11MB - City Research Online - City, University of London

Loading...
              

City Research Online

City, University of London Institutional Repository Citation: D'Silva, K. (1992). External auditor independence: selected group perceptions. (Unpublished Doctoral thesis, City University London)

This is the accepted version of the paper. This version of the publication may differ from the final published version. Permanent repository link:

http://openaccess.city.ac.uk/7975/

Link to published version: Copyright and reuse: City Research Online aims to make research outputs of City, University of London available to a wider audience. Copyright and Moral Rights remain with the author(s) and/or copyright holders. URLs from City Research Online may be freely distributed and linked to. City Research Online:

http://openaccess.city.ac.uk/

[email protected]

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

However,

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

audit

who each

groups,

use

use

profession.

audit

their

of

assessed

distinct

two

views

(who

audit-users

audit-issuers

it

the

research,

Level

B: 2541: of

auditors justly may and reasonable

The judgements were,

in

their

individual

in

fact,

facts

the

Further,

recognising

assessed

on the

they

receiving,

are

specifically of

what

basis

Determining

is

the

3)

to

any

the

perception 5)

to

this

the

negative

term

positive. what

greater

gap

this

expectation In

users than

his

receive

believe

basis

on the

on the

and not

happen".

his

and

be

(his

factual

-2

may not

the

situations, the

expectations 13

is

audit, of

it.

a

be the

may be negative

in

in

5).

implies

necessarily

gaps

from

Thus,

3 minus

e.

gap usually

(say

response

numerical

(i.

(say

response

MLC question.

would

gap

expectation

numerical

result

positive

their

"respond

situation

expectation

result,

Accordingly,

of

the

be

gap must

happen,

(expectation)

general

example,

While

that

of

situations.

a respondent's

assessment),

the

to

should

between

facts

on

Gans"

situation,

difference

by

questionnaire

really

you consider

"Expectation

in

Thus,

would

caught

audit-users

what

research

they

based

auditor,

an expectation of

what

Confidence"

of

research

respondents

you expect what

twenty

perception the

"Level

the

external

that

asked

of

the

each of

of

the

of

were

auditors,

to

responses

independence

the

from

receiving

of

perceptions

respondents'

of

case.

or perception fact

Thus, it

this

while

allows

for

references

to

the

the

term

results,

Further,

present it

gap assume that

an expectation

intended,

on negative

situation.

opposite

to

Where reference

negative. is

focuses

research

a positive

positive

is

expectation

expectation

gap be

gap will

used.

the

Determining first

the

step its

determined

presence in

cut-off

the

(or

"notable

concern"

In

the

is

notable

present

virtue

or the

of

registered is

or

-1

while

point

used

from

concern

absence)

that

the

context,

is

otherwise, fact

that

whether

the

signals

need to

detect

(expectation

that

concern

made more important

by

gap is

an expectation

the

recognising to

distinguish that

is

an expectation

term

develop

be used when detecting a gap that

of

to

required

EAI by respondents.

with

deemed any situation

concern"

to

point

Having

extent. then

only

gap

- performance)

-5.

Thus,

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

(at

not

subject,

best)

16

exist,

the

that

of

groups.

of

a series

a global gap

likely that

have

weight

be

suggesting

expectation is

small,

extent

issues,

related

in

differences

between

gaps

is

approximately

different,

assumes

the

do

underlying

a near-composite

particular

issues

of

are

be

gaps

such

develop,

to

for

differences

should

in

they

differences

major

is

very

measure

difference

found,

that is

group

gaps that

statistic

hand, is

would

believe

of

are

auditor's

audit-users

expectation

they

possible

gap

no reason

audit-users.

such

dissimilarity

a strong

While

while

other

each

the

inter-group

an

implication for

of

Should

which

from

perceive

a comparison

that

is

auditors

community

groups.

the gaps

what

developing

allows

the

the

auditors

the

of

that

large,

that against

to

delivering

The

an expectation

to

referred

there

be computed

Such

also.

Gaps"

traditionally

audit-users,

may not

expectations

have

have

gaps from

gaps

"Expectation

of

to

they

be

all

the

been

duly

ascribed are

on a

to known.

each

Interpreting

"Expectation

is

not

It

certainly

on a given

individual's

perception by

the

is

Wilde

Oscar

him

that

state well

the

this

gaps,

expectation

gaps.

Further, measure

given of

(frequency) in

total)

issue,

a basis

between and

Identification to

it

that

mere presence

(the)

of examine

it

is

the

of

unreal

differences

audit-users

issuers and

group,

on not

relative

groups

so much

intensity

(individually

and

group(s).

differences exist,

between

17

some

expect

any given

its

but

could

gap may

group

focuses

research

audit-issuer

(inter-alia)

to

expectations.

to

gap within

why they

it.

individual much so on

realistic

group

mainly

be true

would

an expectation

audit-user

such

in

about

on overall

a gap,

of

as

time,

of

not

instead

an expectation

on any given the

focuses but

first

Expectations"

mere presence

expectation

the

phenomenon,

research

reality,

been disappointed

for

be a manifestation

only

Thus,

that

that

of

unfolds.

have

"Great

short

relevant

reality

to

reported

from

Extracting

the

when

he had very

because

the

of

fall

an

of

expectations

to

matter,

it he when saw

Taj, Mahal

the

for

unusual

individual,

perceived

Gaps'

also

should

and in the

doing

provide so,

value-scales

become apparent.

of

"A priori"

research by

As evidenced

(i.

