Managerial Auditing Journal

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

Jan Svanberg, Peter Öhman,
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Managerial Auditing Journal, Vol. 28 Issue: 7, pp.572-591, https://doi.org/10.1108/MAJ-10-2012-0761
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MAJ
28,7 Auditors’ time pressure:
does ethical culture support
audit quality?
572
Jan Svanberg and Peter Öhman
Department of Business, Economics and Law,
Centre for Research on Economic Relations, Mid Sweden University,
Sundsvall, Sweden
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Abstract
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.
Keywords Auditing, Ethics, Sweden, Auditors, Audit quality, Ethical culture, Time budget pressure
Paper type Research paper

Managerial Auditing Journal
Vol. 28 No. 7, 2013
pp. 572-591
q Emerald Group Publishing Limited
0268-6902
DOI 10.1108/MAJ-10-2012-0761
1. Introduction
Auditors often face pressure from tight time budgets, a situation that at least partly
originates from the bidding for audit contracts. The potential conflict between
controlling costs and achieving high-quality audits (McNair, 1991) is heightened by the
immense weight that audit firms place on attaining time budgets as a measure of
efficiency (Anderson-Gough et al., 2001) and their difficulties in measuring audit
quality (Power, 2003). As a result, unpaid overtime to cover for unattained time
budgets is an informal cultural norm in audit firms (Alderman and Deitrick, 1982;
Sweeney and Pierce, 2006).
Competitive cultures in audit firms have been suggested as a cause of audit quality
deterioration related to time pressure, or time budget pressure (TBP), but little research
has examined the relationships between organizational culture, time pressure and audit
quality. Previous research into dysfunctional auditor behavior under time pressure has
assumed that “from the audit firm perspective, many of the parameters that collectively
form the quality-cost conflict are externally determined and cannot be significantly
influenced by any single firm” (Pierce and Sweeney, 2004, p. 436). According to this
assumption, time pressure is the result of competition, while audit quality demands
 are set by the audit profession. Previous studies have also found that dysfunctional Auditors’ time
auditor behavior is the result of factors under management control, such as leadership pressure
(Otley and Pierce, 1996b). Our research into the impact of ethical culture on audit quality
under time pressure complements previous research into factors under management
control. This study is based on the assumptions that the ethical aspects of organizational
culture can function as determinants of how auditors react to time pressure as expressed
by TBP, and that an important cause of reduced audit quality (RAQ) practices can be 573
an unethical organizational culture rather than high TBP per se.
In an experimental study of the impact of ethical culture on RAQ practices and the
underreporting of time, Sweeney et al. (2010) found limited evidence of a relationship
between ethical culture and auditor behavior under time pressure. The present study
addresses the relationship between ethical culture and auditor behavior using a
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method that differs markedly from that of Sweeney et al. (2010). We collect evidence
from actual audits and draw on previous studies of time pressure and audit quality
that have used self-reported frequencies of dysfunctional audit behaviors as a measure
of audit quality (Otley and Pierce, 1996b; Coram et al., 2003; Pierce and Sweeney, 2004;
Sweeney and Pierce, 2004). These studies report the effects of TBP on audit quality for
various categories of auditors, behaviors, and TBP antecedents, i.e. influences on the
time budgeting process. We extend these studies by investigating the impact of ethical
culture on audit quality. We also extend the study of Sweeney et al. (2010) by using
actual, self-reported frequencies of dysfunctional audit behaviors as a measure of audit
quality instead of using ethical vignettes.

