Skip to main content
SpringerLink
Log in

Who’s Watching? Accountability in Different Audit Regimes and the Effects on Auditors’ Professional Skepticism

  • Original Paper
  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

Abstract

The European Commission has suggested that the use of joint audits should lead to improved auditor skepticism and—by extension—audit quality, through increased accountability. However, archival research does not find support for improved audit quality in a joint audit setting. To better understand the relationship between accountability in different review regimes and auditors’ judgments, we examine the behavioral effect of implementing a joint audit relative to other review regimes based on a 1 × 3 experimental design. Forty-seven senior auditors and partners from a Big Four firm performed a going concern evaluation task under one of three review regimes: the joint audit, the internal review, and the no review regime. Notwithstanding the difference in the audiences to which auditors are accountable, there is no difference in the judgment process. In terms of their judgment outcome, however, auditors in the joint audit setting were the least skeptical in their judgment of the going concern assumption. Overall, we suggest that the joint audit may lead to unintended behavioral consequences.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. Note that Deng et al. (2014) look at a joint audit regime where the audit is conducted by one big audit firm and one small audit firm in comparison with an audit by a single big audit firm.

  2. We predict directional hypotheses in H3a and H3b based on our theoretical arguments, notwithstanding the fact that no prior relationship has been empirically established. However, please note that neither our interpretation for the significant result, nor its significance level would have changed, had we predicted non-directional hypotheses, and reported two-tailed t tests in the results sections.

  3. From the audit firms’ comment letters to the EC Green Paper, one can interpret that the Big Four firms are generally against the joint audit while the mid-tier firms welcomed the initiative. Our sample participants are auditors from a Big Four firm. We encourage further research to tease out potential differences between Big Four and mid-tier firm auditors.

  4. The sample could be further reduced to N = 33 if we rigorously exclude fourteen participants who did not report the correct answer to our manipulation checks. However, the ANOVA results (p = 0.022**) reported in Table 5 of “Appendix” and means for the going concern evaluation remain qualitatively the same as for the full sample of N = 47 (Means are as follows: Joint audit = 3.14; Internal Review = 1.23; No Review = 2.11). Therefore, we report results based on the full sample (N = 47) to report analyses with higher statistical power.

  5. Both variables are based on a sample of N = 46 (instead of N = 47) due to missing values.

  6. The prior year preparer’s conclusion regarding the reasonableness of the going concern assumption was presented in the same manner as in Brazel et al. (2004).

  7. The analyses are based on N = 46 (instead of N = 47) due to missing values.

  8. The results also support Hypothesis 3b if it were a non-directional hypothesis. A two-tailed t test to compare participants in the joint audit condition and participants in the internal review condition shows a significant difference on the identical 5% significance level as for the one-tailed t test (i.e., p = 0.04, two-tailed).

  9. The analyses are based on N = 46 (instead of N = 47) due to missing values. We also examined the three items separately and tested whether there were any differences between experimental groups. Accountability was generally high across the three items (means between 5.29 and 4.94), and there were no statistically significant differences between the three different experimental groups. This confirms the generally high accountability that participants felt across all groups toward their own firm or unspecified others (like regulators and investors).

  10. Since archival studies on the effects of the joint audit regime used audit fees as a variable, we also asked participants to provide an estimate of the hours that they would charge the client for the task completed including the preparation of the provided workpaper, after the participants signed-off on their evaluation of the reasonableness of the going concern assumption. This question was not well formulated according to some of the participants’ feedback and caused significant differences in means and standard deviations between conditions. However, an ANOVA analysis indicated that the review regime does not significantly influence charged hours to the client. Even though the question was ill-formulated, results imply that audit fees would not differ across the three review regimes.

References

  • Alissa, W., Capkun, V., Jeanjean, T., & Suca, N. (2014). An empirical investigation of the impact of audit and auditor characteristics on auditor performance. Accounting, Organizations and Society, 39(7), 495–510.

    Article  Google Scholar 

  • André, P., Broye, G., Pong, C., & Schatt, A. (2016). Are joint audits associated with higher audit fees? European Accounting Review, 25(2), 245–274.

    Article  Google Scholar 

  • Asare, S. K. (1992). The auditor’s going-concern decision: Interaction of task variables and the sequential processing of evidence. Accounting Review, 67(2), 379–393.

    Google Scholar 

  • Asare, S. K., Trompeter, G. M., & Wright, A. M. (2000). The effect of accountability and time budgets on auditors’ testing strategies. Contemporary Accounting Research, 17(4), 539–560.

