion is more if you are there you will
get promoted at this stage (17).
Previous studies have referred to the up or out promotion system in audit firms, which results
in strong internal competition, particularly in periods of overstaffing (McNair, 1991). Findings in
this study suggest that in the current period of understaffing, promotion is more automatic for
auditors who remain with the firm and that the formal performance evaluations may not therefore
have a major impact on individual behaviour, due to their decreasing importance and that its
[formal evaluation] a bit of an irrelevance really (5).
However, even though formal evaluations were not considered important, there was an
importance attached to informal evaluations and impressions formed at end-of-year discussions
by management:
At the end of the year they all sit around and the managers discuss each person and it is more
impressions at that stage, so if you are putting loads of hours into the managers job they are
going to get the impression that you are not particularly good (10).
The informal evaluations were also considered important for obtaining employment outside the
audit firm as potential employers may contact managers within the firm for a verbal reference,
and this would lead to increased pressure for performance. Informal evaluations were considered
more important than formal evaluations:
A few words from a partner saying you are good is obviously more important than any ten pieces
of paper saying B, C, A [referring to grading system] (9).
Lastly, a change has occurred in the style of performance evaluation. Previous studies suggested
that a budget-constrained style of evaluation was predominantly used in audit firms (Kelley and
Seiler, 1982). The evidence indicates that this style of evaluation continues to be used for both
formal and informal evaluations but could be described as a target-constrained style in the
context of the current audit environment
as it includes emphasis on both budgets and deadlines. Many auditors considered that this style
would be used to a greater extent where there was deadline pressure ... as the client doesnt
know the quality of your audit unless something serious happens (5) but will be aware if a
deadline is missed:
You have to meet the deadline. There is no choice ... like we broke one deadline this year and
that was you know quite significant, talked about quite a lot (2).

Other interviewees perceived that a target-oriented style is also used for budget-constrained
assignments. The majority, however, perceived that ability to meet time budgets has decreased in
importance for performance evaluation as the deadline is now the main constraint. Interviewees
perceived that the extent to which the auditor is to blame for exceeding the time target was
significant in determining whether a target-constrained style was used for performance
evaluation:
If you do miss a group deadline, it has happened on one this year and it was out of my control
and like as long as you keep directors and managers aware of the pressures you are under it is not
going to adversely affect you (23).
Where a manager used a target-constrained style it was perceived that quality had to be up to a
certain standard to pass file review but that differences in quality above this level would not be
rewarded if an auditor had charged too much time to the job or was unable to meet the deadline:
It is quality but for the amount of time we spend. You wont be rewarded if you have charged too
much time (10).
If they [audit juniors] only do one section, no matter how well it is done, you are in an absolute
mess if they dont cover all the areas ... meeting the deadline is probably more important than the
quality of what they do within reason (17).
Other auditors supported the view that it was difficult to separate ability to meet time targets
from other evaluation criteria such as quality, and ... if you are good you can get your job done
within budget (1). This auditor also referred to informal evaluations where ... you get a good or
bad name for quality but at the end of the day that means budget (1). This suggests that in order
to be considered a good senior it is necessary to perform quality work within the specified time
and that it is difficult to separate one from the other:
At the end of the day the manager gets the roasting from the partner if they break the budget so
inherently that means the manager is going to start looking for good seniors ... Thats the [firm
A] lingo ... you are a strong senior or you are well... strong means you get the job done and you
dont break the budget but you get it done on time (1).
Even though these auditors perceived that you can meet a deadline and produce a hash file but
that would come against you (15), it was still acknowledged that if it was an external deadline
you just dont miss those (15). This was supported by other interviewees and it was considered:
Up to the manager to be satisfied about quality ... the senior shouldnt be worried about quality ...
for the larger jobs, probably meeting the deadline is most important (10).
Effort put into job was reported in earlier research to be the most important evaluation criterion
(Pierce and Sweeney, 2004) and this was probed during the

