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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 (Unpublished Doctoral thesis, City University London)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

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for

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served

be undertaken.

this

undertaken,

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related

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ICAEW's

to

auditing"

nature

concluding

gaps this

paid

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twenty

brief

EAI

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questionnaire.

chapter's

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to

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gaps",

within

relationship

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explains

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structured

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and

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INDEPENDENCE

identify

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In

to

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chapter of

pockets

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AUDITOR

type

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1989a:

5]

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alia)

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of

audit

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services".

include

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gap between

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1974].

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1991].

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17

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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

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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

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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

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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

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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

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(good)

"reputation"

doing

not

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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

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thus

independent

1989].

no professional AT.

by

auditor

is

auditor

Without or

within

play

stated,

the

of

the

[Watts

person

services

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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

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as

tend

independent Financial

else

view

["Big

will

they

would

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those

held

by auditors

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so,, there

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perceptions (both

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individually Auditors

opens

services.

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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

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as being

that

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-a

perceived

13,1990:

see the

AT implies

should

their

of

September

not

centuries imposed,

be beautiful

users

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themselves

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to

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statutorily

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auditors

-

were

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statute,

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ethics

professional

professional

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(the

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the

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or

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summary,,

depends

profession but

fact, is EAI

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on

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as

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their

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[Appendix

question

77

response

refined group same the B:

the

and

assessment Minimum 254].

Level

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asking

considered

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MINIMUM LEVEL OF CONFIDENCE in

be "the of

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78

other

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were

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groups

so

from is

it

true

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differences

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level.

0.05

different group

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all

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the

of

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all

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11.2,

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and

MLC question

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11.1

in

that

those

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tables

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4.29,

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confidence

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in

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significant

but

regard

of

responses

to

personalised

inter-group

79

basis,

differences.

each were

in the

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of

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12,13

A four

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nine

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when

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context

some closeness of

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suggests

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situations

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non-significant IA

41 61 10,

significant

revealed

judged

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1.21

situations

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the

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11.1.

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in

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across of

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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

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0.90

NS

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6

S

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S

S -7.00

S

-4.98

7

S

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NS

0.52

S -3.34

S

-3.15

8

NS

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NS

0.52

NS -1.78

NS

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9

S

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NS

-0.42

S -3.49

S

-3.23

10

S

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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

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in

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in

perceptions different.

consistently

terms

of

Table

11.1

group

tended

good the

only

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accord

the

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with

15 and

14

the

of (12)

of

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of

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of

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similarity

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terms

comparative

them

of

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claim

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about

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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

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of

occasion

the

smallest

than

05 was .

owning

shares

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The

largest

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impact

group

most

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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

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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

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refined for

On

variable.

other

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the

while

F-ratio,

questions,

589 .

these

for

value

that

(e. g.

the

the

are

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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

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situation

only,

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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.

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establishing audit

Criticisms

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about

anxious

4,1987: to

taken

22-23]

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22 places

non-auditors Colman),

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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

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(EAI)II.

...

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government

University

name some of

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independence,

come from

Age,,

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C. C. A. B. has more than

(BZW Investment),

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of

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Commission

School)

1991)

up by the

currently

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of

is

little

are

any steps

users

perceptions

(April

established

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of

users

- Accountancy "hardly

very

may have

(APB) set

auditor

views

and their

Board

differing

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and consequently

recently

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Report

["Audit

the

been made on

have

profession

states

of

rulings

statutory

Sikka

users made to

are

independence"

auditor

anxieties

Audit

UK audit

example,

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of

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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

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independence

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of

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that

a model

92

as

not

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client

determination

auditing

firms

service

in

deviant

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of

features

contends

analyse

individual

from

include

"cosy"

on their

on any

as clients.

