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City, University of London Institutional Repository Citation: D'Silva, K. (1992). External auditor independence: selected group perceptions. (Unpublished Doctoral thesis, City University London)
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EXTERNAL
AUDITOR
INDEPENDENCE:
SELECTED GROUP PERCEPTIONS
Thesis
submitted
Kenneth
E.
the
Doctor
J.
volumes
by:
FCA CA(Can)
degree of
two
D'Silva
MSc
BCom(Hons)
for
in
of:
Philosophy
to: City
University
London,
England
Research
conducted
Department City
of
Accounting
University
Frobisher London
at:
Business
Crescent,
and
Finance
School
Barbican
Centre
EC2Y 8HB
England
January
1992
1
02025-248k
EXTERNAL
AUDITOR
SELECTED
GROUP PERCEPTIONS
VOLUME
11
INDEPENDENCE
(EAI):
OF Il
VOLUME II
Page
TABLE OF CONTENTS - VOLUME Il
2
LIST
OF TABLES - VOLUME 11
4
LIST
OF APPENDICES
6
- VOLUME 11
CHAPTERS EXPECTATIONS X GAPS AND EXTERNAL AUDITOR INDEPENDENCE 10.1 Expectations gaps and the present research 10.2 The factor to expectations approach gaps 10.2.1 The reliance factor 10.2.2 The relationship factor 10.2.3 The pressure factor 10.2.4 The involvement factor 10.2.5 The management factor services advisory 10.3 Chapter summary
XI, 11.1 11.2
xii 12.1 12.2 12.2.1 12.2.2 12.2.3 12.2.4 12.2.5 12.3 12.3.1 12.3.2 12.4 12.5 12.6'-
SIGNIFICANT OF EXTERNAL Inter-group Intra-group
GROUP DIFFERENCES IN PERCEPTIONS AUDITOR INDEPENDENCE differences of EAI perceptual differences of EAI perceptual
THE UNDERLYING DIMENSIONALITY OF EXTERNAL AUDITOR INDEPENDENCE The appropriate methodological approach Factor (FA) analysis Statistical overview Principal and Factor component analysis important Other in using FA considerations Factor analysis and the research objectives Amenability to factor of data set analysis The underlying dimensionality of EAI cognitive complexity Integrative complexity Empirical results Reification and framework mapping Concluding remarks
2
7 7 21 22 29 39 45 57 63
74 75 92
112 114 117 117 119 120 123 124 125 129 130 132 142 145
Page xiii
13.3.6 13.4
THE MAIN GROUP DISTINGUISHING FEATURES OF EXTERNAL AUDITOR INDEPENDENCE Understanding differing group perceptions independence of external auditor Important statistical considerations on LDA bases The respondent (judgements) The responses analysed The validity LDA of using discriminant Linear analysis results Discriminating external auditors v. bankers Discriminating external auditors v. credit managers Discriminating external auditors v. internal auditors Discriminating issuers v. users of audit reports Discriminating Big-Six v. nonBig-Six auditors Discriminating EAs v. BAs v. CMs v. IAs Summary conclusions and implications
xiv
PERSONAL
14.1 14.2 14.2.1 14.2.2 14.3 14.3.1 14.3.2 14.3.3 14-3.4 14.4
ON EXTERNAL AUDITOR INDEPENDENCE The multiple linear regression methodology The variables for the regression equations The independent variables The dependent variables The regression models External auditor group regression models Banker group regression models Credit manager regression group models Internal auditor group regression models Summary and implications of regressions
199 200 201 202 210 214 214 215 217 219 221
XV 15.1 15.2 15.3 15.4
SUMMARY AND CONCLUSIONS Limitations of the research Significance and main findings of research Possibilities of further research Recommendations derived from the research
225 225 228 239 240
13.1 13.2 13.2.1 13.2.2 13.2.3 13.3 13.3.1 13.3.2 13.3.3 13.3.4 13.3.5
CHARACTERISTICS
153 155 156 156 158 158 161 161 169 172 177 180 187 191
AND GROUP VIEWS
APPENDICES
243
BIBLIOGRAPHY
259
3
LIST
Table 10.1
10.2
10.3
10.4
10.5 10.6
OF TABLES
-
11.3
11.4
11.5
11.6
11
PAge
Title
Table
No.
re.
concern
expressing
of groups in situations
EAI 68
% of groups expressing EAI in situations % Users/Issuers EAI in situations
no
concern
re. 69
concern
expressing
re. 70
based on their Rank of situations group mean levels of concern with or assurance in EAI (concern to assurance)
71
Ranked means of to situations
72
Ranked % of in situations significant (@ 05) . Refined
11.2
VOLUME
refined
group
concerned
groups
responses with
EAI 73
(NS) differences (S) Or not t-test: t-value on and and MLC responses group
81
(NS) differences (S) or not Significant test: Mann-Whitney (@ 05) and z-value on . Refined and MLC responses group
83
for ANOVA-related refined statistics from to questions responses situation four groups all research
85
based (@ . 05) differences Significant t- and F using MANOVA on Hotelling's to sets group responses of refined situation questions
on 89
Significant (S) or not (NS) differences (@ 05) on MLC and refined responses . the external within auditor group
100
(S) Or not Significant (NS) differences (@ 05) based on Hotelling's F tand . MANOVA on sets using group of refined to situation responses questions
106
12.1
Selected
12.2
factor Initial and eigenvalues:
group
factor
analysis
loadings, External 4
results
Communalities auditor group
126 134
LIST
Table
12.3
12.4
12.5 12.6
12.7
OF TABLES
-
No.
(ContinUed)
II
VOLUME
Table
Title
Page
factor Initial and eigenvalues:
loadings, Banker
communalities group
factor Initial and eigenvalues: Internal auditor
loadings, Credit groups
communalities manager and
135
136
Oblimin refined
factor rotated Ext. responses:
loadings auditor
Oblimin refined
rotated responses:
Oblimin refined Internal
factor loadings >0.5 rotated Credit responses: manager and auditor groups
>0.5 group
factor loadings Banker group
>0.5 139
12.8
Intra-group
factor
13.1
Discriminant v. Banker
model group
Discriminant v. Credit
model 2: External group manager
auditor
3: External group
auditor
13.2
13.3
Discriminant V. Internal
External
model auditor
4:
Issuers
Discriminant
13.5
Discriminant model 5: nonBig-Six Big-Six External group auditor
14.1
14.2
14.3
14.4
14.5
Discriminant Banker v.
auditor 163
13.4
13.6
140 141
correlations 1:
138
model
6: v.
model Cr. Mgr.
Ext. Int.
independent Dependent and Summary statistics
170
173 v.
auditor auditor
Users
178
v. 182 v. group
variables:
189
212
Correlations: variables
Dependent and independent EA group regression - Multiple
213
Correlations: variables
Dependent and independent BA group regression - multiple
216
Correlations: variables
Dependent and independent CM group regression - multiple
218
Correlations: variables
Dependent and independent IA group regression - multiple
220
5
OF APPENDICES
LIST
VOLUME
-
Appendix
A-
List
Appendix
B-
The
research
Appendix
C-
Top
Twenty
thesis 0
This the
auditor.
are
to
external
context,
auditing
equally
to
without
immediate
Appendix
the
A of
because
persist legitimacy give Loye,
"Quis
1990:
Decimus
the
not
auditor to
repugnant
masculine
only,
abbreviations
of
and
references
are
in
used).
ions
institu
have
legitimacy,
and that
the
perceptions
of
it
used
provided
abbreviations
can take
the
apply
are
and even military
political they
auditing
such
they
(List
II
258
external
clarification,
and they
People
people.
away. "
[Eisler
and
37]
custodiet
guardians
in
Where
comes from
legitimacy
the where
feminine.
economic,
stated,
and
made
Volume
to
reference
otherwise
references
firms
UK auditing
Additionally,
respectively.
247
questionnaire
frequent
Unless
243
used
abbreviations
of
makes
Page
Il
ipos
themselves? Junius
custodes? ] from
Juvenalis,
" -
Satires
(Who is VI,
Roman satirist
6
to
the
guard
written (60-130
by A. D. ).
X
CHAPTER
EXPECTATIONS
GAPS AND EXTERNAL
The purpose consider,
of
The
chapter
the
first
gaps
of
is
-
third
in
gaps is-a
section
10.1
the
Expectations conducting to
that
considers
the
Research
of
and
main of
its
central of
it.
research heed asking
call
The
situations.
summary of
EAI,
for
rationale
The
discussion
present
5]
expectation
being
research
into
sections,
research.
core,
the
[1989a:
"the
and
role
is
being
for
research by
served
be undertaken.
this
undertaken,
successful
this
related
research
ICAEW's
to
auditing"
nature
concluding
gaps this
paid
the
twenty
brief
EAI
twenty
questionnaire.
chapter's
the
the
three
to
and
gaps",
within
relationship
and
"expectation
within
the
explains
an examination
expectation
are
which
section
focus
in
structured
their
and
second
is
audit
be detected
INDEPENDENCE
identify
to
possible
outlined
situations
audit
In
to
are
is
chapter of
pockets
as they
such
this
AUDITOR
type
and what
the
accomplishment include
1989a:
5]
future
expectations
(inter
considers
matters of
the
why audits
alia)
for
pre-conditions
are.
Related
topics
such
as "the
present
users 7
of
audit
its CICAEWI and
services".
include
Such expectations of
the
the
audit
total to
related
include
expected
of
The In
(from)
pockets
chapter
helps
the
impact
1.
2.
of
EAI,
of
users
the fall
short
Expectation
their
of
(or when
gaps)
observed
professional
auditors
focused In
the
commissioned Gap"
their
of
professional
this
gaps",
twenty
audit
situations:
environments
audit
group
on views
and some groups
services expectations
their
gaps".
US).
users
including
the
specific
"expectation
of
by the
perception
of
EAI by audit
of
actuality.
users
Gaps
Shortfalls users,
in
by which
gaps
of
areas
characteristics
as seen by an auditor of
expectations
"expectation
of
uncover of
to
independence. and
objectivity
revealing
output extend
fruitful
Thus,
characteristics
research
but
including
auditors
present
physical
report,
behavioural
the
such
integrity,
audit
behaviour.
auditor
the
only
environment,
research
services,
- the
process
audit
not
by
- Accountancy
the
Such in
research the
2 above), have
gaps the
US and
commission into
are been
January
8
of
UK and [CAR,
expectation
ICAEW ("Examining Age,
audit
of
expectations
in
(as
(Cohen
enquiry UK,
in
10,1991:
described
to
concern the 1978] gaps
the
as
subject in has
Expectation 2].
the been
Expectation In
gaps in
fact, has
gaps
1989
the
term
financial
of
this
definition
Porter,
Cohen
needs
and
expect
to
Commission exist
what
auditors
it
from
This
is
virtually
sees
it
as the
of
it
However
excluded or
achieved
and
can
auditors in
them,
the
to
gap "between
the public
and what
of
those
Porter
society's
performancef
" 9
as
the or
expects
xi].
gap between
as the
of
term
reasonably
should
1978:
terms view
the
what
[CAR,,
and auditors'
auditors
1974].
that
referred
has been described
expects
receives
in
between
accomplish"
Recently
and by the
auditor.
"may
which
performance
accountant
[Liggio,
the
to
referred
may be "reasonably"
what
by the
accomplished
society.
al,
et
and
expected
independent
statements"
of
the
of
was deficient
consideration
society
1990
gap"
levels
the
by the
envisioned
user
gap
"expectation
between
difference
Thus,,
auditing
1991].
and
Initially
"as
the
Arrington
1978;
Steen
1990;
Singleton-Green,
1983;
in
attention CAR,
1974;
[Liggio,
expectation
of
subject
reasonable
received
literature
the
years,
recent
defined
and
explained
it
perceives
what it
expectations. (1991:
2),
who of
expectations as perceived
by
As such,
Porter
precise)
term
term
"audit
used.
suggests "expectation
Nevertheless,
while
underlying
Further,
in
it
where
large,
including
excluding
the
investors
and
Present
be
the
term
of
to
the
as the users of
meaning
the term.
term
Commission
usage
that
with
should
precise
of
Cohen to
precise)
refers
more
usage
(less
(CAR,
population of
at but
statements,
the
"public"
term "society".
of
Postulations
above audit
that
basis,
is
several
the
a complex
element
a major perceptual
to
within
in
expectations
of
one for
each
10
of
are
there
users.
gap is
a measurement
based of
met,
is
on
the
(on issues)
perceives
audits
statistic fact,
any expectation
society
underlying
In
gap.
each group
Thus,
of
many
of
network
one overall
gaps,
phenomena. which
not
number
expectation
expectation issue
underlying
is
there
Thus,
that:
postulates
research
environment
captures
degree
this
each made up of'a
issues.
its
the
of
referred
synonymous
subjects,
are
is
auditors.
Research
the
by
use
usage
present
present
as used
1978].
1.
gap"
retaining
those
general,
is
"society"
on the
its
gap",,
concepts
also
(more
the
gap",,
the
of
expectation-performance
"expectation
is
instead
that
required.
that
consideration only
to
but
also
the
ethical
the
if
the
of
audit
of
it,
ones)
upon which
on the
the
perceptions
then
that
this
measure
the
issue,
further
following
what
society
expects
2.
what
society
perceives
issue an
within
establish what
it
society's
the
a measure expects
from
perceptions
of
auditors,
for
gap
must
pay
due
gap.
to
attempts any
regard
to
(at
factors:
1.
assessment
they
that
postulates
issue,
As such,
expect
issue.
between
believe
expectation
users
that
for
is, an expectation
there
underlying
by
a difference
they
that
expectations
gap
users
audit
performance
auditing the
is
rest.
issue
their
one with
there
what
research
particular least)
hand, of
and the
at
systems,
may infer
audit
be no expectation
other
receive,
former
one
a specified
are
will
If,
the
not
(including
and norms
definition,
of
and
procedures
standards
services, there
Thus,
work
preceding
refers
environment
those
perceptions
for
audit
auditor's
to
the
Applying
the
of
(from)
of
of
it
auditors from
receives
environment,
recognising
of
what 11
must
and then it
(in
first
judgements
society's
auditors,
to
gap relating
any expectation
auditing
auditors.
relate
fact)
it
to
so receives.
of
Research In
Context
this
first
i. e.
reports)
were
of
the
of
three
and
of
impossible say
independently, that
confidence
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this
expectations
"What
asked
were in
the
research
in
the
that
of
audited
having
considerations)
will
what
regard
all
that
of
audit
users
only
to
be the
the
demand? " 12
has
acted total
have
believe
Thus the
may
judgements
of
may reasonably the
external
statements relevant
below,
question
(Appendix
Minimum of
while
society's
audit-users
to
gap
independently.
act
questionnaire
financial to
notes
audit-users
independence
to
nuance
ask
auditors.
to
was made up
an auditor
by responses
caught
plank
an expectation
one
of if
considered
Confidence
(i. e.
of
do you consider
users
EAI,
(considers
ignores
and)
of
certainty
auditor
a central
category
may conceivably
the
respondents
expect, placed
with
to
audit
statements.
groups
position
be reasonably what
it
second
issue
(who
a different
and
for
they
first
definition of
and
EAI,
of
bring
reports
preceding
to
services
terms The
an amplification may be
in
categories,
reports)
themselves
auditors
audit
the
Relating
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who each
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use
use
profession.
audit
their
of
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audit-users
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it
the
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Level
B: 2541: of
auditors justly may and reasonable
The judgements were,
in
their
individual
in
fact,
facts
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assessed
on the
they
receiving,
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what
basis
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is
the
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to
any
the
perception 5)
to
this
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negative
term
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users than
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receive
believe
basis
on the
on the
and not
happen".
his
and
be
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factual
-2
may not
the
situations, the
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is
audit, of
it.
a
be the
may be negative
in
in
5).
implies
necessarily
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from
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3 minus
e.
gap usually
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of
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absence)
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made more important
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recognising to
distinguish that
is
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term
develop
be used when detecting a gap that
of
to
required
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with
deemed any situation
concern"
to
point
Having
extent. then
only
gap
- performance)
-5.
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showed
its
one is
extent,
gap is
an expectation
assessing
a reasonable presence
of
with
EAI for
is
made with
arbitrary
concern
"not where
notable".
nature that this
35% or more of
gap,
as reflecting
that
group.
that
is
14
any
"notable" research
has
a group "notable
Subsequent
interpretation
of
usage implied.
of
Further,
as
provide
only
the
Hence,
is
00 Individua
the
with Group
(concern These
or)
are
Equally,
that
(none
4.
all)
An assessment for of
all the
group
In
are
a negative
to
of
in
differences
stated
detect
underlying
2 were are
by
in
of
significant
group
compared. stated
within 15
gaps between
These
a
gap were (Page
10.2 of
69).
the
gap
the
taking
the
10.3
expectation differences
computed.
reflecting
three
mean
user This
gap.
expectation Table
a
68).
frequency
each
reflecting is
Table
computed
within
average
(Page
expectation in
gap.
reflecting
each group
of
overall was
a concern
gap were
10.1
stated
the
users
and audit-users, stated
Table
percentage
order
terms
proportion
or positive
of
audit
groups
5.
at
audit
indicated
expectation
percentage
These
computed.
in
stated
from
and an expectation
that
negative
computing
deducted
were
results
for
percentages
assess groups.
and
regarding
issue
underlying
to
of
gaps was as follows:
responses
Negative
expectations.
developing
response
realm
constituent
expectation
perceptual
the
practical
overall
in
used
(individual)
their
nil
of
(and group)
individual
3.
basis
approach
into
and
gaps
respondents'
insights
useful
more
on the
gaps
of
microcosmic
it
auditing, these
assessment
individual
(Page
70).
in
differences between the
issuers
percentages
inter-group
Table
10.3
(Page
70).
Inter-Group
comparison
While
expectation
those
developed
why
such
standpoint the
them,
of
benefit it
gaps
between
this
indicates extent
the
same.
also
for
to
On the
it
is
expectation
is
a set
this
audit
subject,
practical.
First
because
contained and
considered, issue
is
the
the
within second
same,
or
that the that
from
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[1987:
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influences
EAI.
The
registered
groups
their
gaps
being
ranked
was
the
on this
IA
in
The present [1980],
that
a ten-year
Further,
While that impair where
where
present
Firth
(1981] tenure
continued factor
are about
tenure
when
there tenure EAI, only
in
fact
the
in
the
that
not
was
agreement
between
view
15% indicated
a factor
was most a trace 30
still
itself) a significant
EAI.
groups
all that
evident of
consistent
(by
was strong
that
considered
broadly
of
itself
with
relationship.
perceptions
in
decile.
second
would
developing
was not
gaps
exception
respondents
also
auditor,
for
their
of The
auditor
who determined
negatively
more consistent
78% of
are
at
rankings
auditor-auditee
findings
of
tenure
quartiles. ranked
gap
contradict
three
with
by the
an independent
reflect
with
quartile
where
findings
Firth
similar situation,
group,
to
audit
it
either.
15.0% and Bankers tend
first
groups
one expectation
continued
their
significant
other
but
at
findings
Shockley's
the
smallest
Auditors
these
Thus,
24.7%.
a perceived
EAI for
their
They registered for
provoke
in
would the
EA group,
an expectation
gap.
on the that
twice
views
rotation
of of
to
adopt
in
As such, system
gap.
weak
only
that
presently
for
the
for
support
rotation
of
of
nonto
appear
by UK users
EAI
moves of
an expectation
suggest
not
was 29% of
periodic
findings
does
confidence
any
for
shared
about
is
there
the
auditors
statements.
of
groups
was held,
on average,
who argue
Further,
auditors.
a loss
those
of
it
which
traces
findings,
(user)
other
with
registering
on these
Based
to
as strong,
each group
the
while
intensity
the
view,
about
the
hand,
other
cause
audited
auditing
profession
rotation
may be unwarranted.
9 showed
major
ituation Responses view the
between IA
under
concern
50% of
in
the
this
BA groups
Equally,
there
appeared
and IAs,
both
of
9, two
other
EA and
of
EA and
Situation
the for
by groups
across
four
was
not
to
whose gaps
fell
in
31
into
and
registered was
that
the
the
the
same.
There
be consistency fell
the
this
groups.
in
hand,
groups,
BA groups while
of
notable
all
situation, both
one
While
other.
registered
40% of
consistency the
was
differences
on the
BA groups
on the
concern
EAI
with
least)
EA and
EAI
of
Somewhat
rank
the
with
intensity
Situation
CM groups
and
concern
(at
to
true
was the
second
between third
of
good gaps
decile.
cMs decile.
EA and
The
for
gaps
in
average)
the
of
the
for
issuers,
the
it groups.
from
a firm
seem to
a majority
to
MD of
the
(on
audit
as
from
of
in
a cross-
continues
two
was
evident Thus
detract
of
gap
was
user
firm
expectation the
while
same audit
does
client)
revealed
However,
partner
audit
confidence
groups
38% of 50% of
(while
that
9.
about
about
client to
user
Situation
present
over
the
all
auditors
EAI
user
groups.
A on that
basis,
examine
guidance
for
it
is
to
accepting
senior
provides firms
an exception CAICPA,
former
with
and,
reconsider
the
positions
1986:
with
for
in
on the
clients,
in
wisdom
of
The
to
take that
condition
AICPA their
from
retiring
order
re-
interim,
the
clients.
partners
4412),
bodies
audit
issue,
on this
audit-partners
that
advisable
employment they:
"are no longer in the firm, that the fees active from such (employing) do not received clients have a material retirement effect on (their) benefits (they are) not held out as and that being associated " with the former partnership. The
issue
appears
what
point
part
of,
AICPA
(and or
and
its
how)
revolve does
associated former
requires with
associated
to
view
the
appears
should
be made
physical
and
evident
financial
an audit his
with,
(audit)
in
(at
aspects. 32
cease firm.
previous
firm"
be that
question
partner
be no
partners
to
the
around
longer
[AICPA, such
least)
at
to
be
The
"closely 1986:
4435],
dis-association all
of
the
legal,
Understandably surveyed
the
manifest
audit
EAI,
not
Whereas
the
concern
(38.3%),
of
reverse
The
by
the
38.3%,
of
client.
terms
gave
The
46.3%
as
four
"the
years
involved
in
the
any
respondents employee
view,
ago the
expressing
four
research
relationship
audit
showed
IA
(the
always
with
the
in
the
last
been
not
its
audit-"
may be that
these
or
previous audit
the
be impaired,
result
employer-
client that
no matter
has been terminated. 33
is
client)
of
at
respectively
concern
had
concern
was
concern
that
state
question
it
intensity
groups of
the groups.
some notable
CM and
the
client,
but
gaps,
between
be undesirable, will
the
any form
relationship
cross-over
them
such
considered
to
auditor
for
the
with
to
in
way with
of
rise
clearly
partner
One interpretation
intensity
The magnitude
facts
EA group.
the
the
of
the
to
registered,
49.6%.
and
EAI,
concern
firm
BA gap
those
while
by
least
of
across
also
most
but
groups,
audit
groups
revealing,
their
MD of
revealed
expressed
(55.8%)
severe.
17
user
in
cross-over
user
were
Situation
the
concern
less
a cross-over
to
firm
audit
to
EA group
from
staff
most
from
in
EAI
with
users
audit
17
responses
with
the
a majority
concern
partner
Situation The
then,
and the EAI,
in
how long
Another registering
concern that
stating to
years
interpretation
possible
be long
not
regardless
is
worth
noting
by the
may thus
either
wish
the
extend
to
years
with
the
of
unique
client
are
than
approach
to
the to
three it
troubled
audit
in
firm,
by
user the
by
staff
34
to
period
from
three
years.
gap
slightly
lower
quartile
positioning
gaps
whereas
it
groups.
on the
confirms to
approach
EA group
and
those
other.
concerned
vice-versas
issue
this
a more
on the
cross-overs
than
rather
a crossor,
groups,
that
suggest
who
firm,
ranking
uniformity
such
quartile,
three
quartile
strongly
more
the
result
bodies,
expectation
and the
the other
in
between
the
audit
four
the more intense
a strong
The results EAI
time
critical
second for
hand, EAI,
to
client
greater
consistency
one
four
this
curtail
was in the third
former
was the
This
audit
by the User groups,
expressed
of
of
UK auditing
severely
by the EA group,
manifest
for
interpretation,
relevant
to
relevant
a period
Consistent
effect
vestiges
eradicate
the
of
from
staff
a period
in
dynamics.
However,
of
respondents
were
situation
consider
to
enough
employer-employee
over
the
with did
they
may be that
from
with audit
Situation
20 fact
the
Despite
the
was not
situation
the
that
audit
relative
close
by
with
EAI
was expressed
respondents
from
the
CM and IA groups.
Respondents
from
the
EA and BA groups
sceptical group
either
all
registering
the
on the
one hand,
other,
second being
the
in
To the
extent
[1981)
Situation
respondents
and
that
the
were
an employee
content
played
a third
of
EA and BA groups
CM and IA groups of in
ranked
the
their
on
the
the
two groups
other
in
provided
the
35
audit
with
situations
a partner
client,
most
showed
in
of
Firth's
do not
results
EAI
with
in
20 and
analysis
between
no part
reasonable
20.
situation
present
the
the
quartile.
Firth's
of
41% of
The intensity
of
8 compare,
relationship
partner
third
favourably.
contrast
family
the
slightly
least
at
being
those
while
53% of
gap in
the
the
same.
two groups
quartile,
were
Situation
for of
much the
first
ranked
with
rankings and those
were
for
gaps
quartile
least)
terms,
overall
a gap for
registering
Again,
the
in
present
client's
a maximum of
EAI was manifest,
with
groups
with
(at
an expectation
Nevertheless,
situation. concern
EAI,
about
the
the
of
MD,, concern
less
in
partner
the the
the
audit related client.
a firm
However,
present
half
least trace
of
there
situations
the
it
to
be so,
even when the
relative
may be desirable
their
Situation
In
family
is
company
light
the
in
partner
the
of
bodies
UK audit close
related
audit
his.
of
for
on EAI in
stand
the
and thus,
EAI
with
at
some
20,
concern
one above.
for
registered
Situation
as the
a close
employing
in
such
one responsible
on average,
groups
be reasonable
to
appears
not
user
gap,
an expectation
appears
This
the
each of
of
that,
revealed
results
to
this
of
re-examine
relationships.
19
The situation
was developed
in
that
the
belief
concerned
with
regard
the
of
standing
of
Thus,
there
about
the
carries generally
relative
essentially
company
in
much political regarded
in
this the
of
of
public
question. repugnant
auditor-client this
situation.
is
"a life
London.
He is
companies
As a consequence,
clout. as a force 36
to
some
and
ethically
situation
several
in
client
the
City
take
also
strength
of
facts
other
in
figure
a director
may,
environment,
or the
the
statementst
nothing
research
EAI by persons
of
and the
is
for
perceptions
positions
auditor
auditing
and a leading (also]
audited
the
relationship,
The MD of
the
and included
be reckoned
peer
and he is with.
"
In
he bears
short,
his
achieve community situation
thus
his
validate
is
While
this
fact,
even when weighed of
cause
concern
in
the
again,
(expectation EA and
gaps
for
second were
In
gaps)
the quartile,
the
many respects, those
Limited.