2. Theory and hypothesis development

2.1 Dysfunctional behaviors as a function of time pressure
Auditors react to TBP in one of two ways. The first is to react functionally by working
more hours and charging more hours to the client (Otley and Pierce, 1996a); requesting
and obtaining an increase in the time budget from superiors (Cook and Kelley, 1991;
Coram et al., 2003); focusing on more relevant information (Glover, 1997); and/or by
using more efficient audit techniques (Coram et al., 2003). The second way is to react
dysfunctionally by committing RAQ acts or underreporting time (URT).
Various behaviors are considered RAQ acts, including accepting weak client
explanations (Willett and Page, 1996; Coram et al., 2003; Pierce and Sweeney, 2004);
superficially reviewing client documents (Kelley and Margheim, 1987; Dalton and Kelley,
1997; Pierce and Sweeney, 2004); inadequately investigating accounting principles
(McNair, 1991; Otley and Pierce, 1996a); rejecting awkward-looking items from a sample
(Willett and Page, 1996; Coram et al., 2003); inappropriately relying on the client’s internal
control (Pierce and Sweeney, 2004); and failing to pursue questionable items (McNair,
1991). Finally, the most serious RAQ act is premature sign-off (Alderman and Deitrick,
1982), which occurs when the auditor signs off a required audit step without completing
the work or noting the omission of procedures.
URT may sound harmless and is often referred to as less detrimental than other
dysfunctional behaviors (Alvesson and Karreman, 2004). It occurs when the auditor
reports spending less time on an audit than is actually the case. In the long run, however,
this behavior is a way of advancing a problem to future time budgets (Fleming, 1980) when
it can mutate into RAQ acts. When URT, the auditor shifts time to non-chargeable areas
of the audit (Otley and Pierce, 1996a) or to another client of the auditor (McNair, 1991).
 MAJ Previous studies have found a causal relationship between time pressure and
28,7 dysfunctional behaviors. RAQ acts and URT initially tend to increase as time budgets
become less attainable (Alderman and Deitrick, 1982; Margheim and Pany, 1986; Kelley
and Margheim, 1987, 1990; Ponemon, 1992; Otley and Pierce, 1996a, b; Willett and Page,
1996; Pierce and Sweeney, 2004; Gundry and Liyanarachchi, 2007; Bowrin and King II,
2010), although they may decrease when time budgets appear too unattainable
574 (Kelley and Margheim, 1990). However, if the auditor receives forewarning of the
impeding time constraint, the negative effects of time pressure are smaller (Low and
Tan, 2011).
Several studies claim that relationships exist between perceived TBP and position
in the audit firm (Cook and Kelley, 1991; McNair, 1991; Gist and Davidson, 1999; Moreno
and Bhattacharjee, 2003). Factors that cause TBP to increase, indicated as an increase
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in URT, may differ between low- and high-ranking auditors. Partners’ URT increases
with risk factors relating to clients, while juniors’ URT does not depend on client risk
factors (Gist and Davidson, 1999). With few exceptions, research into TBP and
dysfunctional behaviors has concerned low-ranking auditors, i.e. juniors and seniors
(Sweeney et al., 2010), who perceive higher levels of TBP than do high-ranking auditors,
i.e. managers and partners (Cook and Kelley, 1991; McNair, 1991).
This stressful situation is more pronounced in big audit firms in which the competitive
culture is strong (Otley and Pierce, 1996a; Anderson-Gough et al., 2001). It could be
expected that auditors working for Big 4 firms would experience higher TBP than
would auditors working for other audit firms. The environment in Big 4 firms is highly
competitive with strong internal control and high work pressure (Herbohn, 2004).
In contrast, small audit firms often lack these features and offer greater work diversity,
job security and more friendly personal relationships with employees (Patten, 1995).
However, since TBP is considered to be higher in Big 4 firms, these firms likely have
strong internal support mechanisms that may mitigate the effect of TBP on dysfunctional
behaviors (Clarke et al., 1996).

2.2 Dysfunctional behaviors as a function of ethical context

The presumed impact of organizational culture on dysfunctional auditor behavior
justifies further research into the potential impact of ethical culture on dysfunctional
auditor behavior. The ethical culture of an organization has been regarded as one
important determinant of unethical behaviors in organizations (Deal and Kennedy, 1982;
Fritzsche, 1991; Ford and Richardson, 1994; Key, 1999; Casey et al., 2001). Previous
studies from the auditing field indicate that the ethical decisions made by auditors can
be greatly influenced by the ethical culture of their audit firms (Ponemon, 1992; Windsor
and Ashkanasy, 1995; Douglas et al., 2001), and Sweeney et al. (2010) find that one ethical
culture dimension can influence unethical behavior under time pressure.
We adopt a model of ethical culture developed by Treviño et al. (1998) and described
by Kaptein (2011) as a one-dimensional construct. However, previous research has
found that the model has two dimensions if the code implementation factor is excluded
(Treviño et al., 1998) and three dimensions if a shorter version of the questionnaire is
used (Shafer and Wang, 2010). Treviño et al. (1998) find that the ethical environment
(EE) factor describes the degree to which unethical behavior is punished, the degree
to which ethical behavior is rewarded, leaders’ role modeling, and ethical norms.
The second factor is obedience to authority, which describes the extent to which such
 obedience is demanded. Shafer and Wang (2010) report, in addition to the first two Auditors’ time
factors, a third factor describing the use of penalties to enforce norms. pressure
Ethical culture can be regarded as a subset of organizational culture that represents
the multidimensional interplay among formal and informal systems of behavioral
control. These formal systems include leadership, authority structures, reward
systems, and training programs, while the informal systems include peer behavior and
ethical norms. In organizations in which leaders promote ethical conduct, ethical norms 575
support ethical behavior, ethical behavior is rewarded and unethical behavior is
punished, there should be more ethical behavior than in organizations that lack such
characteristics (Treviño et al., 1998).
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2.3 Hypothesis development

