The Effects of Time Budget Pressure and Risk of

Error on Auditor Performance

Paul Coram*, Juliana Ng and David Woodliff
Department of Accounting and Finance, The University of Western Australia

Abstract
This paper examines the effects of time budget pressure, risk associated with the task,
and audit test on three reduced audit quality (RAQ) behaviors. Specifically, the study
evaluated RAQ acts using three situations, including the perceived likelihood of
rejecting awkward items from a sample (Situation A), accepting doubtful audit
evidence (Situation B), and failing to test all items in the sample (Situation C). A
222 between-subjects design used 103 audit seniors to evaluate the impact of the
independent variables on the potential for RAQ acts.

The results show that time budget pressure had the largest impact on the propensity to
commit RAQ (higher likelihood in the presence of time budget pressure), and that
time budget pressure interacted with risk of the audit task in determining the
propensity to commit RAQ. Under conditions of high level of time budget pressure, a
lower risk of error for the audit task was associated with an increased likelihood of
RAQ. The results were found to differ depending on the specific RAQ.

Key Words: Audit quality, Reduced audit quality, Audit time budgets.
Data Availability: Data and the instrument used in this study are available on
request.

Acknowledgments
We gratefully acknowledge the support of the Institute of Chartered Accountants in Australia, the
comments and input of colleagues at The University of Western Australia and seminar participants at
the 2000 AAANZ Conference.

Address for correspondence is Department of Accounting and Finance, The University of Western
Australia, 35 Stirling Highway, Crawley, WA 6009. Telephone: + 61 8 9380 7853, FAX: + 61 8 9380
1047, E-Mail: pcoram@ecel.uwa.edu.au

INTRODUCTION
The audit function is a crucial part of the system of corporate governance and
therefore it is important that a quality audit is performed. The difficulty for users in
evaluating quality is that the only tangible output of the audit is the audit report and
the actual procedures on a given engagement are not observable. Some researchers
have attempted to deal with the problem of lack of observability of audit quality by
using surrogates for audit quality. Surrogates have included auditor size (DeAngelo
1981) and the level of litigation against the auditor (Palmrose 1988). Others have
surveyed users to elicit perceptions of factors associated with audit quality (Knapp
1991).

An alternative approach to addressing this issue of audit quality is to actually look

behind the audit veil, by surveying auditors to evaluate the quality of audit work
based on the their experiences and observations. Research in this area generally has
been categorised as research into the existence of Reduced Audit Quality (RAQ). In
this study RAQ is defined as intentional actions taken by an auditor during an
engagement which reduce evidence-gathering effectiveness inappropriately.1 The
majority of this research has found that work performed by auditors is not always at
an appropriate standard, primarily because of time budget pressure.

Research suggests that the level of time budget pressure impacts on the propensity to
commit RAQ acts (Rhode 1978; Alderman and Deitrick 1982; Kelley and Margheim

This is based on the definition by Malone and Roberts (1996) but includes the concept of intent.

1990; Ragunathan 1991; Willett and Page 1996).2 An important contribution to the
literature from this study is that it used an experimental approach to examine the
impact of time budget pressure on RAQ. In addition it examined the level of risk of
error for the audit task and type of audit test on the level of RAQ. In obtaining a
measure of RAQ the research instrument examined three different types of RAQ
behavior observed in the literature (Kelley and Margheim 1990; Malone and Roberts
1996; Otley and Pierce 1996; Willett and Page 1996) namely rejecting awkward items
from a sample; not testing all items in a sample; and accepting doubtful audit
evidence. Finally, the participants of this study were more appropriate (McNair 1991;
Ragunathan 1991; Otley and Pierce 1996) than those in some prior studies as it used
audit seniors rather than a cross section of experience levels.

The instrument required audit seniors to evaluate the likelihood that they would
commit one of three RAQ acts for a fictitious continuing audit client. The experiment
was a 2 (time budget pressure) 2 (risk of error for audit task) 2 (type of audit test)
between-subjects design. Consistent with prior studies, time budget pressure was
found to have a significant positive association with RAQ behavior. Of particular
interest, it was also found that there was an interaction effect between time budget
pressure and the level of risk of error for the audit task. Whilst Houston (1999) found
that under high time budget pressure auditors are likely to ignore high risk when
planning the audit, this study found that under time budget pressure, auditors do
consider the level of risk on the audit task whilst executing the audit. When the time
budget pressure was high, the low risk audit task was subject to a higher level of
RAQ. The study also found significant differences in the propensity to commit each
2

An extensive review of the literature on time pressure effects on auditors behavior was conducted by
DeZoort and Lord (1997).

of the three types of RAQ acts, indicating that some methods of reducing audit quality
are at greater risk than others.