interviews. It was generally agreed that meeting a deadline was the first signal of effort but that
after meeting the deadline other criteria such as ability to respond to audit review points, taking
responsibility for sections and being bothered about the standard of work and not just carelessly
ticking and bashing (5) were important:
Getting the job done in the time allocated is probably the top priority ... but if the work isnt of
quality then you know issues will arise (8).
The seniors referred to the relative ease with which a senior could evaluate a juniors effort as
they worked in close contact with juniors, compared to the difficulty for a manager assessing a
seniors effort.
Impact of style of evaluation on behaviour. There was consistent evidence of a perception that
style of evaluation (mainly in the context of informal evaluations) had an impact on auditor
behaviour (Table II). A target-oriented style of evaluation was perceived to increase the
likelihood of dysfunctional behaviour:
You dont really have anyone to turn to then [if a target-oriented style is used]. You cant really
say to the manager I am under time pressure because he will probably say well that should only
take an hour (10).
I think they [auditors] are less likely to lie about things or less likely to fudge things if they know
they are not going to be - if theres going to be no recrimination for it (2).
More approachable managers who considered other factors in performance evaluation and
adopted a more profit-conscious style were thought to reduce the reluctance of audit staff to
inform managers of any problems and increase the likelihood of functional behaviour:
If the manager and partner portray that they are reasonable people, you will say more stuff to
them and you wont try and hide what you have or havent done (25).
This auditor believed that increased communication and an ... air of yes you can talk, it is not a
taboo thing were very important in addressing the undiscussability (McNair, 1991) of the
cost-quality conflict and in determining whether dysfunctional behaviour occurred. The
importance of individual auditor motivation was evident in the view that style of evaluation of
the manager may only have an impact on behaviour where auditors are concerned about the
evaluation:
That [impact on behaviour] would depend on the individual if they are conscientious or not,
worried about it. They mightnt bother. They might say well they are not going to sack me
anyway, you are in contract and there are not that many people screaming to get in (3).
Discussion and implications
Overall model of proposed relationships

The study examined three control system variables which were identified in prior research but
not previously subjected to detailed investigation: time pressure, participation and style of
evaluation. The findings suggest relationships between these control variables, their antecedents
and response behaviours, as set out in Figure 2, highlighting the important distinction between
deliberate and inadvertent QTB and the role of other moderating variables.
The proposed model is structured in accordance with Otleys (1980) three components of the
contingency framework (contingent variables, organisational
ntecedents to all orms o time pressure
Client induced pressure, Audit specific characteristics, Changes in the audit approach, Volume of
regulations, Manager bargaining power
ntecedents to external deadlines
nternational auditors
ntecedents to internal deadlines
Supply-demand of staff/audits
ntecedents to bud ets
Variation in charge-out rates
Time spent on review by manager
articipation
nformation asymmetry (manager and senior experience o articular job), Attitude of senior to
audit plannin
mployment market, Reporting structure, Attribution o blame

control package and organisational effectiveness). The study was not designed to test these
relationships and no claims regarding generalisation of the findings can be supported at this
stage. However, the findings do provide a basis for the development of a series of propositions
that offer direction and focus for future research. These propositions are set out and explained
below.
Time pressure. Time pressure was shown to emanate not from a single source as suggested in
earlier studies, but a triad of sources (budgets, internal and external deadlines), the balance of
which varies over time and is influenced by a range of factors. Overall economic conditions play
an important role in determining this balance, in that increased buoyancy in the economy is
associated with greater emphasis on deadlines, while less buoyant conditions are associated with
increased emphasis on budgets. For all three types of targets, the tightness of the target (time
pressure) is associated with a range of factors related to the auditor-client relationship, the nature
of the particular audit and changes in the audit approach, as set out in Figure 2. Regarding the
relationship between time pressure and organisational effectiveness, in general the findings
suggest a positive association between the level of time pressure and the levels of both
inadvertent and deliberate QTB.
In the case of inadvertent QTB, a number of factors were identified that act as intervening
variables in the relationship between time pressure and inadvertent QTB. Time pressure is
inversely associated with the level of training and supervision of junior staff, and these variables
are inversely associated with the level of inadvertent QTB. Time pressure is positively associated
with the level of responsibility of audit staff, and level of responsibility is positively associated
with the level of inadvertent QTB.
Regarding deliberate QTB, previous research reported conflicting findings on the nature of the
relationship with time budget pressure. Kelley and Margheim (1990) found an inverted U-shaped
function, indicating a positive relationship up to a particular level of budget tightness, followed
by an inverse relationship for higher levels of tightness, while Otley and Pierce (1996b) found a
linear function. Evidence from this study is useful in interpreting these apparently conflicting
findings. In general, as time pressure increases, the incentive to engage in QTB increases. At a
certain point, however, seniors are no longer motivated to attempt to meet the time targets, even
through dysfunctional means, and the level of QTB begins to fall. The location of this point can
vary between auditors and over time, and is influenced by the moderating effects of perceived
controllability by audit firms and the variability of time pressure between auditors and jobs. High
levels of time pressure are more likely to be associated with high levels of deliberate QTB where
the perceived controllability of the time pressure is high, where the variability of time pressure
between audit seniors is high and where the variability of time pressure between audit
assignments in low. The relationship between time pressure and deliberate QTB is further
moderated by participation and style of evaluation, and these effects are discussed below. Results
from earlier studies, which appear to be contradictory, may therefore be explained by the fact
that those studies did not recognise the important effects of moderating variables in determining