Both
Officer
least
of
hand,
About
in
facts
the
affairs
a trace
of
the
ranked other
of
the
the
CM
The
same. in two
the groups
Pergamon
of
a Chief
present
personality
to
this
"powerful
the
other
concern 37
19 strongly
Situation
of
EAs (31.7%),
47% of
the
those
for
quartile.
the
the
and much
of
may
concern situation,
being
those
third
this
were
groups
accountants,
of
one
responses
with
evident
noted
some respondents.
in
situations
of
concern
(50.6%).
of
an impressive
with
The results that
two
equal
chartered
EAI
that
relatively
of
other,
while
in
ranked
resemble
IAs)
on the
first
the
this
quality.
disturbing,
rankings
with
on the
groups
eyes
in
Goliath-type
against
quartile
BA groups
IA
and
the
the
The director
necessarily
a Top Ten firm
stature
once
not
in
standing
actions.
to
one who tends
of
a certain
portrays
itself
marks
and has the
ambitions to
hall
the
Executive and standing.
situation
revealed
chairman and most
EAI
syndrome"
was
in
CMs
evident
two groups with
Press
in
(BAs and Situation
19.
it
As such,
are
statements EAI
about
more
EAs
have
to
to in
them
in
about
half
share
a perceived
the
the to
accord
of
audited over
concern
to
succumbing
and strong-willed
their
users
of
perceived leviable
senior
of
on
audited
them.
findings
these
of
auditors
in
pressure
than
users
suggestive
situations
(potential)
One interpretation
financial
audited
EAs themselves,
confidence
more
to
of
syndrome".
situations, appear
statements
minded
than
withstand
such
external
concerned
chairman
appear
ability
users
considerations
"powerful
the
the
that
appears
financial
statements
likelihood
the
be that
to
appears
of
pressure
from
officers
of
strong-
their
audit
clients.
As such,
it
auditing
bodies
of
potential
subjected,
Along
the
such
advice
least)
to
to
of
would
precautions
approach-in
offer
all
which greater
can
they
the
relevant
UK
varied
types themselves
may find
exposition
and dealt
made by Benson that
recommend
audit
to
be effectively
suggestions
to
the
for
auditors to
pressures
lines
benefit
alert
pressure and
on how such
be of
would
maintain matters. 38
auditors a strong
take
advice with.
[1983], (at
independent
10.2.3,
The
Situation
11
issue
The
Situation
in
all
the
of
the
gaps
on the
time
of
in
Thus,,
four
was markedly
different
for
in
comparable
gap in
of
audited
is
fact
that
gaps
on Situation
into
the
the three 10.3
60%).
in
quartile
first
for
the
(positive
that
time
pressure
on the
in
groups, this
and the
relevant
the
it
39
gaps but
into
fall the
showed the
also
(for
average
EA group.
difference
the
groups.
difference
between
in
expectation
EA group,
that
EAI
themselves.
group
the
the
noticeable
also
of
was at
by users
and often
user
or negative)
situations)
(Page 70),
indicates
is
the
11,
This
the
three
EA group
Situation
by auditors
for
other.
groups
show that
11,
the
groups
user
view
11 was revealing
users
for
three
ranking
quartile
quartile
twenty
the
than
difference
Situation
of
user
on the
30% of
EAI
of
significant
statements,
the
than
gap intensity
the
the
group
seen more intensely
major
highest
terms
(i. e.
of
This
third
less
terms
that
impact
issuer
the
and
a gap
auditors
an expectation
However,
somewhat
twice
of
groups.
registered
of
traces
as described
auditor
research
hand,
one
likely
on the
pressure
11 revealed
whereas
least
factor
pressure
gap for
As noted
was computed
any of
in
the Table
as 35.9%.
texts
Auditing
recognise
intrinsic
and integral
treatment
is
it,
the
users to
benefit
the
expectations,
when
may however is
users may in what
In
issue
stem is
an audit
case,
weighed
the is
standards,
which
so,
users
the with
only
individual
they
facts,
the
must
Macdonald
of
suggestion
Commission
40
it.
to
can be duly
itself
his
up by the
auditing of
to
an audit
made recently set
that
a compromise
what
of
11 are
may indicate
address
Concerns
complete
Situation
compromising
end is
by
registered
gap".
to
duties
way audit
time
understanding
required
to
a good awareness -a
gaps
their
by an auditor in
the
a "knowledge
is
may or
audits.
of
and what
profession
and involves the
from
its
fulfilled,
If
a part
what
unreasonable
statutory
of
of
substantive
and
or
completing
by
be
would
pressure,
when responses
against
many users,
time
it
with
more
provide
impractical
be that
it
of
harmful.
expressed
research, to
manifestation
fact
that
this
of
be considered
may not
It
in
its
an acknowledgement
concern
profession
on the
comments
to
often
though
can be professionally
major
surveyed
is
pressure
profession,
limited it
the
given
time
the
to
usually
and a statement
However,
that
in
his
EAI.
providing really
is
Canada by
CICA (1988).
Situation
10 to
The responses harmony
Situation
four
all
groups
showed "notable
fact,
the
within
lowest
(12.5%)
it
However,
20% difference the
three
same for
the
external
prevail
increasingly
that
they
thus
perhaps
learnt
how to
it
equally
true
If
so,
audited
have
is
financial
same intensity third degree
(29.2%) of
budget
of of
pressure
three
(gap)
when he is by the
that
state
groups
about
the
the
subject
client.
41
to
a factor years,
and
effectively.
the
of
of
share
about
expressed relevant
users to
appear
on average,
confidence. these
is
be
could
ability
recent
very
the
and
other.
their
in
do not
statements
concern
independence,
handle
to
one hand,
as this
faced
a
expectation
preceding
in
pressure,
was about
on the
the
confidence
EA group.
of)
group
very
there
that
for
budget
against
the
on the
groups auditor
intense
EAs have
defined.
the
registered
(average
interpretation
One possible that
user
the
situations,
gap for
the
pressure
as none of
research
be noted
between
of budget
as previously
one that
also
for
gaps
concern"
expectation
should
reasonable
groups,
twenty
10 was the
Situation
issue
research
across
In
revealed
on the
of perception the
jo
one some
auditor's significant
the
However,
as for
quartile
rankings
between
the
the
many of for
twenty
10 revealed
Situation
on the
EA and BA groups
IA and CM groups
on the
other.
in
general,
the
extent
two
groups,
Additionally, very
intense
fell
within
in the
expressed
severe,
as
of
a knowledge
if
users
concerned than
nature
of
the
in
of
issue
budget
such
issue,
reduce,
the
in and underlying
pressure, as to
so
its
deal
information to
share
so doing
the
more
generally
on EAI, the
serve these
to
understanding details with
help
will
of it
of
the
effectively.
users
permit
same knowledge
eliminate,
(perceptual) 42
such
will
itself
and
of
quartile.
pressure it
themselvesl
gaps
bases).
are
budget
response,
statements
on the
of
effect
not
a manifestation
statements
address
well
second
fact
was
was more
cognitive
to
developed
Publication audited
audited
auditors
and
mechanisms
of
of
groups
may be that in
gap
extent
this are
and the
their
as
the
(i. e. varying
gap
profession
concerns, the
for
the
into
fell
perception
about
external
audit
gaps
of
The
two
other
consistency
one hand,
quartile.
the
explanation
differences
Thus,,
first
by
their
possible
first
very
concern
of
the
the
situations,
or
expectation
at
base
least gap.
16
Situation
in
concern
for
37.0%
BAs
did
groups
for
34.0%
However,
while
all
concern,,
as
In the
fact,
net
facts
that by
the
of
a partner
appear in
to the
so
that
did
marginally,
at
two
other
research
their
and
coiicern,
auditors
external
and
second
and the lowest
despite
such
be any dramatic
the
same for
the
issuer
twenty
all
in
expression
43
state
practice, such
of
taken
was
question
require
of
situations.
specifically
non-adherence,
situation.
quartile.
second
average
audit
would
that
expectation
(associated)
another
in
the
of
the
also
situation
between
16 do not for
the
the
of into
fell
Situation
a measure
reveal
consistency
gap difference
groups,
from
16,
ranking
groups
did
groups
Situation
ICAEW guidelines
Nevertheless,
did
underlying
of
responsibility
though
EAI
user
in
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EAI
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notable
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did
16
Situation
In-general,
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considerations a strong users
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44
effect statements.
present the
when
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Nevertheless,
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the page)
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10.2.4
involvement
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6
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Situation
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9 inferred
As may be
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guidance
concerns. 47
should
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8
Responses
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positioned to
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48
line
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15
The situation with
is
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Situation
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was expressed The situation
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three
as well,
Most concern
by credit evoked
(53%) and considerably
(41%). 49
managers somewhat less
concern
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groups
registered
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concern with
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In
respondents
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(Page 70)
10.3
be more concerned
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14 in
Lowballing
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and
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51
to
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issuers
In
groups.
research,
profession
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concerned
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auditor
where
[1977],
Lavin
of
in
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results
users
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audited four
concern
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practised.
EAI
As was the
for
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situations,
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groups
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research
situations,
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quartile.
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third)
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reasons
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56.8%.
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concern
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note the
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52
within
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UK well
In
light
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audit its
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percentages
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62.5%
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groups
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registered
concern
situation.
53
it.
to
relation
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80.7%
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in
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groups
four
4 revealed
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Regardless,
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to
relation
as
as
severe
and issuers
of
audited
discomfort
with
situations
where
other
also
relatively and
twenty
to
are
54
situations.
both
caused
into
favourable
customers.
highest
independence
enters
more
very
third
that
the
by
research
conclude
auditor
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Situation
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In
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gaps
and BA groups
in
similarity
users
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a trade terms
than
EA
the
As such,
ethical
be vindicated. evoked
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would in
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research
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situation
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the
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7.
fact
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More
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7 did
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hypothetical
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Situation There
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of
concern
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second 55
situations,
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quartile.
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The ranking above groups
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detected
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similar
to
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1976
those
1981b
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The
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type
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However, not
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client-are
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contrast, the
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up
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stationery
same basis.
56
an auditor all
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in
Situation
consistent
and
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auditor drawn
was
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seen
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to
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38%).
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to
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and
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Dykxhoorn
1980
more
research
are
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Situation
types
users
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-
into
1982]
and
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1977,
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described
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If
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should
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transactions
necessary
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The management
10.2.5 Situation
3
Situation
3 deals and/or
accounting the
preparation
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The present
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However
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to
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any trace
half
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greater 50.3%
underlying
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an expectation 57
Less of
situation.
expressed
a degree
no
caused
EA and BA groups.
registered the
of
provision
company
3. Respectively,
noted
Thus,
to
statements) in
that
CM and IA groups
groups
(essentially
services
client,
two groups
concern. share
to
with
certain
providing
audit.
with
these
firm
revealed
services
and
factor
financial
corporate
findings
accounting
be only
services
annual
annual
clients,
basis.
keeping
the
of
audit
should
an audit
record
(private)
performing
and their
adviso]CZ
with
that
reiterate
specifically
and permissible,
UK
ICAEW (and other
by the
auditors
so that
statements,
audited
of
issued
guidance
bodies)
auditing
users
helpful
be of
to
appears
two groups
concern and 63.7% EAI appear
gap on the
issue-
lack
The
both
of is
groups
also
these
CM and
the
IA
the
While
issue
the
EA and
from
the
expressed
corresponding
third
quartile.
its
on
comfort
is
this
cause
no real
on
stand
by
manifest
weak concern
generally
BA groups,
their
the
may take
(lowest)
concern
in
seen
into
falling
profession
this
is
of
ranking
first
the
BA
EA and
quartile
intense
more
groups
ranking
quartile
the
into
falling
Equally,
the
by
the
with
concern
evidenced
groups
quartile. by
underlying
for
overall
complacency.
because
Firstly,
by
expressed because
more
average,
just
registered
the
all than
are
concern
the
is
concern
expressed
involvement
annual
these at
Situation
by IAs
all
(and
user
groups)
on
accounting by
the
in
3 were
statements".
auditor.
the
that
only
to
Further,,
and CMs when interpreted
do not
by the
fact
groups
disturbing
financial
groups
when
provided
in
and preparation
subsequently
EAI
with
particularly to
IA
in
Secondly,
groups.
three
all
of
was
concern
CM and
(concurrently)
"the
mean that
of
research
half
under
prepare
they
half
referred
services
creation
four
some concern
services
This
some level
audit of
wish
58
may
see any
profession
financial
audit.
to
the
in
statements
the which
In
terms
of
user
do not
research
where
study,
the
with
the
perceptions, really
those
echo
as much
80% of
as
results
users
[1980]
Firth
concern
registered
independence
professional
the
of
this
of
the
of
relevant
auditor.
on the
Dykxhoorn the
user
in
similar
groups
[1982),
expressed
study
concern
those
echo
30% of
only
where
the
of
EAI
underlying
with
circumstances.
findings
present
Lavin's
[1976]
study,
discontent
of
results
of
47% of
users
their
expre: ssed
same professional
financial
client's
the
a total
statements
the
with
do resemble
wherein
financial
audited
the
do they
neither
Sinning
and
However,
of
hand,
other
statements
preparing
auditor and
then
auditing
them.
However, the
whereas
Lavin
that
study
and
Auditors EAI
in
in
Dykxhoorn
36% in
the
Firth
in
that
only
study,
concern 21% of a level
registered
comparable
Sinning
and
about
situation.
59
group
with the of
in
with did as
situation,
[1980]
less
Auditor some concern
a similar
the
surveyed the
External
registered
significantly
issue,
the
in
group
revealed EAI
study
independence
auditor of
[1976]
64% of
[1981b] this
research
the
underlying
External concern
with
58%
This
present
47% of
average
of
auditor
independence
also
all
the
prepares limited
rather
indicated
research
such by user
financial
for
statements by
the
when
groups,
(21%)
concern
external
with
groups)
(an
concern
notable
auditor
audit,
and
auditors
professional
themselves.
basis,
on that their
auditors
independence
income
does
their
to
appear
professional
related
these
in
faith
strong
accounting
services
also
their
colour
fee
provide
perceptions
of
own EAI.
Internal
Auditors in
EAI
with
expressed
in
Situation
3.
some measure
the
given
each
and
that
eyes
of
appeared than
More
of
of
the
the the
related groups)
very
60% of
an expectation
users
of
may wish
continuing
to
of
companies
private the
permit
relevant
strong
concern
perceived
by
basis
whole
profession
audit
particular
concerned
them in
gap,
terms
therein.
EAI,
Thus, of
not
that
have
their
retain
when providing
The fact
services.
of
to
own ability
to
appear
of
EAI
auditing to
is
user
professional both
prepare
statements.
60
in
the
UK audit
desirability
auditors
to
financial
respondents,
the
the
47%
average
credibility
services,
reconsider
only),
(on
(in and
of the then
case
Situation In
13
a situation, by
described
Firth
that
stated
the
concerned Thus,
like
very
(1980
not and/or
separateness consulting
and
auditing
assumption
may
well
underlying
perceptions
between one
Firth
finds
Firth's
1980 saw the
users
for
statistic
in
1980
study
dual
13 of
issuers
provision
worse,
in
facts
this
of
research,
audited (or
troubled MAS and
of
audit
1980.
study
that
concluded in
auditor
the
(at
research
that
situation
to
be non
statistic
in
this
was
41% of
perceived
the
the
(and The
only
was
61
all
similar)
comparable
surveyed in
whereas higher
60% of
48%.
auditors
auditor
independent,
research
least)
relevant
be non-independent.
this
concluded
Situation
less
firm's
situation.
difference
and
no
that
the
basic
now appear
the
to
circumstances
his
both
by than
services
Firth
and
statements
pessimistic)
users
(1980]
that
financial
this
that
assumed
the
so,
for
in
firm
autonomously.
of If
EAI
of
the
of
have
staffing
influenced
have
clearly
may
activities.
disregarding
However,
cut
facts
and
respondents
clear
13,
arms
audit
separately
all)
Situation the
1981),
and
maintained
(if
present
and
consulting
were
some
the
at
the the
in
equivalent comparable
24.2%.
Finally,
(1980]
Firth
study
the
showed
perceptions 1981,
do not
of
EAI
as
in to
to
respondents infer
that
to
results
twenty
optimistic
quarter
of
is
not
that,
as with
the
the to
by
evident issuers
Both
research.
survey
as those
EAI
of
user
assessment
groups
there with
quartile.
and in
EAI
with
concern
an underlying
those
of
The weaker is
a comparable
in
and second
CMs and IAs concern seen
than
with
in
their
quartiles. 62
the
a
about
only
In
gap.
half
of
the
gap.
ranking
falling
the
held
expectation less
somewhat
expressed
with
the
of
majority
EA group
EAI,
of
was consistency
EA and BA groups first
the
researched,
on average,
Again,
the
this
This
survey. with
situation) to
it
by
varying
registering
contrast,
gaps,
some evolution
degrees
showed
situations
three
research
in
troubled
like
13.
Situation
more
in
this
respondents
present
the
50%.
no concern
the
in
under
[1981)
is
auditor
a MAS provided
main,
be as
the
be just
been
(within
Firth's
registered
users
has
all
users
independent, to
the
there
respondents
The
there
appear
that
be not
same statistic
may be that
since
61% of
concluded
would
circumstances
It
(at-least)
whereas
of
into
EAI displayed respective
group
the
third by the
ranking
in
dual
The
in
confidence
of
EAI
and that
the
profession.
ChaRter
10.3 EAI
is
focused
in
Given
set
of
are
An important
for
the
situations
the
This
is
because
in,
in
response some concern
the
is
the
issue
the
and two
all
these
each
EAI.
63
issues.
(with
-
situations external the
more concern
twenty with,
independence.
situations,
was a negative
to
21 31 10 and 13
of
auditor's
basis
that
fact
within
the
with
is
underlying
on average,
of
scope
the
group),
research
EAI-related
- ll
group,
to
task
classifying
so there of
situations
Auditor
provoked,
assurance
and
obtained
Banker
of
aspects
wide,
five
of
than
least
several
issue.
the
ICAEW (1987],
is
independence
auditor
many
this
issues,
representative
External
and 7 for
by
an immense
encompassing
the
finding
exception
refined
by
issues
the
these
addition
they
believe
all
to
out
is
it
on only
twenty
these
afresh
containing
that
twenty
spelt
as
audit
of
users
be considered
subject,
perceptions
However,
the
half
summary
issues.
obtain
still
audit
about
must
a multi-faceted
related
has
with
lack
services, audit
MAS and
of
provision
a lack
evokes
value,
the
mean
indicative
of
at
that
Admittedly,
(Situation
-1.78 05 .
(Situation
the
twenty
in
EAI
The
second
that,
in
the
the
the was
not
in
and
difficult
gaps
of
to
lowest),
groups
situations,
to
that
situations
suggested
issues, these
EAI
issues
ICAEW to
pertinent
all
underlying
by
EAI.
viewed than
rather their
not
that
[1987])
as wide).
of
twenty
the
EAs.
concern
with
external
or
more
of
categories
evident
(for
example, related
some precise was
across
evident is
it
individual
64
their
BAs and
Concern
basis.
within
CMs,
As such,
within
e.
expectation
e.
classifications
on an
(i.
and consistency
as IAs,
classifications. are
(i.
was predominant
embodied
-
groups
towards
conclude
among
widespread
or
were
extent
ranked
independence
auditor
Banker
of
fact
the
groups
negative
strong
terms
(highest
concern
basis,
as
is
Auditor
- most
expectation
When ranked,
that
widest
Auditor
External
Internal
-
concern
was highest
EAI
with
of
each
of
light
to
comes
of
groups.
research
that
and
As such,
some level
evoked four
a low
to
Auditors)
Auditors).
concern
Manager
Concern
is
Ext.
the
of
general,
comparable
It
Internal
phenomenon
revealed
gaps).
4 for
a high
from
varied
concern
situations
one
Credit
they
of
15 for
least
at
level
issue of
that
likely by
issue
classification
in
lowest
The
(auditor
concern
15 year
with
budget
that
these
when
or
were
(with
rankings,
to
basis,
on a similar
on one
reliant
The third
gaps)
of
concerns
for
ranked
(Table
10.6
were
Situations
On the the
would EAI
same basis, 3 of
suggest issues
for
all
four
end
of
for
and 12
his
the
groups.
the
among
a printing
stationery
(auditor income)
fee
total
those that
fact of
the
same for
the
tended of
views
to
echo
each
BAs and EAs.
This
intensity
when the
twenty
on Page 73),
the
ten
rankings
of
for
rankings them
these
of
second 1,9
65
of
the
(i. e.
them
consistency
pairs
of
and 20).
the
(Situations
of was
situations
10,11,12,14,15,17
an element
between
was that
CMs and IAs
each
the
1.4,51
same for
the
either
exception)
10% of
as did
group
pair
from
response
be highest
manifest
by the
substantiated
first
drawn
under
lowballing).
more closely,
other
is
client),
for
phenomenon
(expectation
(auditor
other
to
stationer
client
(auditor
14
the
at
having
his
with
agreement
one
appeared
4 (auditor
10
mean refined
be ranked
but
concern
Situations
is
the
last
second
and
conclusion
ranked,
situations
last
and
This
pressure).
fact
tenure)
1
Situations
was with
manifest
groups.
pair
and 12). in
were This
approach
to
Examining
how the
not
one observes
met),
twenty 1.
research
the
for
the
expectations
that
left
are
gaps
negative
instances
This
and
that
of
may well
consistent gaps greater
more
with
were for
evident, user
audited Issuers
of
only
facts than
In
groups
than
words,
66
an gaps
in
a gap
where
for
about
expectation
to
intensity
gap.
criteria
may cause
anticipations,
was not
expectation
both other
of
revealed
and
satisfaction
their
direction
issuers) and
off
that
their
have
the
facts
trigger
audit
fulfilled.
a positive
same
of to
appear
situations
over-satiation.
cause
not
statements
users
twenty
is
of
also
(both
the
terms,
expectation
also
it
anticipations,
can
but
instances,
partially
a level
environment areas
the
of
gaps
groups,
user
fulfilled.
- all
of
suggests
audit
users
derived
expectation only
the
only
to
contrary
each
expectation
the
certain
instances,
some
expectations
audit
to
respect
(or
met
group.
partially
in
reports,
in of
for
only
issuer
that
suggests
with
anticipations,
not
audit
This
that
derived
detected
were
were
expectations
situations:
to
contrary
'a priori'
audit
to
some,
others.
(negative)
was always the
issuer
group.
This
that,
suggests
dissatisfaction
This
the
underlying
section
Concern
with
National
Westminster
July
and
to
meet
public
to
step
in"
of
legal
This
chapter
has
group
by
reflected
both
of each
the
drawn the
three
professions government
of
the
quantified
three
the
to
to
told
proof
of
audit
4].
11,1991:
now well of
fail
forced
be
would
July
is
gaps
on EAI
fact
the
["Profession
Age,
groups
of
"continued
(statistically) views
to
duties
legislation
offered
chairman
attention have
is
auditing
Alexander,
expectation
identifies
and
in
- Accountancy
of
differences
for
auditors
initiate
threat"
chapter
implications
expectations,
existence
as
were
drew
Bank
if
that
The
-
Some conclusions
Lord
and
and
A
chapter.
identification an
with
gaps
1991,
bankers
public,
the
expectation
In
both
of
gaps
considered.
current.
that
section
and their
profession
auditing
expectation
gaps.
findings,
these
from
The basis of
itself
concerned
gaps
existence
first
expectation
such
of
the
audit
issuers.
than
examining
situations.
possible
in
was assessed later
EAI-related
to
of
extent
among users
itself
has confined
twenty
the
evident,
was greater
chapter
within
where
accepted. these The
users.
gaps next
significant between user
67
each
groups
of
the
individually.
issuer
TABLE
10.1
% OF GROUPS EXPRESSIM
Sitn.
External
CONCERN RE.
Bankers
Auditors
EAI
IN
SITUATIONS
Credit
internal
All
Mgrs.
Auditors
GrOuRs
1
15.0
24.7
29.1
33.9
27.9
2
27.5
35.8
59.8
51.8
48.6
3
20.8
27.1
50.3
63.7
47.4
4
62.5
59.2
80.7
82.1
75.5
5
45.0
34.9
35.6
38.3
38.1
6
31.9
39.5
66.8
53.2
52.7
7
26.6
21.0
45.1
44.2
38.8
8
31.7
34.6
44.3
37.5
38.5
9
38.3
39.5
57.3
51.6
49.9
10
12.5
27.1
33.6
34.7
29.6
11
29.2
63.0
68.3
64.0
59.4
12
84.2
64.2
69.2
70.5
71.7
13
24.2
39.5
51.3
58.9
48.0
14
49.2
56.8
80.7
71.3
69.1
15
55.0
40.8
55.8
53.0
52.9
16
32.6
37.0
34.0
43.4
37.5
17
55.8
38.3
46.3
49.6
48.2
18
54.6
34.6
44.6
51.0
47.5
19
31.7
46.9
50.6
47.4
45.7
20
39.2
40.7
57.4
53.6
50.9
68
TABLE
10.2
% OF GROUPS EXPRESSING
Situ.
External
NO CONCERN-RE.
Bankers
Auditors
EAI
IN
SITUATIONS
Credit
Internal
All
Mgrs.
Auditors
Grouva
-
1
85.0
75.3
70.9
66.1
72.1
2
72.5
64.2
40.2
48.2
51.4
3
79.2
72.9
49.7
36.3
52.6
4
37.5
40.8
19.3
17.9
24.5
5
55.0
65.1
64.4
61.7
61.9
6
68.1
60.5
33.2
46.8
47.3
7
73.4
79.0
54.9
55.8
61.2
8
68.3
65.4
55.7
62.5
61.5
9
61.7
60.5
42.7
48.4
50.1
10
87.5
72.9
66.4
65.3
70.4
11
70.8
37.0
31.7
36.0
40.6
12
15.8
35.8
30.8
29.5
28.3
13
75.8
60.5
48.7
41.1
52.0
14
50.8
43.2
19.3
28.7
30.9
15
45.0
59.2
44.2
47.0
47.1
16
67.4
63.0
66.0
56.6
62.5
17
44.2
61.7
53.7
50.4
51.8
18
45.4
65.4
55.4
49.0
52.5
19
68.3
53.1
49.4
52.6
54.3
20
60.8
59.3
42.6
46.4
49.1
69
TABLE
-10.3
% USERSJISSUERS
User
sitn.
Group
CONCERN RE EAI
EXPRESSING
* (1)
Ext.
GaR -
Auditor
Users
Auditors
(2)
GrouR
SITUATIONS
IN
1
29.2
15.0
14.2
2
49.1
27.5
21.6
3
47.0
20.8
26.2
4
74.0
62.5
11.5
5
36.3
45.0
(8.7)
6
53.2
31.9
21.3
36.8
26.6
10.2
38.8
31.7
7.1
9
49.5
38.3
11.2
10
31.8
12.5
19.3
11
65.1
29.2
35.9
12
68.0
84.2
(16.2)
13
49.9
24.2
25.7
14
69.6
49.2
20.4
15
49.9
55.0
(5.1)
16
38.1
32.6
5.5
17
44.7
55.8
(11.1)
18
43.4
54.6
(11.2)
19
48.3
31.7
16.6
20
50.6
39.2
11.4
* Average
of
Banker,
Credit
Mgr.