(1975]

pressure

firms

large

operations

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the

for

firms

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be

to

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for

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When extrapolating (1966]

fees

Such features

EAI.

growth

situations.

profession,

hold

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proportion

have

to

that

large,

as

smaller-sized

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variable

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Carlin

tend

offer

vein,

of

firm-size

smaller

a smaller

nature

cause

to

consequent

will

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also

to

keenness

In

than

is

on

[1981).

dependent

firms

prejudicial

Shockley

than

EAI

likely

more

not

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revenue

and

firms

and

form

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in

of

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explained

client

clients

firms

those

example,

part,

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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

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body

firms

large

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size

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literature

suggests

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seen by investors

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reputation"

that

methods of

undertake,

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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

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to

risk

of

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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

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surrogate

users

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EAI), firm them.

audit such size

methods

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sale

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of

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(1991]

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(1981:

in

were

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important

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firms

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to

firms

by

and

Reckers

to

bankers

94

be

qualified (1985] when

see

stringent

not to

as large.

render

firms.

that

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EAI.

and

smaller

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investors

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28]

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firms

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competence

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McKinley, is

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auditors

Canada. firm

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et

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capital".

common expectations. that

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in

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at

[Balvers

investors

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of

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issuers

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are

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in

conclude

that

assessing

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(1989: detecting

Canada)

auditors

in

to

client

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318]

[1986:

the

two

differing

auditors

for

from

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research

also

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differences

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123

research in

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will

large

all

perception

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firms

auditors)

in

on EAI

of the

firms

UK (Appendix

as

as

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Accountants C:

258].

are

shown

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in

participated

Chartered

95

there

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Hence,

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Zimmerman

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USA and

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1]

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the

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11.5

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11.6

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18

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105

TABLE

11.6

SIGNIFICANT

(8)

HOTELLINGIS

t-

REFINED

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EXTERNAL

s

(F)

AND F-

EA GROUP RESPONSES

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0 OF

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AUDITOR

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BIG-SIX

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Hotelling's-t

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1

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4.74

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v.

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Note: SET 1:

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SET 2:

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106

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107

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being

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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

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and

finding

awareness

a

firm-size

important

only

and

appointed

teaching

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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

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in

considered

were

indicated so indicated,

did

issues EAI on

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Conclusions:

rank

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of

analysis

partners (80%)

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closeness

when

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good

harmony

tests

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Amernic

and

suggest

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perceptions

of

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perceive the

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fact

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degree CAs in

one to

of is

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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.

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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

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then

by ICAEW (1987],

some

when responses

situations,

of

sets

require

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fact

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of

to

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contention

is

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perceive ...

11

this

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research

disregarded form,

and

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hand,

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and

differences

in

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user for

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appear

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partner

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twenty

situations

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of

EA group

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present

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theory,

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EA group.

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on the

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refined

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out

addressed

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on EAI

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twenty

the

refined

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is

size

professionally

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EAI perceptions

differences

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in

detected

chapter

group.

in

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qualified

this

main,

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partners

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if

perception

of

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manifest

persons

one

considered

differences

not

are

qualified the

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issues

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suggests

on a Big-Six v.

comparisons,

differences

that

nonmost

of

were

not

the

significant.

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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

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facts

process

possible

"factors"

differences

in

in

EAI

specific

scenarios?

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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

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of

on the

Big-Six

differences.

factor

External

significant

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(and the

chapter

the

and each

CMs and IAs)

EAs from

is

arises

between

EAI,

identified.

also

differences

significant

situations,

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differences

of

(BAs.

groups

user

some of

terms

on the

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identified

and

then group

the

This

chapter

contains the

considers determining

Factor

-

The

second

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the

perceptual

determines

constructs

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processing

(HIP)

to

possible

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empirical

findings

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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

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statistical

precise

assesses present

section

for

of

related

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out

finally

FA to

The third

with

spells

and

explanation

a few

considers

then

objectives applying

a brief

provides

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approach

(FA).

Analysis

and

first

underpinning

constructs

conceptual

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sections.

methodological

appropriate

the

EAI

distinct

six

about

the some of

profession. in

(audit)

of

factor

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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

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and

may not

audit

principles,

intangible

may or of

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of

ethical

expected

that

to

of

professional statements.

basis

are

an effective

approach

set

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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

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and

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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

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independence

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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

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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

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may share

groups

and 1969].

in

nature

are

in

so must In and

order.