the precise location of the point where seniors are no longer motivated to engage in QTB with
the result that increases in the level of time pressure beyond a particular point were associated
with both increases and decreases in QTB in different studies.
Participation. Limited opportunity to participate in target setting exists and to the extent that it
does, it is almost entirely in the area of budget setting. Two major influences were identified as
being associated with the level of participation: information asymmetry, and the attitude of
seniors to planning. The level of information asymmetry is associated with the audit firms
reporting structures. Although in general, flatter organisational structures can help promote
information symmetry (Otley, 1994), the nature of the auditors training contract, combined with
a buoyant employment market, creates high staff turnover at the audit senior level, thereby
militating against information symmetry in audit firms. Flatter structures tend to promote greater
information asymmetry in this environment, by directing information towards the manager who
is likely to develop more detailed knowledge of all audit areas, and away from the senior who is
less likely to be exposed to areas covered by more junior staff. Situations where the senior has
more information than the manager, which is a condition for effective participation suggested in
the literature (Shields and Shields, 1998), are increasingly rare.
The findings suggest that high staff turnover and staff shortages have further reduced the ability
of the audit senior to contribute to the planning process, as seniors are less likely to have worked
on the same audit in previous years. Also, external constraints such as audit fees and deadlines
limit even the ability of managers to influence time targets. Regarding the attitude of the senior,
in order to obtain the benefit of improved motivation and attitudes, task and environmental
uncertainty need to exist whereby the subordinate can experience self-respect and feelings of
equality from the opportunity to express his/her values (Shields and Shields, 1998). However,
although uncertainty does exist in the audit environment, seniors are not in a position to reduce
this uncertainty. Inability of the audit senior to reduce the uncertainty, combined with over-work
and tiredness, often result in planning being viewed by seniors as a meaningless exercise that
provides an opportunity to relax. Overall, low levels of information asymmetry and low levels of
importance attached by seniors to audit planning are associated with low levels of participation.
Where participation does occur, it is perceived as having two effects, the first of which is a direct
effect on the tightness of the budget. In situations where the senior is motivated primarily by a
desire to secure a good budget report on completion of the assignment, the level of participation
in setting time budgets is inversely related to budget tightness. In situations where the senior is
motivated primarily by a desire to impress superiors at the planning stage of the assignment, the
level of participation in setting time budgets is positively related to budget tightness. For many
seniors, the ultimate objective in varying the level of budget tightness appears to be to impress
the manager or partner. Some strive towards setting a soft target which is easier to meet and
thereby impress superiors at the end of the audit, while others appear to adopt a strategy of
setting a more difficult target, designed to impress at the planning stage. The management
control literature suggests that the use of budget participation in conditions where participation is