TBP has been discussed as caused by the bureaucratization of the professional audit
industry, and the trend toward larger audit firms has continued since the early study of
Kelley and Seiler (1982). The implementation of new accounting rules at the same time
as reporting deadlines have been compressed has increased time pressure (Sweeney
and Pierce, 2004). The increased focus on efficiency may cause auditors to develop
efficiency-motivated evaluation techniques (Cianci and Bierstaker, 2009), leading to an
increased propensity to commit RAQ acts and URT, particularly when the auditor is
not sanctioned for doing so (Pierce and Sweeney, 2006). This finding, in combination
with previous findings of positive relationships between TBP, RAQ acts, and URT
(Kelley and Margheim, 1990; Otley and Pierce, 1996a, b; Donnelly et al., 2003; Pierce
and Sweeney, 2004; Gundry and Liyanarachchi, 2007) leads us to suggest a positive
relationship between these variables. For example, time pressure related to deadlines
and budgets results in the premature sign-off of audit program steps (Alderman and
Deitrick, 1982; Otley and Pierce, 1996a; Pierce and Sweeney, 2004). According to
Houston (1999), risk assessments and sample sizes are reduced by auditors under time
pressure. Accordingly, the following hypotheses are formulated:
H1a. RAQ acts are positively related to TBP.
H1b. URT is positively related to TBP.
Willett and Page (1996, p. 114) reported, based on a survey of auditors, that some firms
“in practice turned a blind eye to irregular short cuts” and that respondents who held
this view of the firms where they worked were more likely to commit RAQ acts. We
therefore suggest that ethical culture is negatively related to RAQ acts and URT. Three
aspects of ethical culture lead to this suggested relationship.
The first aspect is “tone at the top”, which is an aspect of culture considered in
previous research to be important for ethical behavior (Douglas et al., 2001; Brown et al.,
2005; Brown and Treviño, 2006; Jenkins et al., 2008; Mayer et al., 2009). As noted by
Finn et al. (1988) and Sweeney et al. (2010), managers can reduce the ethical problems of
employees by discouraging unethical conduct. The effects of managers’ role modeling
on ethical behavior can be understood through social learning theory. According to
Bandura (1977) and Schein (1985), people learn expected behavior by observing how
managers behave. The effect is that managers whose actions belie their words send a
demoralizing message to their subordinates (Kaptein, 1998, 2011). Subordinates who
receive such a message are more likely to behave unethically (Dineen et al., 2006).
 MAJ The second aspect is that ethical behavior can be reinforced by ethical culture if
28,7 managers punish unethical behavior when it occurs in the organization (Hunt et al.,
1989; Treviño et al., 1998; Gurley et al., 2007; Kaptein, 2008, 2011). This observation is
related to reinforcement theory (Luthans and Kreitner, 1991) and to a research tradition
in legal sociology that claims that punishment is effective as behavior reinforcement
(Torpman and Jörgensen, 2005). If an organization signals to its members that
576 unethical behavior will be punished and ethical behavior rewarded, members will try
harder to behave ethically. An organization that does not punish unethical behavior or
even rewards unethical behavior signals to its members that such behavior is
acceptable (Kaptein, 1998).
The third aspect is that the organizational culture can direct organization members’
attention toward ethical dimensions if the ethical culture promotes open discussion of
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moral judgments, which has the effect of reducing the frequency of unethical behavior
(Kaptein, 1998, 2011). In the auditing context, this claim is supported by the negative
relationship between ethical behavior and an ethical culture that demands obedience
to authorities (Treviño et al., 1998). A culture in which it is impossible to question what
one is doing is at odds with professional values for an auditor, because acting with
professional skepticism and integrity lies at the heart of professional obligations
(Shafer and Wang, 2010). Auditors are circumscribed by societal and professional norms
that they are supposed to apply; under time pressure, however, ethical issues could be
neglected although they could help auditors maintain an ethical perspective on their
professional judgments. A culture that forbids discussion and demands obedience to
authorities would, on the contrary, encourage auditors to selectively “forget” ethical
issues. Therefore, communication in itself may help reduce the frequency of unethical
behavior (Schnatterly, 2003).
In conclusion, these three aspects of ethical culture lead to the following two
hypotheses:
H2a. RAQ acts occur less frequently when ethical culture is strong.
H2b. URT occurs less frequently when ethical culture is strong.
TBP is positive up to a certain level, because it contributes to efficiency and helps
auditors focus on their work (Glover, 1997). However, in most previous research, the
negative effects of TBP on audit quality have been prioritized. In highly competitive
cultures, there should be an increased risk of erosion of ethical standards that prevent
auditors from committing RAQ acts and URT. According to Helliar and Bebbington
(2004), the focus in audit firms on the commercial success and income aspirations of
partners and staff has led to more unethical behavior. Strain theory claims that people
behave unethically when they feel that they cannot achieve their goals using legitimate
means (Merton, 1938). People who feel time pressure are less inclined to attend to ethical
standards (Treviño, 1986) and consequently tend to behave unethically more often
(Kaptein, 1998). Auditors who perceive that they have to compromise between efficiency
and effectiveness need to rationalize their conduct, and auditors who perceive high TBP
may be inclined to rationalize their RAQ acts and URT by gradually reinterpreting
organizational values. The relationship between ethical culture and lack of resources is
supported empirically by Kaptein (2008, 2011). According to Kaptein’s (2008) ethical
culture concept, lack of resources weakens ethical culture. Considering that time is one
of the most important resources for an auditor, we argue that TBP is negatively related
 to strong ethical culture in audit firms. Furthermore, high TBP occurs more frequently Auditors’ time
in firms having competitive cultures in which there may be informal acceptance of pressure
URT (Sweeney and Pierce, 2006). We hypothesize a negative relationship between TBP
and ethical culture as follows:
H3. TBP is negatively related to ethical culture.

