International Journal of Accounting & Information Management

Dysfunctional auditing behaviour: empirical evidence on auditors' behaviour in Macau

Desmond C.Y. Yuen, Philip K.F. Law, Chan Lu, Jie Qi Guan,
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Desmond C.Y. Yuen, Philip K.F. Law, Chan Lu, Jie Qi Guan, (2013) "Dysfunctional auditing behaviour:
empirical evidence on auditors' behaviour in Macau", International Journal of Accounting & Information
Management, Vol. 21 Issue: 3, pp.209-226, https://doi.org/10.1108/IJAIM-12-2012-0075
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Dysfunctional
Dysfunctional auditing behaviour: auditing
empirical evidence on auditors’ behaviour
behaviour in Macau
209
Desmond C.Y. Yuen, Philip K.F. Law, Chan Lu and Jie Qi Guan
University of Macau, Macau, China Received 1 June 2009
Revised 8 June 2010
Abstract Accepted 17 December 2010
Purpose – The purpose of the study is to investigate the factors that may result in a high turnover rate
of auditors in Macau. The factors considered include client importance, task complexity, time budget
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constraints, auditor independence and acceptance of dysfunctional behaviour by Macau’s audit firms.
Design/methodology/approach – This study involved three stages. In the first stage, interviews
were carried out with auditors from Big-4 (seven interviewees) and local non-Big-4 firms (three
interviewees) in Macau to investigate the reasons for the high turnover rate amongst auditors in
Macau. They were asked to speculate about common explanatory factors. The second stage involved
141 auditors from Big-4 and local non-Big-4 accounting firms who were asked to complete a
questionnaire survey for the explanatory factors. A total of 135 usable questionnaires were included in
the multiple regression data analysis. The third stage of research comprised follow-up interviews
aimed at learning more about the reasons for dysfunctional behaviour.
Findings – This research provides valuable information for audit firms in Macau and will potentially
help them to reduce their turnover rate and identify the factors affecting dysfunctional behaviour
amongst auditors. The results extend the literature by focusing on the effect of perceived
responsibility on professional responses to time budget pressures, task complexity, pressure from
clients, and professional and ethical issues.
Practical implications – The challenge facing auditors today is to expand their auditing practices
and evolve standards for adequately monitoring the operations of business entities. The current high
turnover rate alarms audit firms, which are concerned with training and the provision of sufficient
resources to solve the problems that auditors face in the workplace.
Originality/value – This is the first paper to examine the reason for turnover intentions in Macau.
This study sheds light on the factors that contribute to individual auditor differences in the acceptance
of dysfunctional behaviour that may result from the stressful nature of their duties.
Keywords Accounting, Turnover intention, Time budget pressure, Auditor’s independence,
Client’s importance, Task complexity, Dysfunctional auditing behaviour, Auditors’ behaviour in Macau,
Employees turnover, Auditors, China
Paper type Research paper

1. Introduction
After preliminary interviews of ten senior level auditors, it was found the major problem
is the high turnover rate amongst auditors in Macau. The motive of the study is to have
more understanding of this issue and thereby suggest ways to motivate and retain the
auditors in the firms. It investigates the relationship between the high turnover rate and
dysfunctional auditing behaviour of 135 auditors. The results may assist the International Journal of Accounting
accountants to improve their quality of work by being aware of such behaviour. and Information Management
Vol. 21 No. 3, 2013
pp. 209-226
q Emerald Group Publishing Limited
The authors would like to acknowledge the support of CPA Australia and CPA Australia 1834-7649
Hong Kong Division for the research grant to complete the study. DOI 10.1108/IJAIM-12-2012-0075
 IJAIM This study also suggests that they find a better way to train their staff in offering a
21,3 more professional service to clients. More importantly, a second objective is to remind
the accounting profession should give appropriate emphasis to the possibility of
dysfunctional behaviour when developing professional auditing standards. Currently,
auditing standards and textbooks do not adequately consider the risks or implications of
dysfunctional auditor behaviour. The dysfunctional behaviour can be minimized if a
210 firm adheres to the profession’s quality control standards. However, the potential for
dysfunctional auditor behaviour is not even discussed within the current quality control
standards. The result of on site interviews and questionnaire surveys of 135 auditors in
Macau reveals that despite pervasive perceptions of ethical conflicts, the participants
violate professional ethic and display dysfunctional behaviour when facing time budget
pressure and task complexity from their immediate superiors. The results also indicate
that participants who possess dysfunctional behaviour claim less responsibility for their
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work than that participants who do not display it.

