The Impact of Auditors’ Industry Knowledge and Experience on Premature Sign-Offs: Evidence from Jordan
This study aims to investigate the impact of auditors’ industry knowledge (AIK) and auditor experience (EXP) on premature sign-offs (PMSOs) among external auditors. PMSOs is one of dysfunctional behaviours in auditing that eventually affects the audit quality. Audit quality is defined as all audit procedures are satisfactorily performed and stakeholders are not negatively affected with the results of poor audit quality. While the topic of audit quality has received great attention from previous studies decades ago, studies on how AIK and auditor experience affects PMSOs are limited. Therefore, this study examined the effects of AIK and auditor experience on PMSOs. Survey data was gathered from 144 auditors in the Jordanian audit firms. AMOS-SEM was used to analyse the data for testing the hypotheses. Results revealed that AIK and auditor experience negatively affected PMSOs. Based on these findings, this study suggests that to a certain extent PMSOs practices are prevalent in Jordanian audit firms, AIK, and auditor experience are a measure that can be used to reduce the PMSOs practices. Thus, this study provides empirical evidence of the impact factor determining the effect of auditor knowledge in the industry and auditor experience on the dysfunctional behaviour-PSMOs and impact on audit quality. The limitations of this study and recommendations for future research are also provided.
Abdul Wahab, E. A., Mat Zain, M., & James, K. (2011). Political connections, corporate governance and audit fees in Malaysia. Managerial Auditing Journal, 26(5), 393-418. https://doi.org/10.1108/02686901111129562
Abernathy, J. L., Beyer, B., Masli, A., & Stefaniak, C. M. (2015). How the source of audit committee accounting expertise influences financial reporting timeliness. Current Issues in Auditing, 9(1), 1-9. https://doi.org/10.2308/ciia-51030
Agoglia, C. P., Hatfield, R. C., & Lambert, T. A. (2015). Audit team time reporting: An agency theory perspective. Accounting, Organizations and Society, 44, 1-14. https://doi.org/10.1016/j.aos.2015.03.005
Alderman, C. W., & Deitrick, J. W. (1982). Auditors' perceptions of time budget pressures and premature sign-offs: A replication and extension. Auditing: A Journal of Practice & Theory, 1(2), 54-68.
AL-Qatamin, K. I. (2020). The impact of time pressure on the audit quality: A case study in Jordan. IOSR Journal of Business and Management (IOSR-JBM), 22(1), 8-16.
AL-Qatamin, K. I., & Salleh, Z. (2020a). Audit quality: A Literature overview and research synthesis. IOSR Journal of Business and Management (IOSR-JBM), 22(2), 56-66.
AL-Qatamin, K. I., & Salleh, Z. (2020b). Overview of the audit profession in Jordan: Review the change and development of the profession. International Journal of Business Marketing and Management, 5(2), 33-38.
American Institute of Certified Public Accountants. Private Companies Practice Section. (1993). The Expectation gap standards: Progress, implementation issues, research opportunities. American Institute of Certified Public Accountants.
Barrainkua, I., & Espinosa-Pike, M. (2015). New insights into underreporting of time: The audit partner context. Accounting, Auditing & Accountability Journal, 28(4), 494- 514. https://doi.org/10.1108/AAAJ-02-2014-1618
Beck, P., & Wu, M. (2006). Learning by doing and audit quality. Contemporary Accounting Research, 23(1), 1- 30. https://doi.org/10.1506/AXU4-Q7Q9-3YAB-4QE0
Bedard, J. (1989). Expertise in auditing: Myth or reality. Accounting, Organizations and Society, 14(1/2), 113-132. https://doi.org/10.1016/0361-3682(89)90037-8
Bentler, P. M. (1980). Multivariate analysis with latent variables: Causal modelling. Annual Review of Psychology, 31(1), 419-456. https://doi.org/10.1146/annurev.ps.31.020180.002223
Bentler, P. M., & Bonett, D. G. (1980). Significance tests and goodness of fit in the analysis of covariance structures. Psychological Bulletin, 88(3), 588. https://doi.org/10.1037/0033-2909.88.3.588
Blankley, A. I., Hurtt D. I., & MacGregor J. E. (2015). Are lengthy audit report lags a warning signal? American Accounting Association, 9(2), 19-28. https://doi.org/10.2308/ciia-51215
Bollen, K. A. (1989). Structural Equations with Latent Variables. John Wiley and Sons, Inc., New York. https://doi.org/10.1002/9781118619179
Bonner, S. E. (1990). Experience effects in auditing: The role of task-specific knowledge. The Accounting Review, 65(1), 72-92.