    Article  Google Scholar 

  • Autoriteit Financiële Markten. (2014). Uitkomsten onderzoek kwaliteit wettelijke controles Big 4-accountantsorganisaties. (Research findings on quality controls in Big-4 accounting organizations).

  • Ayers, S., & Kaplan, S. E. (2003). Review partners’ reactions to contact partner risk judgments of prospective clients. Auditing: A Journal of Practice & Theory, 22(1), 29–45.

    Article  Google Scholar 

  • Baïada-Hirèche, L., & Garmilis, G. (2016). Accounting professionals’ ethical judgment and the institutional disciplinary context: A French–US comparison. Journal of Business Ethics, 139(4), 639–659.

    Article  Google Scholar 

  • Bédard, J., Piot, C., & Schatt, A. (2014). An evaluation of the French experience with joint auditing. Available at SSRN. https://ssrn.com/abstract=2165595

  • Beu, D., & Buckley, M. R. (2001). The hypothesized relationship between accountability and ethical behavior. Journal of Business Ethics, 34(1), 57–73.

    Article  Google Scholar 

  • Bonner, S. E. (2008). Judgment and decision making in accounting. Upper Saddle River, NJ: Prentice Hall.

    Google Scholar 

  • Brazel, J. F., Agoglia, C. P., & Hatfield, R. C. (2004). Electronic versus face-to-face review: The effects of alternative forms of review on auditors’ performance. The Accounting Review, 79(4), 949–966.

    Article  Google Scholar 

  • Buchman, T. A., Tetlock, P. E., & Reed, R. O. (1996). Accountability and auditors’ judgments about contingent events. Journal of Business Finance & Accounting, 23(3), 379–398.

    Article  Google Scholar 

  • Burgstahler, D., & Sundem, G. L. (1989). The evolution of behavioral accounting research in the United States, 1968–1987. Behavioral Research in Accounting, 1(1), 75–108.

    Google Scholar 

  • Campbell, T. (2005). Introduction: The ethics of auditing. In T. Campbell & K. Houghton (Eds.), Ethics and auditing. Canberra: The Australian National University Press.

    Chapter  Google Scholar 

  • Chen, Q., Kelly, K., & Salterio, S. E. (2012). Do changes in audit actions and attitudes consistent with increased auditor scepticism deter aggressive earnings management? An experimental investigation. Accounting, Organizations and Society, 37(2), 95–115.

    Article  Google Scholar 

  • Compagnie Nationale des Commissaires aux Comptes. (2007). Norme d’Exercice Professionnel NEP 100. Audit des comptes réalisé par plusieurs commissaires aux comptes. Enacted on April, 10, 2007, published in Journal Officiel n° 103 on May 03, 2007.

  • Deng, M., Lu, T., Simunic, D. A., & Ye, M. (2014). Do joint audits improve or impair audit quality? Journal of Accounting Research, 52(5), 1029–1060.

    Article  Google Scholar 

  • DeZoort, F. T., & Harrison, P. D. (2016). Understanding auditors’ sense of responsibility for detecting fraud within organizations. Journal of Business Ethics. doi:10.1007/s10551-016-3064-3.

    Article  Google Scholar 

  • DeZoort, T., Harrison, P., & Taylor, M. (2006). Accountability and auditors’ materiality judgments: The effects of differential pressure strength on conservatism, variability, and effort. Accounting, Organizations and Society, 31(4), 373–390.

    Article  Google Scholar 

  • Dhiman, A., Sen, A., & Bhardwaj, P. (2015). Effect of self-accountability on self-regulatory behaviour: A quasi-experiment. Journal of Business Ethics. doi:10.1007/s10551-015-2995-4.

    Article  Google Scholar 

  • Directive 2014/56/EU of the European Union Parliament and of the Council. (2014). Official Journal of the European Union.

  • Dyckman, T. R., & Zeff, S. A. (2014). Some methodological deficiencies in empirical research articles in accounting. Accounting Horizons, 28(3), 695–712.

    Article  Google Scholar 

  • European Commission. (2010). Audit policy: Lessons from the crisis. Green paper COM (2010) 561 Final.

  • European Commission. (2011). Impact assessment. Commission staff working paper, SEC (2011) 1384 Final.

  • European Commission. (2013). MEMO13/1171. Retrieved January 16, 2014 from http://europa.eu/rapid/press-release_MEMO-13-1171_en.htm

  • Francis, J. R., Richard, C., & Vanstraelen, A. (2009). Assessing France’s joint audit requirement: Are two heads better than one? Auditing: A Journal of Practice & Theory, 28(2), 35–63.

    Article  Google Scholar 

  • Freidson, E. (2001). Professionalism, the third logic: On the practice of knowledge. Chicago, IL: University of Chicago Press.