HYPOTHESIS FORMULATION
The emphasis of management on meeting time budgets has been suggested as an
important factor in influencing auditor behavior (Rhode 1978; Alderman and Deitrick
1982). Rhode (1978) found that time budget pressure was a potential cause of RAQ.
Other studies reported time budget pressure as the primary factor in influencing the
level of RAQ (Alderman and Deitrick 1982; Willett and Page 1996). In contrast
Malone and Roberts (1996) did not find any association between the level of time
budget pressure and RAQ.

Researchers that found time budget pressure influenced RAQ generally suggested that
such behavior would increase as time budget pressure increased. However, the
psychology literature suggests an inverted-U theory in relation to pressure effects
(Yerkes and Dodson 1908). The inverted-U theory proposes that there is a curvilinear
relation between the amount of pressure and performance quality. In this context it
would suggest that the highest level of RAQ would occur at the lowest and highest
time budget pressure. Kelley and Margheim (1990) examined the relationship
between time budget pressure and dysfunctional auditor behavior and did not find
statistically significant support for an inverted-U shaped relationship. A survey by
Otley and Pierce (1996) found no evidence of the inverted-U shaped relationship but
instead found a strong positive association between time budget pressure and RAQ.
Therefore the hypothesis in relation to time budget pressure is framed in line with the
literature as a positive linear relationship.

The first hypothesis is therefore:

H1: A higher level of time budget pressure will be associated with a higher
level of RAQ.

The focus of research into RAQ has mainly considered the effects of varying levels of
time budget pressure. However, one alternative rationale for RAQ behavior that has
emerged in the literature is due to the work performed being low risk. Ragunathan
(1991) found the most common reason for RAQ was due to the area being low-risk,
with limited time cited as the second most common reason. Willett and Page (1996)
found that next to time budget pressure the second main reason for RAQ was a
determination by the auditor that it was unimportant work. The second hypothesis is
therefore:
H2: A lower level of risk of error on a task will be associated with a higher
level of RAQ.

Rhode (1978) did not go into detail about the specific areas of the audit that were
more likely to be subject to RAQ. He did suggest that it was more likely in areas
where little or no working paper documentation is compiled (i.e., just a tick on a list
required).3 Alderman and Deitrick (1982) in extending the study of Rhode found that
review and testing of internal controls was perceived to be most at risk of RAQ. Other
studies into RAQ have also found testing internal control to be an area at high risk of
RAQ behavior (Ragunathan 1991; Willett and Page 1996). The third hypothesis is
therefore:

Although Rhode did not specifically mention compliance testing, compliance testing is acknowledged
as an area of the audit that often only requires ticks on the audit working papers.

H3: Compliance testing will be associated with a higher level of RAQ than
substantive testing.

The psychological literature has suggested that time pressure increases the level of
arousal and stress (Maule & Hockey 1993; Lundberg 1993) and this impacts on the
cognitive processes (Svenson and Maule 1993). The effect of this increased stress has
been shown to have a number of behavioral impacts on decision making. These
include speeding up efforts to assimilate information, changing the processing
strategy used and restricting information processing (DeZoort 1999). In relation to the
work of an auditor, the greatest risk in performing RAQ is that it will result in an error
being missed that is picked up by a review, or alternatively in the extreme scenario,
result in an audit failure. In evaluating the processing strategy used, some studies
examined factors that gained greater importance under conditions of time pressure.
Ben Zur and Breznitz (1981) found that subjects made less risky choices under high
time budget pressure suggesting that auditors would not use RAQ in high risk areas.
Svenson and Edland (1987) found that under time pressure, subjects gave greater
weight to the most important attribute in making the decision suggesting that under
time budget pressure auditors will consider the risk of error in deciding on whether to
use RAQ.