EAI,

minded)

professional

do not

expectation activities

on the

above

expectations

would

reveal

audit

2.

the

that

in

EAI

own independence.

was developed

research

to

relation

gaps

are

an

own professional

of

an analysis

(direction)

nature

implying

its

with

findings

EAI):

in

evident

audit

the

within intensity in

of

the

gaps

audit-user

issues

expectation

gaps

group,

be more severe

audit-issuer

group. 18

is

always

dissatisfaction

specified

audit-issuer will

such

consistent to

relation

however,

than

(in

of

only

negative,

if

that

their

their

this

(or

such

by

written

possession

to

particular

of

Consequently,

reflect

regard

expectation

groups

to

premises,

prior

1.

with in

and

been

themselves.

appear

gap

evidence

having

articles

EAI).

within

little

concern

audit

of

existence

contained

is

there

auditors

auditors

the

and

expressing

non-auditors

issues

on

hand,

other

similar

by

articles

of

a plethora

suggesting

e. gaps

expectation

been

has

provided

references

many

written

publications

on the

the

there

previously,

with

expectations

then in

are

with

evident

their

audit-user

relative groups

EAI In

and

other

instances

examining this

EAI, the

is

This of

because

deficient

EAI-

that

"an

not

having

incompetence

can

level

for

in

the

or

instances

even in

seen

terms

[1987:

282]

and

of states

despite

an engagement

particular

lacks

view,

independent

the

experience is

engagement

in

this

intellectual,

material, moral

(ethical)

Thus,

present

acting

...

usage

of

application,

of

regarded

how

questionable can

an auditor training

or

financial

he or

when

and,

experience

view),

author's

be,

the

all

required and

resources

integrity.

genera lly

the

is

and

independence

complete

it

appropriate

(additionally,

is

be

training

of

Pearson's

objective she

who completes

the

that

Pearson

example,

professional

integrity".

without

Thus,

For

and

between

other.

argue

auditor

necessary

on the

some authors

professional

impaired

alleged) distinction

hand,

one

incompetence

or

negligence

or

(forced)

a

on the

EAI

of

(actual

of

makes

research

concept

deficiencies

professional

all

audit, in

this

the

term

the

assumes

resources so that

external

existence,

required EAI

research

auditor

(perhaps

to

effectively artificially)

as a phenomenon

itself.

19

and due

by and in

Expectation The

gaps

subject

domain.

of for

As

EAI

is

all

such

issues

underlying

into

research

rather

than

on that

basis,

in

underlying

of

the

of

the

Thus,,

thrust

the

This

(micro-level)

concern

with

The next of

EAI

are

in

the

section twenty

seen by the

related from

(core)

concerns previous

implications

EAI

is

for

the

is

-

as

the

profession 20

context in

the

with

the

in

gaps)

the within

conducted

in

chapter

appearing

are

to

views

examines

on how they

A discussion

are

the

Chapter

and some relevant

research

to

(expectation

and reports

groups.

offered,

the

concerned

stated

situations

empirical

integral

considerations

of

research

is

outlined

examination

of

sets

provoke

situations

gaps

relationships.

EAI

with

totality.

issuers)

(and

chapter

concern

micro-level

questionnaire. main

this

that

underlying

in

auditor-auditee

of of

issues

such

its

expectation

issues

audit-users

specified

identification

in

of

in

global

the

individual

audit

several

these

its

in

the

pragmatic

with

assess

examines

perceptions

framework

to

the

research

and

subject

order

some of

this

EAI,

the

are

subject

useful itself

concern

issues,

there

subjects,

more

in

several

of

make up the

is

EAI

one

only

that it

Thus,

entirety.

EAI

underlying

stated. considered.

of findings Finally,

In

factor

The

10.2

for

searching

gaps,

to

approach

identifying

and

a structure The

structure

to

be contained

within

the

1.

The

reliance

factor

(i.

for

appointment

employed.

[Situations

2.

The

client)

The

pressure

(Situations

The

17,19

below:

noted reliance

existence

between

of,

auditor

or

and

and/or

social

the

(Situations

e.

auditor

3 and

the

of

financial,

by the

or

client

auditor).

16]

involvement

the

e.

manner

by the

in

a

auditor

auditor).

61 71 8t

(i.

by the

on the

(i.

by the

levying

pressure

commercial

2,41

MAS factor

services

and

factor

client

the

e.

or not)

and/or

20]

and

(i.

10,11

(Situations

S.

as

issues

more

client).

the

e.

relations

factor

involvement

financial with

(i.

"cosy"

(directly

others

The

or

auditor's

on the

6 is

Chapter

18)

and

1,91

professional

4.

one

expectation

.

[Situations

3.

in

factors

the

e.

factor

for,

for

five

of

used

provides

5.12

potential

that

and fees

relationship

pockets

to

similar

gaps

expectations

14 and

provision

to

13]

21

the

15)

of

client.

non-audit

MAS

The

10.2.1



Situation The

results

interesting of

of

responses

in

that,

it

situation

gaps

underlying

for

all

Indeed,

groups,

for

the

Thus,

it

three

to

contrary the

to

their

were

was

"notable just

was

EA group.

gap

an expectation at

the

extreme.

concern" (i.

so

e.

most

evident

registered it.

gap

with

the

belief

by

manifest the

at

margin)

the

an

expression

that

users

more

are

fortunes (or

of not)

considerations

them to

be more concerned

for

auditors,

with 22

on such

fact

it

that

that are to

facts

EAI than

that,

concerned

on

as auditors

based

so that

most

auditors

an

appears

are

by the

where of

it

concerned

explained

reappointment

EA group,

Generalising,

EAI

with

concern

in

mechanism

auditors

economic

not

this

for of

the

within

of

gaps

EA group, intensity

The

expectations,

may be partly

personal

the

evidence

re-appointment

that

seems

in

intensity

the

groups.

respondents

expectation

are

in'general,

evident

only

user

situation

45% of

This

was

contrary

this

with

the there

while

all

in

5 gave

groups,

situation

opposite.

was most

Situation

this

least

was

the

was

to

whereas

gaps

expectation

While

factor

reliance

count.

the

affected

by

companies, may cause

audit-users.

the

for

Results

twenty

auditors

it

interestingly,

was observed and 18)

(5,12

situations

on the

reliance

may indicate

their

overall

client

and,

auditors

The

a basis

for

Situation

Fortune

for with the in

discussion

that

in

the

Big-Eight This

continued auditors the

(38.3%)

firm

is

Credit groups

auditing

all

assuming for

gap

most

in

the

the

this remain

must

concerned

of

"real" Further,

consistent intensity

situations, user

was more

Banker

23

Internal

group

(34.9%).

the

dimension

the

and

of

threat

perceived

group,

a

a medium-sized

parts

the

a more

of

UK associates

other by

(35.6%)

Manager than

the

audit-users.

to

from

more

by

audited

auditors

office

some,

UK subsidiary

the

(not

explained

than

were

where

may be

responses

expectation the

of

of

and examination.

auditors

situation

firm

view

audit

detachment

such

by

concerned

a detachment

of

100 US corporation

group). to

form

expectation

on the

perceived

welcome

exact

further

15-partner the

fact

5 revealed

EAI

with

the

to

auditor's

much

are

dependence

and

contrary

the

greater

auditors

reliance

may

reliance.

that

in

to

three

the

by audit-users.

than

auditors

Even more

all

relating

revealed

client,

gaps by external

This

that

where

expectation

of

them.