    Google Scholar 

  • Gibbins, M., & Newton, J. D. (1994). An empirical exploration of complex accountability in public accounting. Journal of Accounting Research, 32(2), 165–186.

    Article  Google Scholar 

  • Hall, A. T., Bowen, M. G., Ferris, G. R., Royle, M. T., & Fitzgibbons, D. E. (2007). The accountability lens: A new way to view management issues. Business Horizons, 50(5), 405–413.

    Article  Google Scholar 

  • Hall, A. T., Frink, D. D., & Buckley, M. R. (2015). An accountability account: A review and synthesis of the theoretical and empirical research on felt accountability. Journal of Organizational Behavior. doi:10.1002/job.2052.

    Article  Google Scholar 

  • Hoffman, V. B., & Patton, J. M. (1997). Accountability, the dilution effect, and conservatism in auditors’ fraud judgments. Journal of Accounting Research, 35(2), 227–237.

    Article  Google Scholar 

  • Hoogervorst, N., De Cremer, D., & Van Dijke, M. (2010). Why leaders not always disapprove of unethical follower behavior: It depends on the leader’s self-interest and accountability. Journal of Business Ethics, 95(1), 29–41.

    Article  Google Scholar 

  • Hurtt, R. K., Brown-Liburd, H., Earley, C. E., & Krishnamoorthy, G. (2013). Research on auditor professional skepticism: Literature synthesis and opportunities for future research. Auditing: A Journal of Practice & Theory, 32(Sp 1), 45–97.

    Article  Google Scholar 

  • International Auditing and Assurance Standards Board (IAASB). International Standard on Auditing (ISA) No. 570 Going Concern. (2012). Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Service Pronouncements.

  • International Standard on Quality Control (ISQC) 1. (2015). “Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements”, IFAC Handbook of International Auditing, Assurance, and Ethics Pronouncements, 2015 ed., vol. 1, International Standard on Quality Control (ISQC) 1, pp. 37–71.

  • Janis, I. L., & Mann, L. (1977). Decision making: A psychological analysis of conflict, choice, and commitment. New York: Free Press.

    Google Scholar 

  • Johnson, V. E., & Kaplan, S. E. (1991). Experimental evidence on the effects of accountability on auditor judgments. Auditing: A Journal of Practice & Theory, 10, 96–107.

    Google Scholar 

  • Kennedy, J. (1993). Debiasing audit judgment with accountability: A framework and experimental results. Journal of Accounting Research, 31(2), 231–245.

    Article  Google Scholar 

  • Koch, C., Weber, M., & Wüstemann, J. (2012). Can auditors be independent? Experimental evidence on the effects of client type. European Accounting Review, 21(4), 797–823.

    Article  Google Scholar 

  • Koonce, L., Anderson, U., & Marchant, G. (1995). Justification of decisions in auditing. Journal of Accounting Research, 33(2), 369–384.

    Article  Google Scholar 

  • Larson, M. S. (1977). The rise of professionalism: A sociological analysis. Berkeley, CL: University of California Press.

    Google Scholar 

  • Lerner, J. S., & Tetlock, P. E. (1999). Accounting for the effects of accountability. Psychological Bulletin, 125(2), 255–275.

    Article  Google Scholar 

  • Lesage, C., Ratzinger-Sakel, N. V., & Kettunen, J. (2017). Consequences of the abandonment of mandatory joint audit: An empirical study of audit costs and audit quality effects. European Accounting Review, 26(2), 311–339.

    Article  Google Scholar 

  • Libby, T., Salterio, S. E., & Webb, A. (2004). The balanced scorecard: The effects of assurance and process accountability on managerial judgment. The Accounting Review, 79(4), 1075–1094.

    Article  Google Scholar 

  • Lord, A. T. (1992). Pressure: A methodological consideration for behavioral research in auditing. Auditing: A Journal of Practice and Theory, 11(2), 90–115.

    Google Scholar 

  • Maijoor, S. J., & Vanstraelen, A. (2006). Earnings management within Europe: The effects of member state audit environment, audit firm quality and international capital markets. Accounting and Business Research, 36(1), 33–52.

    Article  Google Scholar 

  • Mansouri, M., & Rowney, J. I. A. (2014). The dilemma of accountability for professionals: A challenge for mainstream management theories. Journal of Business Ethics, 123(1), 45–56.

    Article  Google Scholar 

  • Marmousez, S. (2009). The choice of joint-auditors and earnings quality: Evidence from French listed companies. In Paper presented at CAAA annual conference.

  • Messier, W. F., & Quilliam, W. C. (1992). The effect of accountability on judgment-development of hypotheses for auditing. Auditing: A Journal of Practice and Theory, 11, 123–138.