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three

are

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2.

Gestalt

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this

Analysis

into

In

are

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present

the

twenty

sets

are

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(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

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and

1970:

stimuli

audit

for

search is

EAI

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sets

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determine

[Child,

if

sharing

and categorize

situations may be)

views

stimuli),

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of

to

distinguishable

rationally

be taken

13].

"stimuli"

the

this

1984:

technique

instance,

(that

to

"psychologists

sets"

questionnaire

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response

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(or stimuli

(dimensions)

different

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indeed

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perceive

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(Rock,

appropriate

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a stimulus

(associated)

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have

theories

appropriate

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factors

(FA).

educators people

to

varying

underlying

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viz:

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which

features"

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seek

theories

theory,

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8-13]

empirically

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1984:

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theories

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based

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of

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perception

1.

types

main

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needs

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Factor

12.2 In

the

(in

context

as

the

1]),

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cues

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under

degree

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Statistical

Factor

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the

into

data

a statistical

internal

structure

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degree

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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

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as possible.

may exist

ready

set.

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within

a correlation

data

coefficients)

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data

to

used

a numerical

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analysing

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variables,

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feature

inter-correlation

of

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technique

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are

a "factor".

when

variables. of

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on

15].

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subsets

common underlying regarded

"cues".

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(by correlation

sorts

data

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overview

unique

contains

the

between

1982:

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Figure

association

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(Ashton,

[1966:

relevant

inter-correlation

of

12.2.1

strong

consideration

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examine

decidedly

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[Brunswick,

provided

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to

situations

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information

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number

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numerical

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FA is

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offers

generated

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underlying

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is

alia,

in

inter

used,

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of

out

FA see it

55])

as a pointer based

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the to,

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for

only

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first

research

and the and/or 118

In

the

usage, are

judged

hypothesised.

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that

to

hypotheses

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previously

view

variables

technique.

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example,

a

amenable

test

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(for

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manipulation.

to

and not

are

more

reduction

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some analysts

down into

statistical

(constructs)

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correspondence

observed

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(variables)

possibility the

outside

by

unobserved

condensing

a data

mainly

of

"key"

further

and

of

variables.

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of

of

constitute

observed

quantities

(measures),

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explain

which

sets

common constructs

combination

variables

of

determined

structure

underlying

attempts

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such

Thurstone,

point

experimentation.

in

itself. - see Child

FA may legitimately

starting

FA

a purpose.

stage

in an as end

for

for,

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In

other

words,

themselves but other

disciplines

12.2.2

Principal

Factor

Analysis

not

36]

points

two

types

of

is

a generic

of

underlying

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that

out of

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analytical

on their

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from

analysis In

model

-

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fact,

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Child

model.

these

between

distinction

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own,

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constructs

term.

component

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study.

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and

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with

or areas

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interpretable

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"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

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(relating

set)

present

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communalities

square

of

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factor

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made about to the

two

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distinguishing

on assumptions

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portions in

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is

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(PCA)

variances

are

common,

so that

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variances

or

the

unity.

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the

(the factor solution,

sum of loading) this

119

the

equal

on the

premised

assumption

is

not

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made.

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theory,

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produce the

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two model

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principal

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describe

adequately

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this

as being (20)

the

percentage numbers

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for

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of

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variables 43

makes use of

criterion to,

and the by varying

for

factors.

rule

than

the

those

only

unity

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of

1970:

accounted

variance

to

was adopted

number

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roots)

as

investigation.

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study.

so

(rule)

the

1952. ] This

total

of

Kaiser's

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using

extracted

under

set

is

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of

be

to

data

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in

number

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eigenvalues

the

however

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reported

Kaiser's

Cattell,

referencing the

in

employed

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most

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towards

extracting

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of

helpful

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12.2.3

this

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used

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methodologies

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and it

same factors, of

do not

approaches

average

are

factors

taken

on the amount

for

with further

basis

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of

variance

120

eigenvalues consideration

they per

account variable.

for

important

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of

initial

axis

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relationship

factor(s)

and

each

"initial

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factors.