Bonner, S. E., & Lewis. B. L. (1990). Determinants of auditor expertise. Journal of Accounting Research, 28(Supplement), 1-19. https://doi.org/10.2307/2491243
Casterella, J. R., Francis, J. R., Lewis, B. L., & Walker, P. L. (2004). Auditor industry specialization, client bargaining power, and audit pricing. Auditing: A Journal of Practice & Theory, 23(1), 123-140. https://doi.org/10.2308/aud.2004.23.1.123
Chapman, B. (2019, July 10). PwC, KPMG, Deloitte and EY all fail to meet audit quality targets after string of high-profile failures. Independent. https://www.independent.co.uk/news/business/news/pwc-kpmg-deloitte-and-ey-audit- quality- failure-frc-report-a8998321.html
Cook, E., & Kelley. T. (1988). Auditor stress and time-budgets. The CPA Journal, 58(7), 83-86.
Coram, P., Ng, J., & Woodliff, D. (2003). A survey of time budget pressure and reduced audit quality among Australian auditors. Australian Accounting Review, 13(29), 38-44. https://doi.org/10.1111/j.1835-2561.2003.tb00218.x
Craswell, A. T., Francis, J. R. & Taylor, S. L. (1995). Auditor brand name reputations and industry specializations. Journal of Accounting and Economics, 20(3), 297-322. https://doi.org/10.1016/0165-4101(95)00403-3
DeFond, M. L. (1992). The association between changes in client firm agency costs and auditor switching. Auditing, 11(1), 16-31.
Donnelly, D. P., Quirin, J. J., & O'Bryan, D. (2003). Attitudes toward dysfunctional audit behavior: The effects of locus of control, organizational commitment, and position. Journal of Applied Business Research, 19(1), 95- 108. https://doi.org/10.19030/jabr.v19i1.2151
Elshawarby, M. A. (2017). Auditor's professional specialization role in reducing the potential negative effects of mandatory audit-firm rotation on audit quality. Journal of Accounting & Marketing, 6(3), 1-9. https://doi.org/10.4172/2168-9601.1000252
Espinosa-Pike, M. & Barrainkua, I. (2016). An exploratory study of the pressures and ethical dilemmas in the audit conflict. Revista de Contabilidad, 19(1), 10-20. https://doi.org/10.1016/j.rcsar.2014.10.001
Ettredge, M. L., Bedard, J. C., & Johnstone, K. M. (2008). Empirical tests of audit budget dynamics. Behavioral Research in Accounting, 20(2), 1-18. https://doi.org/10.2308/bria.2008.20.2.1
Faran, Y., & Zanbar, L. (2019). Do required fields in online surveys in the social sciences impair reliability? International Journal of Social Research Methodology, 22(6), 637-649. https://doi.org/10.1080/13645579.2019.1630899
Fernando, G. D., Abdel-Meguid, A. M., & Elder, R. J. (2010). Audit quality attributes, client size and cost of equity capital. Review of Accounting and Finance, 9(4), 363-381. https://doi.org/10.1108/14757701011094571
Fredrick, D.M. & Libby, R. (1986). Expertise and auditors' judgment of conjunctive events. Journal of Accounting Research, 24(2), 270-290. https://doi.org/10.2307/2491134
Gaver, J. J., & Utke, S. (2019). Audit Quality and Specialist Tenure. The Accounting Review, 94(3), 113-147. https://doi.org/10.2308/accr-52206
Gliem, J. A., & Gliem, R. R. (2003). Calculating, interpreting, and reporting Cronbach's alpha reliability coefficient for Likert-type scales. 2003 Midwest Research-to-Practice Conference in Adult, Continuing, and Community Education. Columbus, Ohio. Ohio State University
Government Accountability Office. (GAO) (2003). Public Accounting Firms: Required Study on the Potential Effects of Mandatory Audit Firm Rotation. GAO Report No. 04-216. November. Washington, DC: Government Printing Office.