The International Accounting Standards Board (IASB) committed itself to
developing a set of high-quality, understandable and enforceable global accounting
standards in 2005. The International Organization of Supreme Audit Institutions
(INTOSAI) has cooperated with the IASB to produce a code of ethics and auditing
standards for practitioners. This code of ethics recommends that audit firms design
audit steps and procedures to provide assurance that errors, irregularities and illegal
acts are detected in financial statements. A number of different factors may affect audit
behaviour under these guidelines, however. For example, the Public Oversight Board
(2000) suggests that time budgets place pressure on auditors and are the main factor in
turnover intention. Auditors play significant role of detecting financial frauds in order
to predict business failure in the unexpected financial crisis, audit firms need to
provide quality independent opinions to their clients to establish goodwill in the
profession (Liou and Yang, 2008). The quality of service provided is heavily reliant on
the behaviour of the individuals who carry out field auditing work. Many prior studies
in behavioural research have concluded both that dysfunctional auditor behaviour
significantly affects audit quality and that it is a reaction to the stressful environment
caused by tight managerial control in audit firms (Chan et al., 2009; Donnelly et al.,
2006; Otley and Pierce, 1995; Lightner et al., 1983; Alderman and Deitrick, 1982).
Auditors have to complete audits within a very limited timeframe and budget.
A revision in the quality of audit documents may impose invisible pressure in the
workplace (Louwers et al., 2005; Lord and DeZoort, 2001). The quality of audited
financial statements is controlled by both external and internal firm policies and
procedures, such as generally accepted auditing standards and internal codes of ethics.
Auditors may sign off on audit steps without completing the entire auditing procedure
(Otley and Pierce, 1995; Rhode, 1978) by leaving out certain steps (Margheim and Pany,
1986). They may also underreport auditing time to complete their assigned jobs on
time. Rushing to finish reports without collecting sufficient evidential materials
(Alderman and Deitrick, 1982) may result in inaccurate reports (McNair, 1991). The
underreporting of auditing time also has a significant, though indirect, impact on audit
report quality (Smith, 1995; Lightner et al., 1982). Although it may decrease labour
costs, it carries the risk of uncompleted audit jobs in future.
This study sheds light on the factors that contribute to individual auditor
differences in the acceptance of dysfunctional behaviour that may result from the
 stressful nature of their duties. The previous literature in this field states that auditor Dysfunctional
behaviour is subject to social influence and inappropriate orders from superiors, auditing
but little has been reported on the effects of professional judgment and decisions
(DeZoort and Lord, 1994, 1997). Shih et al. (2009) mentioned their perceptions of behaviour
past work achievements and performance may affect auditors’ self-efficacy.
Inappropriate orders from superiors have major influence on their own self-efficacy
and job achievement. Shifting responsibilities is considered one method of gaining 211
control of resources with the aim of being viewed favourably when actual performance
is reviewed (Lukka, 1998). Explicit pressure to indulge in dysfunctional behaviour is
expected to create conflict for professional personnel who have the duty to adhere to
ethical standards. In the face of a stressful working environment, auditors may choose
either to accept dysfunctional behaviour or to act according to professional standards.
Working under such environment may create the organizational-professional conflicts.
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The level of turnover intention and job dissatisfaction are expected to be high for those
who possess higher ethical standards and refuse to engage in behaviour they believe to
be wrong (Bamber and Iyer, 2009).
The main objective of this study is to test the factors that may result in
dysfunctional behaviour amongst auditors in Macau. The factors considered include
client importance, task complexity, time budget constraints, auditor independence and
acceptance of dysfunctional behaviour by Macau’s audit firms (Figure 1). Serving as an
extension of the previous literature, this study hypothesises that the acceptance of
dysfunctional behaviour has a negative association with turnover intention amongst
auditors, which is not healthy for the profession.
This study makes several important contributions to the literature. First, it examines
a number of factors that may affect the level of acceptance of dysfunctional behaviour in
a single model that assumes that different factors may offset or interact with one
another. Second, it provides audit firms in Macau with information that will potentially
help them to reduce their turnover rate and better understand the factors that cause
dysfunctional auditor behaviour. Third, this study provides empirical evidence on the
need for ethics training programmes in Macau to audit firm policymakers and the
profession. Fourth, although Tsui and Gul (1996) investigated the interaction effects of
locus of control, personality variables and ethical reasoning on audit conflict situations,
few studies have evaluated the relationships amongst task characteristics, time budget
pressures, auditor independence and client importance. Olivier (2001) recently employed
a model based on “psychological contract” assessment and affective commitment to
account for auditing quality and explain the underlying factors behind dysfunctional
behaviour amongst auditors. However, there remains a significant research gap
concerning the factors that affect individual practices and their effect on audit work
quality. Finally, this study investigates how these factors affect the likelihood of
dysfunctional audit behaviour and auditor turnover intentions.