In summary, under high time budget pressure it is expected that the auditor will
ensure that tasks with a high risk of error are properly performed, conversely it is
expected that RAQ will be more likely on tasks with a low risk of error. Therefore the
following hypothesis is appropriate:

H4: When time budget pressure is high, a lower level of risk of error on a task
will be associated with a higher level of RAQ.
Much of the literature on RAQ has focussed on premature sign off as the primary type
of RAQ behavior. More recent studies have considered different types of behavior
that reduce evidence gathering inappropriately. The most common identified in the
literature have included rejecting awkward items from a sample, accepting doubtful
audit evidence, and not testing all of the items in a selected sample (Kelley and
Margheim 1990; Malone and Roberts 1996; Otley and Pierce 1996; Willett and Page
1996). This study evaluated differences in the impact of the independent variables on
each of these RAQ behaviors as well as the propensity to commit each of these acts.
Identifying the more likely scenarios for RAQ will aid future research as well as
having implications for audit procedures.

RESEARCH METHOD
The Experiment
This experiment4 used a 2 (time budget pressure) 2 (risk of error for audit task) 2
(type of audit test) between-subjects design, reflected in eight different versions of the
research instrument. The situation described was that of an audit assistant, auditing a
small fictitious manufacturing company for the year ending 30 June 1999. The
instrument outlined information about the company, including: general information,
market share, financial position, year 2000 issue, management, last years audit
opinion, and a summary of key financial data. This background information was not
intended to arouse any concerns that the client might have a high inherent risk level or

Copies of the research instrument are available from the authors on request.

have special circumstances about which the auditor should be concerned. The
background information was the same for each version of the instrument.

The second section of the instrument contained a discussion of the time budget for the
audit for the year ended 30 June 1999. This discussion outlined in detail the number
of hours for the audit assistant, audit manager and audit partner on the engagement as
well as their respective hourly charge out rates. The rest of the information in this
section was manipulated depending on whether the audit had high time budget
pressure or low time budget pressure.
In the high time budget pressure scenario, the auditor received a complaint from the
client that the budget was too high. As a consequence the audit partner decided to
reduce the audit fee by 25 percent. To help achieve this cut, the audit assistants time
budget was reduced from 77 to 57 hours, including a reduction of 10 hours in the time
spent on inventory.5 In the low time budget pressure scenario, the audit budget had
been usually met without too much difficulty, and the client had never complained
about the fee. The audit partner decided that because the audit assistant was new on
the engagement extra time above the budget should be allowed on this years audit.
The cost of this extra time would be written off to staff development.

The third section specifically described the type of test performed by the audit
assistant and whether it was a task with a high or low risk of error. The type of test
related to transaction testing in the inventory section of the audit and was either a
compliance or substantive test. The details of the specific work steps to be performed
by the auditor were also described. In the high risk scenario, the assistant noted that
5

Inventory was chosen because it is a major section of a large number of audits and its risk level can
vary significantly between audits.

there were some errors found in the performance of this section of the audit in the
prior year and the planning of the audit also found that there would again be a high
risk of errors in this years audit.6 In the low risk scenario, the assistant could see that
there were no significant errors in performing this part of the audit last year and the
planning of the audit did not find that there would be a higher risk of errors during this
years audit.

The final section of the case described three situations (in relation to the test outlined
in the third section) where the auditor had to assess the likelihood of RAQ behavior.
Each of these situations had been observed in the literature as a type of RAQ (Kelley
and Margheim 1990; Malone and Roberts 1996; Otley and Pierce 1996; Willett and
Page 1996).

Situation A: Rejecting awkward items from a sample.

Situation B: Accepting doubtful audit evidence.

Situation C: Not testing all of the items in a selected sample.

Each of these situations needed to be amended according to the manipulation of the

independent variables.7 The differences are partially illustrated in the attached
Appendix. The Appendix shows Situation A with high pressure and compliance
testing, Situation B with high pressure and substantive testing and Situation C with
low pressure and compliance testing. To ensure realism the order of the three
situations was not randomised because they flowed in a logical sequence as they
would in an audit. This may give rise to the risk of a halo effect, however the fact that

For the compliance test, medium risk was used since no testing would generally be performed if the
compliance test risk was high (ISA No.400.31). The instrument therefore outlined the highest possible
level of control risk whilst still requiring performance of compliance tests.
7
Some of the terminology/errors needed to be changed. For example, in the compliance test for
Situation B an error was a lack of control whereas for the substantive test it was a missing receiving
report.

the highest level of RAQ was Situation B, followed by Situation A then Situation C
gives some assurance to alleviate this concern.

In each of the three situations, two questions requiring a response on a 7 point Likerttype scale were asked. The first question asked the participants to evaluate the most
likely course of action for the audit assistant described in the case study and the
second question asked the participant his or her most likely course of action. This was
similar to Margheim and Pany (1986) who used this approach to reduce the
participants sensitivity to the questions being asked and thus reduce the probability of
a misleading response. The management psychology literature (e.g. Everett and
Stening 1983) also uses this approach to elicit greater honesty in responses by
obtaining information about the same construct from different angles. Hence the two
profiles identified in this study were:

Metastereotype - his/her assessment of the perceptions of others in his/her own

group. This is the assessment of the behavior of the audit assistant.