Graham, L. E. (1985). Audit Risk--Part III. The CPA Journal (pre-1986), 55(000010), 36.
Gramling, A. A., & Stone, D. N. (2001). Audit firm industry expertise: A review and synthesis of the archival literature. Journal of Accounting Literature, 20, 1-29.
Granberg, L., & Höglund, L. (2011). The auditors' way to acquire knowledge about a company's environment (Master's thesis, Kristianstad University). https://www.diva-portal.org/smash/get/diva2:434617/FULLTEXT01.pdf
Green, W. (2008). Are industry specialists more efficient and effective in performing analytical procedures? A multi-stage analysis. International Journal of Auditing, 12(3), 243-260. https://doi.org/10.1111/j.1099-1123.2008.00383.x
Gul, F. A., Fung, S. Y. K., & Jaggi, B. (2009). Earnings quality: Some evidence on the role of auditor tenure and auditors' industry expertise. Journal of accounting and Economics, 47(3), 265-287. https://doi.org/10.1016/j.jacceco.2009.03.001
Gundry, L. C., & Liyanarachchi, G. A. (2007). Time budget pressure, auditors' personality type, and the incidence of reduced audit quality practices. Pacific Accounting Review, 19(2), 125-152. https://doi.org/10.1108/01140580710819898
Gunn, J. L., & Paul, N. M. (2018). Auditor multinational expertise and audit quality. The Accounting Review, 93(4), 203-224. https://doi.org/10.2308/accr-51925
Hair Jr., J.F., Black, W.C., Babin, B.J. & Anderson, R.E. (2010), Multivariate Data Analysis: A Global Perspective. 7th Edition, Pearson Education, Upper Saddle River.
Haislip, J. Z., Peters, G. F., & Richardson, V. J. (2016). The effect of auditor IT expertise on internal controls. International Journal of Accounting Information Systems, 20, 1-15. https://doi.org/10.1016/j.accinf.2016.01.001
Hakim, F. & Omri, M.A. (2010). Quality of the external auditor, information asymmetry, and bid‐ask spread: Case of the listed Tunisian firms. International Journal of Accounting & Information Management, 18(1), 5-18. https://doi.org/10.1108/18347641011023243
Hammersley, J. S. (2006). Pattern identification and industry‐specialist auditors. The Accounting Review, 81(2), 309-336. https://doi.org/10.2308/accr.2006.81.2.309
Havasi, R., & Darabi, R. (2016). The effect of auditor's industry specialization on the quality of financial reporting of the listed companies in Tehran stock exchange. Asian Social Science, 12(8), 92-103. https://doi.org/10.5539/ass.v12n8p92
Herrbach, O. (2001). Audit quality, auditor behaviour and the psychological contract. The European Accounting Review, 10(4), 787-802. https://doi.org/10.1080/09638180127400
Hogan, C. E., & Jeter, D. C. (1999). Industry specialization by auditors. Auditing: A Journal of Practice & Theory, 18(1), 1-17. https://doi.org/10.2308/aud.19184.108.40.206
Hyatt, T. A. & Taylor M. H. (2013). The effects of time budget pressure and intentionality on audit supervisors' response to audit staff false sign-off. International Journal of Auditing, 17(1), 38-53. https://doi.org/10.1111/j.1099-1123.2012.00456.x
Jolly (2019, Feb 1). Decline in quality': auditors face scrutiny over string of scandals. The Guardian. https://www.theguardian.com/business/2019/feb/01/decline-in-quality-auditors-face-scrutiny-over- string-of-scandals
Jones, H. (2019, July 10). UK watchdog says all top accountants fail audit quality test. Reuters. https://www.reuters.com/article/us-britain-accounts-regulator-idUSKCN1U42QR
Kaiser, H. F., & Rice, J. (1974). Little jiffy, mark IV. Educational and Psychological Measurement, 34(1), 111-117. https://doi.org/10.1177/001316447403400115
Kelley, T., & Margheim, L. (1990). The impact of time budget pressure, personality, and leadership variables on dysfunctional auditor behavior. Auditing-A Journal of Practice & Theory, 9(2), 21- 42.