1. Task Complexity H4 +
H2 +
2. Time Budget Pressure Dysfunctional H5 Turnover
H1 + –
3. Client Importance Behaviour Rate Figure 1.
H3 –
4. Auditor Independence Research framework
 IJAIM 2. Theoretical development
21,3 Auditors are more likely to make unethical decisions and behave dishonestly when
they work under the pressures of time, task requirements, supervisor control and client
requirements, the four variables that have been identified as affecting dysfunctional
behaviour in the framework adopted here. First, time budgets place auditors under a
significant amount of pressure. For example, audit firms may accept many new clients
212 each year, and these clients may require financial reporting within a short period of
time, which creates tremendous work pressure for auditors. Second, audit quality may
be affected if auditors are unfamiliar with new clients or their related businesses
(AICPA, 2009), and it may take more time to produce reports for clients with complex
business operations. Third, previous research has indicated that external auditors have
the tendency to underreport the number of hours they work (Shapeero et al., 2003;
Lightner et al., 1982; Dirsmith and Covaleski, 1985). These studies suggest that
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auditors are susceptible to the adverse effects of obedience and other inappropriate
types of social influence. Rani et al. (1997) and DeZoort and Lord (1994) note that work
pressure may depend on the importance of clients. Audit firms may generate large
amounts of revenue from important clients because of the complexity of their
operations and, consequently, the amount of time spent on audit jobs. As mutual
benefits exist, audit firms may act on behalf of clients to produce clean audit reports.
Lastly, top management may force field auditors to accept dysfunctional behaviour to
retain clients and secure their future business. As a result, the independence of audit
opinions may be affected. Conflicts of interest between partners and other firm
members can also have adverse consequences on the work motivation of field auditors.
The level of turnover intention is expected to be high amongst auditors who possess
higher ethical standards and, accordingly, refuse to engage in dishonest behaviour.
High levels of turnover affect the quality of service provided to clients.
This study is based on the results of a survey carried out amongst 135 auditors in
Macau, with analysis based on the use of multiple regression techniques. The results
generally support the proposed explanatory model and the hypothesised relationships.
The propensity of individual auditors to accept dysfunctional behaviour depends on
four factors: client importance, task complexity, time budget constraints and auditor
independence. The remainder of the paper is organised into four sections. The first
presents the study’s theoretical development, including a theoretical model that relates
the six factors considered (Figure 1). The second discusses the research methods,
including the stages of data collection and measurement information. The empirical
results are presented in the third section, and a discussion and the study’s limitations
conclude the paper in the fourth and final section.

2.1 Factors affecting the acceptance of dysfunctional behaviour

This section develops a theoretical model that links time budget pressure, task
complexity, auditor independence and client importance to auditors’ acceptance of
dysfunctional behaviour and dysfunctional behaviour to turnover intention.

2.2 Client importance and the acceptance of dysfunctional behaviour

A client’s importance to an audit firm can be measured by its size and the service fee
paid. Important clients can help to increase audit firms’ market share and improve their
reputation. The audit service fees paid vary from task to task. Large fees enhance clients’
 bargaining power with the firm, and, as a result, important clients may persuade an Dysfunctional
auditor to issue a clean report by threatening to change firms if he or she fails to comply auditing
with their requests managers may agree a fee with a client before an auditor receives the
job assignment. Audit fees are based on the number of hours the auditing task is behaviour
expected to take, and the actual working hours sometimes exceed those budgeted.
Larker and Richardson (2004) found no significant relationship between the amount of
audit fees paid and auditor behaviour. Rani et al. (2007), in contrast, found auditors less 213
likely to enforce generally accepted accounting principles (GAAP) and more likely to
work in the client’s favour when they had received large fees. They also found a
statistically significant negative association between total fees and audit quality. If the
top management of an audit firm fears losing a client, then they may instruct their
subordinates to produce a report that is in that client’s favour. Chan (2009) defined client
importance on the basis of the audit fees, non-audit service fees and total fees received by
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audit firms for issuing going-concern auditing opinions. He concluded that higher audit
fee and total fee ratios are positively associated with auditors’ propensity to issue
going-concern opinions. Auditor independence is also greatly affected by the
significance of a client. A greater fee amount boosts a client’s position, and audit
firms have the strong propensity to produce favourable opinions for important clients.
Managers make compromises with clients before they receive job assignments. In some
situations, an audit firm may employ manipulation, deception and ingratiation tactics to
ensure that client requests are complied with. Hence, our first hypothesis is as follows:
H1. There is a positive relationship between a client’s importance and an audit
firm’s acceptance of dysfunctional auditor behaviour.

2.3 Time budget pressure and the acceptance of dysfunctional behaviour

Time budget pressure may arise due to time constraints that result from a limitation in
the resources (time) allocable to task performance (DeZoort and Lord, 1997). Audit jobs
must be completed within a certain timeframe to meet deadlines. Audit firms usually
communicate these time limitations to audit personnel through time budgets. Research
shows that time budgets have the potential to create work pressure on individual
auditors, as they act not only as control mechanisms but also as performance
measurement tools (McNair, 1991). These time budgets may also be very tight or even
unattainable. Pierce and Sweeney’s (2004) empirical research found the acceptance of
dysfunctional behaviour to be significantly related to time pressure and performance
evaluation. Other factors, including firm characteristics, leadership style and
organisational structure, may also influence such behaviour. Some researchers have
examined the impact of time budget pressure and related variables, such as a lack of
auditor experience, on dysfunctional auditor behaviour. Today’s audit firms confront
keen competition, which means that auditors work under even greater stress (Gundry,
2006). McNamara and Liyannarachchi (2008) found that auditors’ perceptions of time
budget pressure have recently increased in New Zealand, as the highly competitive
market means these auditors must complete the same amount of work in less time.
Dysfunctional behaviour refers to actions that may indirectly lead to reduced audit
quality, such as the underreporting or recording of the time taken for auditors to perform
their work (Lightner et al., 1982). The descriptive results of the study carried out by
Kelley and Margheim (1990) show that an alarming number of underreporting instances
 IJAIM and audit quality reductions occur in practice. This discussion leads to our second
21,3 hypothesis, as follows:
H2. There is a positive relationship between time budget pressure and the
acceptance of dysfunctional auditing behaviour.