70
& Int.
Auditor
(1-2)-
Groups
TABLE
10.4
RANK OF SITUATIONS CONCERN WITH
Sitn.
External
BASED
OR ASSURANCE
Bankers
Auditors
ON-THEIR
GROUP MEAN LEVELS (CONCERN
INEAI
OF
TO ASSURANCEL
Credit
internal
All
Mgrs.
Auditors
Groups
1
19
20
20
19
20
2
16
12
6
11
11
3
17
17
12
3
10
4
2
3
1
1
1
5
8
14
17
6
12
6
5
8
6
7
15
19
15
15
16
8
10
16
14
17
15
9
9
10
a
8
7
10
20
18
19
20
19
11
12
2
3
5
4
12
1
1
4
3
3
13
17
8
10
6
12
14
6
4
2
2
2
15
3
11
9
6
5
16
11
13
is
16
18
17
4
7
13
13
9
18
5
14
16
12
13
19
14
5
11
14
14
20
7
8
7
10
7
71
is
16
TABLE
10.5
RANKED
Rank
MEANS OF-REFINED
EA9 la
BAs 2a
2b
1 -1.63
12
-1.04
12
2 -1.16
04
-1.00
11
3 -0.98
15
-0.95
04
4 -0.85
17
-0-90
14
5 -0.80
18
-0.49
19
6 -0.64
14
-0.48
06
7 -0.47
20
-0.46
17
8 -0.38
05
-0.43
20*
9 -0.35
09
-0.43
13*
10 -0.28
08
-0.42
09
11 -0-18
16
-0.41
15
12 -0.13
11
-0.36
02
13 -0.12
06
-00'26
16
14 -0.10
19
-0.21
18*
15 -0.05
07
-0.21
05*
16
0.07
02
-0.19
08
17
0.08
03*
-0.07
18
0.08
13*
-0.06
19
0.42
01
20
0.43
10
Columns Tie
3a
3b
-1.73
04
-1.68
14
-1.29
11
-1.14
12
-1.11
06
-0.91
02
-0.87
20
-0.85
09
-0.82
15
-0.73
13
-0.66
19
-0.61
03
-0.58
17
-0.55
08
-0.49
07
-0.43
18
03
-0.30
05
10
-0.27
16
0.03
07
-0.18
10
0.07
01
-0.09
ol
a=
Group
1 to
on another
5:
situation,
72
All
IAs
CKS
lb
TO SITUATIONS
GROUP RESPONSES
4a
4b
Sa
5b
-1.78
04
-1.56
04
-1.33
14
-1.29
14
-1.17
03*
-1.22
12
-1.17
12*
-0.96
11
-1.02
11
-0.81
15
-0.85
13*
-0.76
06
-0.85
15*
*-0.71
09
-0.83
06*
*-0.71
20
-0.83
09*
-0.64
17
-0.76
20
-0.63
03
-0.75
20
-0.62
02
-0.69
18
-0.60
13
-0.66
17
-0.56
18
-0.60
19
-0.52
19
-0.45
07
-0.42
08
-0.44
16
*-0.34
05
-0.43
08
*-0.34
07
-0.41
05
-0.32
16
-0.25
01
-0.08
10
-0.22
10
-0.04
01
Mean
:b=
also
so
Situation noted.
No.
TABLE
10.6 % OF GROUPS CONCERNED
RANKED
EAs
Rank
BAs
WITH
IN
EAI
SITUATIONS
All
IAs
cMS
la
lb
2a
2b
3a
3b
4a
4b
Sa
5b
1
84.2
12
64.2
12
80.7
04*
82.1
04
75.5
04
2
62.5
04
63.0
11
80.7
14*
71.3
14
71.7
12
3
55.8
17
59.2
04
69.2
12
70.5
12
69.1
14
4
55.0
15
56.8
14
68.3
11
64.0
11
59.4
11
5
54.6
18
46.9
19
66.8
06
63.7
03
52.9
15
6
49.2
14
40.8
15
59.8
02
58.9
13
52.7
06
7
45.0
05
40.7
20
57.4
20
53.6
20
50.9
20
8
39.2
20
39.5
06*
57.3
09
53.2
06
49.9
09
9
38.3
09
39.5
09*
55.8
15
53.0
15
48ý6
02
10
32.6
16
39.5
13*
51.3
13
51.8
02
48.2
17
11
31.9
06
38.3
17
50.6
19
51.6
09
48.0
13
12
31.7
08*
37.0
16
50.3
03
51.0
18
47.5
18
13
31.7
19*
35.8
02
46.3
17
49.6
17
47.4
03
14
29.2
11
34.9
05
45.1
07
47.4
19
45.7
19
15
27.5
02
34.6
08
44.6
18
43.4
16
38.8
07
16
26.6
07
34.6
18
44.3
08
44.2
07
38.5
08
17
24.2
13
27.1
03*
35.6
05
38.3
05
38.1
05
18
20.8
03
27.1
10*
34.0
16
37.5
08
37.5
16
19
15.0
01
24.7
01
33.6
10
34.7
10
29.6
10
20
12.5
10
21.0
07
29.1
Ol
33.9
01
27.9
01
A
Columns
a
of
*
Tie
on
1 to an(other)
5:
Group (s),
situation
73
:b= also
Situation so
noted.
N o.
XI
CHAPTER
SIGNIFICANT
AUDITOR
EXTERNAL
The
GROUP DIFFERENCES
purpose
by
revealed
audit
differences, use
of
the
the
(M-W)
group
auditor
In the
identified
the
two
second
external
phenomena
(non-parametric)
the
external
the
three
user
of and
internal
auditors)
differences
(determined
group and
partners
v.
identified
and
and considering
both
differences, derived
first
the
between
significant
are
Theory
each
managers
section,
auditors
significant
the
assessed.
auditor
identifying
to
mainly
the
In
sections.
turn,
credit
classifications)
Agency
in
and
nonBig-Six
In
main
differences
and,
(bankers,
groups
itself and
as
such
considering
confines
EAI,
test.
significant
section,
are
has
chapter
In
t-test
of
discuss
twenty
the
to
situations.
chapter
and
perception
responses
(parametric)
Mann-Whitney
The
refined
identify
to in
differences
the
questionnaire
is
chapter
group
significant
OF
PERCEPTIONS
INDEPENDENCE
this
of
IN
from
regard implications
(AT).
74
is
within
on Big-Six
V-
non-partners assessed.
sets paid
of to
flowing
these testable out
of
11.1,
Inter-grOuR
inter-group
Agency
theory
and
Agency
theory
contends
between asymmetry knowledge, be
then
their both;
or
independent
as previously
independence. little
independence
Indeed,
(good)
"reputation"
doing
not
so as
serve
if
it
acting
be offered a living
their
as
the
very
the
auditor
would
be
have
no role
to
auditor
pivotal
to
that
auditors
will
establish
theory.
agency
be and
(Benston,
own economic
312].
professional
and
external
an
on which
the
value,
effects
this
1986:
is
engaged,
first
an
basis
independence
to
must
such
Zimmerman,
becomes
AT contends
an
To provide
and
Furthermore,
thus
independent
1989].
no professional AT.
by
auditor
is
auditor
Without or
within
play
stated,
the
of
the
[Watts
person
services
For,
forth
information
confirmed
[Baiman,
person
by
information,
of
agency
and/or
AT puts
service,
of
so that
"monitored"
"independent"
so,
respective
conflicts caused
are
funds
EAI
of
inherent
the
"agents"
and
EAI
of
perceptions
that
"principals" in
differences
RerceRtual
and then
1975],
remain exploit and
in
so
"self-interest".
became evident
(known)
that
an auditor
were
independently,
no monitoring
contracts
would
him,
and in
as an auditor
time
he would
[Watts 75
be unable
and Zimmerman,
to 19811.
earn
Consequently,
agency
backdrop
the
theory
of
independent
suggests
and hold
As consequential
to
be so.
the
abovej
Watts
that
themselves
evidence
of
out
Zimmerman
(1981]
present
the
fact
conducted
in
twelfth
and
thirteenth
time
audits
when
the
often
performed
Thus,
as
tend
independent Financial
else
view
["Big
will
they
would
use his
those
held
by auditors
If
so,, there
Groups of
perceptions (both
External
individually Auditors
opens
services.
By construction
general,
their
issue
users of
76
of
EAI,
audit similar
own EAI.
differences between
and collectively) themselves
up"
as
groups
as independent,
about
this
EAI,
auditor
be no significant of
yet
12].
user
perceptions
to
between
(and thus
have
tend
to
as Europe
in
will
but
truly
as being
that
services
-a
perceived
13,1990:
see the
AT implies
should
their
of
September
not
centuries imposed,
be beautiful
users
were
auditors.
themselves
generally
therefore,
.
to
and
audits
statutorily
consequence
Times,
must
not
professional
individual
Equally, well)
by
a further
auditors
-
were
in
be truly
will
auditors
even without
statute,
or
ethics
professional
professional
general,
that
(the
Issuer
the
User
those and Group).
or
In
summary,,
depends
profession but
fact, is EAI
not it
on
also
because is
being
important
This
professional
of
the
than)
more
not
in
independent.
be
perception
(if
auditing independent
being to
seen
the
as
it
on
the
that
view
only
AT,
within
as
the
AT supports
substance
it.
of
Equally,
while that
assertion
by
seen
Thus,
an
the
of
research
in
turn, sets
question
in
in
turn,
they
of
the
the
users
this
three
of
each to
of the
the
the
were
Groups
and
the
or
To
this,
achieve the
and to
examined
Issuer
Group
Issuer
Group.
MLC if,
see
between
different
significantly
User
similar
questions
situational
questionnaire, were
had the
if
determine 0
was
Groups.
User
services.
to
between
them,
of
their
of
indeed
EAI
may
near-identity
research
groups
EAI
of
each
*
MLC Response
The
addition
to
assessing
differences
between
three
audit
user
was
undertaken
of
or
perceptions
response
In
identity
the
reject
or
confirm
perceptions
and
objective
differing and,
an
auditors
selected
not
differential
implies
it
exist, as
AT does
Confidence
the
significant External
research for
(MLC)
their
Auditor
groups, responses
the to
[Appendix
question
77
response
refined group same the B:
the
and
assessment Minimum 254].
Level
The MLC question the
asking
considered
to
MINIMUM LEVEL OF CONFIDENCE in
be "the of
are
indicated
indicated
to
by
As stated
were
NS.
In
the
to
the
of
that
the
the
Having
and
observed
between hand,
of
interest
In
every
the
User
consistent
to case,
each note the
of
by
the
nature
Groups.
The
mean MLC for
that
the
three
User
than the Groups
78
other
and
were
External
groups
so
from is
it
true
significantly
Auditor
Group.
differences
External Groups of
level.
0.05
different group
User
are
responses
the
these
mean MLC registered higher
the
the
all
are,
chapter,
significant
the
group
of
at
by
Auditor
was
tested
Groups
the
of
MLC indicated and
this
Auditor
all
that
of
11.2,
not,
are
significantly
External
from
and
MLC question
MLCs of
different
11.1
in
that
those
that
context
of
differences
chapter, those
users
demand? "
response
consistently
consistently
those
one
while
Tables
in
provided
S,
that
may justly
this
by
is
significance
to
he/she
what
auditors
significant
integral
tables
external
statements
When referring the
questionnaire
to
financial
audited
indicate
the
respondent
independence
the
one in
was a general
that
on the
in
it
turn,
of
was
differences. by
EA group ranged
Auditors
the
External
the
three
User
was
4.29,
whereas
from
3.87
to
4.02.
This
imply
would
Auditors
and levels
lower
are
In
turn,
this
to
maintain
stringent that
of
the
suggesting
User
Groups,
Significantly
of
EAI evoked questionnaire
Thus
refined
respondents' situation judged
the
degree
by the
the
four
lowest
of
mean MLC Standard groups# (and
variability
EAs than
within
to
three
the
research
from
SD ranged
was posed
by
the
inter-grouR
differing
concern
more
within to
0.89
0.92.
responses
refined
a "personalised"
obtain
considerations
with
or
stated
assurance in
each
of
situations.
responses,
which
take
MLC and so provide on a uniform
for
the
professional
of
that
of
willing
are
auditors
research.
fact
response
where
The MLC question measure
degree
this
the
had the
all
External
necessary
in
least in
consistency)
deemed
EA group
(0.78)
Deviation
that
the
tolerate
themselves.
standards
was
the
than
EAI
imply
participating
for
response
in
to
willing
are
permit
may well
interesting
Equally
the
to
willing
than
Groups
Managers
Internal
Bankersy
general,
confidence
more
independence User
Credit of
Auditors
in
that
significant
but
regard
of
responses
to
personalised
inter-group
79
basis,
differences.
each were
in the
Significant
inter-group
The
of
results
differences
such
situations
User
12,13
A four
These
nine
judged
IAs
(but
against
the 14.
In
two
and
banker
consistently
groups
the
The remaining of
other
between
groups
the
when
were
17)
and the
Situations
showed
EA group
but
between
and
concurrently
external
auditor
differences
significant
context
some closeness of
situations
and user
(5 and 8) revealed
situations
suggests
significant
issuer
(15
individually,
groups
not
This in
These
group).
situations
more
user
group.
two
Finally,
groups.
Banker
the
of
differences
significant
not
differences
significant
two
against
differences
non-significant IA
41 61 10,
significant
revealed
judged
when
CM and
three
1.21
situations
were
the
of
one
each
19.
3F 7,, 9,, and
the
Nine
11.1.
significant
EA and
situations
contrast,
detect
to
used
Table
consistently the
further
CMs and
in
given
between
and
differences -
are
groups.
t-test
parametric
revealed
differences
ll,,
the
differences
t-test
EAI
in
these
across of
view
two
between
groups. so
the
across
situations.
showed no consistent
differentiation
all
pattern relevant
all
TABLE
11.1 OR NOT(NS)
SIGNIFICANT(S) t-TEST:
SITN.
REFINED
EXTERNAL
DIFFERENCES
AND MLC
GROUP RESPONSES
AUDITOR
USER GROUPS
& t-VALUE
(@. 05)
GROUP VERSUS
BANKERS
CR.
KGRO.
AUDITORS
INT.
-2.12
S -3.92
S
-4.99
S
-2.61
S -7.17
S
-6.19
-7.28
NS
-0.97
S -4.97
S
-9.10
S
-3.35
S
1.00
S -3.48
S
-3.79
5
NS
0.32
NS
0.90
NS
-0.23
6
S
-6.05
S
S -7.00
S
-4.98
7
S
-3.05
NS
0.52
S -3.34
S
-3.15
8
NS
-1.20
NS
0.52
NS -1.78
NS
-1.02
9
S
-3.28
NS
-0.42
S -3.49
S
-3.23
10
S
-6.14
S
-3.09
S -5.40
S
-5.62
11
S
-7.59
S
-4.93
S -8.21
S
-6.44
12
S
S
S
13
S
-6.83
S
14
S
-5.65
NS
15
NS
16
NS
17
NS
1.97
S
2.14
NS
1.89
NS
1.30
18
S
2.44
S
3.84
S
2.82
NS
0.87
19
S
20 MLC
1
S
-4.94
S
2
S
-6.56
3
S
4
3.97
1.34 -1.38
S
S NS
-4.14
S
S
-2.29
NS
S
-4.05
S
NS
-2.14
3.40
0.52
3.47
3.41
-3.26
S -6.28
S
-7.30
-1.44
S -7.00
S
-4.50
3.08
NS
1.01
NS -0.68
-0.50
-2.29 0.20 -2.21 81
NS S
0.77 -1.98
S -4.18
S
-3.46
S -2.80
NS
-1.96
S -4.44
S
-3.36
is
there
Thus,
issues
EAI
in
the
in
perceptions different.
consistently
terms
of
Table
11.1
group
tended
good the
only
that
accord
the
External
Auditors, in
responses
EAI
with
15 and
14
the
of (12)
of
Managers the
of
and of
views
differing
significantly
(respectively)
Banker as these
EAS,
with
accord
registering
5.
of
views
Credit
in
less
were
in
groups
Situation
number
Equally,
were
As such,
those
least
differences. Auditors
in
the
more
registered
Internal
view
revealed
responses
between
contained
shows
group
(5)
situation
different. of
issue
to
significant
one
the
of
significantly
are
on group
similarity
EAI
terms
comparative
them
of
significantly
also
groups
claim
differences
not
was
half
in
that
situations,
contrast,
where
there
to
twenty
about
In
responses
two
foundation
the
20
situations.
significant
inter-group
The
of
results
detect
in
t-test
Table
and
the
identical.
In
observed
refined 11.2.
fact, in
shows
only
two
BA group,
and
one
situation
8)
(Situation
20)
and
IA
of
them
conflicting
to
results
groups.
82
for
from
the
results
(4 and
situations
are
be virtually
significance
each
to
used
differences
response
A comparison
M-W test
differences
M-W test
nonparametric
significant
given
were
the
test
Mann-Whitney
the
6)
for
CM (situation
the
TABLE
11.2
SIGNIFICANT(S) MANN-WHITNEY
SITN.
OR NOT(NS) TEST:
EXTERNAL
REFINED
AUDITOR
USER GROUPS
DIFFERENCES
(@. 05)
GROUP RESPONSES
& Z-VALUE AND MLC
GROUP VERSUS CR MGRB
S -4.54
S -2.03
S -3.76
S -4.90
2
S -6.32
S -2.20
S -6.86
S -5.48
3
S -6.46
NS -0.99
S -5.06
S -8.05
4
S -2.96
NS -1.07
S -3.20
S -3.45
5
NS -0.59
NS -1.04
NS -0.75
NS -0.05
6
S -5.76
NS -1.87
S -6.65
S -4.67
7
S -3.03
NS -0.59
S -3.39
S -3.22
8
NS -1.95
NS -0.30
S -2.44
NS -1.53
9
S -3.28
NS -0.42
S -3.62
S -3.10
10
S -5.38
S -2.97
S -4.81
S -5.23
11
S -7.64
S -4.76
S -7.48
S -6.57
12
S -4.29
S -3.96
S -3.70
S -3.62
13
S -6.66
S -3.27
S -5.59
S -7.00
14
S -5.99
NS -1.60
S -7.16
S -4.76
15
NS -0.98
S -2.40
NS -0.45
NS -0.58
16
NS -1.27
NS -0.56
NS -0.40
S -2.01
17
NS -1.89
S -2.17
NS -1.84
NS -1.21
18
S -2.54
S -3.57
S -2.84
NS -1-00
19
S -4.36
S -2.62
S -4.35
S -3.70
20
S -2.60
NS -0.09
S -3.15
S -2.26
MLC
S -4.61
S -2.30
S -4.85
S -3.89
83
INT
AUDITORS
BANKERS
Thusý,
group the
gave
results
same results
in,
In
turn,
this
ground
for
situations. provided parametric
and
M-W test
The
individually
In
with
desirable
to
differences
the
by their
obtain
statistic, variance
The relevant
The
coefficient the
measure
of
between
(possibly)
measures
have
the
group four
underlying
been
reflecting it
in
for
situations.
84
eta-
of
use
how much
of is
Table
explained computed.
11-3.
provide the
relationship Various
variables.
developed
such
was also
correlation
strength
associated
considered
a measure
groups,
of
was
responses
presented
measures
when
15 situations
and
ANOVA derived
underlying
of
(16
IAs
CMs and
how big
of
a measure
are
showing
situations
views,
produces
results
similar
more
of
situations group
into
chapters.
correlation
which
partition
of
differences).
significant
To do this
were.
later
between EAs
with
differing
significantly
of
than
identifying
(10
EAs
eta-sauared
to
addition
in
existence
BAs and
contrasted
ANOVA-derived
squared
the
results
application
tests
nonparametric
respectively,
The
legitimate
equally
between
in
tests
of the
90% of
consistency
differences),
significant
least,
at
corroborated
on EAI
views
obtained
types
both
from
in
specific
a
TABLE
11.3
ANOVA-RELATED SITUATION
STATISTICS
QUESTIONS
SITN.
F-VALUE
1
8.321
2
FOR REFINED
FROM ALL
RESPONSES
FOUR RESEARCH
SIGNIFICANCE
035 .
18.536
0000 .
075 .
3
30.956
0000 .
.
118
4
11.151
0000 .
046 .
5890
003 . 072
641
.
5
.
6
17.886
0000 .
7
7.605
0001
8
2.272
9
6.026
10
9.846
11
21.291
12
5.484
13
18.248
14
18.443
15
3.274
16
1.674
17
1.797
18
6.123
19
6.115
20
4.177
MLC
6.413
.
. . . . . . . . . . . . . . .
.
032
.
0790
.
0005
.
010 026
0000
041 .
0000
085
.
0010
.
0000
.
0000
.
023 073 074
0207
014 .
1713
007 .
1463
008
.
0004
026 .
0004
026 .
0061
018 .
0003
027
85
GROUPS
ETA-SQUARED
0000
.
TO
as is
However, to,,
the
and often
measured
in,
used
situations with
more than
correlation
coefficient
Concurring,
Norusis
one appropriate
where
one variable
several
and the
possibilities,
with
the
presently,
on a ratio-scale
measurement nominal
case
possible
is
(1988b:
R. et
B-103)
is
variable
other
two possibilities, (Mayntz
is
al.
the
1976:
eta 191].
states:
is appropriate "The eta coefficient in for data the dependent is measured which variable on an interval scale and the independent variable on a When squared, or ordinal nominal scale. eta can be interpreted as the proportion of the total in the dependent that variability variable can be for by knowing the values accounted of the independent is asymmetric The measure variable. between and does not assume a linear relationship the variables. "
As is
the
always
significance
attached
The significance factors,
reference the
the
strength being data
of
the
the
attached
to
that
number
of
groups
is
expressed
strength
being
appropriate
an indication between
the of
of
by to
ces.
relationship while
computed.
on a number
freedom"
of
of
depend
provides
degree
coefficient
dependency
circumstan
considered, about
the
"degrees
coefficient
eta
will is
be a level
will
the
overall
the
particular
Thus,
which
This to
to
levels
one of
considered.
there
case,
the
significance
certainty of 86
(or
relationship.
of
the
two variables level
probability)
provides
In
the
those
present
context,
responding
to
respondent's basis,
that level to
group
twenty
significance
of
in
as those
largest
eta-squared of
auditor). in
seen
Thus,,
of
occasion
the
smallest
than
05 was .
owning
shares
some overall of
The
largest
group
impact
group
most
terms,
responses
it
The 3 by
services (. 085)
or
was
by the
differences.
by
less
significance director
closeness
87
concurrent
on the-auditor,
with
(auditor
Situation
the
services
(. 014)
a PLC audited
to
05. .
Situation
appears
response
15
similarity
than
time-pressure
of
eta-squared
in
respective
(time-pressure).
frequent
Situation
large
eta-squared
and accounting
audit
unduly
inferentially
for
noted
audit/accounting
and the
auditor
less
concurrent
11
groups.
eta-squared
be as
significance
second
the
Thus,
was
four
16 with
may not
(. 118)
overall
provision
had
5 and
171). .
and
with
Situation
in
Situations
responses
the
situations
situations
helpful
(provision
some
significance
refined for
On
variable.
other
the
the
while
F-ratio,
questions,
589 .
these
for
value
that
(e. g.
the
the
are
variables
situations, is
states
situation
significance
values
twenty
11.3
shows
dependent
membership
Table
11.3
Table
The
the
and, eta-squared
the
the
the
the
of
Thus,
auditor). of
view
15 appears
a trust
in likely.
terms
Inter-group
differences
Recognising
that
in
alone
produces
situation
only,
this
situations
in
sets
situation
correspond [1987]
Thus,
in
as
ICAEW were
potential
pressure
could
be
could
also
seen
as
by
the
differences turn,
each
group
being
Table
11.4
between of
the
that
facts.
within
together
statistic
F-value.
one
as
of
groups
with
the
88
of of
situations it
the
four
sets
document.
tested
was
on
significant
research
results
the
set
form
guidance
Auditor
all
the
each
above,
for
twenty
variable,
External
made up of the
in
ICAEW's
sets
while
[1987)
(MANOVA)
other
MANOVA-tests,
classifying
grouped
the
presents
and
its
independent
their
sets, basis
a multivariate
within
stated
as
a distinct
ICAEW in
four
grouped
so that
be categorised
identified
of
four
on EAI
by
the
of
each
classified
developed,
situations
Each
being
[1987),
(broadly)
to
suggested
on EAI,
appropriately
twenty
situations.
classification
guideline
the
examined
developed
situations
most
also
that
to
specific
classified
were
the
ethical
questionnaire that
of
sets
with
results
sets
an individual
of
chapter
situation
of
an examination
situation
These
terms
user of
(the
groups the
relevant
in
and,
group
last
such
together).
multivariate Hotelling's
t-
TABLE
11.4 (@. 05)
SIGNIFICANT
(H-t)
STATISTIC OF REFINED
DIFFERENCES (F)
AND F-VALUE
GROUP RESPONSES
S
EXTERNAL
BASED
ON HOTELLIVOIS
QUESTIONS
TO SITUATION
AUDITOR
ON SETS
NANOVA
USING
GROUP VERSUS
E
USER GROUPS
T
H-t
1
0.03
7.43
0.10
6.57
0.05
5.88
0.06
7.00
2
0.09
11.98
0.12
4.58
0.15
10.83
0.13
9.32
3
0.16
15.29
0.20
5.44
0.36
18.32
0.18
9.34
0.16
21.75
0.18
6.83
0.29
20.84
0.31
22.73
BANKERS
F
H-t
INT.
CR MGRS
F
F
H-t
F
H-t
AUDITORS
Notes: SET 1:
Refers three
SET 2:
to
(1,91
the
Involvement
three
external
(S)
differences
all
audit-user
auditor across
group all
and group
responses four
89
and
61 71 81
Factor
(10,11,
and
contains
& 20).
Factor 41
Pressure
situations
from
the
the
to
contains
Factor 17,19
(2,31
and
& 18).
Relationship
situations
Refers
Responses
(5,12
the
to
Refers
Factor
Reliance
situations
nine SET 4:
the
situations
Refers five
SET 3:
to
and
contains
13,14
& 15).
contains
16). when
compared
showed
situation
with
significant sets.
The MANOVA-tests differences
between
Groups. all
were
Without
sets
of
EAs and
(from
responses
significantly
different
The
implication
infer
to
any
one by
categorised
ICAEW
the
of
in
but
Groups)
that
are
sets)
of
the
aspects
were
EAs.
view
to
that
showed
the
of
specific
may reflect
audit-User
audit-User
serious
[1987],
significant
assessment
those
is
(or
set
that
situations
from
assess
of
all
differences
significant
only
each the
exception,
resulting
to
conducted
one
may not
confined
as
situations of
generality EAI.
of
Summaj:y The inter-group Firth in the
(1980:
the
findings 451]
who detected
perceptions
responses
and the
of
the
responses
of
Further, between
the
not
Indeed,
it
perceive significantly
of
borne
out
provides groups the
of
of
by
and
terms the
of
EAI
results
persons
difference of
of in
views
90
audited
implied this
with
situations from
by
those
of EAI, with
of
AT,
research.
a majority
concerned
same auditor-auditee different
statements statements-"
users
that
evidence of
financial
with
between
...
financial
of
accord
differences
no significant
issuers in
statements
largely
preparers users
"significant independence
auditor
assertion
theýviews
financial
instances,
of
much in
on EAI are
EAS.
is
establishing audit
Criticisms
of
about
anxious
4,1987: to
taken
22-23]
its
22 places
non-auditors Colman),
finance
to
Certainly,
is
to
and the
(Edinburgh
Dept.
these
in
of
light
representation
of
about
for
some avail, Auditing
of in
on the
be welcomed. 91
the
Practices half Such
non-auditors.
industry
(Reckitt
Trade
and Industry), Business
organisations.
generally
significantly
external
auditor
chapter,
Auditing
&
(the
and London
this
are
(EAI)II.
