Jan Svanberg

Auditors' time pressure: does ethical culture support audit quality?

Purpose - The purpose of this paper is to address the impact of ethical culture on audit quality under conditions of time budget pressure. The study also tests the relationship between ethical culture and time budget pressure. Design/methodology/approach - The study is based on a field survey of financial auditors employed by audit firms operating in Sweden. Findings - The study finds relationships between three ethical culture factors and reduced audit quality acts. The ethical environment and the use of penalties to enforce ethical norms are negatively related to reduced audit quality acts, whereas the demand for obedience to authorities is positively related to reduced audit quality acts. Underreporting of time is not related to ethical culture, but is positively related to time budget pressure. Finally, the study finds a relationship between two ethical culture factors and time budget pressure, indicating a possible causal relationship, but ethical culture does not mediate an indirect effect of time budget pressure on reduced audit quality acts. Originality/value - This is the first study to report the effect of ethical culture on dysfunctional auditor behavior using actual self-reported frequencies of reduced audit quality acts and underreporting of time as data.

Lost revenues associated with going concern modified opinions in the Swedish audit market

Purpose - – The purpose of this paper is to examine the costs to audit firms in terms of lost revenues of losing small clients due to auditor switching or client bankruptcy after issuing first-time going concern modified opinions. Design/methodology/approach - – A population of small Swedish companies receiving first-time going concern modified opinions in 2009 was examined to determine the effects two years later compared with a matched sample of financially stressed companies that had not received going concern modified opinions. Findings - – The results indicate that both auditor switching and client bankruptcy are positively related to receipt of going concern modified opinions. Furthermore, the authors find empirical evidence that auditors issuing first-time going concern modified opinions lose proportionately more fees through auditor switching and client bankruptcy than do auditors not issuing such opinions to financially stressed clients. Finally, the authors found that the going concern modified opinions issued by Big 4 firms are no more harmful to clients than are those issued by other audit firms. Research limitations/implications - – The authors recognize a limitation of this study regarding the choice of control companies. Although the authors attempted to find similarly sized and similarly financially stressed companies from the same industries as those companies in the test group, the authors may have missed other variables relevant to auditor switching or client bankruptcy. Practical implications - – A practical implication for the audit profession is the increased awareness of the fact that the financial dependence issues reported in this study extend to auditors with small client companies. Originality/value - – This is the first study to examine fees lost due to auditor switching and client bankruptcy caused by going concern modified opinions in a population of small companies. It contributes to the mixed evidence presented in previous research as to the extent to which going concern modified audit opinions are self-fulfilling prophecies.

The relationship between transformational client leadership and auditor objectivity

Purpose - The purpose of this paper is to investigate whether transformational leadership affects auditor objectivity. Design/methodology/approach - The investigation is based on a field survey of 198 practicing auditors employed by audit firms operating in Sweden. Findings - This study finds that transformational client leadership negatively affects auditor objectivity and that the effect is only partially mediated by client identification. Given these results, suggesting that auditors are susceptible to influence by their clients’ perceived exercise of transformational leadership, leadership theory appears relevant to the discussion of auditor objectivity in the accounting literature. Originality/value - Previous accounting research has applied the social identity theory framework and found that client identification impairs auditor objectivity. However, the effect of transformational client leadership on auditor objectivity, which reflects an intense auditor-client relationship, has been neglected before this study.