214 2.4 Auditor independence and the acceptance of dysfunctional behaviour

According to DeAngelo’s (1981) definition, auditor independence affects the ability to
detect misstatements and auditing quality in capital markets. Auditors often face
conflict between their own interests and their professional obligation to provide good
service and consultancy advice (Moore et al., 2006). Auditors have often been found to be
complicit with firm management and to provide a biased review of a firm’s financial
reports in favour of that firm (Levitt and Dwyer, 2002). Accounting firms have incentives
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to avoid the provision of negative audit opinions to the companies that have hired them
and paid auditing fees (Moore et al., 2006), although conflict may occur between auditors
and clients. Goldman and Barlev (1974) contend that a client’s power is based on the
ability of its management to appoint and dismiss audit firms. Their basic theory is that
the client has the power to control and remove an auditor if it issues a negative audit
opinion that affects the interests of the firm. Consequently, an auditor that does not
readily comply with a client’s requests will find itself replaced with another audit firm in
a competitive market. If auditors primarily work for the benefit of third parties, then
their attest function gives the client maximum powers of control. If an audit firm has
served a client for a number of years, then auditor independence may potentially be
impaired. Further, Marshall and Dasaratha (2003) report a positive and significant
association between the magnitude of audit fees and the likelihood of receiving a
modified audit opinion. Such an audit report may not be based solely on professional
standards. Based on the foregoing discussion, we posit the following hypothesis:
H3. There is a negative relationship between auditor independence and the
acceptance of dysfunctional auditor behaviour.

2.5 Task complexity and the acceptance of dysfunctional behaviour

The complexity of audit work may also affect auditors’ likelihood of engaging in adverse
behaviour. Prabhu (1987) suggests grading tasks according to a number of criteria that
serve as rough measures of cognitive complexity. Several factors, including auditors’
familiarity with clients’ business operations, affect task complexity. Clients may have
diversified production lines, numerous subsidiaries and a complex organisational
structure. Several scholars have investigated the relationship between task complexity
and auditor behaviour. Benford (2000) noted that the layering of audit task complexity
can impose a heavy mental workload on individual decision-makers. The layering of
task and technological complexities can increase mental workloads and diminish
decision quality, as decision-makers resort to simplified techniques. Hence, an increase
in mental workload may result in significant audit misjudgements, and the auditor may
release tension through dysfunctional behaviour.
Time budget pressure and task complexity are expected to jointly affect such
behaviour. Task complexity may exert strong pressure on auditors, as audit firms may
have many new clients each year, and these clients may require financial reporting
within a short period of time. Audit quality may also be affected if the auditor is
 unfamiliar with the client or its business (AICPA, 2009), which also makes it more Dysfunctional
time-consuming to produce reports. Gold-Noteberg et al. (2006) show that, as task auditing
complexity increases, auditors tend to look for other sources of assistance in performing
the task. When they confront a complex task and have limited time and budget, the result behaviour
is greater perceived time pressure and cognitive overload. Auditors will tend to rely on
instructions from top management to improve the efficiency and effectiveness of audit
reports. Nordqvist et al. (2004) address the issue of perceived time pressure in association 215
with the ability of project teams to handle task complexity, and they report that time
pressure is negatively related to both estimated goal fulfilment and job satisfaction and,
consequently, dysfunctional behaviour. However, the negative effect of time pressure
disappears with team support for goal achievement:
H4. There is a positive relationship between task complexity and the acceptance
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of dysfunctional auditing behaviour.

2.6 Dysfunctional behaviour and turnover intention

Auditing is considered to be a stressful profession. It is typically characterised by a
heavy workload and tight deadlines. Job-related stress may result in job burnout and
job dissatisfaction and, in turn, increased turnover intention. Porter et al. (1974)
presented strong evidence to suggest that individual attitudes are predictive of
turnover behaviour. The individuals who leave an organisation have less favourable
attitudes than those who stay. Porter et al. (1974) theorised that one possible
explanation may be the degree to which employee expectations are met on the job. This
theory implies that individuals bring a unique set of expectations to their employing
organisations. These expectations must then be met if the employee is to remain in the
organisation. If they are not met, then the employee may consider seeking employment
with another organisation that will give him or her the opportunity to achieve preset
personal goals. Satina (2003) find further that organisational commitment is strongly
associated with turnover-related intention. Macau is a case in point. Its competitive
labour market is accompanied by a high turnover rate in all sectors of industry, and
that amongst audit firms is particularly high.
Other studies have examined the mediating effect of effort on the relationship
between performance incentives and audit judgment performance under different levels
of task complexity. Zuraidah and Takiah (2007), for example, find the positive
relationship between effort and audit judgment performance to be negatively correlated
with a high degree of task complexity. Auditors engaged in highly complicated tasks
may feel under pressure. If they cannot bear that pressure, then they may abrogate
responsibility by engaging in pressure-releasing dysfunctional behaviour. An
independent auditor may refuse to act according to the instructions issued by top
management to produce favourable reports for clients. However, such refusal may result
in an increase in the turnover rate. This is an especially important issue for auditors with
a strong sense of professionalism.
Many researches in the area of behaviorial accounting and psychology provide the
empirical evidence of turnover intentions as one of the determinants of auditor
acceptance of dysfunctional behavior (Donnelly et al., 2007). Dysfunctional behavior
may be the result generated from the environment factors such as time pressure,
leadership culture and supervisory style. Auditors are likely to accept dysfunctional
behavior when working under high external locus of control (Gable and Dangello, 1994).
 IJAIM They may use the tactic of manipulation, deception, or ingratiation to extend their
21,3 controls over the working environment so that their personal performance can easily be
achieved (Mudrack, 1989). On the other hand, auditors are fear of the detection of such
behaviour which may result poor performance appraisal and termination of
employment contract. Auditors accepting of dysfunctional behaviors usually possess
higher turnover intentions because of lacking of job security and low perception of
216 chances of promotion (Malone and Roberts, 1996):
H5. There is a negative relationship between the acceptance of dysfunctional
behavior and turnover intention when auditors refuse to behave adversely.