Autostereotype - his/her own assessment of his/her own perceptions. This is the

question on the participants own most likely course of action.

The results section of this paper reports only the autostereotype responses because
the main purpose of the first question was to elicit honesty and provide a benchmark
for the second question.8

The analyses of both types of responses yield the same inferences. Although as expected, a
significantly higher level of RAQ was observed for the metastereotype responses.

10

To ensure the realism of the experiment, a draft was given to seven academics (four
with audit experience) to critically evaluate. Comments were also elicited about some
of the facts of the instrument from a group of about 20 audit seniors who were
undertaking a training program. The feedback from both groups was incorporated into
the final version of the instrument. Direct questions were not asked about the
manipulations in the instrument so as not to make them obvious. As an alternative, an
open-ended question at the end of the instrument was asked about what the
participants thought of the case study. Seventeen participants made comments, most
were positive, however three contained criticisms. One criticism was that the
instrument tested a persons integrity rather than audit ability; another thought that
budget was not a good constraint to test against and that time deadline pressure was
more significant; and the final critical comment facetiously suggested that the budget
cuts were not realistic since partner time would never be reduced!

Participants
The individuals comprising the sample for this study were the Australian students
who sat the Advanced Audit Module of the Professional Year (PY) of the Institute of
Chartered Accountants in Australia (ICAA) during 1999. This group would be
expected to be in the category of staff member typically known as audit seniors9 and
could not have been identified without the assistance of the ICAA. A number of
studies have suggested that audit seniors are the most likely individuals to resort to
RAQ behavior. Ragunathan (1991) found that audit seniors are the ones most likely to
perform RAQ acts. Otley and Pierce (1996) justified their use of audit seniors by
9

64 percent of the respondents had between 2-3 years audit experience and 31 percent of the
respondents had greater than 3 years experience.

11

suggesting that the position of audit senior is one of the most pressurised in an audit
firm and the absence of direct on-the-job supervision provides considerable scope
for RAQ. McNair (1991) suggested that audit seniors are the individuals subject to the
most pressure due to the inherent cost v quality trade-off in an audit.

The instruments were distributed randomly across the experimental conditions to the
participants. The ICAA affixed the addresses and posted the instrument to ensure
anonymity, however they did not allow a second mailing to non-respondents. To try
and identify any non response bias several tests were undertaken. The responses of
those replying after the due date were compared with those replying before the due
date on the premise that the late respondents would be more likely to be representative
of the non respondents. The comparison of the level of RAQ between the two groups
was done using a one-way AVOVA and no significant differences were found.
Similarly the first half of respondents were compared to the second half of
respondents which also found no significant differences. Finally a comparison was
undertaken to ascertain whether there were any significant differences between the
biographical data for the sample (supplied by the ICAA) and the respondents
biographical details (refer to Table 1). Chi-square tests on sex, firm size, audit
experience and location were performed and no significant differences were found
giving further evidence that the respondents were representative of the total sample.

A total of 508 surveys were sent, 7 were returned because they could not be delivered
and 103 responses were received (a response rate of 20.6 percent). The characteristics
of the participants and the total sample are shown in Table 1.

12

[INSERT TABLE 1]

RESULTS
A multivariate analysis of variance (MANOVA) was performed to evaluate the
overall results.10 MANOVA was used because the dependent variables were not
perfectly correlated, in these circumstances MANOVA creates a new dependent
variable that maximises group differences. It also controls for the experiment wide
type 1 error rate that is increased when performing separate tests on dependent
variables that are not perfectly correlated. Secondly, the specific findings for the three
scenarios were evaluated using univariate analyses (ANOVA). The reported results
were only the responses of what the participants themselves would do rather than the
responses of what they thought the assistant would do for the reasons discussed earlier
in this paper.
Multivariate Analysis
As expected, time budget pressure significantly impacted on the level of RAQ. The
MANOVA results are shown in Table 2 and show that the main effect of time budget
pressure on the level of RAQ was significant at p < .01.

[INSERT TABLE 2]

10

A number of assumptions needed to be met to perform a MANOVA. All assumptions were met
except for skewness found in the data affecting normality. According to the Central Limit Theorem, the
number of observations in the study may mean that normality can be assumed. Non-parametric tests
were performed to alleviate these concerns.