...
non-audit
the
perceptions as revealed
learnt
government
University
name some of
group
independence,
come from
Age,,
audit
C. C. A. B. has more than
(BZW Investment),
the
of
by respected
filled
Commission
School)
1991)
up by the
currently
and academia
been to
of
is
little
are
any steps
users
perceptions
(April
established
the
of
users
- Accountancy "hardly
very
may have
(APB) set
auditor
views
and their
Board
differing
the
and consequently
recently
that
it. on
Report
["Audit
the
been made on
have
profession
states
of
rulings
statutory
Sikka
users made to
are
independence"
auditor
anxieties
Audit
UK audit
example,
Such criticisms
of
and/or
ascertain
opinions, user
the
For
score.
June
any revisions
professional
in
be derived
as seen by the
on EAI,
before
services,
to
much merit
views
relevant
that
is
there
As such,
such
Practices
nonBoard
Intra-group
11.2
theory
Agency A school
of
auditing
auditors
in
larger
Loeb
[19751
In
this
is less
usually
are
individual
total
large),,
the
as large
not
Such
theorists
large
firms
because
like
important
to
the
that
a more of
Loeb
to to
the
that
alleged
and the
relationships.
firm of
size
in he
an
within by
developed
behaviour
is
how auditors
independence
profession,
less
of
their
that
a model
92
as
not
more
client
determination
auditing
firms
service
in
deviant
large
the
of
features
contends
analyse
individual
from
include
"cosy"
on their
on any
as clients.
(1975]
pressure
firms
large
operations
"personal"
the
for
firms
be inherently
more
be
to
that
for
case
some
When extrapolating (1966]
fees
Such features
EAI.
growth
situations.
profession,
hold
fact
proportion
have
to
that
large,
as
smaller-sized
them to
variable
react
Carlin
tend
offer
vein,
of
firm-size
smaller
a smaller
nature
cause
to
consequent
will
(mainly
also
to
keenness
In
than
is
on
[1981).
dependent
firms
prejudicial
Shockley
than
EAI
likely
more
not
by the
revenue
and
firms
and
form
usually
firm's
in
of
suggested
are
explained
client
clients
firms
those
example,
part,
has
theorists audit
than
based
differentiation
and
independent
differences
perceptual
the
states:
legal
to violate "Faced with client pressure Carlin's model would professional standards, be the indicate that the CPA's reaction would The first variable result of several variables. is the place in the organization of of the firm the accounting The accounting profession. (e. firms has g. economically strong profession do not depend on any one firms) that national for of their client a significant proportion firms billings. there However, gross are also important depend for that few an may on a clients is very fees. It proportion of their gross that to client pressure possible a CPA's reaction to the economic of his may be related stability (the CPA's) firm. " Loeb (1975: 846]
In
the
some of with
it.
firm
size
of
terms,
empirical
Shockley held
views
the
risk
related
degree
auditor
independence
A further
body
firms
large
of
of
are
(one
expensive
serves
as
in
their
groupst
assessment
firm
and, the
size
impaired
external
correlated.
literature
suggests
that
seen by investors
to than
reputation"
that
methods of
undertake,
an adequate
these
of
1980;
audit 1984
Francis,
1987].
ingredient to
factor"
[Simunic,
argues
do have
statements
view
negatively
are
size
concerned
groups
the
a "professional
and Stein,
(1981a]
DeAngelo
quality
auditing
auditors
four
possible
being
a smaller
and Simunic
to
risk
of
more of
possess firms
of
determined
785]
jeopardised;
being
EAI
of
in
that
"important
an
by
on EAI
He concluded was
[1981:
while of
and
93
of
audited
differentiating
which
surrogate
users
is so for
EAI), firm them.
audit such size
methods
often
one possible the
sale
manifestation new issues,
of
whose
financial
audit
firms,
higher
than
offer
effect
of
(1991]
suggests
the
above,
is
the
fact
of
the
audit
presence
or
one
such
and
standards,
it
Thus,
standards
higher
in than
large
and
size
Aranya
(1981:
in
were
small Pany
important
as reflecting
from
firms
are
seen
from
to
firms
by
and
Reckers
to
bankers
94
be
qualified (1985] when
see
stringent
not to
as large.
render
firms.
that
"more
EAI.
and
smaller
determined
seen
the
investors
such
and more
those
28]
is
which
firms
firms
perceived
competence
that
than
firms
McKinley, is
large
audits
audit
auditors
Canada. firm
investors,
of
for
No doubt,
infer
auditors
al,
infer
to
high
very
different
EAI than
quality
Amernic
audit
significantly of
such
large
the
use
aspect
to
et
interpretation
question
of
not
capital".
common expectations. that
a price
have
"reputational
in
an important
from
at
[Balvers
investors
firm
is
reasonable
firm
a possible that
of
expectation
exercising
For
absence
is
auditors
that
issues
documents
so called
Neu
on by large
their
audit
issuers
that
argued
reported
whose financial
on by a large
the -
reputation
I
to
able
those
been reported 1988)
are
is
in
may be seen
above
it
where
documents are
the
of
auditors
independent" auditors
in
conclude
that
assessing
EAI.
Lindsay's
(1989: detecting
Canada)
auditors
in
to
client
In
much
the
318]
[1986:
the
two
differing
auditors
for
from
large
(and by
revealed
more
research
also
significant
differences
by
from
The
auditors
123
research in
the
(external
External were Top
will
large
all
perception
firms
and
that by
employed
Fifteen
firms
auditors)
in
on EAI
of the
firms
UK (Appendix
as
as
that
Accountants C:
258].
are
shown
large.
in
participated
Chartered
95
there
on EAI, not
those
Hence,
that
firms
audit
than
large.
as
such,
that
views
of
Auditors
As
significantly
hypothesis
the
have
to
on EAI.
not
from
auditors
have
firms
tested
large.
as
expectation
priori"
from
"more
are
likely
are
stringent)
auditors
and
then
and perceptions
firms
Zimmerman
and
not
the
some of
firms
valid,
an "a
small".
"bonding"
ones
that
acquiesce
is
Watts
audit
firms,
to
ying
clarl
of
than
audit
of
basis
different
this
because large
approaches is
there
audit
firm
universally
are
sets
likely
theory,
resist
indicates
more
when
independent"
be
above
these
that
to
auditors
situation,
agency
of
effects,
to
likely
when
state
"reputation"
of
"the
same context,,
aspects
auditing
ability
as being
pressure
USA and
Australia,
a conflict
viewed
are
(in
study
the
pressure
client
If
1]
this ranked
biggest
As
the
six
of
the
UK audit
thirds
the
1],
were
auditors) those
while
123
on that
as
"large
by
each
from
hypothesis
and
specified
of
from
responses
of
from
differences
significant
hypothesised
are
firms.
refined
responses
derived
results
be more
the
obtained
research are
96
was The
EAI
when
compared
to
perceive
hypothesised of
within of
responses
with
the
firms.
it
arise, views
of
than
conservative hypotheses
The to
that
firm.
how they
nonBig-Six
were
auditors)
firms
audit
as to
(directionally) would
(51
was:
perception
firms
auditors
auditors,,
situations.
situations,
Big-Six
30,
hypothesis
hypotheses
auditor-auditee
auditors
(72
nonBig-Six
nonBig-Six
alternative
differences
significant
firm
firm
questionnaire
differences
significant
two
alternative
the
of
May
into
firm"
large"
as
Age,
grouped
a nonBig-Six
"not
a
Big-Six
EAI. 11 Individual
nonBig-Six
a Big-Six
alternative
"Auditors
auditors
by
a generalised
for
generalised
If
employed
as
basis,
developed
exhibit
were
two
control
Accountancy
auditors
employed
two-thirds
control firms
Six -
categorised
categorised
were
auditors
["Big
market"
those
categories;
of
market
UK audit
of
1991:
firms
were
tested
in
also
Big-Six
those
situations
presented
was
from the
using and
the
Table'11.5.
Agency
theory
Instead
of
focusing into
researchers
have
views
on EAI
and
(i.
rank)
al,
e.
views
of
for
are
is
flexible
on EAI
standards,
when
whose
(short
salary
only.
on the
other
their
firms
thus
exhibit
EAI
and
This
is
contend of
to
audit their
more
view
that in
co-partners,
that
have
more
at
employees, on matters
than
non-partner
such
the
the
latter
have
the
97
other
as
who
and that
for
may
auditors.
monitored
a partnership
in
stake and
theorists, degrees,
or
by
fixed
are
are
liable
'
staff
firm
in
are
accounting
of
professional
by agency
EAI
firms,
audit
views
varying
the
fortunes
an audit
because, is
firm
audit
be accommodating
to
professional
to
the
their
of
partners
adopted
between
financial
other
issues
related
Farmer
respondents.
fortunes
stringent
(rightly)
partner
to
some
a linkage
interpretation
and
compared
1981;
grounds
likely
more
hand,
so monitor,
each
success
personal
each partner
other
whose
term)
other
the
on the
issues
than
in
held
firm
firm,
audit
establish
research
economic reason,
the
of
in
on rank
and Aranya,
position
partners,
the
that
to
theorised
audit
to
linked
[Amernic
sought the
based size
individual
by
linkage
Such
on the EAI
1987]
et
differentiation
and
-
actions by the
incentives
situation, partners'
actions.
Watts
Consequently, "this
that
mutual the
[1986:
Zimmerman
and
increases
monitoring
probability
of
a given
a manager's
pressure",
i. e.
acting
independent
manner.
reduces
mutual
such not
monitoring in
share
As such,
members
this
Precisely 10]
"agreed
less
often
stand
taken
Other
research
and views
by more junior
of
EAI.
subject firm
evidence
were groups than is
EAI
for
by Farmer
taken
stand
in
staff
the
issues
to
levels
non-adjacent
to
link
the
rank 1]
[1987:
al their
research
be more similar (ranks)
groups".
by no means conclusive 98
et in
raised found
adjacent
than
firm.
some evidence Farmer
al
et
by partners
position"
client's
"generally at
firm.
accounting
example,
than
on EAI
views
on actual
provides For
to
responses
questionnaire
the
also
independence,
hypothetical
the
with
to
comparing
the
that
do
firm.
likely
was detected
a study
to
subject
the
rigid
audit
by clients
determined
matters,
(audit)
in
who,
not
of
more
the
of
than
a less
professional
exhibit
to
some exceptions)
be more
their
phenomenon
taken
positions
for
to
in
and
yielding
auditor
success
may well
likely
non-partner
found
economic
competence
are
(with
and
safeguard
more
(1987:
the
partners
steadfastly and
Non-partners
declare
317]
nor
in
the
However, consistent.
For
Sorensen
example,
examining
professional the
within increase
in
conflict
increased,
firm
independence
construct
would
tend
Thus,
in
linkage this
EAI
Furthermore, be
would
more
views
the
and
not
provide
for
these
the
analyses the
presents these
his/her
two t-test
results
auditor and
(91) rank and of groups
differences
to
EAI
to
were
basis. 122
the
(One
M-W test.
99
the
123 EAS who on a partner
respondent
respondents
v.
twenty
non-partners.
judged
significance
(partner
the
by
testing.
related
generally
within
provided
so
it
expectations,
of
research
on EAI,
views
partners
responses
persistent
non-partners.
compared
situations,
non-partner
firm
audit
any
and
4 priori"
views
this
confirm
and
expect
conservative
in
profession,
the
significant
"a to
refined
in
in
the
auditing
firm
audit
partners
of
reasonable
participated (31)
in
following
questionnaire
Thus,
or
hypothesised
research
an
independent".
establish
rank
to
levels
higher
"less
to
order between
between
hold
be
to
the
rank
as
a decrease
and
Extrapolated within
mean that
would
that exhibited
orientation
orientation.
when
concluded
individuals
bureaucratic
professional
this
(1974]
Sorensen
and
were
] Table testing non-partner)
did judged 11.5 for using
TABLE
11.5
SIGNIFICANT(S) REFINED
OR NOT(NS)
RESPONSES
Bi g-Six Sitn.
T-test
WITHIN
(@. 05)-ON
DIFFERENCES THE
AUDITOR
EXTERNAL
nonBig-Six
Partners
Mann-Whitney
T-test
v.
1
NS
1.41
NS
2
NS
0.73
NS
3
NS
0.37
NS
4
NS
0.50
NS
5
NS -1.34
NS
6
NS
0.61
NS
7
S
2.54
S
8
NS -1.64
NS
9
NS
0.48
NS
10
NS
1.84
NS
S
3.44
S
v.
MLC AND GROUP
non-Partners
Mann-Whitney
-1.04
NS
0.77
NS
-0.59
-0.59
NS
1.83
NS
-1.90
-0.19
NS
0.94
NS
-0.87
-0.42
S
2.98
S
-2.86
NS
-0.99
-1.51
NS -0.53
-0.46
NS
1.45
NS
-1.33
-2.37
S
2.31
S
-2.30
-1.65
NS -0.24
NS
-0.19
-0.56
NS
1.45
NS
-1.69
-1.45
NS
1.38
NS
-1.12
-3.64
s
3.22
S
-2.96
-1.71
NS
1.10
NS
-0.58
1.70
NS
-1.66
1.18
NS
-1.54
12
NS -1.80
NS
13
NS
1.28
NS
-1.10
NS
14
S
2.24
S
-2.25
NS
15
S -2.85
S
-2.72
NS -0.17
NS
-0.14
NS
-0.71
NS
1.22
NS
-0.86
16
NS
17
NS -0.59
NS
-0.92
S
2.21
S
-2.22
18
NS
1.36
NS
-1.15
NS
1.66
NS
-1.69
19
NS
0.85
NS
-0.70
NS
1.63
NS
-1.55
20
NS
1.19
NS
-1.47
S
2.04
S
-2.11
MLC
S
3.42
S
-3.41
NS
-1.02
0.75
NS -0.69
100
in
Finally,
recognition
perception
may more
situations
(that
feature),
For
situations
were by
suggested basis.
the
in
and
The significant attention,
standards
Six
firms
are
This
is
indicated for
response second
it
general,
likely
that
to
nonBig-Six
of
showed the
the evoke
of
t-
than
fact
that
were
auditors As
11.5
Table
Big-Six
across
and
M-W tests).
above
of
warrants
MLC responses in
same set
nonBig-Six
the
was 4.49,
group
4.02.
concern
11.6.
Table
EAI demanded by auditors
first
was only
in
noted
more stringent
the
that
as
significantly
examination
by the
in
auditors. 101
auditors.
for
while must
EAI circumstances Big-Six
Big-
mean MLC
One implication of
of
on a MANOVA
compared
MLC difference
given
suggests
sets
were
both
(for
results
groups
questionnaire
MLC question.
they
firms,
nonBig-Six
differing
the
of
in
nonBig-Six)
above
MLC responses
when
shows,
the
of
analysed
presented
v.
of
groups
same basis
then
and
(Big-Six
terms
the
on the
are
both
in
considered
purpose,
classified
differences
that
same classifying
again
above
results
from
assessed
the
ICAEW (1985]
These
Responses
in
were
MLC Response
The
to
relate
fact
be detected
readily
responses
situations.
the
of
auditors
the
be that is
than
more with
implication
A further in
Table
11.5
"acculturation"
This
(Kelman,
in
auditors
based
(devoid
of
However,
in
observed between
For,
personal
fact
terms
of
the
shows,
v.
tests
and
when
compared
in
differences between
revealed
were
for
auditors
of
nonBig-Six)
(t-
were
auditors.
significant
MLC responses
(Big-Six
sets
statistical
Mann-Whitney)
employed
instance.
this
The
11.5
inferred
be
might
MLC question
nonBig-Six
and
MLC Response
However, there across
by
did
the
(Partners
appear
ranks
to
of
significance
tests
be
in
same context,
some acculturation
occurring
and
hierarchy
firm-size);
non-significant
non-Partnergl the
the
within
(irrespective
revealed
v.
same token
on the
be
MLC question
differences
the
would
ramifications).
or
significant to
it
general
acculturation
of
response
Big-Six
the
out.
if
evident,
considerations
that
as Table
to
responses
an absence
the
from
two
in
evident
all
across
borne
that
contention
be at
to
place not
are
stated
some professional
of
taking
1972]
on the
were
acculturation
claims
firm-sizes
varying
is
view
most
be that
must
MLC data
the
from
arising
for relevant differences.
102
of both
audit sets
firms of
MLC responses
these both in
MLC responses of
external
from)
this
two
while
that
at
4.20.
lower
ranks
of
auditors
This
fact
is
evidenced
in
the
relevant
(auditor)
sets
the
of
either
was not
different
significantly
two
in
difference
minimal
for
mean
non-partners
the
different. which
shows
that
MLC responses
were
not
assessed
to
according
tests
statistical
more
mean MLCs for
11.5,
Table
when
(and
by
their
significantly
of
11.5).
be minimally
to
by partners,
expressed
(4.9%)
slightly
(Table
EAI expressed
of appear
4.32,
and non-partners)
assessed
standards
those
being
MLC response
also
non-partners
than
stringent
Indeed,
were
shows that
demanded
(partners
ranks
auditors
The table
only
both
of
used
in
this
instance.
The implication of
must
EAI circumstances
from
partners
that
basis,
"acculturation" ranks
of
in
11.5
using
the
provides parametric
t-
the
taking
of
concern on
professional
place
and M-W test
results
t-test
equal
across
firms.
audit
intra-auditor
Table
Whitney
1972]
same set
Accordingly,
may be some process
auditors
significant
evoke
non-partners.
(Kelman,,
the
general, to
likely
are
as from there
in
be that,
of
and the
test.
103
differences
significance nonparametric
tests Mann-
first
The
(100%) tests in
feature
in
Thus,
reviewing
tests
are
terms,
one
across
varying
(partner
are
highly
This
is
firms v.
because
the
same result
the
varying
of
both
views
of
and
external
across
in
ranks
sets broad
relatively
size
non-partner)
firms
audit
differing
views
revealed
only
71 11,14,15 instance
on EAI,
of
Given
that
and
17 revealed
use of
the
v.
significantly
comparison
least
at
type
ranks
across
one of
4,
Situations
only
eta-squared to
was not
as there
case,
of
and
sets
variable it
possibilities,
instances
such
significance
differences.
significant
independent
nonBig-Six
Accordingly,
more.
audit
v.
while
one
(across
test)
four
only
Big-Six
of
comparison
revealed
(Big-Six
a significant
similar.
auditors
this
where
In
that
of
by both As such,
groups.
results
together.
conclude
absolute
and vice-versa.
the
responses,
might
auditor
test
the
revealed
results
excepted)
other
considered
auditors
of
is
11.5
by one test,
was revealed on the
Table
the
sets
(none
situation
was obtained
the
both
and across
difference
of
between
consistency
every
from
noted
nonBig-Six
were
have
statistic more than
considered only
two
or partners 104
requires two in
appropriate identifying v.
groups
non-partners).
Intra-grOuR
MANOVA-differences Recognising be
in
seen
feature)
by
groups
(relating
situations, To do so,
ICAEW (1987),
and
These
MANOVA results
tests
on situations
some closeness by
reliance six
and
Table
11.6
judged
differences sets,
the
Thus,
there
of
Personal
significant those
from
perceptions exhibiting
analysed
in are
only
is
for
when the
This
seen.
basis
to
nonBig-Six of the
showed to
relating
more relaxed
2-
that,
between
EAI issues,
Big-
significant
same situations
there
firms,
the
as between
was so for
argue
Relationships, differences
11.5)
no
was Set
exception
(Table
are
and MANOVA terms,
(1)
set
The
them.
within
noted
11.6.
clients,
auditors,
t-
Table
issues
on their
suggested
on a MANOVA basis.
18
on EAI
classified
that
as
in
and
in
considered were
then
shows that
jointly
were
same basis
shown
readily
same classifying
the
view
auditors
were
the
may more
situations
5,12
nonBig-Six
differences
to
are
of
view
sets
auditors
nonBig-Six of
the
situation
of
responses
on broadly
(grouped)
v.
differences
of
terms
Big-Six
that
groups.
such
in
differences
with with view
all
responses
the
auditors
regard
of
exception
consistently
Big-Six
the
and
Relationships.
with are
significant
former
to
and
their group
EAI. I
105
TABLE
11.6
SIGNIFICANT
(8)
HOTELLINGIS
t-
REFINED
(NS)
OR NOT (H-t)
EXTERNAL
s
(F)
AND F-
EA GROUP RESPONSES
(@. 05)
DIFFERENCES
BASED
MANOVA ON SETS
USING
0 OF
QUESTIONS
TO SITUATION
GROUP ONLY
AUDITOR
E
BIG-SIX
T
Hotelling's-t
P
1
0.11
4.05
S
0.05
1.78
NS
2
0.36
0.81
NS
0.07
1.51
NS
3
0.30
4.74
S
0.11
1.74
NS
4
0.13
3.01
S
0.09
2.02
NS
v.
PARTNERS
nonBIG-SIX SZNS
v.
non-PARTNERS F
Hotellingis-t
SINS
Note: SET 1:
Refers three
SET 2:
Refers five
SET 3:
Refers nine
SET 4:
Refers three
the
Reliance
situations
(51
to
to
the
situations
to
the
situations
to
the
situations
Factor
and
contains
12 & 18).
Relationship
Factor
(1,9,17,19
Involvement (2,31
Pressure (10,11
106
and
contains
& 20).
Factor
and
contains
4F 61 71 8F 13,14
Factor & 16).
and
contains
& 15).
MANOVA-differences The
refined
ICAEW
this
[1987]
However,
the
and considered
together
set,
it
basis
perceptions
of
partners
within
of
EAI
of
sets
ICAEW
audit and
at
implies
all good
profession, non-partners'
and
are
to
views
on EAI.
107
appropriate
that
conclude
on the
within of
basis of
basis,
On that
terms
EAI
considered
are
homogeneity in
were
when
differences
be revealed.
assessed
other
non-partners.
classified
and
and
differences
no significant
harmony when
the
non-partners
situations,
then
(1987],
perception this
to
(t-
the
with
v.
partners
may be reasonable
and non-
employed.
no significant of
significant
was grouped
in
may be classified
on the
revealed
tests
five
to
responses
one or both
situations
ICAEW classifying
results
11.6.
partners
to
statistical
partners
The
revealed
between
to
similar
between
Table
these
that
situations
very
refined
according
when each of
appropriately
in
on the
perception
of
questionnaire
analysed
and 20)
when judged
Mann-Whitney)
then
presented
tests
of
twenty
a MANOVA context.
(4,7,11,17
partners
Thus,
and
are
The significance
differences
the
non-Partners
on a basis
within
analysis
situations
v.
classified
non-partners
and of
were
in
to
responses
situations that
Partners
the
partners'
UK
Implications If
conclusions
then
basis
no strong
differentiate Big-Six
Further,
these
and
acculturation and
partners
"not
refined
non-partners
thoughts
respondents'
(75%) held
In
were
by
that
partners
light,
perceptions
If
by partners,
individual
so,, the
more
formal
matters. the other
education
The profile
profession professions
it
the
not
registered that are
the
of
for
in
broad
initial
and examination
are
and educational 108
being
mould
as
on
progress
served
to
of
ethical
professional
be elevated,
accord.
rank?
be well
to
as
ethical
same more generous
would
15
on EAI
views
by non-partners
partnership
that
given
significant
as non-partners
given
should
view
that
be that
ways to
profession
cases
and
non-partners
EAI as held
(perhaps)
held
their
and
most Thus,,
one may conclude
might of
into
eased that
consistently
situations,
of
compared,
on EAI,
may
EAI
from
personal
a more
one
responses
differences.
are
which
sets.,
a form
when
are
significant"
differences
that
*
only,
professional
auditor
do suggest in
upon
to
nonBig-Six
work,
responses
responses
evident
approaches
results at
on refined
appears
between
between
reveal
based
are
ensure
ethics
by
as has been done by establishments.
instance,
For
Harvard
Business
ethics.
Increased
matters
is if
role
such
placing
refined
based
from
large
Indeed,
the
statistical
provide of
perceive
the
out
(80%),
same auditor-auditee views
that
are
different. 109
not of
employed
these
then
this
only
four
the
results
evidence
are if
of
the
agency
to
EAI between
this
research.
on the
refined
auditor
in
a
sets (concerned
situations consistently
is
as large,
show that, two
of
assertion
towards
and firms
tests
size
differences.
approach
by the
ample
instances
with
with
implied
in firms
borne
majority
considered,
"reputationally"
is
However,
auditors.
responses,
refined
not
significantly
a
ethical
firm
on EAI
views
significant
showing
largely
EAI)
finds
justified.
that
confirmed,
differences
significant
with
are
not
on the
and the
responses
ethical'
only
trust
of
professional
largely
situations
auditors
of
of
Heightened
concluded when
responses
is
theory
(1981]
consequence
contrasted
Thus,
it.
to
between
twenty
which
attributed
Aranya
and
finding
awareness
a
firm-size
important
only
and
appointed
teaching
the
with
a profession
makes
conclusions:
of
to is
consciousness
Amernic
knowledge
vital
trust
deal
to
philosopher-theologian
has
School
not
However,
the
tempering
in
above
light
the
in
considered
were
indicated so indicated,
did
issues EAI on
between
Conclusions:
rank
The
of
analysis
partners (80%)
the
This
closeness
when
the
good
harmony
tests
resultant
Amernic
and
suggest
that
perceptions
of
the
perceive the
the that
fact
higher
degree CAs in
one to
of is
which
practice
pronounced
more
broadly
as
that'basis,
provide
(rank)
in
held
the
of
none
the
CAs of in
a given general
110
firm
audit
in
factor in
firms in
levels ...
the firm
terms the
of
the
firm
differently
quite
hierarchy,
the
to
evidence
that
different
are
groups.
auditor
sets
independence in
for
terms
significantly
influencing
"at
auditors
size,
same
of
issues.
EAI
differences.
They
EAI.
two
in
non-
on
not
24]
important
an
views
refined
even
significant
(1981:
one's
is
hierarchy
is
on
level
in
these
[1987].
show
view
of
judged
are
Aranya
sets
auditors.
and
partners
showed
perception
ICAEW
sets,
used, between
views
by
four
differing
judged
when
situations
suggested
-
from
of
the
of
firm
situations,
EAI
three
and nonBig-Six
responses
significance
different
Big-Six
in
as broadly
significantly
reveal
indicated
Most
then
by ICAEW (1987],
some
when responses
situations,
of
sets
require
that
fact
the
of
to
appears
contention
is
greater size
independent
perceive ...
11
this
However,
research
disregarded form,
and
In
hand,
the
and
differences
in
each audit
user for
situations.