5 was one of

and Situation

gaps,

levels

highest

the

registered

five

revealed

situations

Auditor

evident

of

However,

these

when

appropriate

they

quartiles, the

quartile

of

suggests

that

were

responses

gaps

by

bases

the

perceived

these

to

be similar.

It

gaps

is

appear

that

possible

increased

by the

the

fact

the

was a 15-partner

medium sized

Big-Eight

If

firms.

requirement statements have

of

been

specially

"approved"

by'Lloyd's of

authorization the

US, it

for

Lloyd's

ranking

to

EAI may be

firm

concerned

the

the

purpose

of

body

a

that

firms

form

However,

by a non-auditing

for

financial to

the

the

one of

and authorised

in

of

be grounds

companies

exists

gaps

expectation

and not

of

This

group.

UK audit

syndicates.

may be issued

each

threat

audit

assessed

already

second

may well

listed

publicly

Such a precedent

accounts

the

restricting

the

firm,

there

so,

into

quartile

perceived

that

their

group

of

may be different,

into

fell

all

registered the

while

ranked

to

do so.

of

auditors the,

auditing instead

in - as

(Lloyd's)

by an audit

body,

practice

prevails

of

say,

the

in

the

ICAEW.

As stated where

audit

corporations AICPA,

above, firms are

and must

professional)

a similar permitted specially

to

criteria

to

SEC-regulated

audit

to

authorised

meet more stringent obtain 24

US,

do so by the

(financial such

and

authorization.

12

Situation , that

Given nothing findings

are

Firstly,

Situation

highest

not

only

the

most

for

the

In

groups

registered

Within

the

fact,

showing

expectation

also

gap,

across

user

groups

closely

all

As may have

registering

twenty

situationst

the

Internal

by

the

Credit

groups been

EA group

good

was

into

group their

consistency, into

falling

expected,

into

the the

25

the

was (70.5%),

(69.2%). appropriate

with third

comparable fourth

gap group

Manager

user

gap.

Auditor

ranked

the three

the

of

an expectation

only,

showed

in

an expectation

of

were

each

users)

and

EAI

with

64% of

in

they these

of

(issuers

concern"

traces

quartiles,

the

any

the

all

groups

over

responses

for

of

but

across

"notable

perceptible

all

distinction

distinction

research

When these

for

12,

group.

very

situation.

the

gap,

the

all

followed

its

Situation

of

EA group,

has

also

Banker

expressed

the

(84.2%)

the

intense

Thirdly,

in

find

normally

situations.

it

Secondly,

most

12 has

within

UK would

interesting.

very

intensity

and

groups

the

repugnant

ethically

the

in

bodies

audit

the quartile.

positioning

quartile.

gaps

In in

is

question the

Further, for

only

the

about

to

posed of

four

the

alone,

and in

EAI

Situation

of

intrinsic

to

in

that

by a 10% fee fact

that

the is

concerned

If

so,

it

audited having

these

very

(EAs

the

each

one

strong 84.2%,

maximum

EAI

of

results

respondents

reliance

by the firm

audit

that

considerations

specially

was small

band of

statutory

quasi-governmental

really

not to

but

a professional

by the

the

26

fact

client

again

should

only

be

firms,

such

auditors.

and approved auditing one,

OFWAT) .

in

such

a

EAI caused

rather

and that

are

audit

assessed

authority

were

one.

companies

(be it

be that

auditor,

many respondents listed

may well

provocation

listed

only

by a select been

of

perceived

appears

suggesting,

gap

the

its

contrast,

situation.

of

about

in

current

no threat

see

registered

terms

majority

concerned

that

likely

Yet

an expectation

one interpretation significant

is

12.

groups

BAS 64.2%)

minimum

billings.

ethical-guidelines

research

expressions

it

it.

accounts

audit

total

firms'

the

client by

audited

that

from

the

and

small

company

derived

facts

UK professional

listed

only

10% of

is

firm

audit

revenue

on those

Based

the

12,

Situation

by an

body

or

a

as OFTEL or

if

However, then

it

(over with fee off

one

would

EAI,

both

even

in

reliance,

and

suggested

by

situations this

suggest

the

is

ICAEW, to

concerned

are

is

there

where

would

proportion

significant

auditors

and

users

interpretation,

above

a very

be desirable

to

perceived

that

appear

of

60%)

the

discounts

that

protect

the

not

perhaps

a 10%

only

15% cutlow

as

as

external

auditor

really

consistent

is

independence.

The

findings

this

of

with

Dykxhoorn

that

based

and

research

no apparent

independence,

not

[1982],

Sinning

which

dependency,

on a 10% fee

registered

are

with

concern the

perceiving

80% of

respondents

external

auditor

to

auditor

determined

independent

be

therein.

However,

findings

current

the

results

fee

dependency,

the

respondents

was

a cause

of

(1980

Firth the as

for

auditor not

was

in

concern

1981].

perceived

that

lines

the

where

independent,

being

Despite

the very

low level

national

level,

the results

18 revealed all

and

along

at by and

of

a 15%

about

half

thus

EAI

situation.

18

Situation

with

more

are

four

an expectation research

of fee dependency of responses

to situation

gap by and "notable

groups. 27

at the

concern"

the

Like the

auditor's

user

three

Within

the

most

highest

However

followed

in

by the

by the

Banker

(54.6%)

the

Credit

appropriate

quartiles,

they

with

the

of

these

second the

In

terms

the

EA group

of

UK would

independence the

20]

on the the

when not specify taken

... for

basis

above

18,

"a

the

that

proviso present),

that

(took) audit

by a partner

from

bodies

office

another

[ICAEW,

report.

may not

see a need in

confidence

facts

of for

another 28

for

EAI even

situation

18 did

not

the

report

was

office

in

auditor

responsibility"

(retaining

responsibility

the

quartile.

audit

from

final

respondents

the

third

external

partner

into position

comparable

the

to

ranked

falling

gaps

professional

no threat

provided

practice

1987:

Situation see

in

was higher

and lastly

had good consistency,

the

As expected,

quartile.

for

each of

(51.0%),

group

When responses'were

into

ranking

gap.