not suitable can result in budgetary slack (Schiff and Lewin, 1970) or excessively tight budgets
(Otley, 1978).
The second effect of participation is that of a moderating variable in the relationship between
budget tightness and deliberate QTB due to increased commitment to meeting the budget. High
levels of budget pressure are less likely to be associated with high levels of deliberate QTB in
situations where there is senior participation and budgets
are perceived by seniors to be achievable in a functional manner. Where budgets are perceived to
be unattainable in a functional manner, participation by seniors is more likely to motivate a
dysfunctional response, thereby strengthening the positive association between budget pressure
and deliberate QTB.
Style of evaluation. The extent to which a target-constrained style of evaluation is used is
influenced by two major factors: buoyancy of the employment market and perceived blame for
exceeding a target. The buoyancy of the employment market, resulting in an imbalance between
the volume of work and available staff, has increased the importance of meeting tight deadlines.
If, however, a failure to meet a deadline by a senior can be attributed to factors outside the
seniors control, the level of importance placed on meeting the deadline for the purposes of
performance evaluation by the manager is reduced. Overall, high levels of target-constrained
style of evaluation appear to be associated with high levels of buoyancy in the employment
market and a high degree of blame for failing to meet the deadline attributed to the senior.
A further dimension of performance evaluation is the balance between formal and informal
approaches and this balance is also influenced by two major factors: buoyancy of the
employment market and the firms reporting structures. Difficulties experienced in retaining
adequate numbers of suitably qualified staff and the associated high level of time pressure have
contributed to reduced emphasis on formal evaluations. Changes in reporting structures have led
to increased contact between the manager and all members of the audit team, thereby enhancing
the ability of managers to informally evaluate the performance of audit juniors and seniors.
Overall, high levels of informal performance evaluations appear to be associated with high levels
of buoyancy in the employment market and high levels of interaction between management and
the audit team.
The findings suggest that style of evaluation is also an important variable in moderating the
association between time pressure and QTB and that high levels of time pressure are more likely
to be associated with high levels of deliberate QTB where a target-constrained style of
performance evaluation is used. Conversely, high levels of time pressure are more likely to be
associated with low levels of deliberate QTB where a profit-conscious style of evaluation is
used.
Control in a changing environment

The current environment, as perceived by audit seniors, is characterised by unrelenting pressure

to meet time targets (mainly deadlines), a stretching of resources with over-utilisation of staff,
recruitment of inexperienced staff, flatter reporting structures, increased responsibility at lower
levels, less manager and staff continuity and reduced resources for training. Combined with other
features of the audit environment outlined earlier, these conditions pose particular challenges for
the effectiveness of the control system. The strengthened economic climate has resulted in
considerable growth in audit firms (the growth rate for Big Five firms and the next largest firm in
Ireland between 1999 and 2000 was 18 per cent (ONeill, 2000)), thereby creating increased
pressure on the availability of suitably qualified staff. The findings suggest that under-staffing
and over-work are perceived to result in acute time pressure in the form of deadlines (DeZoort
and Lord, 1997), and this type of pressure has been shown to be more harmful to an individuals
well-being than chronic (time budget) pressure (Eden, 1982). Given the time pressure that
seniors experience,
combined with changes in reporting structures, a major form of behaviour control (Ouchi, 1979),
i.e. direct supervision by the senior, is often missing on audits, with junior staff reporting to the
manager, who is based in the office. Similarly, the findings indicate that seniors often report to
partners due to a shortage of managers, and in effect have to manage some jobs themselves.
While the manager would not previously have directly supervised seniors, it was perceived that
he/she would have had greater contact with the senior in the past and would have provided
direction and guidance when required.
This reduced opportunity for the exercise of effective behaviour controls is all the more
significant in the light of evidence of increased levels of responsibility assigned to audit juniors
and seniors. Increased responsibility would be expected to increase the need for supervision and
guidance at these levels. DeZoort and Lord (1997) referred to pressure that can result from
individuals being promoted too quickly as qualitative overload pressure. Simons (2000)
suggested that decreasing staff experience can result in increased possibility of inadvertent error.
Inadvertent QTB by audit juniors was highlighted in interviews by audit seniors who referred to
situations where they detected QTB by more junior staff, which they assumed was inadvertent,
and would be reluctant to report it to the manager due to the possibility of serious consequences
for the junior. The reluctance of audit seniors to report this behaviour to the manager is consistent
with the literature. Kaplan (1995) found that 25 per cent of audit seniors were either uncertain as
to their reporting tendencies or not likely to report a detected incident of QTB when the audit
step was perceived by them as unnecessary. The lack of communication regarding a weakness in
the training and supervision of audit juniors, which results in inadvertent QTB, represents a
filtering mechanism at senior level that often serves to perpetuate the behaviour by failing to
report it. Thus, it appears that the reluctance of seniors to discuss with management their own
difficulties in coping with time pressures often extends to similar difficulties encountered by
audit juniors. Reporting structures are important, in the sense that QTB by audit juniors is more
likely to be detected and corrected where they report to seniors than where they report to
managers.