2.7 Other control variables

A review of the dysfunctional behaviour literature led to the inclusion of three control
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variables in the multiple regression models employed to test our main hypotheses:
auditors’ gender (Gold-Noteberg et al., 2006), Big-4 versus non-Big 4 firm (Palmrose,
1988; Becker et al., 1998; Teoh and Wong, 1993) and auditor position (McNamara and
Liyannarachchi, 2008).

3. Sample
This study involved three stages. In the first stage, interviews were carried out with
auditors from Big-4 (seven interviewees) and local non-Big-4 firms (three interviewees)
in Macau. These ten senior-level auditors were initially interviewed to discover the
reasons for the high turnover rate amongst auditors in Macau. They were asked to
speculate about common explanatory factors, and then invited to the University of
Macau campus to assist in the design of the questionnaire, which ultimately included six
variables: task complexity, client importance, time budget constraints, auditor
independence, acceptance of dysfunctional behaviour and turnover intention. Most of
the questionnaire content was original, although several of the questions were developed
from the previous literature (Q8 and Q9 from Moore et al. (2006), Q5 from Kelley and
Margheim (1990) and Q16, Q17, Q19 and Q20 from Olivier (2001)). The ten auditors were
asked to delete or add questions, and the final draft comprised 21 questions in six parts.
These auditors were then asked to rate the 21 questions on a five-point Likert-type scale.
All of the questions achieved a mean score of 3.5; hence, they were identified as the base
to measure the six factors, and the interval scale was applied in the questionnaire design.
Participants were requested to rank the six attributes using the 1-5 scale.
The second stage involved 141 auditors from Big-4 and local non-Big-4 accounting
firms who were asked to complete the aforementioned questionnaire during their lunch
hour or in their leisure time. They were given detailed instructions to ensure they fully
understood all of the questions. The participants were told that their responses were
strictly confidential and that the questionnaire data would be used only for this
research study. A total of 135 usable questionnaires were included in the subsequent
data analysis. Only six of the respondents refused to complete the questionnaire, either
due to company policy or a lack of time, for a very healthy response rate of 96 per cent,
which may eliminate non-response bias. The third stage of research comprised
follow-up interviews aimed at learning more about the reasons for dysfunctional
behaviour. All 135 of the respondents were contacted for a follow-up telephone
interview after data analysis and asked to state whether dysfunctional behaviour is
healthy or dishonest and contrary to their duties.
 Prior research provides evidence to show that Big-4 auditors provide higher quality Dysfunctional
audits (or are perceived to do so) than their non-Big-4 counterparts (Palmrose, 1988; auditing
Becker et al., 1998; Teoh and Wong, 1993). However, the population of Big-4 auditors in
Macau is small due to the limited scale of the market. Thus, auditors from local behaviour
accounting firms were also considered in this study, which included 85 and 50 from Big-4
and non-Big-4 firms, respectively. Amongst those who completed the questionnaire,
there were 82 junior auditors, 46 supervisors and seven senior auditors. Those in junior 217
positions were generally associates, who would be eligible for promotion to senior
associates after two years with the firm. The senior-level auditors had five years of
experience at the associate level. Only 64 of the respondents were pursuing a
professional qualification at the managerial level. All held a university degree in a
business-related field. The average age of the respondents was 28 (SD: 4.5 years), which
is relatively young. The youth of these auditors may be a result of the high turnover rate
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in Macau, which means that young auditors have a better chance of taking up senior
positions. The majority of those surveyed were women (82) and employed by a Big-4
firm (82 per cent).

4. Measurement instruments
All of the measures were ranked on a five-point Likert-type scale.

4.1 Turnover intention

Four questions were included in the measurement instrument for turnover intention.
They concerned the respondents’ intention to find a new job (Q1 and Q2), their
enthusiasm about their careers (Q3), whether they considered their current job a
stepping stone or a long-time career option (Q4) and their sense of belonging to the firm
(Q5). The overall score yielded a Cronbach’s a coefficient of 0.73, which indicates an
acceptably high level of internal reliability (Nunnally, 1967).