(44.6%)

group

of

each

gap was

Auditor

Manager (34.6%).

group

43% of

an expectation

Internal

gaps

shown by

an expectation

only,

18 also of

was also about

on average,

groups

perceptible

intensity

registering

groups

user

Situation

concern

to

relating

client,

strong

with,

groups,

these

on the

reliance

by any group.

(5 and 12)

situations

EAs having

revealed

all

two

other

audit of

the

practice.

of

Thus,

the

Consequently,

when developing guidance

even

to

regard in

10.2.2 Situation The

of

1 did of

concern"

(29.1%)

with

opinion

may account

clients

concerned.

office

this

in

35% or

e.

researched) and Internal

None

more

was the

situation

expectation

a significant

cause EAI.

gap

(in

for

of

the

(33.9%)

Auditor 29

of

the

four

gap

of

the

of

one that

terms

both

in

auditor

an expectation

registered (i.

the

of

to

confidence

"notable

situations

precise

was

terms,

national

local

years)

appear

not

groups

smallest

(15

tenure

research

fact,

EAI

1

undermining

In

the

proviso.

factor

relationship

continued

Situation

to

revenue

the

with

in

local

that

proportion

terms

The

a more

offer

to

refer

dependency

As

UK auditors.

concern

significant

should the

to

continue

a 1% fee

at

guidance

for,

that

given

evoked the

should

and

by ICAEW

to

for

that

confirm

"national"

referred

guidance

ethical

a proviso.

18,

the

with

concur

that

appears

such

Situation

considerations,

office

Further,

to

it

for

need

and

concern"

groups,

of

results

tended

respondents

"notable

of

see the

may well

respondents

such,

levels

shown by all

gaps

expectation

"local"

high

the

given

the

group).

registered twenty

Credit groups.

Manager

the

1 did

Situation loss

of

not

in

confidence

it;

External

that

view

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

relevant

four

was the

group,

The

the

all

three

groups

The

for

research

EAI

with a degree

for

two

Us.

32.6%

significant

managers.

revealed

gaps

evoke

notable

were

credit

concern

for

register

not ratios

relevant

only

43.4%

and

not The

context. concern,

notable

register

of

EAI

an

did

16

Situation

In-general,

even

procedure.

there concern

did with

not

Thus,

that

assuming the

assume

that

by an audit

taken

audit from

partner

to

referred

research

final

themselves

not

practice

the

for

need

an absolute

the

of

adherence

may indicate

this

did

respondents

above,

do not

groups

see be

to

responsibility (associated)

another

practice.

However,

relaxed. situation

the

in

question

is

be of

interest,

any to

responses the

fact

of

the

Top Ten

to

note

whether

consider one

in

ICAEW's way

this the

that

in

firms

UK.

Thus,

it

would

have

would

with

the

only

one.

(instead) in

office

it

analyses, firm

assumption

would is

of

local

appear

to

have

issuers

one

or

be

fair the

of

to

first

paragraph

considerations a strong users

of

then

and profile

adverse audited,

44

effect statements.

present the

when

(given of

its

being

the

that

conclude

Top Ten,

practice,

in

revealed

in

firm

town

provincial

small

findings

the

within

impact

the

the

responses

four-partner

a small

on the

if

different

radically

based

However,

audit

been

were

question

by

to

of

the

be

should

an analysis

needs

that

suggest

matter

also firm

audit

to

not

on the

approach

present

is

this

Nevertheless,

this

the page)

the

do not on views

of

EAI,

10.2.4

involvement

The

Situation

6

Interestingly,

the

to

notable

not

reveal

was EAs. than

In

35% of

registered

The

regard

each

of

group

so unequivocally,

the

IA

the

situation.

group

user

the

contrast, more

it

Again,

of

them

sharing

confidence

of

(in

independence, groups

the

than

this

6.

their

who (inter

45

each

of

in

of

external

striking

registered with

a much only

about

concern.

to

ability

have

withstand

financial

on their

alia)

of

EAI

themselves

instance,

indicated

group

with

with

In

issue, such

of

(53.2%)

53.2%)

auditors

client)

that

half

group

on the

level manager

concern

Auditor

that

with

(also

more

concern).

concern

Situation

appear

pressure

involvement

research

of

would

much greater

in

position

(31.9%)

of

registered

External

optimistic

a third

types

groups

independence

auditor

half

about

credit

6

groups

notable

About

a level

expressed

degrees,

a marginal

the

and (66.8%).

on average,

three

only

(39.5%).

did

(of

group

Situation

(user)

three

gap

only

in

varying

other

expressed

the

EAI

with

and to

the

that

showed

concern

this

concern

Thus,,

results

an expectation

banker

notable

the

factor

external

by the

three

use EA services.

auditor other

a

The general

consistency

EA and BA groups was the

of

the

first

rankings (third)

the

As such,

as has the EAI

the

eyes

UK audit

bodies

issue

more formally

AICPA.

There

is

the

circumstances

of

as

second

to

pair.

the

auditor

of

audited

may be well

served

and specifically,

but

clear

as

(second)

same,

some users

of

the

in

Situation

varying

concern 6.

situation

2

Findings

by

revealed

(material)

arm

they

cause

do not

(material)

audit itself

auditors exception

about

Situation consistency

this

of

remain

a company's

of

as much fees

the

IA

10% less

2 also

between

on the

than

concern

the

(Situation EAI,

with to

the

fact,

Situation

group,

revealed

In

did

an element

other. 46

2),

as when firm

of

the

with

2 appeared

to

Situation

6.

of

quartile

EA and BA groups consistency

when

the

unpaidto

unpaid 6).

(Situation

that

suggest

auditors

concern

remain

and considerable

IA groups

research

fees

consulting

consultancy

hand,

in

concern

evoke

fees

(material)

of

The

the

for

the

also,

the

were

pair

rankings

quartile

non-payment

by addressing

evoke

situation

CM and IA groups.

statements.

with

this

the

Continued does

in

was evident

EAI between

to

approach

same between

quartile were

in

between

on the the

rank one CM and

for

The rankings second

quartile

in

second

the

half

concern

one-third.