Both organisational structure and job continuity appear to be important variables impacting on
the control system in audit firms. Otley (1994) suggested that, in general, increased use of
informal controls is necessary in the new flatter organisational structures. However, informal
controls such as social controls are increasingly difficult to implement in the current audit
environment due to the high level of staff turnover, lack of job continuity and the recruitment of
qualified seniors who have trained in other firms and have missed at least some of the
socialisation that occurs during the training contract. The limited applicability of other forms of
control increases the importance of personnel controls. However, personnel controls can only be
partially effective in a situation where firms are operating at full capacity and are finding it
difficult to attract suitable staff, resulting in the recruitment of staff of a lower calibre than would
previously have been deemed acceptable. Also, training courses are more difficult to schedule in
a period of constant time pressure. Inadequate training can result in serious negative
consequences, not only for professional competence but also for employee motivation and
attitudes[3]. Although audit firms appear to display many of the characteristics of contemporary
organisations as set out by Otley (1994), such as flatter structures, empowerment and capacity to
adapt, particular problems exist regarding
implementation of various categories of control identified in the literature. Furthermore, other
aspects of the environment combine to increase the likelihood of a short-term focus and
exploitation of any control weaknesses that might exist. These include high staff turnover,
limited staff continuity and the priority for individual auditors of securing professional
qualification.
The findings suggest that in the current environment, the traditional up or out strategy is
perceived to have been at least partially abandoned and replaced by an out or up policy, with
promotion occurring automatically for many of the auditors who remain in the firm. Audit firms
appear to have less choice regarding who gets promoted and, given the need to retain staff, the
formal performance evaluation system is perceived by seniors as being less relevant in
promotion decisions than previously. A number of auditors referred to the difficulty of separating
cost and quality criteria for performance evaluation. Cooper (1995) suggested that the survival
zone for an organisation is determined by how successfully the competing requirements of cost,
quality and functionality are balanced. It is difficult for audit firms to compete on functionality as
the audit is considered a standard product. Regarding cost and quality, the findings suggest that
there is a range of acceptable cost and quality for an audit that could be described as the survival
zone (Cooper, 1995). Performing work of a quality level that is perceived by audit management
to fall below this zone will, if detected, have negative implications for auditors performance
evaluation (whether formal or informal). Within this zone of acceptable quality, meeting the time
target is considered the key performance criterion.
Implications

Calls have been made in the management control literature for more in-depth studies of control
issues, particularly those designed to examine how variables operate in combination (Chenhall,
2003) and this research re-affirms the value of such studies. The findings have confirmed that the
relationships between the selected variables and organisational effectiveness appear to be more
intricate than those portrayed by previous quantitative studies in audit settings. Furthermore, the
findings emphasise the importance of studying control in a complex environment, where key
conditions for the exercise of traditional forms of control are breached, and the achievement of
effective control therefore presents a particular challenge.
The study contributes to the auditing literature by providing additional depth and context to
illuminate previous quantitative findings regarding the environment in which audit work takes
place. Power (2003) refers to this as the complex back stage of practice, which has remained
largely unexplored by researchers, due mainly to difficulties of arranging access. The findings
provide significant insights into the time target pressures facing practising auditors and how
those pressures change over time, due to their association with specific characteristics of the
audit environment, both inside and outside the firm. Face-to-face interviews provided an
opportunity to examine the behavioural implications of those pressures in greater depth than that
provided by prior studies. Specific factors that moderate the relationship between time pressure
and QTB were identified in the study and the findings suggest that these factors form part of a
more extensive framework towards an understanding of behavioural responses to time targets
than univariate relationships with budget pressure, as presented in previous studies.
Opportunities for genuine participation in
audit firms are limited, due to the particular characteristics of the audit environment and only
rarely are the antecedents of participative budgeting, as suggested in the literature, present in the
audit environment. As regards style of evaluation, the budget-constrained style of evaluation
identified in previous studies has been broadened to include other constraints and has been
defined as a target-constrained style. This may be relevant in other settings, particularly with the
recognition of a broader set of performance criteria and the move to abandon budgets (Hope and
Fraser, 1997, 1999), where the main performance indicators and constraints may increasingly
arise from factors not traditionally associated with the budget. An additional dimension of style
of evaluation is the degree of formality, which has been given little attention in the management
control literature.
Opportunities exist for audit firms to reduce the threat to audit quality by recognising the
importance of the level of time pressure and moderating variables, and ensuring that
management policies and procedures are designed to bring about appropriate changes to those
variables. Regarding deliberate QTB, firms need to be conscious of the increased visibility of
deadlines in comparison to budgets. The fact that deadlines are precise, public and visible is
perceived to add to the pressure to achieve them and to increase the temptation to compromise
quality, which is much less public and less amenable to precise measurement. Although many
deadlines arise from external constraints such as client pressure, audit firms need to ensure that