4.2 Time budget pressure

For Q6, which was derived from Kelley and Margheim (1990), respondents were
required to indicate the time budget on their most recent auditing job and whether the
timeframe was easy to attain and whether underreporting occurred. An internal
reliability check was not required, as this instrument had only one item.

4.3 Auditor independence

Four questions were designed to measure the dimensions of clients’ operations,
including the scale of audit clients’ business operations (Q7), the relationship between
audit client and audit firm (Q8), the relationship between audit client and auditor (Q9),
and the auditor’s level of self-interest with regard to the audit client (Q10). Q7 and Q8
were derived from the initial interviews with the ten aforementioned senior auditors,
and Q9 and Q10 from the study carried out by Moore et al. (2006). The internal
reliability test yielded a Cronbach’s a coefficient of 0.67, which is an acceptably high
level (Nunnally, 1967).

4.4 Client importance

Three questions were employed to measure the client importance variable, including
the client’s importance to the audit firm (Q11), importance to the individual auditor
 IJAIM (Q12) and occupancy rate in the individual auditor’s work schedule (Q13). All three
21,3 questions were developed from the initial stage of the questionnaire design. A check of
internal reliability produced a Cronbach’s a coefficient of 0.70.

4.5 Task complexity

Task complexity usually results from two factors: the individual auditor’s lack of
218 experience in a particular industry (Q14) and the task itself, mainly due to a diversified
business and/or numerous branch offices or subsidiaries (Q15). The questions for this
measure were developed in the initial questionnaire design stage. An internal
reliability check produced a Cronbach’s a coefficient of 0.65.

4.6 Dysfunctional auditor behaviour

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Q16-Q21 concern the dysfunctional behaviour in which individual auditors may engage
in their daily lives (Olivier, 2001), including signing-off prematurely on required
audit steps, a reduction in auditing procedures, failure to research an accounting
principle about which the auditor is uncertain, uncritical acceptance of a client’s
explanation, inadequate supervision of a team member and performing a job in a
way that favours a client or supervisor. The internal reliability check yielded a
Cronbach’s a coefficient of 0.85.

5. Results and discussion

The multiple regressions were estimated employing the four factors and three control
variables. Table I presents the descriptive statistics, and Table II the correlation matrix
for the study variables. The possibility of multicollinearity amongst the variables meant
that regression analysis was appropriate for testing H1-H5, and multiple regression was
employed as the method of analysis (Table III). This method was considered appropriate
because it is able to take into account a single dependent variable (dysfunctional
behaviour) and multiple independent variables. Based on the multiple regression results,
the only variable to have no significant effect on dysfunctional behaviour is task
complexity.

Big-4 firm Non-Big-4 firm

Population Percentage Population Percentage

Male 36 42.4 17 34.0

Female 49 57.6 33 66.0
Age
22-30 58 68.2 28 56
Above 30 27 31.8 22 44
Educational level
Bachelor 85 100 50 100
Post-graduate 47 55.3 15 30
Professional level
Junior level 56 65.9 26 52
Supervisor 25 29.4 21 42
Table I. Senior level 4 4.7 3 6
Summary of respondent
characteristics Note: n ¼ 135
 Dysfunctional
Theoretical
Mean Min. Max. SD range Actual range Cronbach’s a auditing
Dependent variable
behaviour
DB – dysfunctional behaviour 17.54 7.02 25.02 3.73 6-30 6-30 0.85
Independent variables
TO – turnover intention 16.21 11.00 23.00 2.47 5-25 5-25 0.73 219
TBP – time budget pressure 3.01 2.00 5.00 0.83 1-5 2-5 –
IND – independence 12.34 8.00 18.00 1.83 4-20 8-20 0.67
CIP – client importance 9.38 6.00 14.01 1.74 3-15 6-15 0.70
TC – task complexity 6.30 4.00 9.00 1.26 2-10 4-8 0.65
P – position 0.42 0.00 2.00 0.57 0-2 0-2 –
G – gender 0.61 0.00 1.00 0.49 0-1 0-1 –
BoN – Big-4 or non-Big-4 0.63 0.00 1.00 0.48 0-1 0-1 – Table II.
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Summary of descriptive
Note: n ¼ 135 statistics

DB TO TBP IND CIP TC

DB 1
TO 20.340 * * * 1
TBP 0.247 * * 0.231 * * 1
IND 20.312 * * * 20.158 * 0.047 1
CIP 0.298 * * * 0.061 20.144 20.449 * * * 1
TC 0.157 0.243 * * 0.233 * * 20.197 * * 0.111 1
Table III.
Note: Significant at: *10, * *5 and * * *1 per cent levels Correlation matrix