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analysis matrix)

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matrix".

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with

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Norusis

rotation,

is

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own axis),

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considered

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rotate

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of

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"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

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same token,

factor

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two

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(e. g.

orthogonal

1988a;

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methods

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rotation, are

kept

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rotated are

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52].

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solutions"

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from

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as a second

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oblique

1970].

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extracted.

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methods,

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along

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are "best"

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orthogonal

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Child,

1952;

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axes

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factor

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1970;

1970].

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method

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use of

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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

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to:

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the

data

analysed

common factors 123

a

and Mar-Molinero application,,

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correlations

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124

of

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the

(and

Chapter

the

to

emerge

factors. 125

data

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GROUP FACTOR

SELECTED

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No.

ANALYSIS

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factors

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(Eigenvalues

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>1)

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118

4

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by one group may help

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explain of

126

conclusion

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of

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first

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"integrative

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128

the

"cognitive

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12.3.1

In

Cognitive

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129

is

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12.1

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(or

group)

"differentiation" "abstract". groups) said

to

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and "integration" while,

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on the

other

rather

less

be "concrete". 130

handt of

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association is

a variable

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132

is

good

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communalities 42]

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Tables

a set

(and only

form

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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

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& 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

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28

74 .

11 -.

06

.

70

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01

12 -.

55 .

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68 .

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43

17

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13 -. 16

1 15

years

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& Staty.

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54

8 Auditor-trustee. 9 MD ex-partner 10 11

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pressure income

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.

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10%

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79 .

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14

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63 .

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15

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50

67 .

12

16

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75 .

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21

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fee

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.

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68 .

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69 .

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8.81

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134

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.

.

. . . . . .

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55

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.

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.

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.

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.

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.

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

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70 .

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14 .

66 .

73 .

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06 .

80 .

79 .

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74 .

78 .

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72 .

US sub.

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fee

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70 .

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80 .

8 Auditor-trustee

78 .

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.

14

62 .

9 M. D.

76 .

35 .

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66 .

32 .

04 .

53 .

53 .

09 .

78 .

89 .

79 .

25 -.

.

ii

70 .

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78 .

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05 .

65 .

14 Lowballing

70 .

41 .

13 .

68

72 .

16 .

04 -.

.

65 .

35 .

13 -.

56 .

1 15 years 2 Due to

ass.

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& Staty.

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of

6 Unpaid

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ex-partner

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pressure pressure

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15 Inv.

client

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.

.

55

16 Largest

employer

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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

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76 .

years

2 Due

to

76 .

ass.

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4 Ptg.

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74 .

.

25

53 .

52

78 .

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63 .

69

78 .

13

63

61

74

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77 . 80 . 69 . 79

. . . . . . . . . . .

.

.

58

.

79

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56

76 .

26

51

70 .

60

74 .

.

64

.

.

57

. . .

64 64 52

15

.

31

65 .

74 .

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55

48

72 .

08

62

74 .

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.

.

. . .

52 65

83 .

.

70

81 .

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71 .

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79 .

62 .

74 .

05 .

56 .

fees

77 .

59 .

79 .

28 .

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76 .

56

75 .

32

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EIGENVALUES:

81 .

68 .

71 .

employer

17 Partner

58

57

75

dir..

60 .

64 .

76

14 Lowballing

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-. 36

9 M. D.

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74 .

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78

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52 .

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income

ia

72 .

83 .

pressure

.

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.

72 .

11 Time

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66 .

fee

pressure.

nality

Factor-2

-. 30

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10 Budget

Factor

75 .

76 .

ex-partner.

I

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Auditoi

63

US sub.

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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

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Table

12.8,

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case

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between 1 and

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by

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137

nature

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with

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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

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underlying

and thus

a unitary

further

explore

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group

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instance

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in

support

contention

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highly

are

providing

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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

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may only

add

support

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the

that

factors

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form

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to

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is

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or

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in

are

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an inability,

case,

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auditor

in

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meaningful

in

assumes

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provide

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of

factors.