Thus,,

while

CM and

IA

Situation

that

of

hypothetical

these

note

of

do not

issue,

than

concern

external

AICPA)

of

showed a trace the

two groups

was only

issue

independence to

concern

all

groups,

in

was much more evident bodies

UK audit

issue

the

wish

then

situations

been done by the address

external

more

while

other

auditor

As such,

pronouncements.

bodies

situation,

2 was

ethical

rules

groups

contained

of

considerably auditors

the

concern

groups.

on the

the

external

and take

these

terms

two groups

first

for

address

If

in

internal

in

EAI

the

in

extent

the

statistic

about

embodied

issues

the

above,

of

both

of

and

quartile.

assessed

were and

of

with

comparable

the

when

that

while third

was first

groups

of

bankers.

and

More than

the

2,

managers

credit

auditors

of

from

independence,

auditor

pair

was the

pair

Situation

within

first

respectively,

9 inferred

As may be

to

the

to

more

lay

guidance

concerns. 47

should

fully

in

their

down all-embracing in

and appropriate would

the

go to

the

form

of

answers some lengths

(as has to

Situation

8

Responses

to

no audit

to

company, the in

concerned

it

groups

did

CM and

IA

this

those

60% of

the

Further,

this

groups the

responses

overwhelming level situation

the

of

where

each

in

positioned to

should

be of

then

all

broad

48

line

it,

to

with in

that

by

rank of

concern for

all While

quartile. suggest the

was registered

concern

did.

surveyed.

second

in

over),

was registered

ranking

related

the

EAI

with at

EAI

8 do not

Situation

unease

discomfort

the

in

the

of

respectively,

expression

group's

with

two

(35% or

broadly

showed

results

present

the

was determined

with

groups

user

situation, being

it

concern

within

consistency

are

"

that

While

concern

and

is

accounts.

conclude

37.5%

way

any

shareholding

EAI.

with

results

[1980],

situation,

least

for

these

Firth

a similar at

at

groups

regard, of

to

notable 44.3%

in

annual

be incorrect no concern

provided

auditors,

his

and

an

a listed

participate

company's

register

not

as

"not

company, the

would evoked

situation

In

in

stated

However,

the

of

audit

clearly

did

in

was

in

a partner

equity

acts

there

overall,

when

voting

firm

his

which

partner the

the

7% of

held

firm

EAI

with

concern

overwhelming

that

8 showed

Situation

fact in

UK auditing

that

any

that bodies.

if

For,

(including

groups

audited 33% of

in

these

users

interests

the

of

(trustee)

The position the

the

of

that

the

EAI,

and the discomfort groups) auditors. with

IAs

in

audits.

ethical

standards, would

the

of

holding

of

closer bodies,

evokes

considered

in

by

examination at

users

on the

least and in

unethical

fact

the the

US.

15

The situation with

is

practice

Situation

it

concern

to

by auditors.

UK audit

other

be that

must

statements

warrants

certainly

specifically

relationships

termination

shareholdings

ICAEW and

basis

higher

financial

the

not

inference

EAI

note

an "immaterial"

inter-partner

of

audited

welcome

presumably

clients

influence

to

hold

a possible

judge

enough

Thus,

such

then

respondents

be strong

in

research

themselves),

auditors

shares

by them,

present

auditors

when

trustee

of

quantity

EAI

the

all

external

with

some unease

of

one-third

about

to

appeared half

of all

auditor

group

as about

external with

it

evoke

therein.

was expressed The situation

considerable the

three

as well,

Most concern

by credit evoked

(53%) and considerably

(41%). 49

managers somewhat less

concern

user

groups

registered

some

(55% of both and external lesser

concern

concern with

BAs

In

respondents

general, in

EAI

with Table

this

some 11% less is

one notes

that

with

EAI

concern

expressing

groups

for

that

than

difference

one inference financial

be that

statements

involvement

in

director

situation

investment

shareholding

in

is

partner

the

audit

impairing

holds

audited

by a firm,

takes

no part

active

audit

in

concern

Responses

were

many of

the

situation. group

ranked

other

three

and in the

with

also

between twenty Whereas in

the

groups

where

the

for

the

where

the

audited

is

the

which

a

auditor

be more EAIa

where

in

a listed

company

trustee-partner it

Presumably, by the

of

audit

situation

shares

is

this that

trust-director

EAI.

in

that

the

ranking in

EA and BA groups. ' evident

situations, concern second fell

The contrast

immaterial an

to

interesting the

user

8 was

auditor

(with

which

audit.

involvement

heightens

consistency

the

7% of

only

15.

direct

the

of

situation

more

responsible), to

average

and issuers

company

when compared

trustee

in

Per

8.

23%111.

trust

a listed

the

EA group,

users the

see

the

the

of

the

was about

must

Situation

Situation

for

even more perceptible

comparable

to

compared

situation

(Page 70)

10.3

be more concerned

to

appeared

was not expressed

by the

quartile,

that

into

the

50

third

in

apparent

this

latter

for

quartile.

all

the

The

present

findings

to

similar

situation EAs to

be more

Lavin's

study

84% of

to

Further,

the

part

in

more

comparable

the

the

to

about

active

role

EAI

the

of

shareholding wish

to

50% respectively.

allowing

in

the

results Firth

with

must

the

audit.

be that

acts

the

relevant

in

concern

in

as a

bodies

UK audit such

users

takes

auditor

are

[1980],

concurrently

be material. for

takes

their

though

even

the

may

any

code.

14 in

Lowballing

the

concern

financial research in

may not

ethical

Situation

and

audit

saw the

auditors

part

when

Situation

context with

statements. groups 14,

both At

expressed where

of

EAI

least a trace

lowballing

51

to

appears

issuers

In

groups.

research,

profession

trust,

consider

revised

serious

the

user

than

take

evoked

are

than

situations,

not

the

EAI

a

showed

director-trustee

the

other,

each

for

in

both

does

One implication

director

in

audit

findings

55% and

that

extent

Both

this

In

in

EAI

15.