As a result, H1 cannot be rejected ( p , 0.1), which supports the argument put forward
by Rani et al. (2007) that auditors often have to produce reports in favour of clients
from whom they receive large fees. This situation may affect the quality of auditing
work, especially that of junior-level auditors who may feel forced to follow their
supervisors’ instructions and may be unfamiliar with the final auditing report as a
whole. Indeed, auditors may be responsible only for part of the auditing jobs assigned
by top management. This result also confirms Olivier’s (2001) psychological contract
research, which suggests that a lack of commitment may lead to the acceptance of
dysfunctional behaviour (Table IV).
The regression results also support H2 ( p , 0.1), that is, auditors need sufficient
time to complete complex tasks. Time budget pressure also has a positive effect on the
acceptance of dysfunctional behaviour. Auditing work is very demanding, with
frequent deadlines that must be met. This stressful work situation often leads auditors
to underreport the budgeted audit time and to perform only a superficial review of
client documents. As noted in Pierce and Sweeney (2004), auditors’ performance
evaluations are usually related to whether they are able to complete their work on time.
The acceptance of dysfunctional behaviour is then inevitable, as they may be required
to complete the same amount of work in less time in a competitive market.
A significantly negative relationship is found between audit independence and the
acceptance of dysfunctional behaviour, which supports H3. Independent opinions may
 IJAIM
Explanatory variable Coefficient SE Beta t-values
21,3
Constant 20.678 * 0.308 22.20
TBP – time budget pressure 0.225 * 0.074 2.78
IND – independence 20.307 * 0.090 22.91
CIP – client importance 0.267 * 0.088 2.83
220 TC – task complexity 0.135 0.083 1.63
P – position 0.146 0.141 1.04
G – gender 20.456 * 0.143 23.19
Table IV. BoN – Big-4 or non-Big-4 20.026 0.145 20.18
Multiple regression R 2 ¼ 0.297
results on the relationship Adjusted R 2 ¼ 0.254
between auditor F-significance ¼ 0.000
independence and the n ¼ 135
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other factors with

dysfunctional behaviour Notes: Significant at: *5 per cent level; all variables are as defined in Table II

be greatly affected by key clients because of the major income they generate, as
suggested by Marshall and Dasaratha (2003). However, Big-4 audit firms may not need
to modify their opinions on a particular client, as these firms place greater emphasis on
professional ethics in their training programmes and are thus more independent. Big-4
firms also need to maintain their reputation for providing a quality service[1] to clients.
According to DeAngelo (1981), auditors should perform in an independent and
professional manner to detect accounting misstatements. However, some auditors,
particularly non-Big-4 firms, may feel unable to work to professional standards when
significant clients’ fees are their major source of revenue. In these companies,
subordinates must follow the instructions of top management in producing their reports.
Although the results of this study indicate that auditors employed by auditing firms are
not independent, less important clients were found to obtain more independent services.
The multiple regression model indicates no relationship between task complexity
and dysfunctional behaviour, and thus H4 must be rejected, even though audit firms
need to meet deadlines for important clients and auditors sometimes have to work for
unfamiliar clients. Top management must provide auditors with sufficient information,
guidance and time to enable them to handle complex tasks such as audits of clients with
diversified production and numerous subsidiaries and departments (Prabhu, 1987).
Although task complexity alone has no significant impact on dysfunctional behaviour,
time budget pressure and support from supervisors must be taken into account.
Finally, the results also fail to support H5 ( p , 0.01), which posits a negative
relationship between the acceptance of dysfunctional behaviour and turnover
intention. This relationship is in fact found to be positive. Auditors often work in a
stressful environment, and they may shift responsibility to others when they are
engaged in complex tasks under the pressure of time. The results of this study also
indicate that auditors may have a high degree of dissatisfaction and lack commitment,
which may be reflected in their acceptance of dysfunctional behaviour. A high turnover
rate is a good indicator of a lack of high professional standards.
Finally, in the follow-up interviews with the 135 respondents who were asked their
opinion of dysfunctional behaviour, the majority reported it to be unhealthy, unjust
and contrary to their duties (mean score ¼ 4.21).
 6. Conclusion Dysfunctional
The findings of this study have a number of implications. In line with the previous auditing
literature, they confirm that many factors, including the four variables of interest here,
may affect dysfunctional behaviour. This research also provides valuable information behaviour
for audit firms in Macau and will potentially help them to reduce their turnover rate and
identify the factors affecting dysfunctional behaviour amongst auditors. From the
research perspective, the results extend the literature by focusing on the effect of 221
perceived responsibility on professional responses to time budget pressures, task
complexity, pressure from clients, and professional and ethical issues. They indicate
that to reduce both the turnover rate of auditors and their dysfunctional behaviour,
audit firms must set time budgets that are reasonable and attainable for the individual
and the firm. This finding is particularly relevant to junior auditors and those employed
in audit firms in Macau. In addition, top management and auditor supervisors should
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also provide clearer information and instructions to ensure that auditors can accomplish
their assignments within the timeframe allotted. Senior-level auditors should have a say
in the time budget setting process before accepting an assignment. Training
programmes with an emphasis on ethical issues should also be provided to employees to
solicit independent opinions. Finally, client importance has a great impact on
dysfunctional behaviour, which has ethical implications. Auditors should behave
independently and produce fair reports for external users regardless of their level of
importance.
Two important findings of the study contradict the hypotheses. First, task
complexity is found to have no significant impact on the acceptance of dysfunctional
auditor behaviour. It may be that no matter how complex the audit task, the auditor
needs support, perhaps including supervision by his or her immediate supervisor, to
complete an assignment. Second, turnover intention is found to be positively related to
the acceptance of dysfunctional behaviour. This finding may be specific to Macau,
where auditor demand is very high. It may reflect dissatisfaction with the workplace,
which leads auditors to reject engagement in dysfunctional behaviour to complete a
task. However, they may seek out job opportunities elsewhere.
From the practical perspective, the challenge facing auditors today is to expand
their auditing practices and evolve standards for adequately monitoring the operations
of business entities. The current high turnover rate alarms audit firms, which are
concerned with training and the provision of sufficient resources to solve the problems
that auditors face in the workplace. Most of the work performed by auditors is based
on statistical data, economic models, expert forecasts and projections. They may also
evaluate clients’ performance reports carried out on the basis of past policy
formulations, and dysfunctional behaviour will not appear when audit teams are
provided with good guidance from upper management.
This study also sheds light on the independent role played by auditors. Dysfunctional
auditor behaviour, including the omission of audit steps, the underreporting of audit
time and fraud, is a major issue today. There is considerable divergence of opinion
within the profession about the role of auditors in preventing such behaviour. The
traditional approach has been to report suspected cases of malfeasance and to examine
failures in either the design or implementation of adequate systems. The profession does
not traditionally accept the job of actively detecting dysfunctional behaviour, except
to the extent of commenting on the adequacy of prescribed internal controls.
 IJAIM However, there is an emerging trend amongst audit organisations and practitioners to
21,3 devise specific audit procedures and techniques to detect dysfunctional behaviour, with
the aim of providing assurance that no major instances of dysfunctional behaviour will
escape detection during the course of audits. Audit firms need to emphasise the impact of
such behaviour during the training process.
Future research should further examine the reasons for dysfunctional behaviour,
222 perhaps by focusing on the auditing environment in various countries. Such study
would enable a better evaluation of the prevalence of such behaviour in audit firms and
prevent auditing personnel from engaging in it. Additionally, more variables (such as
environmental factors, participation, task characteristics, commitment, working
attitude and job-related tension) should be included to allow remedial actions to be
taken. Finally, future studies are needed to arrive at a better understanding not only of
dysfunctional behaviour but also the extent to which such behaviour affects health, job
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satisfaction, motivation and performance.