Kelley, T., & Seiler, R. E. (1982). Auditor stress and time budgets. The CPA Journal, 52(12), 24-34. https://doi.org/10.14452/MR-034-06-1982-10_3
Kemani, M. K., Grimby-Ekman, A., Lundgren, J., Sullivan, M., & Lundberg, M. (2019). Factor structure and internal consistency of a Swedish version of the Pain Catastrophizing Scale. Acta Anaesthesiologica Scandinavica, 63(2), 259-266. https://doi.org/10.1111/aas.13246
Kend, M. (2008). Client industry audit expertise: towards a better understanding. Pacific Accounting Review, 20(1), 49-62. https://doi.org/10.1108/01140580810872843
Knechel, W. R. (2007). The business risk audit: Origins, obstacles and opportunities. Accounting, Organizations and Society, 32(4-5), 383-408. https://doi.org/10.1016/j.aos.2006.09.005
Kraaij, V., & Garnefski, N. (2019). The behavioral emotion regulation questionnaire: development, psychometric properties and relationships with emotional problems and the cognitive emotion regulation questionnaire. Personality and Individual Differences, 137, 56-61. https://doi.org/10.1016/j.paid.2018.07.036
Krishnan, J., Li, C., & Wang, Q. (2013). Auditor industry expertise and cost of equity. Accounting Horizons, 27(4), 667-691. https://doi.org/10.2308/acch-50513
Ling, Q., & Akers, M. D. (2010). An examination of underreporting of time and premature sign off by internal auditors. Review of Business Information Systems, 14(4), 37-48. https://doi.org/10.19030/rbis.v14i4.359
Liu, L. L., Xie, X., Chang, Y. S., & Forgione, D. A. (2017). New clients, audit quality, and audit partner industry expertise: Evidence from Taiwan. International Journal of Auditing, 21(3), 288-303. https://doi.org/10.1111/ijau.12095
Low, K. Y. (2004). The effects of industry specialization on audit risk assessments and audit-planning decisions. The accounting review, 79(1), 201-219. https://doi.org/10.2308/accr.2004.79.1.201
Malone, C. F., & Roberts, R. W. (1996). Factors associated with the incidence of reduced audit quality behaviors. Auditing, 15(2), 49.
Mednick, R. (1990). Independence: Let's get back to basics. Journal of Accountancy, 169(1), 86-93.
Milne, M. J., & Adler, R. W. (1999). Exploring the reliability of social and environmental disclosures content analysis. Accounting, Auditing & Accountability Journal, 12(2), 237-256. https://doi.org/10.1108/09513579910270138
Mohd Nor, M. N. (2011). Auditor stress: antecedents and relationships to audit quality (Doctoral dissertation, Edith Cowan University). https://ro.ecu.edu.au/theses/403
Moroney, R., & Carey, P. (2011). Industry-versus task-based experience and auditor performance. Auditing: A Journal of Practice & Theory, 30(2), 1-18. https://doi.org/10.2308/ajpt-10060
Moroney, R., & Simnett, R. (2009). Differences in industry specialist knowledge and business risk identification and evaluation. Behavioral Research in Accounting, 21(2), 73-89. https://doi.org/10.2308/bria.2009.21.2.73
O'Keefe, T. B., Simunic, D. A., & Stein, M. T. (1994). The production of audit services: Evidence from a major public accounting firm. Journal of Accounting Research, 32(2), 241-261. https://doi.org/10.2307/2491284
Okoye, E. I., & Ofoegbu, G. N. (2006). The relevance of accounting and auditing standards in corporate financial reporting in Nigeria; Emphasis on compliance. The Nigerian Accountant, 39(4), 45-53.