63% of

and

were

auditor

fears

about

users

statistics

comparable

he assessed

Situation

concerned

the

with

some accord

where

"independent".

as

auditor

where

[1977],

Lavin

of

in

were

results

users

and half

of of has

all

cause of the

audited four

concern

with

been

practised.

EAI

As was the

for

case

situations,

the

groups

more akin,

were

issue

the

the

Indeed,

concern

both

were

concern

situation

was the

research

situations,

registering

quartile.

and BA group

was very

akin

gaps

in

third)

49.8%

the

within

research

auditing to

groups

specific

concern

with

reasons

EA

their (almost

the

BA group

56.8%.

at

by all

registered

in

with

concern

of

note the

why users

52

within

by the

with

concern

serve

lowballing

fall

respectively.

be taken

would

to

noted

lowballing,

of

groups

second

a level

concern

should It

profession.

know the

register

of

two

other, the

of

with

gap.

gaps

each

level

high,

was also

quartile

of

higher

intensity

The strong four

practice

a slightly

noted

to

EAs expressed

of

Comparable

Concern

end margin

and third

quartile,

While EAI

the

it.

expectation

this

group

by these

registered

for

twenty

the

that

IA group

quartile.

CM group

all

gap for

fourth

ranking

third

an underlying

individual

their

of

80.7% of

by the

concern

(highest)

the

intense

on

rankings

the

by the

expressed

with

CM and IA

quartile

within

them registering

The intense caused

placed

research

by the

as their

an expectation

71.3% of

twenty

expressed

most

expressed

concern

the

many of

of

by the

profession (and

terms

of

the

issuers) EAI-

UK well

In

light

the

make a formal

should

bodies

audit that

for

those

on the

then

the

circumstances

appears

some groups

associated

with

as

it

as

is there

profession,

An analysis

noted

the

of

significant

to

and

so,

the

by

audit its

of

integrity

and

Us.

(the

some users.

percentages

three

at user

of for

62.5%

and

59.2%.

groups

and

82.1% gap.

BA groups Overall,

registered

concern

situation.

53

it.

to

relation

was

concern

80.7%

EA and

in

research

an expectation the

groups

four

4 revealed

Situation

EAI

with

intense

Respectively,

a trace

lower

the

all Very

concern.

to

responses concern

60% of

Roughly

and

will

concern

4

Situation

such

by

addressed

be some deprecation

independence

profession's)

very

formally

not

lowballing.

statements,

audited

be

identify

be a major

to

to

found

should

may constitute

Regardless,

1981b), reasons

is

it

hand,

be

seen to

their

state

other

lowballing

long

is

by DeAngelo,

profession

that

relevant

practice

formally

should

acceptable,

not

the

ethical

provide

(as suggested

If,

view.

on the to

order If

members.

acceptable

ethically then

its

to

guidance

in

profession

auditing

pronouncement

lowballing,

of

aspects

the

reasons,

such

of

registered by

expressed of

The

these

groups

comparable

were

somewhat

74% of

of

with

CMS

each EAI

in

the the

once

the

again,

expectation

(third)

CM and IA groups

Very in

concern

Situation

4 was -

distinction

the of

intensity

of

concern

the

other

that

in

Concern

in

for

both

with

respectively

in

when

it

ranked,

of

all

in not

level

intensity

The

groups.

was

bore

highest

very

groups,

user

that

situation

two

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

auditor

on perhaps to

expressed

statements

external the

4 as

second

the

all

good basis

offered

twenty

was

ranked

is

those

the

Situation

being out

relationship

to

these

there

Thus,

Credit

the

these

three

the

of

4.

EAI

high,

the

independence

and

situations,

Situation

two

this

was

by

nineteen

BA group,

EA

for

auditors

registering

expressed

and

by

relation it

of

with

as was that

auditor

external

Internal

situations,

research

by the

as revealed

same,

registered

fact,

In

was the

with

researched

managers.

4,

the

of

(fourth).

strong

groups

ranking

quartile

on Situation

gaps

and BA groups

in

similarity

users

much in

a trade terms

than

EA

the

As such,

ethical

be vindicated. evoked

However,

considerable be well

would in

its

own set

not

four

research

each

group

underlying

the

first

all

with

EAI

in

situation

At

the

whereas

7 revealed

good quartile

pattern

grouping

quartile,

the

each

with

comparable

the

twenty rank

as stated first

whereas was in

7.

fact

group in

EAI

ratio

in

the

for

21%.

many of

in

the

CM and IA groups,

45% of

showed some concern

with

groups

least

from

was in

concern

in

was more manifest

the

all

at

where

the

from

respondents

extent

to

concern

EAI

with

54% of

to

was only

pair

than

More

concern

respondents

threat

second-pair

second

each

and nuances.

strong

potential

7,

of

very

no

pair

Together

be

of

EA and BA groups.

first

position

relationships,

implications

displayed

it

Situation

both

it

auditor's

trade

majority

groups.

Nevertheless, displayed,

to

appear

by

expressed

the

relationships

respondents,

the

clarify

facts,

of

trade

all

to

ICAEW appears

7 did

than

in

hypothetical

of

Situation There

that

given

to

the

of

concern

served

a variety

with

position

the

pair that

consistency, above. stated of

second 55

situations,

both

quartile.

Situation on the

The ranking above groups

same of

in was in

the

the

the

Given

relatively in

detected

Situation

similar

to

[Lavin,

1976

those

1981b

context.

However,

research

The

concern

by

type

another printing

and

those

However, not

have

stated In that

client-are

why the

audited

that

contrast, the

it

Situation printing

and

up

on an not

stationery

same basis.

