The operation of control systems in large audit firms

This study is an empirical investigation into the operation of control systems in large audit firms in Ireland. All audit seniors in three Big 6 firms were included in a postal survey. The results showed evidence of under-reporting of time, premature sign-off and other audit quality reduction acts. The analysis was extended beyond that reported in previous studies by developing regression models to explain these three types of dysfunctional behavior. Perceived attainability of time budgets and the leadership style of audit managers had a significant influence on dysfunctional behavior, but the perceived amount of emphasis on meeting budgets did not. Although organizational commitment was a further explanatory variable, professional commitment was not. Perceived effectiveness of audit review procedures was found to be significantly associated with lower levels of premature sign-off and other quality reduction acts, while the explicit and implied approval of supervisors was significant in the under-reporting of time decision. The discussion identifies two important types of informal control, and suggests that audit firms need to address a number of key issues in order to improve the effectiveness of their formal control systems. The study contributes to the literature on management control by examining the impact on individual behavior of a widely used formal control system. Furthermore, while previous studies in an audit setting have tended to report perceived influences on auditor behavior, or the outcome of testing involving a single variable, this study constitutes an extension of earlier work by examining the combined effect of specific variables on actual behavior, as reported by practising auditors.