Olatunji, O. C., & Adekola, D. R. (2017). The roles of Auditors in fraud detection and prevention in Nigeria deposit money banks: Evidence from South West. European Scientific Journal, 13(31), 290-306. https://doi.org/10.19044/esj.2017.v13n31p290
Otley, D. T. & Pierce, B. J. (1996). The operation of control systems in large audit firms. Auditing: A Journal of Practice & Theory, 15(2), 65-84.
Owhoso, V., Messier, W., & Lynch, J. (2002). Error detection by industry-specialized teams during sequential audit review. Journal of Accounting Research, 40(3), 883-900. https://doi.org/10.1111/1475-679X.00075
Paino, H., Smith, M., & Ismail, Z. (2010). Dysfunctional audit behavior: An exploratory study in Malaysia. Asian Review of Accounting, 18(2), 162-173. https://doi.org/10.1108/13217341011059417
Pierce, B. & Sweeney, B. (2004). Cost-quality conflict in audit firms: an empirical investigation. European Accounting Review, 13(1), 415-441. https://doi.org/10.1080/0963818042000216794
Raghunathan, B. (1991). Premature signing-off of audit procedures: An analysis. Accounting Horizons, 5(2), 71-79.
Reichelt, K. J., & Wang, D. (2010). National and office‐specific measures of auditor industry expertise and effects on audit quality. Journal of Accounting Research, 48(3), 647-686. https://doi.org/10.1111/j.1475-679X.2009.00363.x
Rose-Green, E., Huang, H. W., & Lee, C. C. (2011). The association between auditor industry specialization and firms' disclosure of internal control weaknesses. International Journal of Auditing, 15(2), 204- 216. https://doi.org/10.1111/j.1099-1123.2011.00430.x
Saha, S.S. & Roy, M.N. (2017). Quality control procedures for statutory financial audit: An empirical study. Emerald Publishing, Bingley. https://doi.org/10.1108/9781787142268
Sarens, G., & Abdolmohammadi, M. J. (2011). Monitoring effects of the internal audit function: agency theory versus other explanatory variables. International Journal of Auditing, 15(1), 1-20. https://doi.org/10.1111/j.1099-1123.2010.00419.x
Shapeero, M., Chye Koh, H., & Killough, L. N. (2003). Underreporting and premature sign-off in public accounting. Managerial Auditing Journal, 18(6/7), 478-489. https://doi.org/10.1108/02686900310482623
Solomon, I., Shields, M. D., & Whittington, O. R. (1999). What do industry-specialist auditors know? Journal of Accounting Research, 37(1), 191-208. https://doi.org/10.2307/2491403
Stephens, N. M. (2011). External auditor characteristics and internal control reporting under SOX Section 302. Managerial Auditing Journal, 26(2), 114-129. https://doi.org/10.1108/02686901111095001
Stewart, D. W. (1981). The application and misapplication of factor analysis in marketing research. Journal of Marketing Research, 18(1), 51-62. https://doi.org/10.1177/002224378101800105
Suyono, E. (2012). Determinant Factors Affecting Audit Quality: An Indonesian Perspective. Global Review of Accounting and Finance, 3(2): 42-57.