Thus,
most
audit-user
views
not
to
appear
The chapter
be borne
the
nonBig-Six
auditor
partner
basis.
twenty
situations
itself
of
EA group
and
audit and
present
to
do
theory,
assessment.
significant it
This
by
did
and a partner
sets
revealed
the
responses
basis
on
other.
audit-issuer
this
EA group.
both
In
on the
by agency
(situational)
refined
firm
an audit
EAI-based
of
in
out
addressed
within
comparing
closeness
implied EAI on
also
differences
v.
the
on EAI
showed significant
twenty
the
refined
significant
The exercise of
is
size
professionally
between
EAI perceptions
differences
their
in
detected
chapter
group.
in
non-partners
qualified
this
main,
firm
those
partners
who are
if
perception
of
between
manifest
persons
one
considered
differences
not
are
qualified the
responses
significant
issues
that
suggests
on a Big-Six v.
comparisons,
differences
that
nonmost
of
were
not
the
significant.
Accordingly,
the
by agency
EAI attributed in
varying
was largely
implied
firm-sizes not
theory
and ranks
confirmed
in
difference
in
ill
this
implication within
towards
stands
the
chapter.
to audit
auditors firm,
CHAPTER XII THE UNDERLYING
OF EXTERNAL
DIMENSIONALITY
AUDITOR
INDEPENDENCE
The previous of
chapter in
perception
the
firms
were
logically
This
twenty
one hand,
reasons
for
varying
group
these
EAI),
underlying way groups
causes
see and/or
they
facts
process
possible
"factors"
differences
in
in
EAI
specific
scenarios?
Or.
in it
could (for
Brunswick be that
influencing views interpret, differing
feature,
on EAI?
Thus,
phenomena views
in
differences
when
that
are
forming
we seek
to
or
112
the
terms,
6)
attributes basic
differentiating
identify
may help
on EAI.
1981:
personal
data),
biographical
example
(Libby,
Model
Lens
explain
to
(mainly)
due
distinctive
due to
"
differences?
considers
Are
they
then
that
such
(i. e.
In
other. perceptual
The question
models
three
and nonBig-Six
two, following)
or are
the
of
on the
Big-Six
differences.
factor
External
significant
"What -
(and the
chapter
the
and each
CMs and IAs)
EAs from
is
arises
between
EAI,
identified.
also
differences
significant
situations,
between
differences
of
(BAs.
groups
user
some of
terms
on the
Auditor-group audit
identified
and
then group
the
This
chapter
contains the
considers determining
Factor
-
The
second
Analysis issues.
the
perceptual
determines
constructs
research EAI).
Drawing
processing
(HIP)
to
possible
suggest
empirical
findings
The
earlier the
and)
sections
particular, practice frameworks
concluding
possible as to were
of
the
likely of
to
attempts
these
results.
on to for
be concerned
it
why inter-group are 113
then
the
speculate audit grounded differences
presented.
goes
on
these
for
main
to
provide
summarises
the
four
human information
fifth
explanations
observed
each
section
implications
potential
underlying
summarises
of
and goes
of
explanations
and the
of
number
psychology,
section
explanations
(sixth
areas
(likely)
The fourth
meaningful
or
and social
findings.
suitability
for
revealed
on the
research
sets.
the
(associated
groups
the
data
Factor
statistical
precise
assesses present
section
for
of
related
the
out
finally
FA to
The third
with
spells
and
explanation
a few
considers
then
objectives applying
a brief
provides
It
approach
(FA).
Analysis
and
first
underpinning
constructs
conceptual
The
sections.
methodological
appropriate
the
EAI
distinct
six
about
the some of
profession. in
(audit)
of
factor
In
In
the
particular,
from
differences
such
auditing
professions
latter's
increased
when external
The
12.1
status
accorded
them
is
profession that
its
ethics
that
ethics,
of
relevant
Providing
mind
given
users
"is
EAI
that
made to EAI. the
unearth
Such, factors ethical
relevant
that
no attempt
dimensions groups
to
sets
base
or their
the
the
above,
of
an attitude
(ICAEW,
to
attitude appears of
9]. and that
of
mind",
to
have
describe
assessments
and/or along of
it
is
been
underlying
constructs
constructs
114
1987:
do differ,
values
as "an
may help
those
with
and an objective
work"
possible
on a set
act
statements.
essentially
ethical
-
accord
audited
by integrity
professional
consequence
of
in
endorsement
EAI has been described of
to
be
characterised
However,
and
may not
audit
principles,
intangible
may or of
the
of
ethical
expected
that
to
of
professional statements.
basis
are
an effective
approach
set
the
audited
auditors
groups
ICAEW states
of
individual
are
professionally, of
declared
function.
statutory
from
users
former
approach
an important,
that
given
their
capacities by
the the
of
zethodological
their
and external
noting
services
fulfil
may arise
internal
the
the
use of
auditors
that
considered,
are
derive
However,
and
between
apprORriate,
Auditors
implications
audit
establish
which EAI.
For,
while
factors
relevant
be so.
necessarily conceptual (sets
several
researchers
Farmer,
Rittenberg
1989),
such
individual
a major fact
it
is
terms, hence
the
1985;
Lindsay, determine
to
the
EAI.
by
Knapp
underlying
unitary
assessment one
of
the
eye
EAI
is
recourse
set
sets)
concept
of
EAI;
of
as
of
the
"in
beholder
essentially to
"in
fact"
115
nature.
and external
any independence
appearance" (Barrett,
theories
perceptual
thus
auditor
perceptual
not,
may not
and
external
if
or
a personal individual
factors
of
in
the
such,
determine
to
(or
describes
independence of
is
(meta-conceptual)
be perceived
necessarily
in
of
and
research
independence
However
be
1987;
not
this
characteristic
practical
differing
1981;
attempted
a distinct
independence
behavioural
lie
of
underlying
Professional
must
is
there
confirm
auditor.
only
on EAI,
objective
(constructs) to
has
research
varying
empirically
Shockley,
Trumpeter,
and
may not
perceptions
addressed
of
dimensions.
or
in
been
this
reveal
their
[e. g.
influences
factors
if
has
same set
may have
will
so,
underlying
EAI
while
EAI,
of groups
and if
factors
Further,
views
Differing
moulds,
of)
Thus
their
underlying
the
may share
groups
and 1969].
in
nature
are
in
so must In and
order.
such
There
three
are
explain
Inferential
2.
Gestalt
3.
Stimulus
and/or based
that
contends
the
same genesis,
"higher-order
this
Analysis
into
In
are
the
present
the
twenty
sets
are
those
(different)
group
to
of
professional
manner,
perceptions
by the
116
how them
6].
those
and the
within
response
by the
FA
FA shows there factors EAII
them when developing
standards
are
indicated
of
Factor
and
1970:
stimuli
audit
for
search is
EAI
of
sets
share
determine
[Child,
if
sharing
and categorize
situations may be)
views
stimuli),
to
of
to
distinguishable
rationally
be taken
13].
"stimuli"
the
this
1984:
technique
instance,
(that
to
"psychologists
sets"
questionnaire
likely
methodology
response
Used in
results.
the
(or stimuli
(dimensions)
different
different
indeed
used
perceive
the
(Rock,
appropriate
here,
a stimulus
(associated)
For example,
have
theories
appropriate
possibly
factors
(FA).
educators people
to
varying
underlying
such
viz:
based
is
which
features"
case,
to
seek
theories
theory,
and
8-13]
empirically
as a response
a perception
In
1984:
that
theories
based
based
Stimulus
theory
of
(Rock,
perception
1.
types
main
then ethical
bodies
are
underlying note
needs
and/or concerned.
Factor
12.2 In
the
(in
context
as
the
1]),
one
cues
of
under
degree
a high or
Statistical
Factor
Analysis
the
into
data
a statistical
internal
structure
The is
degree
While
does to
not
the
factors
offer
user
of
revealed
by
judgements
so that
FA to
classify
on some
that the
logical
117
subset
together
for
have
between
a set It
variables.
them.
interpret or
a high
constituent
these
or
each
subsets
sets
identifies
explanations
the
as possible.
may exist
ready
set.
particularly
within
a correlation
data
coefficients)
binding
data
to
used
a numerical
similar
FA is
analysing
FA merely
variables,
of
feature
inter-correlation
of
between
technique
as highly
are
a "factor".
when
variables. of
that
as
appropriate
on
15].
(factors)t
subsets
common underlying regarded
"cues".
be manifest
also
(by correlation
sorts
data
research
overview
unique
contains
the
between
1982:
is
The technique
in
Figure
association
should
(Ashton,
[1966:
relevant
inter-correlation
of
12.2.1
strong
consideration
them
about
examine
decidedly
any
[Brunswick,
provided
be the
to
situations
basis,
the
data
the
Model
Naylor
and
(HIP),
processing
Lens
Dudycha
may consider
questionnaire that
Brunswick
by
revised
information
human
of
particular,
1952)
(FA)
analysis
meaningful
is
It
left
(reify) basis.
the
FA is
in
conducted have
variables, certain
belief
the
that
their
some of
unobservable
(factors)
and
to
variables
by
independent factors
(linear)
a
the
of
FA presents
set
the
of
possibility data
relatively
small
number
of
thus
making
the
numerical
interpretation such
FA is
usage,
FA also
the
offers
generated
factors
underlying
those
is
alia,
in
inter
used,
Some users mapping Thus (1970: used factor
of
out
FA see it
55])
as a pointer based
of
the to,
thesis
for
only
as the
first
research
and the and/or 118
In
the
usage, are
judged
hypothesised.
this
that
to
hypotheses
such
previously
view
variables
technique.
revealed
example,
a
amenable
test
In
(for
large
manipulation.
to
and not
are
more
reduction
new domains
some analysts
down into
statistical
(constructs)
with
underlying
independent
data
analysis.
correspondence
observed
the
(variables)
possibility the
outside
by
unobserved
condensing
a data
mainly
of
"key"
further
and
of
variables.
of
of
of
constitute
observed
quantities
(measures),
a set
explain
which
sets
common constructs
combination
variables
of
determined
structure
underlying
attempts
members
such
Thurstone,
point
experimentation.
in
itself. - see Child
FA may legitimately
starting
FA
a purpose.
stage
in an as end
for
for,
be non-
In
other
words,
themselves but other
disciplines
12.2.2
Principal
Factor
Analysis
not
36]
points
two
types
of
is
a generic
of
underlying
the
that
out of
the
analytical
on their
Factor
from
analysis In
model
-
analytic
fact,
models
there
the
is
are
factor [1970:
Child
model.
these
between
distinction
main
own,
derived
constructs
term.
component
in
that
study.
and
component
and
analytic
with
or areas
types
basic
interpretable
readily
be consistent
may well
two
while
are
factors
FA may reveal
in
that
former,
the
"some account is taken of the presence of unique the variance whereas in component analysis intrusion is ignored. In a of unique variance , ** (solution) the unique variance component analysis becomes merged with the common variance to give hybrid 'common, factors containing small in but proportions not enough of unique variance, the first be worried to few important factors ... from the about the overall obtained picture analysis.,, Thus,,
the
basic
approaches of
the
rests
unit
Principal belief the
(relating
set)
present
Component that
all
communalities
square
of
each
factor
analytic
in
the
made about to the
two
these
distinguishing
on assumptions
variances
data
analysed
feature
the
portions in
each variable common factors.
is
Analysis
(PCA)
variances
are
common,
so that
the
variances
or
the
unity.
In
the
(the factor solution,
sum of loading) this
119
the
equal
on the
premised
assumption
is
not
all
made.
In
theory,
the the
produce the
method
the
data
Both
two model
FA that under
set
Principal
the
important
one
principal
factors
describe
adequately
In
this
as being (20)
the
percentage numbers
In
for
this
of
least
variables 43
makes use of
criterion to,
and the by varying
for
factors.
rule
than
the
those
only
unity
interpretation, and at
of
1970:
accounted
variance
to
was adopted
number
attached
roots)
as
investigation.
[See Child,
study.
so
(rule)
the
1952. ] This
total
of
Kaiser's
greater
reliable
thus
FA
using
extracted
under
set
is
"meaning-laden"
of
be
to
data
factors
and
in
number
criterion
(latent
eigenvalues
the
however
here.
reported
Kaiser's
Cattell,
referencing the
in
employed
is
the
most
apply
towards
extracting
results
(components)
instance,
to
research,
considerations
issue
FA
of
helpful
are
important
Other
12.2.3
this
method
more
results
in
used
Components
whose
one
important "friendly"
more
appears
were
marginally
provided
is
necessarily
analysis.
methodologies
the
and it
same factors, of
do not
approaches
average
are
factors
taken
on the amount
for
with further
basis
that
of
variance
120
eigenvalues consideration
they per
account variable.
for
important
Another rotation
the
of
initial
axis
FA reveals
the
relationship
factor(s)
and
each
"initial
matrix".
factors.
Thus,
produce
an adjusted
or
in to
easier
one way of
and main
tends the
to
initial
effects
giving
the)
(on its
produces can often
identify
meaningful
this
addressing
"rotated
produce
analysis matrix)
to
concern
factor
matrix".
from
factors
different
with
them usually the
Norusis
rotation,
is
so as to
own axis),
Summarising of
considered
(of
each
initial
matrix,
interpret.
data
matrix
factor
of
difficult
matrix
A rotation those
is
The
variables.
(the
initial
the
rotate
between
phase
it
which
the
(preliminary)
it
the
extracted. in
variables
the
of
extraction
be one in
factors
(loading)
this
While
the
an initial
to
FA relates
within
of of
examination
for
the
issue
essential
being nature that:
states
"Rotation the goodness does not affect of of fit (initial) the factor a(n) solution. although ... factor the communalities matrix and the changes, do not percentage variance of total explained The percentage for change. of variance accounted by each of the factors does, however, change. Rotation the explained for redistributes variance the individual factors. Different rotation in the identification methods may ... result of different factors. " [Norusis, 1988a: B-54) ...
factor matrix from
analysis is
the
"direct", relevant
solution because
from
obtained it
correlation
is
obtained
matrix 121
the
initial
directly
generated.
to
By the
same token,
factor
matrix
two
The
(e. g.
orthogonal
1988a;
[Norusis, of
methods
data
relevant each
Varimax) Child, the
rotation, are
kept
results
iethods
used
commonly
most,
rotated are
obtained
direct
of
52].
1970:
[Child,
solutions"
the
from
stage
the they
"because
"derived",
are
as a second
only
made from
solutions
rotation
of
and
oblique
1970].
Under
underlying
are
(e. g.
Oblimin)
the
orthogonal
factor
axes
of to
(uncorrelated)
orthogonal
the
other.
Under
oblique
allowed
to
rotation
rotate
individual
of
extracted.
The effect
linearly
variables of
independent
dimensions
so as to
freely
clustering
but
[Cattell,
the
methods,
at
along
the is
the
are "best"
factors to
produce
orthogonal
necessarily
Child,
1952;
arrive
axes
rotation
oblique not
factor
and Rummell
1970;
1970].
Each rotation limitations. endorse
method
has
its
By inference, the
behavioural
own advantages Child
use of
the
issues
(such
oblique
(1970: method
as EAI)
"oblique with rotation that most an admission to some are correlated factors must underlying issue The controversial in deciding the extent
60] of
and
for
rotation
when he states
that:
is behavioural variables human characteristics ... extent, and (so) the be similarly correlated. the difficulty concerns " of the correlation. 122
to
appears
In
similar
unlikely
that
And
if
even
they
need
Comparing
that
not
be so
the
results
oblique
Factor
On the
basis
are
analysis
and
results in
of
the
both
population,
in
on the
subjected
to
better
instance,
this
research
EAI four
the
Each
reflect
of
the
situations,
groups
research
is
situation The
an observation.
application
sets.
objectives
situations
a FA.
respondent
an
data
underlying
different of
similar,
a relatively
questionnaire of
"the very
were
provided
the
FA are
reported
following.
analytic
1. Ascertain
how many factors
variables
contained
(i. e.
number
the
is
methodology
in of
the
employed
here
to:
underlie
the
data
analysed
common factors 123
a
and Mar-Molinero application,,
Thus,
in
rotation
of
methods
each
present
uncorrelated.
the
methods
their
of
each
the
sections
Factor
in
and
range
separately
in
Brodie
was used
responses
variable,
two
variables".
that
are
is
"it
states
sample".
rotation
a representative (refined)
the
of
under
rotation
12.2.4
in
that
oblique of
nature
Ezzamel,
state
clustering
in
B-59]
uncorrelated
are
obtained
results but
they
524]
(1988a:
influences
context,
research (1987:
Norusis
vein,
set
set
extracted).
of
a
2.
Find
the
each
common
between
3.
5.
the
each
observation
amount
the
theoretically
0)
Index
the
relevant of
loading
factors
each
frameworks
the
Adequacy,
factors).
and
results
factor
to
to
analysis responses
e.
instance.
this
set
(i.
revealed
those
against
measures,
between
common
EAI
in
by
factors).
or
underlying
factor
Sampling
on
possessed
communality
the
data
(refined)
respondents'
or
factor
factors
of
determined
of
dependency
common the
e.
hypotheses
suitability
two
each
derived
of
depends
and common factor).
nature
Amenability
by
the
e.
common
of
empirically
The
(i.
(i.
reification
associated
12.2.5
of
the
and
Interpret
Test
each variable
factor
Find
the
which
each variable
variable
4.
to
extent
was
analysis analyse
judged
our primarily
Kaiser-Meyer-Olkin and
Bartlett's
(K-MTest
of
Sphericity.
The
K-M-0
values
of
index the
index
be appropriate, that
as
by
in
those
the
other
0 and factor
suggesting
between
correlations
explained
between
varies
situations pairs
variables.
124
of
1,
with
analysis it variables
is
small may not likely cannot
be
in
(1974)
Kaiser
B-45]
[1988a:
Norusis
"characterizes as measures in the 0.90's in in the the 0.80's meritorious, as marvellous, in in the 0.60's as mediocre, 0.70's as middling, the 0.50's and below 0.5 as as miserable, " unacceptable. For
each
than
of
0.90
Test
correlation
matrix
this
test,
was
rejected
12.3
(at
The
rotated
twenty
(group)
data,
cases
all
Kaiser's
components
for
rule
to
factor
often
refers
to
factor,
and adds
that
factors
are
first
second
only
and later
the
(and
Chapter
the
to
emerge
factors. 125
data
sets.
of
sets
the
"right"
consideration).
5]
suggests
"group from
responses
four
an overall
more discerning
likely
FA was
select
[1970:
context,
matrix
on the of
retention
Using
FA.
an Oblimin
of
each
an
EAI
Analysis
for
is
data
present
of
results
Components
using
the
so
and
dimensionality
situations,
that
identity
an
the
with
use
the
were
for
Child
In
this
in
for
Principal
of
of
summarises
the
number
hypothesis
0.05)
sets
initial
the
inappropriate
underlying
12.1
hypothesis
the
thus
null
was more
FA applications.
obtained and
the
data
from
appropriate
Table
for
index
K-M-0
underlying
considers
matrix
identity
judged
the
"marvellous"
Bartlett's
the
groups,
so all
and
considered
to
four
the
that
"general" specific"
an analysis
of
a high
Accordingly, loadings
four
research in
may be anticipated
factor
underlying
terms
of
FA runs,
most
common
on the
groups
and later
second
consider
need only for
the
across
in
consistency
and thus
factors
to
one
search
dimensions.
group-specific
12.1
TABLE
GROUP FACTOR
SELECTED
Cases
GrOuR
No.
ANALYSIS
RESULTS
factors
of
(Eigenvalues
Cumulative-% variance
>1)
explained
EAs
118
4
62.3
BAs
80
3
68.4
IAs
245
2
62.3
cms
238
1
59.0
Assuming
always
of
reification,
valid
factors
that
each has its
and brings
one might
another,
identified
its
different
on the
initial an
own individual
by one group may help
group
previously
explain of
126
conclusion
factor
certain
EAI
be seen
may not
in
of
number
mould
to-EAI.
that
differences
capable
are
revealed
each group,
perhaps,
and this
significant
factors
own construct-frame
expect,
as provocative
the
based for
extracted
may be that
were
first
the
as such
presence
perception
Chapter
issues
11.
of
seen by
of EAI that
if
Thus, of
the
ethics
above
holds,
developed
only
to
satisfaction bear
its
This
is
will
particularly
in
relevant
audited
its
using
necessarily
any code own full
provide bring
naturally
to
framework.
(pronouncements)
of
that
unlikely
who would
another,
own constructional
guidelines users
is
by one group
framework
constructional
it
terms
on EAI may have
accounts
the
of
for
ethical
auditors,
where
different
perspectives.
It
is
for
precisely the
expresses
hope
"will
be
revised
views
of
the
whom,
independent.
of,
least,
important
the
different
the
guidelines
the
-
convince
that
trying
to
one
may contend
the
of
account
statements
are
be developed factor
concerned
that
reveals results
must
groups
The question group
greater
463)
[1980:
UK ethical
financial
of
then,
ethics
at
take
Firth
people they
are
"
By extension related
users
future
to
...
that
reason
that
auditors
...
this
flows
a different reported
underlying
for
that with
frameworks or
from
number each
conceptual 127
of
above of
group
of
EAI
an understanding the
associated
the
code
any
more EAI.
with
is
factors
why each and/or
may indicate
frameworks
(of
EAI).
why
Some explanations groups
as to a differing
revealed
factors
are
to
relating
or derived [Libby,
processing
Social
of
differing the
is
they
have
judgment
and/or persons
found
a
and inter-group) style"
decision the
that
premise
have
That
approach.
differing
on the
concerned
for
explanations
rationalised
outcomes
or groups
differing
cognitive
I
Within
a HIP
"cognitive
and
of
theories
accounting
"cognitive
styles.
the
responses"
and
to
approaches
construct
that
between identify
on to
goes the
describes
process
mediation then
95-96]
(1985:
as a "hypothetical
explain
distinct
Belkaoui
context,
style"
to
used
number psychology
(inter-person
using
say,
research
human information
from
have
judgements to
social
four
1981].
psychologists
variety
the
and behavioral
1985]
the
of
and unique
from
provided
(Belkaoui,
why each
study
of
is
stimuli five
cognitive
style4n
psychology.
Two of
these
present
research
complexity" term
approaches
considered
context.
and to
referred in
are
the
the as
second
of
strong
The
first
is
that
"integrative
is
128
the
"cognitive
encompassed complexity".
immediately
paragraphs
in
relevance
by Both
following.
the are
12.3.1
In
Cognitive
describing
Belkaoui
cOmRlexity
the
(1985:
nature
96]
of
cognitive it,
that
states
complexity,
"focuses dimensions that on the psychological individuals (or groups) their use to structure the (likely) environments and to differentiate behaviour More cognitively of others. complex individuals are assumed to have a greater number dimensions with which to construe of available the behaviour than less cognitively of others complex persons. " It
is
further
more cognitively number
do less
cognitively likely
are
approach latter
of
to are
one possible
individuals
complex
greater
former
that
suggested
possibly
(judgment)
whereas
making,
individuals
explicit
(mathematical)
model
when making
judgments
heuristic
individuals
other
hand,
such
explicit
"common sense, future
about the
situation
clearly
Thus
models
in
this
(groups)
as an organic
whole,
said
there
129
is
to
but
rely
the
totality
than
rather
basis
not
have on
feelings
to
[Belkaoui,
parts"
On the
making,
as applied
a more
make
or decisions. are
the approach.
have
they
which
and unquantified
developments
instance,
to
the
their
their
to
said
are
when decision
intuition
identifiable
in
than
because
in
Analytic
reference
is
a
reveal
be more "analytic"
more "heuristic"
why
(factors)
individuals,
complex
decision
(groups)
dimensions
underlying
to
reason
1985:
to
of
to
96].
conclude
that:
In
the
in
Table
groups
order
the
of
(least
12.1
of
the
issue
of
EAI than
the
In
than
of
internal
auditors
similarly
along
12.3.2 The
bring or
groups
group
to
to
in the
groups.
are
more
or groups.
increasing
degrees through
managers
credit
bankers
they
external
heuristic-analytic
the
and
auditors scale.
complexity cognitive
relevant
"integrative
research
from
and
research complex
group
monotonically
Integrative
second
previous
previous
complexity
cognitive
four
framework
the
indicates
12.1
Table
the
revealed
more cognitively
the
the
factors
of
most),
perceptual
same order,
analytic
to
increasingly
are
terms
2.
number
complexity"
style
which
refers
approach
Belkaoui
(1985:
to
96)
states,
"results from the view that people engage in two input: in processing activities sensory differentiation Differentiation and integration. to place to an individual's refers ability to stimuli dimensions. Integration refers along the individual's to employ complex rules ability to combine these dimensions. " A person
(or
group)
"differentiation" "abstract". groups) said
to
performing
a great is
and "integration" while,
performing
on the
other
rather
less
be "concrete". 130
handt of
these
deal
of
both
said
to
be
persons activities
(or are
In
this
Revsine
regard,
abstract
conceptual on the
mainly
[1970:
structures
basis
706]
distinguishes
from
concrete
ones
that:
111. abstract structures can generate a greater information dimensional units of number of (differentiation) from perceived stimuli and,, 2.
abstract intricate complexity).
Accordingly,
number
issue, in
issue
when
will
to
compared
concrete
As such,
a variation
in
possibly
explain
If
the
varying
research
group
we relate
for
each
hypothesise in
that terms
varying
On the most
above
abstract
managers auditors
the
each of
basis, in most
occupying
its
tend
to
that
a
reveal factors
on
the
same
see
complexity is
same issue(s)
number to
in
terms.
varying
along
issue
integrative
why the
groups
an
groups
essentially
different
of more (integrative
(constructs)
underlying
of
capable bits data
perceive
terms,
abstract
greater the
that
groups
essentially
are
structures combination "
the
levels
of above
of
factors
the
concreteness
or
the
auditor
external
perception
concrete,
with
intermediate 131
of
seen by our concreteness.
identified
comments,
perceives
group
may
we may
issue
EAI
of
abstraction.
group
is
the
EAI and credit
bankers positionse
internal and
The implication
for if
serious.
For,
audit
is
to
provide
users
of
audited
are
on the
rest
abstractness
is
unlikely
this
If
most
the
preceding
make continued
main
group-common
that
the
main
must
The
factors
EAs (i. e.
terms
varying
the
realm
of
within
each
However,
the
factor
main
groups
a variable
and
more than
are
first
the
by the
the
are
what
in
step
and then
of
auditing.
EAI and ensure
determine
each
on
profession
auditing
determine
it
then
users,
same opinions
the
to
EAI).
the
of
nature
in
must
sets of
of users
such
properly (EAI) of
audited
statements.
