An Examination of Factors Affecting Audit Practice Development *

An Examination of Factors Affecting Audit Practice Development * In this study, we examine the possibility that audit managers' judgments may be affected by practice development objectives. Given the competitive nature of public accounting, the extent to which auditors are inclined to be aggressive in the domain of practice development may be a function of their superiors' preferences. This study builds on the exploratory work of Hooks, Cheramy, and Sinich 1994 and Asare, Hackenbrack, and Knechel 1994 by examining the delicate balance that exists between a public accounting firm's need to “grow its business” and its need to maintain its objectivity and professionalism. An experiment is conducted to determine whether the auditor's willingness to tender a bid on an engagement is affected by (1) the nature of the auditor‐auditee relationship (i.e., do existing clients receive the same treatment as potential clients?), or (2) the audit partner's aggressiveness with respect to practice development, which also includes elements of ethics and competence. Seventy‐four audit managers from two Big‐Six firms participated in the study. The results indicate that the type of client (current or potential) and the type of partner (more or less aggressive with respect to practice development) significantly affected the auditors' judgments. Specifically, subjects in the “current client” condition, as well as those who are accountable to a more aggressive partner, are more likely to recommend bidding for the client. The experimental results of this study are based on a case where the client was proposing a relatively aggressive position with respect to accounting for research and development (R&D) costs. Our findings also suggest that the judgements related to bidding on the client are not independent of the auditor's willingness to accept the client's accounting treatment. These results also provide further evidence that the influence of accountability is important in the professional audit environment. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Contemporary Accounting Research Wiley

An Examination of Factors Affecting Audit Practice Development *

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Publisher
Wiley
Copyright
1998 Canadian Academic Accounting Association
ISSN
0823-9150
eISSN
1911-3846
D.O.I.
10.1111/j.1911-3846.1998.tb00568.x
Publisher site
See Article on Publisher Site

Abstract

In this study, we examine the possibility that audit managers' judgments may be affected by practice development objectives. Given the competitive nature of public accounting, the extent to which auditors are inclined to be aggressive in the domain of practice development may be a function of their superiors' preferences. This study builds on the exploratory work of Hooks, Cheramy, and Sinich 1994 and Asare, Hackenbrack, and Knechel 1994 by examining the delicate balance that exists between a public accounting firm's need to “grow its business” and its need to maintain its objectivity and professionalism. An experiment is conducted to determine whether the auditor's willingness to tender a bid on an engagement is affected by (1) the nature of the auditor‐auditee relationship (i.e., do existing clients receive the same treatment as potential clients?), or (2) the audit partner's aggressiveness with respect to practice development, which also includes elements of ethics and competence. Seventy‐four audit managers from two Big‐Six firms participated in the study. The results indicate that the type of client (current or potential) and the type of partner (more or less aggressive with respect to practice development) significantly affected the auditors' judgments. Specifically, subjects in the “current client” condition, as well as those who are accountable to a more aggressive partner, are more likely to recommend bidding for the client. The experimental results of this study are based on a case where the client was proposing a relatively aggressive position with respect to accounting for research and development (R&D) costs. Our findings also suggest that the judgements related to bidding on the client are not independent of the auditor's willingness to accept the client's accounting treatment. These results also provide further evidence that the influence of accountability is important in the professional audit environment.

Journal

Contemporary Accounting ResearchWiley

Published: Dec 1, 1998

References

  • Auditor brand name reputations and industry specialization
    Craswell, Craswell; Francis, Francis; Taylor, Taylor
  • Good judgment in public accounting: Quality and justification
    Emby, Emby; Gibbins, Gibbins
  • Audit analytical procedures: A field investigation
    Hirst, Hirst; Koonce, Koonce
  • An empirical examination of the biasing effects of framing on business decisions
    Mowen, Mowen; Mowen, Mowen
  • Auditor independence judgments: A cognitive‐developmental model and experimental evidence
    Ponemon, Ponemon
  • Researching accounting precedents: Learning, efficiency and Effectiveness
    Salterio, Salterio
  • The effects of precedents and client position on auditors' financial accounting policy judgment
    Salterio, Salterio
  • The effect of multiple reference points and prior gains and losses on managers' risky decision making
    Sullivan, Sullivan; Kida, Kida

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