3. Method
577
3.1 Sample and data collection
We used a questionnaire to measure perceived ethical culture in audit firms, the attainability
of time budgets, and the extent to which RAQ acts and URT occur in audit firms. As
frequencies of dysfunctional auditor behavior and TBP are measured, an anonymous
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questionnaire is a method of data collection that allows respondents to reveal sensitive

information about their behavior without fear of consequences. We collected data about
TBP, dysfunctional behaviors, ethical culture, position in the audit firm, type of audit firm,
and demographic variables. The sample consists of 1,200 Swedish auditors, who were
stochastically selected using the register of Revisorsnämnden (the Supervisory Board of
Public Accountants), the authority that issues authorizations and approvals and supervises
authorized auditors, approved auditors, and accounting firms in Sweden. Before
administration, the questionnaire was pilot-tested using two auditors. Based on the pilot
test results, the questionnaire was revised to ensure that the respondents correctly
interpreted the items.
The self-administered questionnaire was distributed by e-mail in May 2011.
Participation in the study was voluntary and respondents were assured that the
information would be used solely for scientific purposes. We also informed respondents
that the collection of responses through the e-mail survey software ensured anonymity,
as the survey software did not enable the researchers to track respondent identity. This
information was provided to attenuate the social desirability response bias that can
occur in behavioral ethics research (Randall and Fernandes, 1991). The questionnaires
took about ten to 15 minutes to complete.
Of the 1,200 questionnaires distributed we received 368 responses. We were forced to
exclude 36 questionnaires due to incomplete responses, leaving 332 complete questionnaires
in the study, i.e. a response rate of 28 percent. This response rate was achieved after five
reminders generated by the e-mail survey software over three weeks. The possibility of bias
in the data was dealt with in the following way. Non-respondents’ answers were taken to be
represented by late respondents’ answers, and any difference between late and early
respondents was treated as a measure of non-response bias. An ANOVA was computed to
ensure that late respondents did not answer the questions differently from early
respondents. Late respondents were defined as the 50 respondents who were the last to
submit their questionnaires, that is, after several reminders, while early respondents were
the first 50 respondents. Results for late respondents, as surrogates for non-respondents
(Larson and Catton, 1959), were statistically indistinguishable from those for early
respondents. Accordingly, there is some assurance against non-response bias in the sample.

