Organizational Antecedents of Dysfunctional Auditor Behaviors: The Mitigating Role of Audit Firm Governance

44 Pages Posted: 16 Apr 2013

See all articles by J Pruijssers

J Pruijssers

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

J. van Oosterhout

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Pursey P.M.A.R. Heugens

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Date Written: April 16, 2013

Abstract

Dysfunctional auditor behaviors (DABs), defined as all acts or omissions by auditors that negatively affect audit quality and reduce the reliability of audit-based opinions, have proven an endemic and persistent feature of the contemporary business environment. Although the dominant response to DABs has been to shape up jurisdiction level regulation and enforcement, relatively little attention has been paid to the specific governance challenges of the firms that provide audit services. This is a serious omission, not only because organizational factors of audit firms may be involved as deeper causes of DABs, but also because audit firm governance practices may be more effective remedies for DABs than external policy measures because of their proximity to the audit process. Proceeding from an agency theoretical lens, this study develops a theoretical model of the corporate governance challenges of audit firms, as well as the practices audit firms can implement to meet these challenges. Using survey methods and structural equations modeling on a sample of 112 Dutch audit firms, we provide evidence that organizational factors such as economic dependency, client commitment, and profit orientation aggravate DABs. Furthermore, governance practices like strict client retention policies and internal transparency practices mitigate the influence of these factors. These results provide insights that policy makers and professionals can use to secure the integrity and effectiveness of the audit industry.

Keywords: Audit Failure, Governance, Dysfunctional Auditor Behaviors

Suggested Citation

Pruijssers, J and van Oosterhout, Hans and Heugens, Pursey P.M.A.R., Organizational Antecedents of Dysfunctional Auditor Behaviors: The Mitigating Role of Audit Firm Governance (April 16, 2013). Available at SSRN: https://ssrn.com/abstract=2251828 or http://dx.doi.org/10.2139/ssrn.2251828

J Pruijssers (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

Netherlands

Hans Van Oosterhout

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Pursey P.M.A.R. Heugens

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands
0031 10 408 2365 (Phone)
0031 10 408 9012 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
389
Abstract Views
1,824
rank
75,222
PlumX Metrics