56

an auditor all

not

in

Situation

consistent

and

4 did

all

between

of

lease

auditor drawn

was

that

seen

facts

the

to

an

EAI

terms

statements.

or

be that

for

related (for

suggest

evokedýconsiderable

the

less

which

uniformly

one reason

38%).

research

arrangements

with

(between

present

made between

may well

EAI

independence

4,

(commercial)

could

this

consistently

needs)

an EAI with

concern

arrangement

associated

respondents therein

was

and

within

this

35%,

situation

This

his

issue

auditor

stationery

trade

of

this

to

commercial

client.

auditor by

of

and

his

for

and

responding

respondents

researchers

Dykxhoorn

1980

more

research

are

empirical

slightly

external

7 than

Situation

types

users

with

registered

and

only

(previous

-

into

1982]

and

by

revealed

Firth,

currently

findings

present

some previous

1977,

and

EAI

with

concern

the

7,

of

Sinning,

was

modest

with

concern

agreement

client) "arms

7 may

described

specifically length

specifically arrangement

basis". state was

on the

If

that

so,

distinction to

consequence the

relevant

the

should

between

transactions

necessary

where

on an arms length

strictly

The management

10.2.5 Situation

3

Situation

3 deals and/or

accounting the

preparation

a small

the

The present

notable than

concern

30% of

concern

at

However

the

with of

EAI these

in

all

a private

EAI for

in

EAI

Situation

to

some level

the

to

addition

the

more than of

any trace

half

of

greater 50.3%

underlying

these

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

fee

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

the

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

"time

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

BAs

with

basis,

appear

with

lines,

encounter

without

BAs to

11.

situation

regular

independence.

on the

negative

on a somewhat to

able

lies.

EAI

significant

their

with

pressure

in

reveals

concern

of

showed

expected

EAs probably

time

completion

impact

(5 times)

audit

conflict with

detailed

along

troubled

this

BA groups

means

= -4.93)

much more

who appeared

EA and

group

in

other,

tight

and

conflict

pressure"

of (t

is

It

that

on the

stringent

auditor's

both

surprisingly,

(a task

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

with

judgements

(decisions)

to

them,

compared

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

its

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

not

the

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

a distinguishing

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

of

of

future

these

if

little, 195

any,

than

to

costs

is

EAI.

based

have

no

quasi-rents

or which

prohibiting effect

on in

sunk-costs

quasi-rents

EAI and so regulations

have

market

she argues

a threat

pose

a mainly

be less

reductions

existence

in

competitive

to

fees

itself

fee

periods,

detrimental

lowballing

not

initial

that time

is

to

behind

future

on EAI.

initial

low-balling

set

shows that

context,

requires

(requires

of

model

EAI,

on EAI.

on the

other

hand,

do not

share

the

it

would views

above

their

views

are

more in

[CAR,

1978:

xxx]

when

is

a threat

to

identified

Having interested behooves these

the

In

profession

noted

in

the

this

the

audit

the

auditor's

the

then

evolves

client)

when

provision

services clients

of

it why

carefully amend,

if

ethics.

identify

cases and Users

Issuers

by the

concern based

on evidence

main

the

ensuing

between

the

such

consulting

EAs.

following

MAS (given

(Situation

client

2.

that

of

summary,

on the

chapter,

with

helped

be focused,

should

provision

linkage

In

pronounced.

audit

suitably

between

gap"

"

on which

more

code

11

auditor.

views

then

to

Cohen Commission

the

consider

also

chapter

"expectations

audit

1.

EAI

professional

this

may be most

share

and

arise

their

the

issues

to

profession

parallel,

where

do not

differences

necessary,

the

some of

groups

of

that

and

lowballing

that

stated

independence

the

the

with

EAs

nonBig-Six

DeAngelo,

of

line

it

that

appear

services

associate

financial auditor

are to

issues:

the

and

provided audit

2)

of

concurrent

by auditors (Situation

to

their

3)

196

accounting private

and audit company

audit

by

3.

the

acceptance

time

(Situation

4.

the

audit

11)

of

objective

the

of

level

to

and

18)

5.

the

practice

6.

the

precise

involvement with

affairs

findings

of

holding

the

to

in

by

raised

Chapter

10,

the

underlying

The

BA linear

discriminant

the

situations, only

findings

(dimensional)

audit 12

14)

all)

at

- particularly

clients

directorships

audit

when are

clients

EA v.

IA

2-a

feature

relating

to

factors

LDA results to

relates

complexity

our

on one

(Situations

(if

of

with

cognitive

CM model

"excessive"

a

(Situation/15)

point

EA v.

is

a group

acceptable

in

be given and/or

(Situation

of

10)

might

dependency

lowballing

connections

possibility

A further

as

nature

reference

(indirect)

or

the

(Situation

what

fee

acceptable

of

excessive

some scientific

determine

individually

client,

budget

consideration

establishment basis

with

engagements

and/or

Further,

constraints. to

of

parallels levels

differing

each

group.

model

that the

underlying

197

appears

ranking the

5

contained

3 situations

one

of

of

and

the

to

parallel

the

number

groups.

EA v.

of

Interaction in

different

of

conjunction

situations in

future

has

chapter

facts (in using

this

group

views

The next the

on EAI

chapter

Brunswick group

the

EAI cues

of the

bear

basis

biographies or help

judged judges

that

varying

views

personal individual -

explain

their

to

audit

into

perspective

in

being

it not

distinguish

of

for

allows

so much as a result but

differently,

which

perceptions

to

bring

background

influences

198

cues.

discussed.

assessment

experiences,

differing

i. e.

on a construction

viewed the

doing

best

and

that

evolve

of -

underlying

that

premised

also

the

scenarios

the

areas

Lens model,

differing

the

identified

were

is

from

terms) the

perspective

of

be taken

individual

the

model

aspects

need to

EAI

examined

Lens

Brunswick

experience

directions.

research

within

contained

domains

particular

may also

specified

account

This

the

with

task

group

and

may condition of

EAI.

on

CHAPTER

XIV

PERSONAL AUDITOR

have

chapters

as held

by

chapter the

that

if

(or

characteristics

members.

Multiple

linear

most

The chapter

for

context

assessment

The third regressions same. main

section

the

second

regression

(concluding) results

within

The first MLR in the

presents

results

the

rationale for

selected

of

the

(discussion) section

the

199

employed instance.

this

use of

and assesses

and for

is

analyses.

the

presents

its

of

specifically

and an interpretation

regression

in

sections.

variables

the

The fourth

implications

the

while

within

regression

underlying

the

considering

(MLR)

are

the

some of

(attributes)

distinct

four

basi's

the

considers present

has

on EAI

views

methodology

appropriate

basis

underlying

by

audit

on EAI?

views

any

conditioned)

personal

as

is

of

do past

groups,

group's

specific

the

groups

fashion

there

a relevant

influenced

strongly

within

on EAI,

views

different

features

personal

considers

claim

three

then,

extent

or

experiences

differing

revealed

and

auditors

To what

users.

to

ON EXTERNAL

INDEPENDENCE

Previous

This

AND GROUP VIEWS

CHARACTERISTICS

audit

summarises likely profession.

of

the the

14.1

The multiple

linear

regression

psychology

theory

suggests

Social structure

and

personal

If

peer

then

so,

consistent

linear

judgements

of

the

if

equations

groups,

researchers such

as past

formative

For

example,

(multidimensional (1977], Brown

Libby (1980]

specifically

"personal

characteristics"

dependent

variables

of

interest

in

200

data. regression

within

context,

of

or

interest.

or MDS

variance) and Nikolai

the

their

most,

not

an influential

and Kramer

of

the

characteristicst

of

examine

if

(HIP)

variables

Ashton

between

a relationship.