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attempt

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nature

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provide

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framework

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concept".

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metaphysical

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on the

offerings that

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credit

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of

mind

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EAI).

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group

views

basis

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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

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sees

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terms.

In

to

an attempt

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their

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ICAEW [1987) 6:

Chapter

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pressure) and banker

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in

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(conflict).

commonality. one situation

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loaded

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of

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pattern

bankers,

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a comparison rotated

were

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framework, for

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for

revealed matrices

pattern

181-182.

Relationship,

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identified. these

between

two

groups.

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group,

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be spilt

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to

conclude

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were

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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

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of

neutrality

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is

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influences interests cause

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to

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at

one Thus,

(on

argues

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to

has

may be

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main

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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

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independence

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of

constructs

[1972]

or

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parties

1978]

[1989]

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1978]

able

to

identify parties), interests

withstand, the

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of

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Sharaf,

1961;

Carmichael

1969)

Dykxhoorn

and

between

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of

and

"in

EAI

make EAI

and

the

point,

an

and Barrett,

1968;

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fact"

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authors

(1981a]

Sinning

Expressing

appearance".

in

evidence

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to

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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,

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of

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what

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are,

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and groups.

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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

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two main

factors

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our

to

also

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classification

12.6

Concluding

"pro-other"

either

impairment

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EAI.

of

demonstrably

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of

remarks a number

Sharaf,

1961;

Carmichael

1969)

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of

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this

an

make EAI

and

the

point,

and Barrett,

1968;

swieringa,

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authors

(1981a]

Sinning

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to

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of

with

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Together

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argue

authors

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research most

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groups. issuers such

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FA

and underlying

revealed

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146

user

any

confirmed

number

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of

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the

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(1986]

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external place

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that

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be independent whereas

the

of

therefore

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a difference

"independent" 147

auditor

and cannot

so,

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that

states

work.

work)

- and thereby

it

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internal

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doing

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entitled

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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

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148

in

is

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149

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150

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date

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1991,

ethics"

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CHAPTER

XIII

THE MAIN

GROUP DISTINGUISHING

AUDITOR

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Chapter

10 identified

number

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OF EXTERNAL

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TABLE

13.1 MODEL

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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

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where

(time)

v.

size.

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the

appear

auditor's

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69 of

group,

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discriminant

first

to

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fee

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reports

10% of

about

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Issuers

of

completion

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This

model

in

audit for

audit

of

on EAI,

intense

reliant

13.3.5

overall

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1.

our

has

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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-

-

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conjointly

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discriminant

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(@

respective

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all

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12), t-test

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11 - Time

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trust

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auditors

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time

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under adhere

figure

more their

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to

181

EAI as

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reasonable

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work

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portfolio

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to

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quoted

colleagues. Big-Six

pressure)

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group

EAs may be more

intense

within

time

mean) were.

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for

(13.4%)

discriminatory

whereas

(negative

(20.5%)

Reliance

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of

(26.7%)

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income:

of

(39.3%).

and

director:

11 (significant

highest

(39.3%)

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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

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100

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than 183

those

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client.

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1991:

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for

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1976.

circumstances

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- June

material"

addition

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and

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see

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then

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CPA firms

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(Table

11.5) differently

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than

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power. EAs to

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with

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= 1.8).

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= -2.85)

an auditor's

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shows

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are

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times)

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of

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auditors

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fees

be confirmed

indicates

means which

group

to

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increased

such

that

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more

likely

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clients.

184

and be

concern fee

spread

portfolio over

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last

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creates the

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audit

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of

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EA

or

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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

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on the

and

as their

different

situations

involvement

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as concerned

(t

with

and concern

significantly concern

registering

manifest.

be twice

that

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significant

to

with

levels

of

12.

(13.4%),

14

discomfort

situations

colleagues

summary,

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their

means,

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(univariate)

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lowballing

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in

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financial

for

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of

lowballing

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client.