13

The results show that of the variables tested, time pressure is the single most
influential factor on RAQ behavior. The time budget main effect confirms H1 that the
level of RAQ increases at higher time budget pressure. Both H2 (that a lower level of
risk of error for the audit task will be associated with a higher level of RAQ) and H3
(that compliance testing of itself will be associated with a higher level of RAQ) were
not supported in this study as can be seen from Table 2.

The results supported H4 (that given high time budget pressure, the auditor will vary
his or her level of RAQ depending on whether the audit task has a high risk of error or
low risk of error) as shown by the significant interaction at p < .05 in Table 2. Further
univariate analysis, discussed later in this paper, shows that under time budget
pressure auditors will increase their level of RAQ when the audit task is low risk. This
finding has not been previously identified in the auditing literature, and raises some
interesting questions about auditor behavior that are explored in the final section of
this paper.

Univariate Analysis of Variance

ANOVAs were performed for each of the three different situations to identify which
situations were driving the significant results discussed above and to comment on the
relative propensity of each of the different types of RAQ acts.11

The responses to Situation A, where participants were asked the likelihood that they
would reject awkward items from a sample, did not show any significant effects
11

To alleviate concerns over the interpretation of results because of skewness, appropriate nonparametric tests were performed that confirmed the results of the ANOVAs.

14

arising from the manipulations of the independent variables as shown in Table 3.

Despite no significant differences arising from manipulations of the independent
variables, it was found to be the second most common act (31 percent of respondents
stating that it was likely they would use this RAQ) next to accepting doubtful audit
evidence (34 percent) in terms of the gross level of RAQ.

[INSERT TABLE 3]

The responses to Situation B, where participants were asked the likelihood that they
would accept doubtful audit evidence, are shown in Table 4.

[INSERT TABLE 4]

The responses to Situation B show a significant effect in relation to the time budget
pressure variable at p < .01. When time budget pressure was high, 47 percent of
auditors said they would accept doubtful audit evidence (responses 4-7 on the Likert
type scale), compared to 24 percent when the time budget pressure was low.
Accepting doubtful audit evidence is the main RAQ act driving the significant effect
found for time budget pressure in the MANOVA analysis.

Table 5 shows the responses to Situation C where the auditor is asked to assess the
likelihood that he or she would not test all of the items in a selected sample. The time
budget pressure variable is again shown to be significant at p < .05, where 27 percent
of auditors said they would not test all items in a sample under high time budget
pressure, compared to 17 percent under low time budget pressure. However, for

15

Situation C the interaction between time pressure and risk also produces a significant
effect at p < .01, which is the main variable driving the overall significant result
previously discussed. The interaction is shown is Figure 1.

[INSERT TABLE 5]

[INSERT FIGURE 1]

This interaction shown in Figure 1 indicates that the level of not testing all items in
the sample (RAQ) is almost constant at varying degrees of risk of error when there is
low time budget pressure. This finding suggests that when time budget pressure is low
auditors do not consider the risk of error for the audit task in deciding whether or not
to use RAQ practices (ie the level of RAQ is exogenous). However, when the time
budget pressure increases, the level of risk of the audit task becomes a factor in
determining whether RAQ practices are used or not. As shown on Figure 1 the mean
level of RAQ is 2.3 at high risk of error and 3.3 at low risk of error (scale 1-7).
Despite the significant interaction, not testing all of the items in a sample was the
RAQ act least likely to be performed (21 percent of respondents stating that it was
likely they would use this RAQ).

16

DISCUSSION
Limitations
There are inherent limitations in using the survey method to collect data. Associated
with this problem is the response rate of approximately 21 percent for this study,
raising questions over the issue of potential non-response bias addressed earlier in this
paper. However, as a compensating factor, the low response rate would probably work
against finding RAQ because intuitively the more conscientious auditors would
probably be more likely to respond to an experiment of this type.

Secondly, there is also the potential risk that the participants might respond to the
research instrument differently to how they would respond in a real situation. This
potential problem is always a possibility with this type of research, however the
instrument was made as real as possible and checked for authenticity through reviews
by academics and discussions with audit seniors. Comments made by respondents of
the experiment confirmed that the case described was seen as a real world scenario.
Additionally the respondents were desensitised by first asking what an audit
assistant would do, before asking what they would do.