they have satisfactory coping mechanisms in place to control these pressures. Regarding
inadvertent QTB, this behaviour appears also to have arisen from time pressure, combined with
less on-the-job training, increased responsibility and lower levels of supervision. Firms can
reduce the likelihood of this behaviour occurring by ensuring that appropriate levels of
responsibility are assigned to auditors and that the possibility of inadvertent QTB is specifically
considered in determining training and supervision procedures.
Conclusion and future research
The preceding discussion needs to be considered in the context of the strengths and limitations of
the study. A particular concern was the possible existence of various forms of bias inherent in
qualitative research and careful attention was paid to the pursuit of a rigorous and comprehensive
approach to collection and analysis of data, as reported earlier. The findings can therefore be
viewed as having a high degree of internal validity (Patton, 1990). The study also achieved broad
coverage, arising from the inclusion of auditors in their third and fourth year of employment in
four of the (then) Big Five audit firms in Ireland, and is the first study to report in-depth
interview data on this sensitive area of research.
Overall, from the perspective of relatively junior staff, the findings suggest that high staff
turnover and severe staff shortages have reduced the effectiveness of formal control systems in
recent years. The study is exploratory in nature and has inductively developed propositions of the
relationship between control system variables and QTB. Further research is therefore necessary
to examine the generalisability of the propositions to the wider population of audit seniors,
different time periods, other firms and different countries. In addition, the insights gained from
the study provide opportunities for further research into specific aspects of formal and informal
control procedures. Otley (1994) suggested that changing organisational structures increase
the need to concentrate on informal controls as a means of responding to changes in the
environment. Little empirical research has been reported on this aspect of control systems,
despite the increasing incidence of flatter reporting structures in an audit environment. Further,
the consequences of what has been consistently labelled as dysfunctional behaviour for audit
firms have not been examined. Brunsson (1993) suggested that specific behaviours that would be
deemed unacceptable to the outside world may be necessary and even useful in certain situations
in organisations. A closer examination of a range of behaviours that heretofore have been
presented as dysfunctional may therefore be warranted, and this could provide a useful direction
for future research. Gaining access to suitable research sites has been one of the main challenges
in conducting this line of research and, given its sensitive nature, combined with recent negative
publicity in relation to the profession in general, access is likely to become increasingly difficult.
Notes
1.

Specific criticisms relate to the absence of qualitative studies (Chapman, 1997), lack of
attention to service industries (Abernethy and Brownell, 1997), piecemeal theoretical

2.
3.

development (Briers and Hirst, 1990), proliferation of antecedent variables (Fisher,

1995), and differences in measurement of contingency variables (Chenhall, 2003).
Numbers in parentheses refer to interviewees (see Table II).
The evidence from senior interviews suggests that reduced levels of training results in
psychological contract violation, which is defined in the organisational theory literature
as the belief that employees have that the terms of their contract have not been fulfilled
(Morrison and Robinson, 1997). Interviewees believed that audit firms are not fulfilling
their obligations to provide adequate training and experience in different areas. Breach of
psychological contract has been associated elsewhere with decreased employee trust in
employers, decreased job satisfaction, and increased turnover (Robinson and Morrison,
1995; Robinson and Rousseau, 1994).