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negative

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variable,

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be one

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base,

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as EAs from

dependency

a

fee

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to

have

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with

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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.

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variation

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two

in Big-Six

of

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audit

UK audit

so,

(Kelman,

acculturation two

groups

which

of

be treated

must

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in

this

as

only

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[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

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auditing

as homogenous

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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,

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sub-cultures.

may

possess

auditors

of

homogenous

firms

between

EAI

on

perceptions

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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

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to

= . 000.

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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

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cases with

a

25%.

standardised

shows that

the

to

functions.

two

both

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13.6

of

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just

magnitude

these

version

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relevant

main

made by each

method,

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heavily

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rejected

was

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for

unstandardised

contribution

null

chance

were

13.6

significant

the

to

the

Table

selection

correctly

probability

in

highly

original

to

(rotated)

the

of

matrices

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80

made up of

the

provides

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stated

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were

covariance

13.6

variable

identified

to

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are

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four

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of

and have been retained

standardised

functions

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functions

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analysis.

statistical

two

three

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statistically

IAS

cases.

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of

from

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sample

CMS. V.

application

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each

groups,

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sampled

research

BAS V.

EAs V.

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function, the

3 and 11

Situations

second

while function.

highlights

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within those

three

importance,

group four

embodied

the

three

3-

Situation

2.

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11

-

Time

3.

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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

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group

11)

with by

all

(external

the

12 showed

the

auditor

external

when

Table

concern

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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

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in

means

independence

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the

EAs more confident icompared to the

group

group

to

accounting

means for

derived

(Reliance)

groups).

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group

the

(Involvement)

compared

increased

are

(Pressure)

situations

when

views

below:

noted

services

reliance

auditor

groups

aspects

situations

pressure

these

of

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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

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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,

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manifest four

firms

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of

listed

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professional

summary

level

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(1952] four by

Lens

research varying

EAI

model,

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groups

may

stimuli.

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the

individual

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on group

cognitive

in

Thus,,

an EAI

contained modelling

techniques,

identify

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the

all,

LDA models

were

of

2-group

between

or

to

their

clients

discriminant

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personal

EAI

suggests

that,

situations

in

differing

enough

staff)

did

as

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to

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in

among

general,

much the warrant

rise

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to

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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

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BAs V.

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applications, within

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developed.

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stimuli using

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exception

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stimuli

stimulus

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in

situations),

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processes

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the

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the

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client (direct affairs

or

indirect)

of

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important

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by

determining

of 10 and from

one

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an involvement

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14 and

15)

or

with

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types

income

fee

of

18)

the

degrees

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on a level

type

characterised

of

auditor

12 and

the

varying

reflective

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by

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to

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the

with

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This

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less

chairman

show

BAs.

compared

probably of

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richer

when

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relatively

bankers,

of

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models),

11),

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experience

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However

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was

above

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exception

2,31

were

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group-differentiating

on

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Given

recent

users

of

by

Age,

audit

Davies,

"Private

discontent

the

(then]

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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

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showed EAI

be along

to

to

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(Situations

exceptions

In

a client.

concerned

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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

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auditors

auditing

contexts

from

the

means)

that

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firms.

194

to

EAI

in

models

six

EAs have the

audit

differences

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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

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but

local

LDA situations

showed

situations

two preceding

18 (provincial

20% of

developed

six

more

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support

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and Situation

generating each

to

fees

of

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Thus, 15)

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were

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12

EAs were

than

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Big-Six

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on views

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expectations.

EA's

15).

differences

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12 and

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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

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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

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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

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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

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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

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(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

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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

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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)

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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.

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about

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5.

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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.

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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

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variables

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to

pertained

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audit

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auditor

Six

questions.

a set

experience,

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are

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internal

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our

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questionnaire

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each

end,

biographical

bio-data,

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explain

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help

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of

variables

are:

(RANKFIRM) (FIRMBIZE)

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ages

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Rockness

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Thus,,

AGEYEARS (being

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maturity

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complexity treated

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to

of

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12).

each

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