Note
1. A t-test was performed to test the significance of Big-4 (85 auditors) versus non-Big-4 firms
(50 auditors), with a significant difference in audit behaviour found between the two
(t ¼ 2 3.796, p ¼ 0.004).

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Appendix
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This questionnaire survey is designed to research the behaviour of auditors in audit firms.
The results will be used only for this research project, and your participation is greatly
appreciated. All of the information will be kept strictly confidential.

Factor: turnover intention

1 – very unlikely, 2 – unlikely, 3 – neither unlikely nor likely, 4 – likely, 5 – very likely:
1. Thinking about the changing conditions of the accounting profession, what is the
likelihood that you will be working as an auditor 12 months from now?
2. How likely is it that you will actively look for a new job?

1 – strongly disagree, 2 – disagree, 3 – neither disagree nor agree, 4 – agree, 5 – strongly agree:
3. For me, this is not the best profession of which to be a member.
4. Auditing is a good “stepping stone” to a better position in future.
5. I do not feel as if this firm’s problems are my own.

Factor: time budget pressure

1 – very easy to attain, 2 – attainable with reasonable effort, 3 – very tight time contrast;
practically unattainable, 4 – impossible to achieve, 5 – time is underreported:
6. How would you describe the time budget that you face in most of your audits?

Factor: independence
1 – strongly disagree, 2 – disagree, 3 – neither disagree nor agree, 4 – agree, 5 – strongly agree:
7. Most of my auditing clients are medium- to large-sized companies.
8. My firm has offered services to most of my clients for many years.
9 I have a close relationship with some of my clients.
10. I really care about the fate of my clients.

Factor: client importance

1 – strongly disagree, 2 – disagree, 3 – neither disagree nor agree, 4 – agree, 5 – strongly agree:
11. Most of my auditing clients are extremely important to the firm.
12. The degree of service satisfaction amongst my clients is very important to me.
13. I have a client that occupies more than 40 per cent of my work schedule.
 IJAIM Factor: task complexity
1 – strongly disagree, 2 – disagree, 3 – neither disagree nor agree, 4 – agree, 5 – strongly agree:
21,3
14. I have no past auditing experience in my clients’ industries.
15. I find it difficult to carry out auditing work for clients with diversified business lines.

Factor: dysfunctional auditing behaviour

226 Indicate whether you have acted in the following ways at least once.
1 – never, 2 – seldom, 3 – sometimes, 4 – often, 5 – very often:
16. Prematurely signed-off on a required audit step that is not covered by other steps without
completing the work or noting the omission of procedures.
17. Reduction of work below what is considered reasonable.
18. Failed to research an accounting principle about which I am unsure.
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19. Accepted a client explanation that is weaker than I would normally accept.
20. Supervise a team member inadequately.
21. Follow a supervisor’s instruction to produce a favourable report for clients.

General information
Gender: male ___ female ___
Years of experience: _____ years
Position _______________
Thank you very much!

Corresponding author
Desmond C.Y. Yuen can be contacted at: desmondy@umac.mo

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