Summary and Implications

The main contribution of this study to the literature on time budget pressure is the
interaction found between time budget pressure and the level of risk of error for the
audit task. When there was a higher level of time budget pressure, auditors show a
higher propensity to use RAQ when the risk of error for task is low compared to when
the risk of error for the task is high. This result is different to the study performed by

17

Houston (1999) where it was found that audit seniors time budgets were less
responsive to increased client risk in the presence of fee pressure. A possible reason
for this difference may be the inability of audit seniors to have much influence over
time budgets, thereby making them not consider an amendment to the budget as a
realistic choice. Kelley and Seiler (1982) reported that audit seniors were reluctant to
ask for additional budget time in the face of increased time pressure. Otley and Pierce
(1996) found that in response to time budget pressure, audit seniors were more likely
to under report time and perform RAQ acts than approach the audit manager for an
increase in budget.

The findings are consistent with behavior that would be expected from the psychology
literature (Ben Zur and Breznitz 1981; Svenson and Edland 1987). This research
suggests that individuals will adopt the least risky choice and focus on the most
important information under time budget pressure. The lack of risk of error on an
audit task will mean that there is less chance of subsequent ramifications for the
auditor if he or she decides to perform RAQ. The most important information to
process under high time budget pressure in deciding whether to use RAQ is shown in
this study to be the risk of error, as it is the only significant interaction found. It is also
shown that auditors adopt the least risky choice under time budget pressure in
deciding to use RAQ by using it more often when the risk of error is low. From the
auditors perspective, this behavioral response is probably a rational approach to the
high level of time budget pressure. However, this ad hoc use of professional
judgment to reduce audit testing is a concern for the overall quality of the audit. The
main reason it may potentially cause problems is because the level of risk of error on
a task should have already been reflected in the amount of audit testing decided upon

18

at the planning level. It needs to be reinforced to audit seniors that their work in the
formation of the overall audit opinion is important and unilateral decisions to reduce
audit work through RAQ are inappropriate whatever the reason or justification. Any
re-assessments on the level of work done due to a different level of risk of error on a
task should be discussed with the manager and/or partner on the engagement.

As expected, the study found that a higher level of time budget pressure would be
associated with a higher level of RAQ. This finding is consistent with most of the
previous literature (Rhode 1978; Alderman and Deitrick 1982; Otley and Pierce 1996;
Willett and Page 1996) and reinforces the importance of setting realistic budgets to
ensure audit quality.

The implications of both of the above findings for the accounting profession is that
they should continue to emphasise strongly to members that when tendering, margins
are not cut so much as to place undue pressure on the time budget. The peer review
program that has been implemented by the accounting profession should include in its
review of individual audits an analysis of the reasonableness of the audit budget given
the size of the particular client. In the review of working papers there should be
careful analysis to check for the existence of RAQ. Firms should be asked during the
review process what steps they have taken to minimise the risk of RAQ. It should also
be emphasised to audit seniors that their work is the foundation of the audit and
extensive use of RAQ could result in an inappropriate audit opinion, thereby exposing
the audit firm to potential litigation.

19

The results of studying three different types of RAQ behavior illustrate that RAQ is
not a completely homogeneous term. Situation A, which related to an auditor rejecting
an awkward item from a sample, was not affected by any of the manipulations of the
independent variables although it was the second most common RAQ act. Situation B
related to an auditor accepting doubtful audit evidence and was the most common and
was significantly affected by varying levels of time budget pressure. Audit firms
should take care in evaluating the degree to which management representations are
relied upon, as it should not be a substitute for other available evidence. Situation C
related to not testing all items in a sample and was the least common of the three
tested. It is a behavior that is more likely to occur when there is high time pressure
and the work is low risk. The analysis of these three different types of behavior should
be of particular interest for auditing firms as well as the accounting profession.
Researchers should also consider these findings when undertaking further research on
RAQ.

In conclusion, these findings suggest that further research on the occurrence of time
budget pressure is important to evaluate the potential extent of practices that reduce
audit quality. Significant shortcomings in the processes used when conducting an
audit due to time budget pressure is an issue that should concern the accounting
profession and accounting firms. Time budgets should be carefully reviewed to ensure
they are achieving audit efficiency without compromising audit effectiveness.