Empirical loading
results between
insight
with
the
into
latter.
the
former's
Thus,
when
on a particular
factor,
it
(or
the
of
underlying
be to
surely
revealed
some
that
within
the
of
credibility
by such
share
efforts
eyes
such
seen
then
concerns
the
financial
12.4
issues
addressed.
describe, factors
will
obtains,
must
process,
EAI is
of
they of
the
independence
or concreteness
vital
adequately
in then
standards
an independent
of
credibility
issue
that
auditing
of
purpose
statements,
the
of
setters
the
perceived
if
However,
the
portrays
underlying
factor
a factor
provides (dependence)
association is
a variable
there contains) on which
132
is
good
much it
is
reason
of
the
highly
loaded
highly to
believe
nature loaded.
of
a
if
Thus,
in
a data
loaded
on one
possible
to
such
to
PCA factor
unrotated loadings
than
greater
eigenvalues
and
Communality
measures
In
that
the
this
does not
rotation
and so has no effect doubt say such
the
Tables
the
12.2
instance, all
region
cases
as
the
(with
to
four the
the
(0.44)),
the
information
of
12.4
initial
greater conveyed
factor groups,
"communality
is
"by
note
communalities 42]
casts low,
too
in
that
stating
the
in
e.
all
at
respective
the
for
20 situations 14 for
o. 50) data
credit
auditors
external least
present
captured,
Situation
17 for
133
so
solutions
of
(i.
part
not
across
Situation
in
to
relevance
[1970:
was
exceptions and
of
be "unreliable".
this
show
variance
common factors
Child
less,
or
FA may well
limited (0.48)
0.3
with
related
total
underlying
where
groups,
provided.
of
is
on them.
research
managers
it
initial
the
four
also
by the
affect
is
an opinion
The
proportion
on FA applications in
the
are
context,
the
of
emboldened.
explained
of
results for
communalities
on each variable, extracted.
0.5
it
mainly
"reification".
the
matrices
then
forming
of
termed
provide
are
nature
process is
12.4
variable,
on the
This
circumstances
variables
of
one)
opinions
factor.
12.2
Tables
a set
(and only
form
underlying in
set,
of
sets.
the
TABLE
12.2 FACTOR LOADINGS,
INITIAL
COMMUNALITIES
External
No.
I
Factor
Situation: idea:
Key
Auditors 3 Factor
2 Factor
Factor
Loading
Loading
Loading
& EIGENVALUES
4
Loading
mality
79 .
01 -.
01 .
-. 21
71 .
.
22
03
-. 42
3 Accounting
66 .
01 .
18 .
-. 29
4 Ptg.
63 .
26 .
-. 09
-. 27
56 .
16 -.
67 .
-. 04
67 .
23
.
08
-. 35
12
35 -.
09 -.
48
-. 01
28
74 .
11 -.
06
.
70
-. 20
01
12 -.
55 .
-. 16
-. 43
-. 12
68 .
-. 10
.
43
17
-. 07
13 -. 16
1 15
years
2 Due
to
ass.
& Staty.
5 Audit
US sub.
6 Audit
fee
due
7 Rental-client
.
54
8 Auditor-trustee. 9 MD ex-partner 10 11
Budget
pressure.
Time
68
pressure income
. . .
.
. .
12
10%
13
MAS-Provision
79 .
15 -.
14
Lowballing
63 .
-. 29
19 -.
15
Inv.
50
67 .
12
16
Large
75 .
-. 38
17
Partner
52
21
18
20%
19
Dynamic
chair
20
Partner
brother-71
fee
dir..
-trust
employer
(1%)
EIGENVALUES:
ex-F.
D..
fees
.
. . .
09 00
68 .
14 -.
-. 26
69 .
-. 28
-. 04
8.81
-11 1.37
134
--if; 1.16
F4 ommu-
.
.
. . . . . .
.
55
.
54
.
79
.
63
.
61
. . . . . . . .
30
.
17
.
35
.
25
.
21
1.11
72
.
22
_1_V;
67
. 1
.
60 61 55 53 69 68 55 79 74 44 62 59 56
TABLE
12.3
INITIAL
FACTOR LOADINGS,
COMMUNALITIES
S EIGENVALUES
Bankers Factor
situation: Key
_1
Loadigg
Idea:
Factor
2
Loading
Factor
3
Loading
Communality
70 .
-. 39
14 .
66 .
73 .
-. 51
06 .
80 .
79 .
-. 24
-. 24
74 .
78 .
-. 31
09 -.
72 .
US sub.
75 .
-. 24
13 -.
64 .
fee
76 .
34 -.
02 -.
70 .
88 .
-. 05
15 .
80 .
8 Auditor-trustee
78 .
07 .
.
14
62 .
9 M. D.
76 .
35 .
-. 05
70
66 .
32 .
04 .
53 .
53 .
09 .
78 .
89 .
79 .
25 -.
.
ii
70 .
13 MAS provision
78 .
21 -.
05 .
65 .
14 Lowballing
70 .
41 .
13 .
68
72 .
16 .
04 -.
.
65 .
35 .
13 -.
56 .
1 15 years 2 Due to
ass.
3 Accounting 4 Ptg.
& Staty.
5 Audit
of
6 Unpaid
audit
7 Rental
ex
ex-partner
10 Budget 11 Time
pressure pressure
12 10% fee
15 Inv.
client
income
trust
dir.
.
.
55
16 Largest
employer
17 Partner
ex-F.
D.
74 .
21 .
30 -.
68 .
of
fees
71 .
16 .
27 -.
60 .
53 .
12
77 .
18 20% (1%) 19 Dynamic
chairman
69 .
20 Partner
brother
-70
EIGENVALUES:
.
68 .
10.88
1.76
135
1.04
TABLE
12.4 FACTOR LOADINGS,
INITIAL
situation No.
Key
1 15
Credit
Mai magers
Factor
I
Loading
Idea
76 .
years
2 Due
to
76 .
ass.
3 Accounting & Stat.
4 Ptg.
15 Inv.
-trust
16 Large
18 20% (1%)
-. 28
74 .
.
25
53 .
52
78 .
-. 12
63 .
69
78 .
13
63
61
74
17 -.
77 . 80 . 69 . 79
. . . . . . . . . . .
.
.
58
.
79
10 -.
56
76 .
26
51
70 .
60
74 .
.
64
.
.
57
. . .
64 64 52
15
.
31
65 .
74 .
02 -.
55
48
72 .
08
62
74 .
31 -.
.
.
. . .
52 65
83 .
.
70
81 .
24 .
71 .
exF. D.
79 .
62 .
74 .
05 .
56 .
fees
77 .
59 .
79 .
28 .
70
76 .
56
75 .
32
19 Dynamic
chair
20 Partner
brother-7
EIGENVALUES:
81 .
68 .
71 .
employer
17 Partner
58
57
75
dir..
60 .
64 .
76
14 Lowballing
23 -.
-. 36
9 M. D.
13 MAS-Provision
74 .
71 .
78
12 10% fee
56
52 .
8 Auditor-trustee.
income
ia
72 .
83 .
pressure
.
Loading
.
72 .
11 Time
Loading
66 .
fee
pressure.
nality
Factor-2
-. 30
6 Audit
10 Budget
Factor
75 .
76 .
ex-partner.
I
Commu-
Auditoi
63
US sub.
7 Rental-client
Internal
80 .
5 Audit
due
& EIGENVALUES
COMMUNALITIES
.
61 .
11.79
-R2
11.43
136
. -
11
1,02
. . .
67 68
to
Tables
12.2
twenty
situational
first
12.4
variables
construct, [1970)
Child's
the
argument
to
However
in
were
matrices
from
matrices
with
sets,
indicated. (more
the
Oblimin
(absolute)
Note
that
As the
Oblimin
factors
between
which
factor
correlation
Table
12.8,
of
(any)
inter-factor
of
clear
the
case
of
external
constructs
extracted
some
overlap
identified
by
not,
each
identify
the
between 1 and
auditors,
internal
for in
the
by
these
137
nature
the
with
solution.
definition,
reveal the
uncorrelated, group nature
provided
are and
extent
case,
the
factors
1 and
4 in
2 for
bankers,
In
correlations.
0.50
loadings
unrotated
for
as to
the
data
four
the
to
factor
the
give
compared
are
orthogonality
factors
suggests
so
12.7
themselves
matrices
in
lack
does
solution
and
more than
the
from
obtained
initial
solution
spreads
factors
across
potential
the
EAI,
loadings
rotation
for
PCAs of
rotated
only
factors
to
12.5
strength
concept.
the
simplify
Tables
distinctly)
initial
both
to
rotated
reification.
assist
of
perception
adding
test
to
and
for
underlying
and thus
a unitary
further
explore
differences
group
is
it
that
on the
instance
this
an overall
EAI,
of
common or meta-factor to
of
the
cases
loaded
in
support
contention
all
highly
are
providing
in
that
show
also
this
auditors of
intra-group
the
clearly underlying factors.
and
TABLE-12.5 OBLIMIN
ROTATED FACTOR LOADI14GS >0,5
REFINED
RESPONSES:
Key
1 15
Factor
Factor'l
situation: No.
EXTERNAL-AUDITOR
Idea:
Loading
GROUP
2 Factor
Loading
3 Factor
Loading
Loading 59 -.
years
2 Due
to
4
-. 86
ass.
3 Accounting
-. 63
4 Ptg.
-. 67
& Staty.
5 Audit
US sub.
6 Unpaid
fee
7 Rental
-
.
77 -. 78
client
8 Auditor-trustee
.
9 MD ex-partner 10
Budget
11
Time
12
10%
13
MAS provision
14
Lowballing
15
Inv.
16
Large
17
Partner
18
20%
19
Dynamic
.
72
55
pressure pressure
.
income
fee
.
.
trust
(1%)
74
dir.
.
employer
20 Partner
55
ex-F. fees chair
.
74
D.
. . .
88
73 71
brother
138
53
57
12.6
TABLE OBLIMIN
ROTATED FACTOR LOADINGS >0,5
REFINED
RESPONSES:
Factor
situation No.
Key
1 15
to
ass.
. .
& Staty.
5 Audit
Factor
2 Factor
Loading
3
Loading
85 .
3 Accounting 4 Ptg.
I
Loading
Idea
years
2 Due
BANKER GROUP
audit
7 Rental
ex
71
80 .
US sub.
6 Unpaid
99
. fee
client
. .
69 82 58
8 Auditor-trustee 9 MD ex-partner
.
10
Budget
11
Time
12
10%
13
MAS provision
14
Lowballing
pressure
.
80 69
pressure income
fee
15 Inv. Large
17
Partner
18
20%
19
Dynamic
20
Partner's
. .
75 69 80 .
trust
16
.
dir.
58 .
employer
(1%)
ex-F.
. D.
.
fees
.
chairman
.
brother
77 70 61 93
58 .
139
81
TABLE-12.7OBLIMIN
ROTATED FACTOR LOADINGS >0.5
REFINED
RESPONSES:
Credit
No.
Key
Managers
Internal
GROUPS
Auditors I
2
Factor Loading
Loading
Loading
Idea
-AUDITOR
Factor
I
Factor
situation
MGR. & INT,
CREDIT
1 15 years
76 .
73 -.
2 Due to
76 .
-. 83
80 .
-. 83
72 .
-. 90
ass.
3 Accounting 4 Ptg.
& Staty.
74
US sub.
76 .
fee
72 .
58 -.
83
60 -.
8 Auditor-trustee
78 .
63 -.
9 MD ex-partner
76 .
56 -.
5 Audit
of
6 Unpaid
audit
7 Rental
ex
10 Budget 11 Time
client
pressure pressure
12 10% fee
income
13 MAS provision
75 .
79 .
71 .
.
61
77 .
86 .
80 .
14 Lowballing 15 Inv.
.
.
trust
.
dir.
.
69
.
50 -. 84
79
16 Largest
employer
17 Partner
ex-F.
D.
79 .
of
fees
77 .
84 .
18 20% (1%)
79 .
83 .
19 Dynamic
chairman
76 .
88 .
20 Partner
brother
78 .
61 . 140
TABLE
-
12.8
INTRA-GROUP
FACTOR
CORRELATIONS
I
Factor Auditor
Ext.
2
Factor
35
2
.
Factor
3
19 .
14 .
Factor
4
55
40 -.
Banker
Group
Factor
2
Factor
3
. .
Auditor
Factor
2
NOTE:
The
CMs,
The
as
above
only
the
tables
more
terms
defined
(no
indicate
In
variables
with
high
[Norusist
1988a:
on the fact,
the
same of
set
EAI of
a
reveal
loadings
on
Equally,
B-58].
degree
of
same factor
across
situations
Situations
1-4
only
appear
to
be
factors
across
groups.
for
groups,
the
all
12.7
group.
a limited
only
14,16,18-19
Situations
in
to
Tables
that
for
12.5
in
for
correlations
revealed
was
factors)
loadings
intra-group
factor
one
matrices
groups.
within
06
excludes
structure
or
and
61
77 -.
two
(high)
18 -.
GrOuR
pattern
simple
3
Group
Factor
Int. .
Factor
common underlying
141
and
common
6,
linked
similarly This
absence
dimensions.
and,
suggests, of
a well
Reification
12.5 To try
reification
to
12.5
12.7.
identifiably
fact
was
attempted
based
on Tables
did
prove
simple
this
may only
add
support
factors
the
that
factors
this
form
nor of
to
the
is
a unitary
or
the
to
there
in
are
constructs
an inability,
case,
reification
independence
auditor
in
Thus,
meaningful
in
assumes
identifiable
EAI.
provide
not
results
reification
meaningfully
underlying
of
factors.
meaningful
attempt
the
nature
conclusive
at
mapping
the
However,
totally
provide
Any
framework
understand
and
revealed,
and
to derived,
factors that
argument
external I'meta-
an overall
or
concept".
Thus,
as suggested
metaphysical
previously, which
concept,
be considered
reflective
(and one that
accords
on the
offerings that
of
EAI has no coherent factors
underlying
As the
credit
underpinning
or
manager their
that
to
conclude
issue
in
meta-constructional
or
may
state
a general
of
mind
is
likely
professional If
EAI).
it
so,
interpretable
readily
constructs.
group
views
basis
of
may be a
reality
speculatively
perhaps
related
with
subject
in
EAI,
of that
revealed EAI,
there
group, or
142
only
at
highly
is
one
factor a
certainly
least, concrete
sees
the
terms.
In
to
an attempt
three
their
groups,
the
four-construct
the
ICAEW [1987) 6:
Chapter
in
the
was highly
into
where loaded, to
appeared one of
However
the
four
both
the
presented
two EAI constructs
pairs
differed
so merged
Reliance,
are
the
ICAEW-derived Factor
Ignoring (time
pressure) and banker
auditor
ICAEW-derived
their
in
situations
internal
two
in
(conflict).
commonality. one situation
with
loaded
with
only
other
compared
constructs
matrices
merge
the
as modified
highly
the
of
little
showed
paradigm
and Involvement
pattern
bankers,
groups
These
a comparison rotated
were
Guidelines,
Pressure,
framework, for
theoretical Ethical
for
revealed matrices
pattern
181-182.
Relationship,
However,
factors
reify
constructs
identified. these
between
two
groups.
An even more confused auditor
group,
where
to
be spilt
across
to
conclude
that
Guidelines
In
were
(or
results
test
of
one closely
categorisations
of
As such,
our
we are
the
forced
ICAEW Ethical
results
empirical
on them),
EAI were 143
appears
theoretical
alternative based
external
be demonstrated.
cannot
whether
the
construct
between
concordance
more supportive
paradigms seven
to
involvement
factors.
two
and our
an attempt
pattern the
for
emerges
also
the
following
considered:
3
1.
Adams
Committee
2.
Cohen
Commission
3.
ICAO
(1981]
4.
ICAA
(1984]
5.
Farmer
6.
Lemaignan
7.
Lindsay
et
[CICA, [CAR,
[1987]
al
[1987]
in
results
EAI
theoretical
Wysocki
any
in
independent
of
hypothesised
someone
EAI
constructs
of
neutrality
(between
is
the
influences interests cause
that
him
professional
are
impartiality
to
EAI
at
one Thus,
(on
argues
it
two
least be
to
has
may be
factors)
(underlying
main
can
free
either
place
of
issues)
and
persons).
be
of-others
for
something.
and from,
cause (clients
his
him
to third
own personal
obligations.
144
be
the
Accordingly,
neutral.
or
or
if
be present
only
impartial
must
[1981a]
existence-of
two
basis,
auditor
Sinning
and
the
totally
sets
vice-versa).
the
or
for
support
alternative
influence,
of
that
auditor
above (or
implies
sources
above
the
significant
Dykxhoorn
independence
On the
of
constructs
[1972]
or
was there
no case from
our
parties
1978]
[1989]
However,
that
1978]
able
to
identify parties), interests
withstand, the
with or above
his
following
Thus, of
two main
factors
Wysocki,
having
their
"pro-auditor"
are
this
classification
12.6
Concluding
Together
to
"pro-other"
either
EAI.
of
demonstrably
not
also
or
However,
supportive
of
EAI.
of
remarks a number
Sharaf,
1961;
Carmichael
1969)
Dykxhoorn
and
between
other
of
and
"in
EAI
make EAI
and
the
point,
an
and Barrett,
1968;
Swieringa,
fact"
this
(Mautz
authors
(1981a]
Sinning
Expressing
appearance".
in
evidence
corresponding
results
impairment
to
with
distinction
our
genesis
threats
results
our
in
constructs
hypothesise
we would
important
"in
argue
authors
that: in independence "Since the concept appearance of is concerned perceptions of with the collective including the users of financial statements, covering rules auditors, specific any ... in appearance independence should be auditors' based on such perceptions. Determining what those first towards be the step perceptions are should auditor) a solution of the (professional independence 11 Sinning, (Dykxhoorn and problem ... 1981a: 181]. Further, (revised) real
it
is rules
for
consequence,
knowledge
of
truism
a virtual
what
the only the
auditing if
independence
are,
parties
and groups.
Using
to
obtain
such
any set
are (if
developed any)
as perceived a FA approach, relevant 145
of be of
will
profession
they
factors
auditor
attempted
that
in
the
underlying by interested this
perceptions.
chapter
following
Thus, of
two main
factors
Wysocki,
their
"pro-auditor" results
our
to
also
not
are
classification
12.6
Concluding
"pro-other"
either
impairment
However,
EAI.
of
demonstrably
or
supportive
of
remarks a number
Sharaf,
1961;
Carmichael
1969)
Dykxhoorn
and
between
other
of
and
this
an
make EAI
and
the
point,
and Barrett,
1968;
swieringa,
fact"
"in
EAI
(Mautz
authors
(1981a]
Sinning
Expressing
appearance".
to
EAI.
of
with
distinction
in
evidence
corresponding
results
our
genesis
threats
this
Together
in
constructs
having
hypothesise
we would
important
"in
argue
authors
that: in independence "Since the concept appearance of is concerned of perceptions with the collective including the users of financial statements, covering rules auditors, specific any ... be in independence should appearance auditors' Determining based on such perceptions. what those towards first the be step perceptions are should auditor) a solution of the (professional independence Sinning, 11 [Dykxhoorn and problem ... 1981a: 181]. Further, (revised) real
it
is rules
for
consequence,
knowledge
of
truism
a virtual
what
the only the
auditing if
independence
are,
parties
and groups.
Using
to
obtain
such
any set
are (if
developed any)
as perceived a FA approach, relevant 145
of be of
will
profession
they
factors
auditor
attempted
that
in
the
underlying by interested this
perceptions.
chapter
our
empirical
perceived
results
were
to
constructs
chapter
against
our
complete
To date, ethical
users
of
assume
audit
results,
where
of
four being
of
assumption a different
EAI
research most
(unitary)
factors groups
cognitively
(EAI)
factor groups.
paradigms none is
issued
with
audit
and
and
other
complex
overt This
groups. issuers such
and issues.
by our
FA
and underlying
revealed
- with
146
user
any
confirmed
number
SO.
of
supportive
without
between
not
were
in
meta-concept.
been
on EAI
be
to
pronouncements
audit
is
this
research
this
Again,
to
support of
found
but
in
factors
theoretical
common views
reports
this
the
have
consultation
However,
structure
as a
add
common
four
extant
UK professional
to
the
them.
perceived
of
appears
by
groups,
meaningful
findings
any
results
with
guidelines
evidence
of
research into
only
of
number
between
the
tested
empirical
accord
being
EAI
solution,
shared
also
the
of
correlations
no evidence
being
a different
factors
Additionally,
showed
structures
This
high
rotated
argument.
chapter
each
these
reify
the
and
(Oblimin)
this
for
being
EAI
with
While
extracted
inability
the
consistent
unidimensionally.
factors the
are
across
EAs offering
each
of
evidence
on EAI and CMs least
findings
The preceding implications
for
Firstly,
given
external
auditors
the
behalf
audit
clients,
two groups
factor
caution
is
being
The
(1986]
Internal
independence
in
degree
(audit
department) even
reliance
on
the
the
(for
audit
of
under
management
auditors
any
decision
are approach
whom they it". normal for
In
importance
is
IAs
circumstances,
and state
work, unfolds
of
by
the
taken
to
are
it
external place
"employees
be
that
IAs
be independent whereas
the
of
therefore
recognises
of
external
a difference
"independent" 147
auditor
and cannot
so,
whom they
that
states
work.
work)
- and thereby
it
of
internal
the
their
doing
"Reliance
entitled
assessed
that
recognises
independent cannot,
should
of
make such
when of
due
or desirable.
the
be
results
to
order
situations,
before
The guideline enterprise
if
independence"
of
auditor
one may question
recognises such
these
structures
guideline
auditing
EAI terms,
cognitive
proper
either
Audit"
in
on
by their
employed
that,
in
advanced
reliance
'the
fact
frameworks,
increased
;
auditors
by
placed
performed
work
differing
revealed
being
reliance
on professional
and the
and/or
on
increased
the
some important
to
rise
profession.
audit
by internal
their
ICAEW
give
mind.
both
in
to
Referring
the
feature,
above
Chambers
47)
[1981a:
states: internal to*a. it is recognised that audit needs is in ependence from management, but this independence interpreted currently as meaning from the management of a particular audit area, is independence (as than from rather management the case with external for whom thb auditors) is currently " being provided. service However,
likelihood
on EAI between
structures this
the
given
research,
that
and the
distinguishing
types
of
it
since
than
the
any of
to
consequence
function audit
of
audit
to
be so.
their
should research
then
users
the
acquire to
approach
hallmark
of
between
these
cognitive
external
EAs, two
groups, to
profession
and/or
audited of
this
a monotonic
148
in
is
of why
EAs is to
a
the EAI
particular statements
Findings
relationship and its
complexity
of
financial fact.
it
closeness
(audit-immediacy), of
more abstract
determine
abstraction
immediacy
are
auditors
and conceptually
conceptual
be made aware indicate
that
audit-user
the
environment
issues,
group's
likely
three
increased
the
complex be the
by
as revealed
can ever
feature
appears
more complex
If
to
appears
cognitively
is
IAs
cognitive
auditors.
Secondly,
this
if
and cognitively
independence real
EAs and IAs,
one may ask
same unfettered
differing
of
of
this
between
immediacy
to
a EAI.
For
after
example,
the
registered
next
was the
banker
granted
by them
significant
group. (both
impinge
from
the
Durand
and
Lambert
involvement being to
(1979),
regarded or
shades
of
in
the
marketed.
I
Both
marketing
and auditing
"alienation" within
within
auditing
hence and ,
there
would are
to
the
variabler
appears the
to
"cognitive
while immediacy"
as a content
interesting
149
service
or
term
the
and "audit
be regarded
be drawn.
product
regard
of
extent
"immediacy"
would
possibly
exists
as the
light,
this
from
evidence
complexity.
marketing
marketing
findings.
such
relationship
cognitive
as a structural
marketing
empirical
consumer's
item
complexity"
offer
in
to
a basis
closeness
Viewed
marketed.
have
and
with
whose
normally
not
and
sociology
an inverse
"alienation',
is
of
for
suggesting
Alienation
be
to
auditors,
does
making
place
more likely
thus
internal
than
areas
some reinforcement
between
and frequency),
loans
the
of
matters.
offers
marketing,
in
decision
on EAI-related
Research
who because
issue
professional
structure
Bankers, value
that
group
cognitive
on EAI are
the
with
the
auditors, complex
most
reliance
concerned daily
external
parallels
variable to
on the
basis,
above
may be regarded marketing
between
relationship external
the to
related
the
it
Further, are
"the
so
and
alienation
(Planchon
Thus,
extrapolating
might
argue
complexity the
if
differing
factor
underlying bases
of
above
EAI exist,
any set
of of
"alienation"
to
to
complexity
the
of
of
complexity"
EAI data groups, in
and there
is
being
then
for
150
to
examined.
reveals
sets
EAI as seen by audit-user EAI guidelines
cognitive according
respective need
one
auditingr
vary
latter
between
revised
dimension
the
between will
differences
group
understanding before
the
comparable bases
that
context,
1891.
relationship
dimension
FA of
on issues
cognitive
and audit-immediacy
particular
Thirdly,
the
concreteness
holds
upon
with
1991:
from
that
the
cognitive
depending
examined
James,
of
dimensions between
varies,
and
to
a marketing
several
being
it
within
relationship
alienation
the
audit.
argued
possibly
and
immediacy degree
the
inverse an
suggest
structure
external
is
to
and its
cognitive
for
Furthermore,
a group's
domain
audit
within
there
can be said
context
surrogate)
"alienation".
of
findings
an auditing
(or
as a substitute
concept
present
in
"immediacy"
basic conceptual a "construct" groups
issued. be may
The object
the
of analog
auditing
the
within
standards.
Indeed, for
this
gap"
may be considered
rather
than
the
that
Thus,
the
"call of
it
some part in
when seen
the
of
that
long
in
terms
as the
frameworks
of
appropriate remain
audit-users
developing
when
then
EAIj
of
relevant
on EAI.
interest
to
the
audit
profession's
ethical
was
first
disseminated
in
comments
three
United
for
of
U. K.
the
a conceptual
is
for
to
by
paper"
that
observe
the
the
of
recent
most
guidelines form
a
of
Ethics
committee
accountants
in
Joint
institutes
chartered
the
the
Kingdom.
were
invited
services.
The
Comments their
as
codes
revision in
persist
ignored
accounting
gap.
least
and/or
of
be 'more a "conceptual"
at
factor
underlying
ethical
to
obtains,
will
unearthed
which,,
an "expectational"
above
gap
of
may account
light,
If
issuing
of
absence
auditing
"expectations
audit
framework"
context
as the
may be viewed
comments
a "conceptual
of
accounting
framework
above
in
the
to
professional
in
1992.
last
week
of
from
both
closing
date
October
1991,
ethics"
was
auditors for
planned
151
such
and
comments
-and a revised for
users
release
of was
"guide early
The
next
chapter
perception but view.
data group
not
The
Lens nature
set,
is
chapter
it
Model and
use
attempts
differences
in
a factor (or
presented
in
of
individual
to
assess
152
basis,
structure
discriminating)
(Brunswick,
perceptions
in
differences
group
from
a distinguishing
Brunswick on the
EAI,
of
from
considers
the
point
context
1952],
so that
cues and of
explain EAI.
of
within inter-
the based the
of
CHAPTER
XIII
THE MAIN
GROUP DISTINGUISHING
AUDITOR
INDEPENDENCE
Chapter
10 identified
number
of
users with
concerned differences by
seen
of
audit
of
Chapter
view
in
draws
on the
examine
why
such
group
on a discriminant
This
chapter
cues
that
groups,
chapter
in
Firstly, capture
the
basis
"policy
research
differences
from this
a factor which
chapter,
(Brunswick,
the
aspects
are
worthy
of
special
the
sense
that
the
of
cues, to,
capturing" 1981;
sets
between
two
[Libby,
external
arise,
identify
distinguish
similar
and
Model
Lens
to
distinguishing
considered
as
to
1952] considers
basis.
attempts
and
and
differences
these
Brunswick
best
significant situations,
hand
be
to
other.
them
the
one
a
appeared
these
some of
(dimensionality)
analytic
which
11 identified
on the
12 considered
Chapter
in
statements
EAI.
on the
OF EXTERNAL
situations
audited
audit-users
auditors
FEATURES
or
research
Libby 153
four
research
character
of
note.
chapter
this
as the
studies
our
EAI
specific
of
also
research auditing
done within and Lewis,
attempts can be analog
of,
accounting 1982].
to
to
Secondly, audit
the
or
concern
that
individual also
one
aim
bearing
situations
debate
mounting
Porter,
the
1990
11.
first
The
may be used Brunswick
Lens
this
underlying
statistical
and interprets
four
(group)
group be
within
regarded
of
Chapters The
sections. views
discriminant
purpose
1991].
al,
can
major
1990;
Steen,
results
univariate
[CAR,
gap
of
chapter
the
to
1988; et
audit
EAI
of
(LDA)
analysis the
context
need
of
the
paradigm.
section
our
Humphrey
how linear
The second
governing
CICA,
differing
why
for
1991;
has
chapter
and
examination,
the
of
considers
expectation
this
audit
highlight
relevance
audit
in
and
this
overall
to
identification
conducted
one hand, other,
the
is
chapter
and
multivariate
as a development 10 and
and
the
CAR,, 1978].