Svanström, T. (2016). Time pressure, training activities and dysfunctional auditor behaviour: Evidence from small audit firms. International Journal of Auditing, 20(1), 42-51. https://doi.org/10.1111/ijau.12054
Taylor, M. (2000). The effects of industry specialization on auditors' inherent risk assessments and confidence judgements. Contemporary Accounting Research, 17(4), 693- 712. https://doi.org/10.1506/3LDH-AV52-0F4W-H4BB
Wang, K., Sewon, O., & Iqbal, Z. (2009). Audit pricing and auditor industry specialization in an emerging market: Evidence from China. Journal of International Accounting, Auditing and Taxation, 18(1), 60-72. https://doi.org/10.1016/j.intaccaudtax.2008.12.006
Wheaton, B., Muthen, B., Alwin, D. F., & Summers, G. F. (1977). Assessing reliability and stability in panel models. Sociological Methodology, 8, 84-136. https://doi.org/10.2307/270754
Wright, S., & Wright, A. M. (1997). The effect of industry experience on hypothesis generation and audit planning decisions. Behavioral Research in Accounting, 9, 273- 294. https://doi.org/10.2139/ssrn.42913
Yazan Yaseen, A., Wan Sallha, Y., Muhammad Ahmar, A., & Anas Najeeb, G. (2019). The effect of audit tenure and audit firm size on the audit quality: Evidence from Jordanian auditors. International Journal of Business and Technopreneurship, 9(1), 15-24.
Yuen, D. C., Law, P. K., Lu, C., & Qi Guan, J. (2013). Dysfunctional auditing behaviour: Empirical evidence on auditors' behaviour in Macau. International Journal of Accounting & Information Management, 21(3), 209-226. https://doi.org/10.1108/IJAIM-12-2012-0075
Copyright (c) 2021 Zalailah Salleh
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Copyright Transfer Statement for Journal
1) In signing this statement, the author(s) grant UNIMAS Publisher an exclusive license to publish their original research papers. The author(s) also grant UNIMAS Publisher permission to reproduce, recreate, translate, extract or summarize, and to distribute and display in any forms, formats, and media. The author(s) can reuse their papers in their future printed work without first requiring permission from UNIMAS Publisher, provided that the author(s) acknowledge and reference publication in the Journal.
2) For open access articles, the author(s) agree that their articles published under UNIMAS Publisher are distributed under the terms of the CC-BY-NC-SA (Creative Commons Attribution-Non Commercial-Share Alike 4.0 International License) which permits unrestricted use, distribution, and reproduction in any medium, for non-commercial purposes, provided the original work of the author(s) is properly cited.
3) For subscription articles, the author(s) agree that UNIMAS Publisher holds copyright, or an exclusive license to publish. Readers or users may view, download, print, and copy the content, for academic purposes, subject to the following conditions of use: (a) any reuse of materials is subject to permission from UNIMAS Publisher; (b) archived materials may only be used for academic research; (c) archived materials may not be used for commercial purposes, which include but not limited to monetary compensation by means of sale, resale, license, transfer of copyright, loan, etc.; and (d) archived materials may not be re-published in any part, either in print or online.
4) The author(s) is/are responsible to ensure his or her or their submitted work is original and does not infringe any existing copyright, trademark, patent, statutory right, or propriety right of others. Corresponding author(s) has (have) obtained permission from all co-authors prior to submission to the journal. Upon submission of the manuscript, the author(s) agree that no similar work has been or will be submitted or published elsewhere in any language. If submitted manuscript includes materials from others, the authors have obtained the permission from the copyright owners.
5) In signing this statement, the author(s) declare(s) that the researches in which they have conducted are in compliance with the current laws of the respective country and UNIMAS Journal Publication Ethics Policy. Any experimentation or research involving human or the use of animal samples must obtain approval from Human or Animal Ethics Committee in their respective institutions. The author(s) agree and understand that UNIMAS Publisher is not responsible for any compensational claims or failure caused by the author(s) in fulfilling the above-mentioned requirements. The author(s) must accept the responsibility for releasing their materials upon request by Chief Editor or UNIMAS Publisher.
6) The author(s) should have participated sufficiently in the work and ensured the appropriateness of the content of the article. The author(s) should also agree that he or she has no commercial attachments (e.g. patent or license arrangement, equity interest, consultancies, etc.) that might pose any conflict of interest with the submitted manuscript. The author(s) also agree to make any relevant materials and data available upon request by the editor or UNIMAS Publisher.