    Google Scholar 

  • Nelder, J. A. (1986). Statistics, science and technology. Journal of the Royal Statistical Society, 149, 109–121.

    Article  Google Scholar 

  • Nolder, C., & Riley, T. J. (2013). Effects of differences in national culture on auditors’ judgments and decisions: A literature review of cross-cultural auditing studies from a judgment and decision making perspective. Auditing: A Journal of Practice & Theory, 33(2), 141–164.

    Article  Google Scholar 

  • Omer, T. C., Sharp, N. Y., & Wang, D. (2016). The impact of religion on the going concern reporting decisions of local audit offices. Journal of Business Ethics. doi:10.1007/s10551-016-3045-6.

    Article  Google Scholar 

  • Quick, R. (2012). EC green paper proposals and audit quality. Accounting in Europe, 9(1), 17–38.

    Article  Google Scholar 

  • Quilliam, W. C. (1991). Examining the effects of accountability on auditors’ valuation decisions. Unpublished doctoral dissertation.

  • Ratzinger-Sakel, N. V., Audousset-Coulier, S., Kettunen, J., & Lesage, C. (2013). Joint audit: Issues and challenges for researchers and policy-makers. Accounting in Europe, 10(2), 175–199.

    Article  Google Scholar 

  • Regulation of the European Parliament and of the Council on Specific Requirements Regarding Statutory Audit of Public-Interest Entities (EU No 537/2014). Journal of the European Union.

  • Samsonova-Taddei, A., & Siddiqui, J. (2016). Regulation and the promotion of audit ethics: Analysis of the content of the EU’s policy. Journal of Business Ethics, 139(1), 183–195.

    Article  Google Scholar 

  • Schlenker, B. R. (1986). Self-identification: Toward an integration of the private and public self. In R. E. Baumeister (Ed.), Public self and private self (pp. 21–62). New York: Springer.

  • Siegel-Jacobs, K., & Yates, J. F. (1996). Effects of procedural and outcome accountability on judgment quality. Organizational Behavior and Human Decision Processes, 65(1), 1–17.

    Article  Google Scholar 

  • Steinbauer, R., Renn, R. W., Taylor, R. R., & Njoroge, P. K. (2014). Ethical leadership and followers’ moral judgment: The role of followers’ perceived accountability and self-leadership. Journal of Business Ethics, 120(3), 381–392.

    Article  Google Scholar 

  • Suddaby, R., Cooper, D. J., & Greenwood, R. (2007). Transnational regulation of professional services: Governance dynamics of field level organizational change. Accounting, Organizations and Society, 32(4), 333–362.

    Article  Google Scholar 

  • Tan, H. T. (1995). Effects of expectations, prior involvement, and review awareness on memory for audit evidence and judgment. Journal of Accounting Research, 33(1), 113–135.

    Article  Google Scholar 

  • Tetlock, P. E. (1985). Accountability: A social check on the fundamental attribution error. Social Psychology Quarterly, 48(3), 227–236.

    Article  Google Scholar 

  • Zerni, M., Haapamäki, E., Järvinen, T., & Niemi, L. (2012). Do joint audits improve audit quality? Evidence from voluntary joint audits. European Accounting Review, 21(4), 731–765.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. HEC Paris, 1 Rue de la Libération, 78351, Jouy-en-Josas, France

    Florian Hoos & Michel W. Lander

  2. Desautels Faculty of Management, McGill, Bronfman Building, 1001 rue Sherbrooke Ouest, Montreal, QC, Canada

    Jorien Louise Pruijssers

Authors
  1. Florian Hoos
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Jorien Louise Pruijssers
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Michel W. Lander
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Florian Hoos.

Ethics declarations

Conflict of interest

None of the authors received research grants for conducting this study. All authors declare that they have no conflict of interest.

Ethical Approval

All procedures performed in our study involving human participants were in accordance with the ethical standards of our respective institutions.

Informed Consent

Informed consent was obtained from all individual participants included in the study.

Electronic supplementary material

Below is the link to the electronic supplementary material.

Supplementary material 1 (DOCX 53 kb)

Appendix

Appendix

See Table 5.

Table 5 Means, SD, ANOVA results, and planned contrasts for N = 33 (sample after manipulation checks)
Full size table

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Hoos, F., Pruijssers, J.L. & Lander, M.W. Who’s Watching? Accountability in Different Audit Regimes and the Effects on Auditors’ Professional Skepticism. J Bus Ethics 156, 563–575 (2019). https://doi.org/10.1007/s10551-017-3603-6

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-017-3603-6

Keywords

Search

Navigation