20

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23

Appendix

SITUATION A
HIGH TIME BUDGET PRESSURE AND COMPLIANCE TEST
a. Midway through the test of Kims sample (it is 3pm and Kim has spent 2 hours on
the test) it is noted that one of the purchases has a coding that indicates it was made
by one of the branch offices of CC Pty Ltd in Perth. To obtain the required
documentation for this transaction Kim will need to contact the Perth branch office
and request them to send the information. From Kims experience on other audits,
this procedure could take up to two hours.
What is the likelihood that Kim (an average audit assistant) will reject this purchase
from the sample and select another one?
1

Keep purchase in sample

and contact WA

7
Reject purchase and
select another

What is the likelihood that you would have rejected this purchase from the sample and
selected another one?
1

Keep purchase in sample

and contact WA

7
Reject purchase and
select another

24

SITUATION B
HIGH TIME BUDGET PRESSURE AND SUBSTANTIVE TEST
b. It is 3.45pm and Kim has tested 21 of the 30 transactions (ie Kim is on schedule to
finish by 5pm and in the allotted four hours). In Kims testing of the 22nd purchase
it appears that it has no receiving report. Kim decides to discuss the matter with the
purchases clerk. The purchases clerk tells Kim that the amount is related to a
regular transaction made by the company. Due to this regularity the receiving
department does not worry about filling in a receiving report. The only audit
procedure available to corroborate the explanation given by the purchases clerk is
to contact the supplier of the goods and ask them to confirm the purchase
transaction by faxing through a copy of the delivery docket. From past experience
Kim estimates that this procedure could take up to two hours.
In relation to the testing of the 22nd purchase, what is Kims most likely course of
action?
1

Perform audit procedure

to corroborate purchases
clerks explanation

7
Accept purchases clerks
explanation and perform
no further work

In relation to the testing of the 22nd purchase, what would your most likely course of
action have been?
1

Perform audit procedure

to corroborate purchases
clerks explanation

7
Accept purchases clerks
explanation and perform
no further work

25

SITUATION C
LOW TIME BUDGET PRESSURE AND COMPLIANCE TEST

c. It is 1pm and Kim has spent the allotted four hours on the task and has almost
finished testing. From the sample of 30, Kim has tested 25 purchase transactions to
supporting documents and has 5 left to test. In all of the 25 tested so far Kim has
not noted any deviations from the control procedures. The five that Kim has not yet
tested occurred early in the financial year and all the documentation has been
packed and put in storage. Kim has access to the storage area, however the
accounts clerk has said that it will take probably about two hours to find the
supporting documents.
In the above circumstances, what is Kims most likely course of action?
1

Continue on
until finished

7
Sign off as
fully completed

In the above circumstances, what would your most likely course of action have been?
1
Continue on
until finished

7
Sign off as
fully completed

26

TABLE 1 BIOGRAPHICAL INFORMATION

Percentage
of Overall Sample
Sex
Male
Female
Firm Size
Big 5
Non Big 5
Audit Experience
None
Up to 6 months
6 months to 12 months
12 months to 2 years
2 years to 3 years
More than 3 years
State
NSW (includes NT)
VIC
QLD
WA
SA
TAS
ACT

Percentage
of Respondents

55
45
100

57
43
100

72
28
100

79
21
100

NA

37
35
9
9
5
2
3
100

0
1
0
4
64
31
100
35
36
5
9
9
4
2
100

TABLE 2
MULTIVARIATE TESTS
(AUTOSTEREOTYPE)
Wilks
Lambda

Sig.
(one-tailed)

Time Budget Pressure (TBP)

.828

3.112

.003

RISK

.963

.582

.333

TEST

.982

.268

.423

TBPRISK

.869

2.270

.025

TBPTEST

.978

.343

.358

RISKTEST

.967

.508

.247

.930

1.134

.168

Effect

Main Effects

Two-way Interactions

Three-way Interaction
TBP RISK TEST

TABLE 3
UNIVARIATE ANALYSIS FOR ALL SUBJECTS LIKELIHOOD OF
REJECTING AWKWARD ITEMS FROM A SAMPLE (SITUATION A)
(AUTOSTEREOTYPE)
Source of Variation

Level

Cell
Size

Mean

St
Dev

RAQ
(%)1

High
Low
High
Low
Subst.
Compl.
Avg.

45
58
48
55
55
48

2.9
3.1
3.1
3.0
2.9
3.2
3.0

1.8
1.8
1.8
1.9
1.8
1.8

33
29
33
29
27
35
31

Risk - High
Risk - Low
Risk - High
Risk - Low

24
21
24
34

2.9
2.9
3.3
3.0

Subst.
Compl.
Subst.
Compl.

24
21
31
27

Subst.
Compl.
Subst.
Compl.