Rockness

scaling),

and

linear

such

ANOVA (analysis

[1979],

distinct

biographical

personal

on dependent

using

experiences.

data

may have

experience,

effect

past

processing

that

recognise

or

(inter

then

confirm

a human information

Within

features

many,

appropriate

should

own

through

and/or

holds,

from

those

emerge

who share

preceding

his

of

a strong

to

features

cognitive

individually

expect

relationship

computed

relevant

our

individuals

the

by

and/or

within

same personal

Further,

influenced

may justifiably

one

man's

a composite

education

contact,

is

this

that

(acculturated)

"acquired"

groups,

of

are as

attributes,

qualities alia)

processes

methodology

(1980)

effect

and of

respondents, their

studies.

the on the

The

nature

situations

it

Model

the

of

to

searching

between

the

such

the

previously, out

"personal and the

dependent

the

beliefs

that

"man is

a product

general that

and/or

14.2

The variables

This

section

regression chapter,

for

describes

-in

consideration

and

of

regression

and

explains

inclusion

the

and

relationship

201

of

the

of

interest,

relevant

of

his

are past"

environment".

equations the

basis

analysed

variables within

studies

a product his

1979].

justifications

variable

the

particular,

(auditing)

research

linear

developed

equations

Brunswick

Wright,

(e. g.

"man is

where

personal

characteristics"

respondents

for

an accounting

the

an

Libby

applications

underlying

a consistent

one

MLR in

of

tool

cues

and in

that

example,

considering as

instance

For

research

within

judges

use

research

primary

analysing

(linearly)

the

domain. eight

well

variables.

with

studies

the

present

referred for

as the studies

attributes

In

lists

including

context,

ripe

of

believe

to

reason

simultaneously

auditing)

142-150)

was used

Lens

is

(or

accounting

a means

(independent)

literature

HIP

(1981:

is

variable by several

affected

is

is

it

is

(MLR)

Regression

essence,

there

where

(dependent)

Linear

in

but

established,

The

Multiple

of

for in

offered the

equations.

this for

the

14.2.1

indeRendent-variables

The

An important whether

objective

certain

of

degree

Appendix

questionnaire

used

Our independent to

provided both

further

B: for

247-257

is

auditor variables

The audit-user

independent

group

in age

Respondent's

2.

Years

3.

Possession

of

a university

4.

Knowledge

about

issuing

5.

Area

6.

Frequency

of

of

principal

professional

audited

00

The additional

auditor

activity

group

only.

are:

used

group

independent

Rank in

audit

firm

(partner/non-partner)

2.

Size

audit

firm

(Big-Six/nonBig-SiX)

(KNOWLEDG) (ACTIVITY)

(FREQUENT)

statements

202

two

(UNDEGREE)

opinions

1.

of

common

(AGEYEARS)

degree audit

were

(EXPERIEN)

experience

professional

the

responses

while

variables bands

5-year

1.

from

auditor

of

group.

variables

the

to

pertained

and

audit

groups,

and audit-user

basic

auditor

Six

questions.

a set

experience,

derived

are

terms)

group

an example

internal

variables

these

and external

the

our

contained

the

with

explore

reflecting

specialism

familiarity

of

(in

views

questions

professional

to of

questionnaire

inventory

environment.

to

each

end,

biographical

bio-data,

our

their

explain

To this

is

research

characteristics

personal

help

respondents on EAI.

of

variables

are:

(RANKFIRM) (FIRMBIZE)

Respondents' Similar

ages

research the

considered

(e. g.

Rockness

of

respondents

age

when

variable

explanatory

the

Thus,,

AGEYEARS (being

variable

individual

respondents

age-bands)

was

maturity

of

complexity treated

of

see

to

of

External

of

the

12).

each

Auditors

Bankers

Loading...

11MB - City Research Online - City, University of London

               City Research Online City, University of London Institutional Repository Citation: D'Silva, K. (1992). External auditor independence:...

11MB Sizes 1 Downloads 0 Views

Recommend Documents

11MB - City Research Online - City, University of London
other policy areas and associated primarily with the 2000-2010 Lisbon Strategy. The introduction of an OMC, ..... This m

City Research Online - City, University of London
Accounting Standards to the Evaluation of Fixed Assets in Kuwaiti Corporations", Arab Journal of Administrative .... Blo

City Research Online - City, University of London
The construction of a #national identity' : a study of selected secondary school textbooks in Malaysia's education syste

City Research Online - City, University of London
Smokers manage to overcome their initial withdrawal period and their physical addiction to nicotine. However, psychologi

City Research Online - City, University of London
Figure 2.1 Antagonistic versus Co-operative Model (adapted from ... Table 7.3 Spatial distribution of respondents accord

City Research Online - City, University of London
outputs of City, University of London available to a wider audience. Copyright and Moral Rights remain ... 3 Abdus Salam

244kB - City Research Online - City, University of London
presented to Bernard Cassen of ATTAC and Le Monde Diplomatique, who apparently proposed that the Forum be held in the Br

Download - City Research Online - City, University of London
Dec 18, 2014 - Media actors' perceptions of their roles in reporting food incidents. BMC Public Health ... Paul Ward. 1.

1MB - City Research Online - City, University of London
The new creative stages are shown in pink. To explore which creativity techniques to implement in each new creativity st

175kB - City Research Online - City, University of London
seminal study of the Grand Old Man, The Mind of Gladstone: Religion, Homer and. 27 See, in particular, Detlev Mares, 'Di