1974;
this
on the 1989
differences
of
(potential)
Singleton-Green,
Thus,
some parts
of
of
on the
users
[Liggio,
gap"
of
on the
EA group
audit
reveals
"expectation
As such,
of
levels
independence
the
by the
groups
chapter
(in
identifies
chapter
differing
reveal
assurance
auditor)
relevant
1978;
extent
situations
the
that
assesses
and analytical
present the
some of
use of
related
more
important
considerations
LDA and the
results. 154
the
third
presents
last
The
section and
conclusions
implications
outlines
the
for
An ICAEW Working differing
views
of
hand,
and
loss
of
confidence
it
is
important
lead
to
an
inconsistency as
may focus
of
is
its
Information
between
(HIP)
that
varying
recognises
and'using
different
the
show
Processing
as a result
client
to
situations
environment)
of
views
on EAI
these
groupsy of
order 155
aspects to
form
one
but
only
approach of
(of
cues of
their
Human the
because
groups) of
then
1952]
arises
sets
notes
views.
preceding
(or
one
EAIF
perceptions
describing
(issuers
group-varying
which
of
which
if
For,
(Brunswick,
persons
"mixes"
in
issues
the
a
"
those
structure
Lens Model
may arise
case,
usage
aspects
Brunswick
by
to
inconsistent
...
11.
Chapter
on
profession
beneficiaries.
group
overall
a convergence
and the
model
on the
not
on those
cue
issuers
may lead
the
determine
in
continued
other, if
SAI
Of
opinion
audit
audit
of
revealed
that
"standards
70]
to
different
uniquely
There
of
practical
possible
states
auditing,
intended
Thus
views
main
grOMR RercMtiOns
on the
1986:
the
profession.
between
in
the
users),
the
Report
EAI
with
v.
some of
audit-users
[ICAEW,
applies
discusses
auditing
Party
one
chapter
differing
Understanding
13.1
this
of
say,
EAI)
selecting (in the
this auditor-
perceptions.
the
Further,
use
groups different
Brunswick the
same sets
weights
to
relevant
groups
varying
emphasis
this
Thus,,
to
and how,
cue [e. g.
Bund
1984]
and
Jackson, its
so
ImRortant
13.2 13.2.1
identify
usage.
It
The
of
from
applying
were
developed.
developed 6,
With
model
is
cues
and/or is
objective
a statistical group-
Eisenbeis 1983b
and
Avery,
and
Cooper,
detain
not
in
discussed
much
LDA was are
to
us
the
here.
on LDA
determine
Six
one exception, basis.
and the
in
contained I
questionnaire.
on a 2-group
a 4-group
main
considerations
cues
the
of
bases
group-distinguishing
elicited
is
need
statistical
resRondent
purpose
Its
Taffler,
principles
EAI arise
of
such
1968;
1983;
that
so.
to
Altman,
assessed.
possibility
sets
(LDA)
analysis
differentiating
1972;
is
place
or being
on the
them.
this
appropriate
of,
on views
to
where
words,
other
cues
use varying
weights
discriminant
literature
specific
even
may attach
In use
premised
groups
if,
technique
them.
differences
differing
Linear
The
is
group
assess
they
cues,
of
the
on,
varying
attach
of
each
that
suggests
may make varying
chapter
significant because
model
156
models
the
different all
EAI
data
models
models
The exception six
what
were
was Model
developed
were:
No.
Model
In
Differentiating
1
External
Auditors
(EAs)
2
External
Auditors
v.
Credit
3
External
Auditors
v.
Internal
4
External
Auditors
v.
(Audit)
5
Big-Six
6
EAs v.
the
event
of
particular,
EAs v. BAs v.
sample
to
prior use
samples
sampled
all
123
the
three
Model
audit
the
user
however, firms
Finally
research
the
cases 4 was
groups
using
from
of
-
each
developed
41 randomly
contrasted with
all
Model
6.
all the
the
only
(320
157
are
80 randomly two
the
respondents cases
from
from
each.
72 EAs from
4-group
in
of
responses
sampled
the
groups
respondents
51 EAs from
sampled groups
sample
is
size
sets.
the
from,
adjusting
sample
data
developed
123
different
to
they
original
and
LDA model
by very
provided
their
3 were
on 80 randomly four
matrices
to
in
and,
an alternative
size,
EA respondents
5,
firms. based
equal from
1 to
IAs
proportionate
respondent
considered.
Six
of
selected
Models
Model
case,
(USs)
Users
empirically
probabilities
randomly
Thus,,
this
In
sizes.
(IAs)
Auditors
normality,
affected
(CMs)
Managers
EAs
dispersion
non-multivariate
(BAS)
Bankers
v.
nonBig-Six CMs v.
unequal
may be adversely
for
Groups
Big-
nonBig-Six model, from total).
was each
of
The
13.2.2 certain
previous
suffers
from
basis
intermediate for
"refined" by
(MLC) are
their
used
Negative
refined
indicate the
issue,
comfort (positive
negative)
refined
of
assessment
Of Using
LDA techniques
1.
equality
of
2.
separate
multivariate
3.
distinct
groups
covariance
of
of
LDA each
both
account their
concern.
means)
EAI.
as
Confidence
present
indicate
responses
refined
or
The validity use
positive with
or assurance.
the
group
assurance
concern
of
of
or
a measurable
Valid
(or
account.
Level
views
intensity
responses
provides
13.2.3
and
into
responses
into
taking
(or
"raw"
for
The
intensity
responses
such
underlying
LDA assumes:
matrices normality
158
of
each
no
makes
concern
individual
the
EAI whereas
with
concern
Minimum
for
research
be taken
as variables
base
perceptual
made
(individual
capture
on each
independent/not
individual
to
1974]
Lavin,
[e. g.
such
of
respondent's
to
respondent
only
on an
issues
such
demanded)
designed
EAI
Further,
responses the
into
intensity
the
analysed
no provision
with
about
otherwise)
reduced
it
positions.
provision
of
research
examining
independent
The
(judgements)
responses
LDA group
tests
Various
data
underlying to
the
were
to
were
appropriate
sets
LDA. Individual
use of
a necessary it
for
condition is
not
Nevertheless,
Box's from
multivariate
departures
from
equality
suggested
unequal
and
Taffler,
not
conducted
efficient of
increased
the
In
departures
All
the
and the
models
of
to
discriminant to-enter
(the
as the
basic
evaluate
the
models.
Values
discriminant
to
shown
(inter-alia)
generally
with
the
criterion. overall set
159
robust
assumptions.
a stepwise
method
minimisation
of lambda
Wilks' significance
for
function)
respectively.
need very
statistical
using
was
be more
that
parameters
developed
Sudarsanam analysis
because,
LDA is
SPSS/PC+ software,
used
been
cases.
most
(e. g.
discriminant
underlying
were
in
matrices
not
to
matrices)
experience
addition,
by -
LDA to
than
covariance
data
number
from
lambda
Wilks' also
of
has
while
sensitive
normality
on out-of-sample
derivation. to
it
is
this
normality
(more
quadratic
as
generally
condition.
on other
1985)
were
multivariate
covariance
drawing
Further,
be subjected
However,
M statistic
departures
to
variables
a sufficient
the
whether
examine
distributed.
normally
univariate
itself
conducted
F-to-remove were
3.92
of
was
the
and Fand 3.93
in
Further,
discriminant
the of
0.7
was
(within
Thus
set.
The
(LH)
with
on the
model
(OS)
Sample bias
when
than the
of
variable
all
its
cases.
judged
was
model
the
with
variables
in
0.3
despite
method
compared
discriminant
discriminant
other
power
of
coefficient any
less
was
classificatory
upward
multiple
level
tolerance
a minimum
the
between
multicollinearity
regressing
model)
(same)
Original
The
from
any
the
reduce
variables,
determination
in
to
order
by
the
for
potential
Holdout
Lachenbruch
method.
OS method
of
a non-overfitted
(OS and LH) are Sudarsanam
LDA
assessing
model
generally
[1981:
139)
was
results
from
results
quite
similar. for
that
states
his
because
used
both
methods
For
example,
research:
"the Lachenbruch Holdout are results method identical Sample to those nearly of the Original differ The overall method. rates classification the methods. The 0.5% between not more than classification rates within are more each group identical. " or less
In
addition,
concern the
is
and perhaps with
nature
differentiating
As appropriate, the
relative
the
discriminant
approaches the
the
first
four
of of
showed quite them
(below),
each
models.
similar
were
the
160
used
function All
of
LDA models. to
identify
variable
to
comparable
results,
was used
main
importance
within
approaches
power
our
and relative
situations
contribution
of
importantly,
more
and thus
interpretatively.
only
four
The
approaches
1.
The
Mosteller-Wallace
2.
The
(ranked)
3.
The
step
4.
The
(rotated)
(M-W)
the
when
considered
for
3 are the
2-group
for
13.3, Linear
discriminant
of
model
The
relevant
(null) between
overall, 71.7%,
bankers
in
The
the
the with
being
better
at
is
74.4%
of
correctly
two
with
samples, from
details
than
each the
of
0000 .
being to
correct
reject
to
the
matrices.
auditors
grouped. 161
its
equality
is
result
classification
external
per
attached
an underlying
covariance
model's
model.
bankers
v.
possible
contending
relevant
4-group
13.1.
Table
it
4 was
approach
respondents
same significance
M statistic,
hypothesis
the
Pertinent
groups.
therefore
and
auditors
selected
significance
lambda. Box's
the
results
analysis
80 randomly
has
to
1) was developed
provided
model
Wilks' its
are
LDA model of
while
models,
external
(Number
two
for
so applied
and
Discriminating
the
the
coefficients
appropriate
appropriate
made up of
value
functions.
1 to
model
F-to-remove entered
situation
standardised
Approaches
This
contribution
percentage
the
of
magnitude
discriminant
13.3,1
were:
used
and
68.9%
of
on this
Based
independence
auditor
are
groups,
in
seen
revealed
which
on a total
the
essential
that
appear
the
between
relevance
of
model,
five
following
significant basis
group
Mosteller-Wallace
are
each
situations,
t-test
differences
11.1),
and
(Table
values
banker
and
auditor
external
distinguishing
have
to
external the
of
aspects
(. 05)
whose in
alongside
stated
brackets:
Sitn.
18 -
20% local
Sitn.
11 -
Time
Sitn-
19 -
Dynamic
Sitn.
2-
Due to
Sitn-
15 -
associate:
one
in
its
national
model.
which-the
in
though
fee local
it.
terms
Accordingly,
may be ascribed
EAs are
the
a study
three
than
BAs -a
times
The
facts in
from
of
the
deriving
the
explanatory are
situation
1% of
derives client,
relevant
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income
fee
reliance
indicates means
that
its
20% of
(local)
situation.
of
concerned
finding
(35.1%)
question
group
differently
significantly
than
highest
significant
to
Interestingly,
the
revenue
(8.3%)
Involvement
firm
audit
(14.5%)
Involvement
director:
trust
the
within
power
audit
(18.2%)
Relationship
chairman:
(35.1%)
Reliance (23.9%)
Pressure
pressure:
18 registered
Situation
from
Inv.
dependency:
fee
not
with along
162
(t
EAI
= 3.84)
in
expected
the
and
situation
lines.
more
TABLE
13.1 MODEL
DISCRIMINANT
1:
EXT.
AUDITOR
BANKER
v.
GROUP
Model 13 + -.
54(SITN . 1.06(SITN
-
Model-related sitn.
Actual
Pooled
Auditor "grouped"
cases
within-groups
sitn. 2 11
11)
66(SITN .
+
39(SITN .
-
15)
19)
in Entgy SteR 4 1 5 2 3
F to remove 7.2 8.9 5.9 27.7 9.4
M-W I 14.5 23.9 8.3 35.1 18.2
matrix
Group
External Banker 71.7% of
+ . 52(SITN
statistics
classification
Group Membership Predicted Banker External Auditor 74.4% 25.6% 68.9% 31.1% classified correctly
MDA variables)
correlation
2
11
15
35 . 40 . 38 . 30 .
1.00 21 . 32 . 36 .
1.00 29 . 29 .
is
19
1.00
15 is 19
Wilks'
lambda
significant 2.
18)
GrOUR Means EAs BAs 091 370 -. . -. 221 -1.014 740 -. -. 370 -. 792 -. 219 493 -. 013 -.
2 11 15 18 19
1.
2)
= 0.696
at
with
M statistic
= 52.4
3.36,
significant
at
degrees
of
5 degrees with
0000 .
freedom.
163
with
app.
1.00
52.69, =
chi-square
0000 with .
Box's
1.00 44 .
of
freedom.
F-statistic
15 and
87,644
Of
However,
increased
such
expression
their
of
details
that
state
took
audit,
annual by
the
In
contrast,
as
ICAEW's
by
prejudiced
of
being
responsibility the
firm.
Situation
11,
which
subjected
to
of
it
such, between
that
EAI views
of
time
The
CAR (1978:
and
took
pay
inordinate
For ignore
in
the
to
taken
by
to time
not
to
the
of
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for
the
1987:
EAs and BAs is
such
an
been
audit from
another
being the
registered in
issue
20].
have
auditor
(23.9%)
PLC's
required)
final
pressure,
one more
specifically
had
a partner
M-W contribution
completion
regard
would
a reference
related
appears
have
usually
views
significant
highest
next
not
[ICAEW,
the
that
so ethically
document
so their
lack
not
office
(and
specified
be an
only
fact
responsibility
guidance
and
the
18 did
another
final
BAs would
expectation
office
from
EAs'may
with
Situation
a partner firm
auditing
discontent for
provided
by
concern
the
As
model.
distinguishing that
of
audit
pressure.
xxx] view
that
regard
professional
such
situations
due
professional
when to
in
such
auditor
is
EAI
considered the
tends
considerations
practices
164
forced
deadlines,
completion
EAs are
situations
under and
strong
to
then to
suffer.
pressure
considerations.
to
Indeed,
while
complete
he
is
due
all
take
must
audit
agreed
priorities
that
to the
in
means Closer
the
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analysis
differences showing
less
We may note
that
and may thus reality
feel in
or
belief),
for
reasonable
auditor
time
pressure
situations.
Situation one
19
relating
to
relationships within
any
is
(18.2%)
one
independence. own
audit
such
it
(either
in
too
great
an adverse it
Accordingly, more markedly
interesting
may be concerned
EAS in
than
as
it
is
the
possible
impact
of
personal
and/or
human
dynamics
to
be
six
LDA models
of
the
EAs.
with
deal
independence
external
than
EAI
with
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basis,
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without
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11.
situation
regular
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on the
negative
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able
lies.
EAI
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pressure
in
reveals
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of
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EAs probably
time
completion
impact
(5 times)
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conflict with
detailed
along
troubled
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BA groups
means
= -4.93)
much more
who appeared
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conflict
pressure"
of (t
is
It
that
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stringent
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both
surprisingly,
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time),
of
to
required
thoroughly
the
by him.
is
auditor
amount
honour
to
obliged
the
steps
some minimum
deadline
Not
hand
on one
165
such
the
reflected
developed.
only
Thus,,
in
save
this
relationships
The
chairman
ability
to
dynamic
nature
independent
This
would
Compared
with
mean),
to
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judgements
(decisions)
to
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Situation
2 (14.5%)
discriminatory state firm
that
be
with
with
remain
a negative
line
with
a priori
their
the
other
was also
client. 166
to
audit
user
in
groups.
determining
EAs and BAs. arm of to
it
the
(relevance)
closeness
consulting unpaid
business reactions
helpful
between
belief.
be personally
their
to
underlying
invoice
to
same conviction.
so that
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EAs were
BAs may well
management
has a material
the
given
that
in
EAI views the
auditor's
share
"threats"
such
reflects
a
type
ability
while
CMs and IAs,
confronted
situation
auditor's
seem to
appear
that
reveals
the
of
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independence
means
(positive
BAs did
of
chairman.
group
confident
impact
with
of
groups.
I'Maxwellesquell
contrasted
the
be part
assessed
perceived
professional of
of
the
as to
the
(Robert)
a
stature
retain
An analysis
mean,
to
with
and
personality
generally
between
referred
personal
on such
so different
pattern
situation
company
be
may not
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views
case,
Its
facts
an audit
by an audit
With
a positive
themselves
independence. bankers
mean,
prior
has a direct
its
of
extent,
in
its
banker
often
line
client.
perhaps
as would
concede
their
15
Situation it
as the
the
that
be deemed to (and hopeful
affairs
the in
and to
grounds
firm
auditing its
its
in
interest
on those
in
client
audit
of
the
effectiveness
between
the
be expected,
of
them
"Chinese
the
and consulting
audit
On the
firms.
audit
with
consistent
were
responses
erected
such
involvement
in
affairs.
unconvinced
which
with
situation,
may also
has an interest
arms of
in
a negative
that
fact
in
one may argue
general,
Walls"
the
so it
interest audit
itself
question
being
in
financial
arm,
an (indirect)
success)
In
with
much more concerned
the
from
consulting
management
and/or
relevant
contrast,
appeared
may stem
firm
auditing
that
In
the
with
expectations.
Such concern
have
auditors
external
independence
auditor
external with
mean,
showed no concern
auditor's group
group
same basis,
EAsýwere
and
more willing
to
effectiveness.
(8.3%) was with
was
similar
possible the
audit
to
in
impute client
concerned.
167
that
it
was
a financial by
the
auditor
also
one
facts
The
for
responsible in
the
audit
an
investment
material"
holding
in
While
would
director
one
financial)
have
to the
external
an
such
means
a "not
(indirect
by
concern
more
the
to
pointed
external than
bankers
with
themselves,
auditors
group
relevant
a
concurrently
same PLC.
involvement
evoked
partner
held
which
expected
audit-client
auditor with
have
a PLC was
of trust
the
the
that
15 state
Situation
of
of
an analysis
the
being
opposite
true.
one
of
explanation
is
external
auditors
ofýtheir
professional
and/or This
this
ethical would,
it
that
that
are
guidelines not
be
may well
concern
however,
increased
apparently
impact
a reflection
prescribed
auditing
being
possibly on the
by
concern
violated.
banker
respondents.
Another
alternative
guidance
may indeed
auditing
profession
external
auditors
expression of
of
external
seen
by
the
the
is
possibility have -
in
been
that
case
the
may really
only
have
considered
and
practical
auditor
independence
auditing
practitioners
168
by
"internalised"
which
themselves).
ethical
such
in
means
group been
of
an assessment 15 as
Situation group
the
(i.
e.
auditors
Discriminating
13.3.2
ext.
This-discriminant two
with
respondents
details
the
of
both
differences
at
discriminant
with
in
14 - Auditor
Sitn.
18 -
model
is
statistic hypothesis (or
the
Lowballing, (88.5%), the
costs and/or acquires future
Year
subsequent an so as
of of
CMs correctly
ingredient
the
years.
In
in
the
interest to
recover
an
EA has to
169
per
M
Box's
between
overall, 75.8%,
with
classified.
14
Situation
involvement
by
fully
not
it
is
survival
1 unrecovered
the
EA
recovered
them
recover
client's
its
(null)
of
so doing,
Year
0000 . its
of
is
model
if
(11.5%)
difference
the
he attempts
1,
(88.5%)
matrices.
create
group)
M-W
the
reject
to
Here,
client. in
seen
two
multivariate
than
(. 02)
covariance
essential
may be
(total
Reliance
no significant
70.9%
only
were:
better
to
enough
of)
EAs and
fees:
at
classification of
two
significance
small
an equality
80.8%
in
The
13.2.
Involvement
(1% UK)
contending
correct
these
significance
lambda.
Wilks'
Main
percentage
lowballing:
20% local
group.
Table
showed
their
brackets,
Sitn.
has
11.1),
developed
sampled
t-test
significant
With
power.
contributions
stated
(Table
05 .
in
managers
also
was
relevant
each
are
model
situations,
The
from
2)
credit
80 randomly
made up of
samples
selected
(Number
model
v.
auditors
in
Year
argued, into costs.
2 he the
TABLE
13.2
DISCRIMINANT
MODEL
EXT.
2:
AUDITOR
CREDIT
V.
MGR.
GROUP
Model 79 1.08(SITN + .
Model-related
GrouR EAs
14
-. 584
18
-. 792
classification
Credit 75.8%
-1 88.5
-1.779 -. 558
11.5
54.2
1
18.9
2
29.1%
"grouped"
within
groups
70.9%
correctly
cases
14
14
in Entgy SteR
Predicted GrouR MembershiR Auditor External Credit Mgr. 80.8% 19.2%
Auditor
of
P to remove
matrix
Sitn.
classified
MDA variables)
correlation is
1.00
18
.
Wilks'
52
1.00
lambda
significant 2.
M-W
Manager
Pooled
1.
-
Means cmS
Group
External
18)
72(SITN .
statistics
sitn.
Actual
14)
= 0.729
at
with
0000 with .
Box's
M statistic
= 10.0
3.29,
significant
at
degrees
of
.
= 47.64,
chi-square
2 degrees with
0200
freedom.
170
with
app.
of
freedom.
F-statistics
3 and
41158j720
of
Both
groups
recorded
their
concern
three
times
the
xxx]
though it
more concerned
with
in
lowballing,
EAI
considered
1978:
mean responses
lowballing,
with
with
concern
negative
with
opinion
when it
the
of
signalling
CMs appeared
than
EAs.
both
In
showing
groups
echo [CAR,
Cohen Commission
that:
states
"the practice of accepting an audit engagement losses with the expectation of offsetting early in fees to be charged or lower revenue with is a threat future to the independence audits of the auditor. " The other
but
18 (fee
(35%) discriminant
power
(ca.
Interestingly,
in
EAI
with
means),
EAs were
the
in
Generalising
BA model
from
this
LDA model,
financial
involvement
distinguishing
in
this
appear
to
register
was so will to
audit views
of
an
with, clients on
EAI
having
that forms
here.
only of
local
significant
between
171
be valid
appears
this
for
offered
may also
register
means).
uncertain,
remain
it
model.
group
group
those
auditor or
also
power
(negative
similar
highest
BA model,
(positive
EA V.
reflective
on
not
the
situations
dependency
EA v.
so concerned
considerations
situation
had the
situation
why this
precisely
though
which the
CMs did
while
20% on a
at
12%) discriminant
concern
As to
in
a multivariate
reliance
1% on a UK level)
at
had modest
in
significant
was Situation
context local
situation
significant EA and
groupCM groups.
13.3.3
Discriminating LDA
This
of
the
has
lambda.
of
its
an
inequality
the
80.5%,,
77.5%
The model (comparing constituent 10 and these t-test
Thus,
83.5%
with
was
EAs v.
three
to
brackets
EAS V.
05 .
EAI aspects their
with
significance to
the
model
(Group
1)
of
CMS) in
(total
(Table
confirm
matrices.
two
three
3-
Sitn.
10 -
Budget
Sitn.
12 -
10% fee
Accounting
previous terms
of
11.1).
Pressure
172
All
significant
between contributions
(53.6%)
Involvement
dependency:
(31
power.
group)
M-W percentage
pressure:
its
situations
distinguishing
services:
and
grouped.
are:
Sitn.
its
per
correctly
the
3-
13-3.
0000
discriminant
showed at
2)
to
multivariate
situations
main
(Group
revealing
have
and IA groups, in
BAs and
differences
the
Auditors
dissimilar
variables, 12)
External
of
.
covariance
rate
the
Table
basis
no
classification
Auditors
quite
in
(. 5259)
underlying
correct
Internal
of
the
each
of
at
provides
the
of
from
details
main
significance
M statistic
two
with
presented
Additionally,
Box's
overall,
are
statistical
auditors
respondents The
groups.
developed
model
developed
was
selected
two
int.
y.
auditors
3)
randomly
relevant
model
Wilks'
is
80
of
variable The
(Number
model
samples
ext.
Reliance
(28.4%) (18.0%)
EA
TABLE
13.3
DISCRIMINANT
MODEL
3:
EXT.
INT.
V.
AUDITOR
GROUP
Model -. 80 + 1.06(SITN Model-related
Group EAs
3
143 .
10
442 .
10)
M-W I
F to remove
Means lAs -1.372 385 -.
-1.494
-1.013
classification
-
Ent; Ey in Step
53.6
34.9
1
28.4
15.4
3
18.0
31.7
2
Predicted GrOuR MembershiR External Auditor Auditor Internal
External
Auditor
83.5%
16.5%
Internal
Auditor
22.5%
77.5%
80.5%
of
Pooled
"grouped"
within
cases
groups 3
10
3 10 12
1.00 41 . 30 .
1.00 45 .
lambda
significant 2.
= 0.568
at
correctly
12
1.00
with
M statistic
= 5.25
0.86,
significant
at
of
= 85.73,
chi-square
0000 with .
Box's
degrees
classified
MDA variables
correlation
sitn
Wilks'
12)
1.13(SITN
matrix
GroUR
Actual
+ 1.03(SITN
statistics
Sitn.
12
3)
3 degrees with
5259 .
freedom. 173
with
app.
of
freedom*
F-statistic
6 and
169,527
of
Situation
3 refers
to
accounting
services
acceptable
within
more than
half
means
negative
for
IAs)
that
facts
of
the
issues
such
who often
insight
into
and operations, auditor is
services
We may speculate
in this
significance
of
and credit
manager
involvement
knowledge
of
the
audit
is
EAI
client.
that
may be in
have
this
in
the
many to
their that
expected situation.
a detailed
internal
and
audit
services
it
IAs,,
of
repugnant
reality
clients,
EAs and
perturbed
not
auditor
accounting
case-of
for
company
the
and
audit
when the
the
ethically
about
and audit
direct
nothing
display
systems
EAs were
by
not
comprehensive
3 (positive
a private
3.
power.
explanatory
that
for
and accounted
ethics)
Situation
to
is
there
company
EAs would
(a situation
provision
do provide
private
company
reveals
Situation
auditors
In
for
services
Given
a private
model's
concurrent
accounting
limited
to
the
of
the
providing
UK auditing
A review
by
an auditor
and financial
corporate
potential
disquiet
provides
concurrent
EAI
with
accounting
registered.
that,
passing
in
situation models, with
potential
the
lack
the
comparable
may reflect
such
174
their
lack
banker of
and thus
activities,
importance
of
of
such
issues.