24
24
31
24

(range
1-7)

Sig.
(onetailed)

Main Effects
Time Budget Pressure
RISK
TEST

.277

.300

.067

.398

.626

.216

1.7
2.0
1.8
1.8

.089

.383

2.7
3.1
3.0
3.2

1.8
1.9
1.9
1.8

.054

.408

2.6
3.5
3.1
2.9

1.5
1.9
2.0
1.7

2.285

.067

Two-way Interactions
TBPRISK
Time Pressure - High
Time Pressure - Low
TBPTEST
Time Pressure - High
Time Pressure Low
RISKTEST
Risk High
Risk - Low

Note:
1 This indicates the likelihood of the auditor to use RAQ. The Likert-type scale was collapsed so that
1-3 indicated not likely to use RAQ and 4-7 indicated likely to use RAQ.

TABLE 4
UNIVARIATE ANALYSIS FOR ALL SUBJECTS LIKELIHOOD OF
ACCEPTING DOUBTFUL AUDIT EVIDENCE (SITUATION B)
(AUTOSTEREOTYPE)
Source of Variation

Level

Cell
Size

Mean
(range
1-7)

St
Dev

RAQ
(%)1

Sig.
(onetailed)

Main Effects
Time Budget Pressure
RISK
TEST

High
Low
High
Low
Subst.
Compl.
Avg.

45
58
48
55
55
48

3.7
2.7
3.3
3.0
3.1
3.2
3.2

1.9
1.4
1.6
1.9
1.8
1.7

Risk - High
Risk - Low
Risk - High
Risk - Low

24
21
24
34

3.5
4.0
3.1
2.4

Subst.
Compl.
Subst.
Compl.

24
21
31
27

Subst.
Compl.
Subst.
Compl.

24
24
31
24

47
24
40
29
38
29
34

8.837

.002

.239

.313

.012

.456

1.8
2.1
1.3
1.4

2.548

.057

3.6
3.9
2.8
2.6

2.0
1.8
1.5
1.3

.894

.174

3.3
3.3
3.0
3.0

1.6
1.6
1.9
1.8

.010

.460

Two-way Interactions
TBPRISK
Time Pressure - High
Time Pressure - Low
TBPTEST
Time Pressure - High
Time Pressure Low
RISKTEST
Risk High
Risk - Low

Note:
1 This indicates the likelihood of the auditor to use RAQ. The Likert-type scale was collapsed so that
1-3 indicated not likely to use RAQ and 4-7 indicated likely to use RAQ.

TABLE 5
UNIVARIATE ANALYSIS FOR ALL SUBJECTS LIKELIHOOD OF NOT
TESTING ALL OF THE ITEMS IN A SELECTED SAMPLE (SITUATION C)
(AUTOSTEREOTYPE)
Source of Variation

Level

Cell
Size

Mean
(range
1-7)

St
Dev

RAQ
(%)1

Sig.
(onetailed)

Main Effects
Time Budget Pressure
RISK
TEST

High
Low
High
Low
Subst.
Compl.
Avg.

45
58
48
55
55
48

2.8
2.3
2.4
2.6
2.4
2.6
2.5

1.7
1.4
1.4
1.6
1.5
1.6

Risk - High
Risk - Low
Risk - High
Risk - Low

24
21
24
34

2.3
3.3
2.5
2.1

Subst.
Compl.
Subst.
Compl.

24
21
31
27

Subst.
Compl.
Subst.
Compl.

24
24
31
24

27
17
21
22
20
23
21

3.113

.041

.828

.183

.212

.323

1.5
1.7
1.4
1.3

6.285

.007

2.6
3.0
2.3
2.2

1.6
1.8
1.4
1.3

.714

.200

2.3
2.6
2.6
2.5

1.4
1.5
1.6
1.6

.341

.281

Two-way Interactions
TBPRISK
Time Pressure - High
Time Pressure - Low
TBPTEST
Time Pressure - High
Time Pressure Low
RISKTEST
Risk High
Risk - Low

Note:
1 This indicates the likelihood of the auditor to use RAQ. The Likert-type scale was collapsed so that
1-3 indicated not likely to use RAQ and 4-7 indicated likely to use RAQ.

FIGURE 1 INTERACTION BETWEEN RISK

AND TIME BUDGET PRESSURE (SITUATION C)
(AUTOSTEREOTYPE)

4
RAQ

3.5
High Risk

Low Risk

2.5
2
High

Low

Time Budget Pressure