Situation
intense
under client's
budget
thorough
EA group
adversely
degree
of
pressure
affected
in
We may
fee
encounter
response
might
take
to
On the
hand,
12
in
the
is
reliant
model, for
ICAEW
(1987:
which
is
also
whereas
IAs
in they
able
stride,
believe
that
more
removed
final
discriminant
circumstances
the
his
firm's
to
EAs
fees
only
listed
not is
this from
such
perceptions.
where
15% maximum
total
175
time
through
their
the
of
a
EA group
(18.0%),
20])
had
for
positive
different
the
IAs
the
quite
10% (below
not
activity.
have
describes
is
the
with
unusual
EAs are
being
score,
professional
pressure or
EAI.
a material
to
appear
Situation
that
EAI,
affect
other
situations
for
such
EAI
as
not
their
be either
to it
is
interpretation
one
allowing
in
pressure
As such,
experience
it
may be
refined
indicating
a
total
of
that
speculate,
12,
Situation
pressures
pressure
mean
10,
score,
concern.
fee
assurance
the
complete
exercise
situation
refined
fee
made to
a positive
positive
of
the
placed
performing
such
such
-
to
registered
mean
negative
so.
audit
their
suggesting
that
is
auditor
when
demands
cost
inimical
be
to
pressure
extent
professional
perceived
The
fee
the
against
the
one where
To the
audit.
compete
is
(28.4%)
10
variable an auditor suggested
on one
client,
audit
client.
by
Analysis
of
concerned
group
means
One interpretation the
the
that the
auditor
prestige
and
of
The
(EAs
concern with
EAI
For,
given
on the
level
audit is
likely
in
reliance
given
the
when the
client
is
that
consideration listed specified in
the
it
fees
features, US (Olson,
only
concern
the
only
only for
to
is
1], even by
them
IAs.
by EAS
(despite
the
fees),
total
audits
SEC-regulated al,
of
corporations
19831.
UK.
over
fulfilling
with
1980 and Lee et
rebel
manifest
reserving
the
7.1991:
for
to
IAs)
clients
audit
place
10% of
176
in
["Clients
one listed
firms
as with
by
only
in
reveal EAs v.
with
concern
one
impact
profession
done
the
listed
to
put
EA
portfolio.
EAs will
work
may be given
companies
the
of
for
November
Age,
increased
accounts
the
future,
the
case
Another
auditor's
now being
on audit
Further,
fact
by
audit
the
concerned.
a 10% reliance,
situations
- Accountancy that
greater
their
of
the
CMs compared
pressure
more
dependent.
on the
be studied
the
a negative
a disproportionate
differing
BAs and
v.
should
fees"
terms
the
at
was
client
effect
even
cause
so bore
and
are
in real
relevant
of
essence
the
IAs,
client
particularly
may be that
fact
of
as too
seen
interpretation, group,
that
EAs with
be
to
IAs
EAs and
12.
Situation
may be that
is
auditor
shows
times
1.5
mean roughly
in
EAI
with
both
it
13.3.4
The
first
all
123
external
and
the
second
group
banker,
"Table
13.4.
The
lambda.
Wilks' than
003, .
model's 81.7%
This
overall of
was
between
discriminant this
importance
the
between
following at
situations, total 05 on a .
Sitn.
11 - Time
Pressure:
Sitn.
12 -
10% fee
Sitn.
10 -
Budget
being
aspects
of
User
all
differences
dependency: fee
pressure:
177
77.7%
with
grouped.
three
their
common.
Per
distinguishing
and
seen
are
groups,
basis
Pressure
The
contrasting
12)
group
less
correctly
and
(10
Issuer
was
of
with
its
per
applications).
that
to
in
given
covariance
of
two
IAs,
EAI
main
Users
similar
are
0000 .
rate
classifying
situations
model,
(t-test)
EAs and
such
who
groups)
significance
in
of
the
group).
is
invariable
73.7%
123 of
model
inequality
broadly
each
(User
M suggests
and
from
significance
correct
from
group),
auditor
hypothesis
groups.
responses
from
3-variable
null
Issuers
model
views
this
two
with
responses
internal
reRorts
audit
(Issuer
statements
With
(almost
matrices
of
and
model's
Box's
run group
sampled
manager
of
of
respondents
randomly
details
Pertinent
also the
of
was made up
financial
users
v.
was
auditor
credit
audited
4)
consisted
(41
respondents
the
(Number
LDA model
This
use
issuers
Discriminating
significant (Table
11.1):
(47.0%)
Reliance Pressure
(27.7%) (25.3%)
in
TABLE
13.4
DISCRIMINANT
4:
MODEL
ISSUER
V.
USER GROUP
Model 10)
76(SITN 86 + -. .
Model-related
Means
Issuers 11
12
-1.593
classification
77.7%
of
remove
-1 25.3 47.0
20.9 43.6
3 1
-1.052
27.7
54.3
2
Group
MembershiR GrOUR Users 18.3% 73.7%
81.7% 26.3%
"grouped"
within
Sitn.
cases
classified
correctly
MDA variables)
correlation
groups
12
11
10 1.00
12
35 .
13
45 .
Wilks'
1.00 42 .
lambda
= 0.666
1.00
with
at
0000 with .
Box's
M statistic
= 20.36
3.34,
significant
at
significant 2.
EntýEy in Step
to
r
Predicted Issuers-Group
Group Group
11
-
matrix
Issuers Users
Pooled
12)
1.01(SITN
-. 216 -1.181
Group
Actual
1.
M-W
Users
441 . -. 102
10
11)
statistics
Grouv
sitn.
+ . 87(SITN
degrees
of
= 93.53,
chi-square
freedom.
3 degrees
of
with
F-statistic
0027 .
freedom. 178
with
app.
6 and
389,659
of
Just
under
11,
Situation time
concern
with
means),
the that to
similar
registered
by
provided
discriminant
power.
(significantly)
more than
situation
made regarding
Model
3 would
Analysis (audit of
fee
the
group
means
pressure)
that
shows EAI
in
this
the
context
appropriate
level
to appear
statements in
EAI
with
only
(27.6%)
contrary
the
comments
situation
in
the
which
power
Issuers
of
do not
the
similar
to
context
of
in
the
of
situation
here. 179
IAs
10 last
the
20.9%
discriminant
Users
offered
EAs v.
for
appear
whereas
as those
the
case
accounted
situation
of
his
also
here.
apply
same considerations
in
this
BA
EA v.
10% fee
highest
As suchl
M-W contributive
model, with
of
concerned
do Users.
those
is
which,
audited
of
the
an auditor's
next
10
here.
valid
the
than
explanations
for
provided
under
group
was more
Thus
However,
Issuers
expectations,
Issuers.
in
registered
groups
by Users
client
client,
auditor
(negative
describes
which
classic
both
be equally
on an audit
listed
the
previously to
contained
situation
manifest
12,
reliance
I
the
concern
likely
Situation
of
in
EAI
was
power
While
phenomenon.
those
are
model
model's described
which
pressure
times
the
50% of
for
model
to
be troubled
were. this
are
Thus situation
equally
the
In
then,
summary
that
suggests
views
external
auditor:
faces
2.
is
3.
client
faces
intense
linear
with
those
and
Six
firms
as
recognise
sample
not
v.
fees
on an
listed
only
nonBig-SiX. model
one
auditors
The
all
firms
audit
from
51 EA respondents group.
developed
was
providing
Big-Six
model
was
as nonBig-
adjusted to
proportionate
probabilities
of The
lambda.
M suggests uncommon
correct Six
13.5.
Wilks'
Box's
have
pressure
from
all
second
prior
total
analysis
coming
details
Table
its
(budget)
to
pressure
72 EA respondents
and
the
his
Users
the
where
(time)
v.
size.
Pertinent in
the
appear
auditor's
Big-Six
69 of
group,
situations
the
discriminant
first
to
is
fee
the
reports
10% of
about
which
data
relevant
audit
Issuers
of
completion
Discriminating
This
model
in
audit for
audit
of
on EAI,
intense
reliant
13.3.5
overall
Issuers
different
1.
our
has
However
such
and
LDA model
model
an
grouping
auditors
correctly
in
the
significance
with
inequality
75.4%
was
77.0%,
of
Big-Six
grouped. 180
are at
significance of
applications.
rate
suggested
covariance Overall, with
74.5%
auditors
given
0000 . at
.
per
0802,
matrices the of being
model's nonBig-
-
Four
the
of
conjointly
twenty with
discriminant
With
(@
respective
one
had
situations
differences
were
other,
sense.
four
all
each
05). .
when
situations,
audit
in
significant
total
four
12), t-test
group
their
(with
situations in
M-W contributions
percentage
a
(Situation
exception
significant
These
assessed
brackets)
are: Sitn.
11 - Time
Sitn.
15
Sitn. Sitn.
trust
-
Inv.
12
-
10% fee
14
-
Lowballing:
Situation
quantum Analysis
were
concerned
not
situation,
somewhat
time more
large
of
(positive
the
registered in
power
the
external
model EAs
Big-Six
EAI
mean) with
nonBig-Six
their
stringent
in
order
in
the
auditors
it see
who
time
to
under adhere
figure
more their
schedule,
to such
to
181
EAI as
to
the
strongly
nonBig-Six
reasonable
threat
frequent
required
reporting
than
may be less
work
timely
and
portfolio
Thus,
a stringent
to
companies
client
EAs will
likely
pressure
quoted
colleagues. Big-Six
pressure)
means shows that
group
EAs may be more
intense
within
time
mean) were.
Big-Six
for
(13.4%)
discriminatory
whereas
(negative
(20.5%)
Reliance
Involvement
of
(26.7%)
Involvement
income:
of
(39.3%).
and
director:
11 (significant
highest
(39.3%)
Pressure
pressure:
in
expect
in
the
Situation
that confines 11.
13.5
TABLE
DISCRIMINANT AUDITOR
MODEL
5:
V.
nonBIG-SIX
EXTERNAL
BIG-SIX
GROUP
Model 96 .
-
83(SITN
11)
44(SITN .
15)
.
Model-related
500 -. -1.320 -. 860 -. 460
classification ACtual
Group
within
sitn. 11
191
. -1.794 -. 426 -1.353
.
M-W I
P to remove
39.3 20: 6 13.4 26.7
15.6 8.7 5.1 8.6
in Entgy SteR 1 3 4 2
MDA variables)
correlation
groups
12
14
is
1.00 42 . 36 .
1.00 27 .
1.00
1.00
40 . 33 . 24 . lambda
= 0.734
with
at
0000 with .
Box's
M statistic
= 17.41,
1.67,,
significant
at
significant
degrees
14)
45(SITN
Group Membershiv Predicted Auditor Big-SiX Auditor nonBig-SiX 25.5% 74.5% 75.4% 24.6% classified cases correctly
11
12 14 is
Wilks'
-
matrix
Auditor nonBig-Six Big-Six Auditor 77.0% of "grouped" Pooled
12)
statistics
11 12 14 15
2.
.
63(SITN
GrOuR Means Big-SiX nonBig-SiX
sitn.
1.
+
of
0802 .
freedom. 182
= 35.24p
chi-square
4 degrees
of
freedom.
F-statistic
with
app.
with
10 and
52,441
of
on the Six
hand,
other
auditors
they
to
(For of
of
an analysis
For
in
a similar
top
100
Situation
in
Lea
Thus,,
its
recent
- May 30,,
main
Age:
"Analysing
aspect
ethical
detail
audit
(and other)
while
some nonBig-Six
it
possible
to
prohibitions
in
the
indirect
staff
that
related
less
severe
audit
internal
have
than 183
those
which PLC.
client.
rules,
between other
their hand,
regulations,
similar
monitoring
audit
regulations
On the
and clients. firms
the
audit
involvements
of
the
shares
additional
singular
trust
his/her
with
UK's
is PLC a
and professional
enforce
which
of
the
4. ]
where of
set
UK,
"The
5,, and
13,1991:
relates
to
are
see
the
an investment
level
In
firms
in
audit
in
an auditor
procedures
with
concern
analysis
1991:
the
for
of
is
this
1976.
circumstances
involvement
Big-Six
if
EAI
Dov Fried,
- June
material"
addition
to
and
Schiff
see
a director
a "not
time
tight
Big-Eight
Accountancy
responsible
holds
nonBig-
then
the
US,
achievement"
concurrently
such
their
of
15 describes
partner
under
some jeopardy
clients
more
auditors" for
recipe
the
and
by
articles
that
11 may be rationalised.
Situation
CPA firms
likely
accordingly
and
case
less
report
may sense
be the
in
EAI
is
consistently
pressures, were
it
as
and enforcement in
Big-Six
firms.
that
Against built
backdrop, towards
scepticism (no
clients from
expect
firms
compared
by
with
external
those
with
in-
a greater
involvement
any
how tenuous)
matter
Big-Six
one might
audit auditors
from
nonBig-Six
firms.
Such expectations of
and nonBig-Six
external
Big-Six
EAI,
EAs are
much more
(about
nonBig-Six
EAs.
Situation
12,
10% of for
his
20.6%
testing
(Table
11.5) differently
the
compared
5% level
at-the means
shows
(t
than
concerned
due
to
Big-Six number
fact
the firm of
EAs to
is
that
it
with
for
reliance
client,
accounts Univariate
power. EAs to
be not EAI
with
concerned
in
colleagues
nonBig-Six
However,
comparison
be
a third
about
than
of
group
more
EAs.
nonBig-Six
We may hypothesise 0
their
to
= 1.8).
Big-Six
listed
more
with
= -2.85)
an auditor's
Big-Six
Big-Six
concerned
discriminant
shows
significantly situation
are
concerned
only
model's
both
(t-value
times)
his
from
by an analysis
while
significantly
describes
which
the
of
that
auditors
three
fees
be confirmed
indicates
means which
group
to
appear
increased
such
that
the
more
likely
client to
clients.
184
and be
concern fee
spread
portfolio over
might in a greater
be a
In
the
case
of
that
possible
one
disproportionate
they
are
generally
nonBig-Six
(fee)
client
last
The
significant
describes
the
creates the
With
audit
both
EAI in
group
Big-Six
affairs
it
on,
most
manifest
between
of
which
involvement
of
EA groups
is
the
EA
or
his
together
client, pressure
source
EAs from
by,
of
Big-Six
= 2.24).
EA in
with
the
the
nonBig-Six
financial
exertion are
auditor,
discriminating
185
of
reflective
the
on the
and
as their
different
situations
involvement
However
as concerned
(t
with
and concern
significantly concern
registering
manifest.
be twice
that
appears
time
significant
to
with
levels
of
12.
(13.4%),
14
discomfort
situations
colleagues
summary,
reliance
their
means,
EAs appear
(univariate)
In
the
situation
and nonBig-Six
lowballing
nonBig-Six
in
Situation
financial
for
Situation
of
lowballing
such
cause
firms
which
with
client.
Big-Six
negative
as much
Big-Six
variable,
(indirect)
an
be one
relationship
classic
base,
As a consequence,
as EAs from
dependency
a
fee
and
to
have
may not
EAI
with
client
likely
more
accustomed.
auditors
concern
in
12 is
is
may form
clients
the
of
element
so Situation
and
large
two
or
it
however,
firm
a nonBig-Six
EAI
among
views
auditing
of
-
the as
firms.
The
variation
EAs
from
the
two
in Big-Six
of
If
audit
UK audit
so,
(Kelman,
acculturation two
groups
which
of
be treated
must
consistent being
in
this
as
only
it
as
[1979:
of
some
work
at
like
these
within
results,
in
the
be
seen
findings he
wherein
of
may be
to
above
form
our
profession
186]
indicative
firm-size.
preliminary,
the
a less
of
generally,
would
respect,
Pearson
of
More
auditing
as homogenous
Further, those
the
with
being
1972)
imply
perhaps
basis
in
operate
may
indicative
firms.
audit
the
on
may be weakly
this
this
that
suggest
and
profession,
split
cultures
turn,
In
sub-cultures.
may
possess
auditors
of
homogenous
firms
between
EAI
on
perceptions
nonBig-Six
and
categories
differing than
underlying
UK not to
be.
parallel
states:
"It in any future should be noted that research that CPAs as subjects, project utilizes the that be to researchers recognize wise should CPA population cannot always be viewed as one homogenous group. Eight Big As demonstrated ... CPAsl perceptions (on EAI) are sometimes different " from nonBig-Eight CPAsl perceptions. Thus, of
while
between
view
issues
there
(e. g.
external involvement
be a reasonable
Big-Six
and nonBig-Six
some specific
personal
there
appears
relationships), differences
to
appears
of
views
auditor in/with
also in
terms
independence clients'
of
EAS for
some EAI
auditor-auditee to
be significant
other
(e. g. affairs
186
closeness
aspects
time
of
pressure,
and fee
reliance).
13.3.6
linear
This
discriminant
developed
from
randomly
selected
two
closer
data. the
version,
provide
a measure
Consequent
to
= . 000.
However,
their
Having
regard
coefficients, contributed Situation
of
to
Table
to
12 contributes
in
order
at
LDA functions than
better
to
according
under this
of
first
much to 187
Box's
50% of
compares
classification
alpha of
equality
of
of
M.
cases with
a
25%.
standardised
shows that
the
to
functions.
two
both
However,
13.6
of
the
just
magnitude
these
version
hypothesis
correct
relevant
main
made by each
method,
classifies group.
heavily
each, of
rejected
was
the
for
unstandardised
contribution
null
chance
were
13.6
significant
the
to
the
Table
selection
correctly
probability
in
highly
original
to
(rotated)
the
of
matrices
The model
80
made up of
the
provides
addition
stated
the
were
covariance
13.6
variable
identified
to
In
are
discriminant
being
four
the
of
and have been retained
standardised
functions
was
each
functions
possible
Table
analysis.
statistical
two
three
significant,
statistically
IAS
cases.
the
of
from
group
sample
CMS. V.
application
responses
each
groups,
only
analysis
sampled
research
BAS V.
EAs V.
Discriminating
function, the
3 and 11
Situations
second
while function.
highlights
The model distinguishing the
within those
three
importance,
group four
embodied
the
three
3-
Situation
2.
Situation
11
-
Time
3.
Situation
12
-
10% fee
Consideration 13.6
shows
increased three
two
external
User
auditor)
Issuer
opposite
(an
independence the
User,
group.
by
3 refers
provision
of
personal off
to
for
responses
with
group
11)
with by
all
(external
the
12 showed
the
auditor
external
when
Table
concern
Situation
the
to
compared
all
three in
a positive
economic
(financial)
are
auditors along
shows that
User this
Analysis
services.
external
register
external
audit
situation
group
but
mean.
lines.
expected 188
situation,
only
of
were
independence they
being
implications by the
not
auditor
groups)
situation,
concurrent
auditor's
external
and
about
assurance to
(3 and
However, concern
in
means
independence
Issuer
the
EAs more confident icompared to the
group
group
to
accounting
means for
derived
(Reliance)
groups).
Situation
group
the
(Involvement)
compared
increased
are
(Pressure)
situations
when
views
below:
noted
services
reliance
auditor
groups
aspects
situations
pressure
these
of
These
individual
the
of
when comparing
/audit
Acctg.
1.
be of
EAI to
of
groups.
research in
aspects
even the
Given
only the
triggered such
TABLE
13.6 6:
DISCRIMINANT
MODEL
Discriminant
function
BA v.
EA v.
Function
. -. -. -.
GROUP
coefficients
Unstandardised 1 Function Function SITN 3 11 SITN 12 SITN CONSTANT
IA
CM v.
_2
Standardised Function
-. 18 86 . -. 44 17 .
91 10 55 28
and rotated 1 Function 2
1.15 65 -. -. 13
-. 22 52 -. 1.12
statistics I 65 . 129.42 0000 . 9
Function
Function lambda Wilks' Chi-square Significance Degrees of freedom GrouR Sitn. Sitn. Sitn.
Means 3 11 12
EAs 14 . 22 -.
(Accntg. services) (Time pressure) income) (10% fee
Classification Actual
-1.49
Predicted
GrOuR
EAs BAs cms IAs
Pooled
64.6% 24.3% 16.7% 15.0% of
"grouped"
within
sitn. 3 11 12
Overall Box's M Rao's F Degrees
CMS -. 70
BAs -. 12
-1.43 -1.25
-1.01 -1.08
IAs -1.37 -1.05 -1-01
matrix EAs
48.6%
2 91 . 29.08 0000 . 4
groups
cases
GrOuR MembershiR
BAS
cms
17.7% 29.7% 19.2% 6.3%
6.3% 31.1% 38.5% 18.8%
correctly
correlation
3
11
1.00 42 . 48 .
1.00 40 .
classified
matrix 12
1.00
a
statistics statistic: app.: of freedom:
38.86 (sig. @ 0037) . 2.12 18 and 318466 189
ý
IAS
11.4% 14.9% 25.6% 60.0%
If
it
is
that
the
even
(issuers
financial more
to
we have
20]),
statements
(less
suggest
than
the
both
issuers
are
concerned
basis,
on this
so).
to
evidence
dependency
by ICAEW (1987:
audited
wish
then
a 10% fee
at
suggested of
former,
and users
UK audit
EAI
with
bodies
the
suggested
concern
displayed
with
EAI
in
discomfort
with
the
fact
reconsider
15%
15% maximum
may
fee
dependency.
If
however,
12 is the
the
an expression in
client
of
is
question
auditor,
then
consider
some stratification
performing
audits
stringent
In
UK audit
of
client's
it
affairs,
and exertion
on him are
the
possibly
discriminating
views
are
with
associated
13.4
Summagy
Following chapter
or
on
in (use
conclusions from
the
hypothesised
be differently
affected,
of
most the
and
the each
191
a
the
pressure
source all
of
EAI
of
whom
accounts.
audited
implications
Brunswick that
of
EA in
time
major
groups,
issue)
or
more
by the
manifest four
firms
reflective
involvement
on,
to
criteria.
situations
reliance
the
of
that
such fulfil
financial
that
appears
it,
companies
and
one
that
may wish
profession
listed
of
listed
only
within
professional
summary
level
the
the
Situation
(1952] four by
Lens
research varying
EAI
model,
this
groups
may
stimuli.
To an extent
the
individual
that
on group
cognitive
in
Thus,,
an EAI
contained modelling
techniques,
identify
the
the
all,
LDA models
were
of
2-group
between
or
to
their
clients
discriminant
such
personal
EAI
suggests
that,
situations
in
differing
enough
staff)
did
as
such,
to
views
in
among
general,
much the warrant
rise
of
each
to
the
With
IAs),
CMs v.
EAI
contrasted
between not
all-
views
the
the
presence
situations and
auditors
possess
strong
less
helpful
may be four
groups.
four
same way,
192
that
showed
relationships
and,
give
power
developed
(client
to:
groups.
research
models
power
distinguishing
This
the
the
general,
relating
and
LDA
andl
BAs V.
v.
applications, within
groups
developed.
were
6 (EAs
Model
stimuli using
that
discriminant
(situation).
exception
In
between
different
the
attempted
chapter (situations)
stimuli
stimulus
six
in
situations),
this
percepts
assess
In
be
to
same stimuli
embodied
questionnaire
the
differing
(as
context
in
2.
based
alia),
differently.
viewed
1.
the
possibility
(inter
processes
may provoke
origin
the
may reflect
preceding
at in
groups least
see not
a LDA model.
in
The
only
distinguishing
EAI
exception
the
User
other have
case
dominant,
dynamic
in
situation
19.
the
situations
on the
pressure
him
(Situations
client (direct affairs
or
indirect)
of
the
important
in
by
determining
of 10 and from
one
and
an involvement
auditor
in
the
14 and
15)
or
with
(Situations
client
types
income
fee
of
18)
the
degrees
(Situations
on a level
type
characterised
of
auditor
12 and
the
varying
reflective
external
by
reliance
(to
to
with as
the
with
likely
interface
that
This
cognitive
less
chairman
show
BAs.
compared
probably of
LDA model
richer
when
company
the
EAs and
relatively
bankers,
of
did
models
models),
11),
the
experience
of
However
between
views
in
was
above
who were
groups,
significant
within
the
may reflect in
domain
to
exception
2,31
were
views
group-differentiating
on
EAI.
Given
recent
users
of
by
Age,
audit
Davies,
"Private
discontent
the
(then]
the
twenty
are
manifest,
as
(see
for
example,
Audit
31,1991:
then EAI
audit
was
the that
EAs would than
users
remarks
general
some made
Controller, - Accountancy
call"
where
in
expectation group
differences
be more
content
with
their
(audit)
services.
of
193
by
expressed
Commission
2),
situations
of
EAI
independence
sector
October
approving
services
with
or
two
With
Big-Six/nonBig-Six
showed EAI
be along
to
to
related from
(Situations
exceptions
In
a client.
concerned
(higher
As group
differences
identified
expected
lines,
tend
451)
findings
financial than
statements
disregarding
EAs.
generally Firth's
results
indicated
that
were
much more
along (1980: "users
of EAIII
of
sceptical
of
the
a more relaxed
Additionally,
audit
further
time
pressure
14) were
- Situation
auditors
auditing
contexts
from
the
means)
that
Big-Six
firms.
194
to
EAI
in
models
six
EAs have the
audit
differences
group of
- Situation
seen to
billings),
groups.
user
noteworthy the
within
completion
external
the
Top Ten firm
in
identified
and approach
of
of
national
group
(12 and
situations
office
1% of
(analysing
view
than
(especially
but
local
LDA situations
showed
situations
two preceding
18 (provincial
20% of
developed
six
more
nonBig-Six
support
the
and Situation
generating each
to
fees
of
EA themselves.
Thus, 15)
whose
were
of
12
EAs were
than
means)
negative
they
Big-Six
cases,
results
on views
on a 10% level
reliance these
the
Situation
expectations.
EA's
15).
differences
group
prior
the
12 and
audit
significant 11,
be manifest and those
and lowballing between from
nonBig-
EAs from their
nonBig-Six
precise
more
be, in
[1981a:
95]
Big-Six
a lowballing so is
open to
auditors
the
with
agreement
views
of
appear DeAngelo
that:
she states
when
is
why this
However
eng uiry.
than
concerned
EAI in
with
precisely
general
less
appeared
colleagues
As to
situation.
to
firms
Big-Six
is a response to an underlying "low-balling interest; lowwhich economic creates parameter is not the cause of impaired balling auditor independence. In fact, would suggest observation of low-balling in the market is some competition for that there is a competitive (it) audit services, since to the existence response potential of future that Our analysis profits. regulations suggests (or suggestions by the Cohen commission) which to deal the issue attempt of auditor with independence the treat low-balling by curtailing symptom not the cause. "
DeAngelo's agency
theoretical
theoretic
equilibrium
lowballing
does
The rationale the
fact
impact
on either It
is
the the to
will
in
the
As such,
occur).
above
conclusion are
and accordingly
will
magnitude
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of
future
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little, 195
any,
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to
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have
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quasi-rents
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[CAR,
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196
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influences
198
cues.
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CHAPTER
XIV
PERSONAL AUDITOR
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199
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