3.2 Measures
The study’s measures were adapted from scales validated in prior research. The
questionnaire (Appendix) comprised three parts, containing items responded to using
five- or six-point Likert scales ranging from strongly disagree to strongly agree.
 MAJ The first part of the questionnaire included demographic questions about gender,
28,7 age, audit experience, level of authorization, duration of present employment, position
(i.e. whether the auditor is junior/senior or manager/partner), and whether or not the
audit firm is a Big 4 firm.
The second part of the questionnaire was developed from Otley and Pierce (1996b)
and included items about TBP, RAQ acts, and URT. TBP was measured using three
578 items to which respondents indicated their agreement or disagreement on a five-point
Likert scale. The instrument has a demonstrated level of construct validity (Otley and
Pierce, 1996a), and several studies have previously demonstrated its internal reliability
by calculating acceptable Cronbach a coefficients. For the measures of TBP, RAQ acts,
and URT, Pierce and Sweeney (2004) report Cronbach a coefficients 0.66, 0.82, and 0.72,
respectively. In the present study, we find a Cronbach a 0.79 for TBP. The five-item
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measure of RAQ acts was adopted from Otley and Pierce (1996a), and the Cronbach a
coefficient of the measure is 0.78. Two items developed from Otley and Pierce (1996a)
were adopted as a measure of URT; the Cronbach a for this two-item scale is 0.66.
The third part was the 15-item ethical culture questionnaire developed by
Treviño et al. (1998) and adapted to the auditing context by Shafer and Wang (2010).
This part contained items about rewards and punishments for ethical behavior, peer
behavior, the extent to which organizational leaders serve as role models of ethical
conduct, the extent to which norms support ethical conduct, correspondence between
the professional ethics code and informal norms, and the extent to which employees are
expected to obey authority figures without question. Responses to these 15 items were
collected using six-point Likert scales. The results of the factor analysis of ethical
culture are reported in Table II.

4. Results and analysis

4.1 Descriptive statistics
Most previous research into dysfunctional auditor behavior has focused on junior
auditors because they conduct most of the audit fieldwork, and accordingly commit
RAQ acts and URT more frequently than do high-ranking auditors. As most of our
sample consists of managers/partners, a concern was that some sampled auditors would
not be conducting the kind of auditing that would predispose them to commit RAQ acts.
To ensure that the sample consisted only of auditors who conduct audit fieldwork, we
partitioned the data by excluding auditors who reported that they had not committed
any RAQ acts during the one-year study period. This partitioning caused 40 auditors of
the 332 to be excluded, leaving a total of 292 auditors and increasing the average level
of RAQ acts from 1.96 to 2.01[1]. It should be clarified that in Sweden, according to
Revisorsnämnden, a great majority of the 135 existing audit firms have fewer than
ten employees, and that these audit firms include a high share of managers/partners.
Demographic information about the respondents is summarized in Table I. Most of the
respondents are male, and on average the respondents are almost 50 years old and have
been auditors for a considerable time (mean ¼ 18.79 years). Most possess the highest
certification available in Sweden (i.e. Authorized Auditor, CPA) and the rest of them have
the slightly lower auditor certification (i.e. Approved Auditor, AA)[2]. Most respondents
are either managers or partners; accordingly, a minority was classified as juniors/seniors
in the study. Respondents are evenly distributed between Big 4 and non-Big 4 firms. It can
also be noted that most of the managers and partners are employed in small audit firms.
 Auditors’ time
Variables Frequency Mean SD
pressure
Male 203
Female 89
Age 47.35 10.24
Experience 18.79 7.02
CPA 160 579
AA 132
Junior/senior 46
Manager/partner 246
Big 4 147
Other audit firm 145
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TBP, total 2.32 0.73

TBP, junior/senior 2.25 0.80
TBP, manager/partner 2.33 0.72
RAQ acts, total 2.01 0.52
RAQ acts, junior/senior 2.02 0.55
RAQ acts, manager/partner 2.01 0.52
URT, total 2.22 0.83
URT, junior/senior 2.38 0.88
URT, manager/partner 2.19 0.82
Separate RAQ acts
Accepted weak client explanations 2.14 0.62
Superficial reviews of client documents 2.44 0.87
Failed to research an accounting principle 1.85 0.70
Reduced work below a reasonable level 1.93 0.77
Signed off prematurely 1.82 0.68
Table I.
Notes: The scales for RAQ acts and URT run from 1 (never) to 5 (nearly always); the scale for TBP Demographics and
runs from 1 (low) to 5 (high) descriptive statistics

Descriptive statistics for the central variables are reported in Table I. TBP
(mean ¼ 2.32) is significantly ( p , 0.05) below the scale midpoint, indicating that
auditors in this sample find time budgets relatively attainable. RAQ acts and URT
have values below the scale midpoint. The average RAQ acts value refers to the
frequency labeled “rarely”, which is between the midpoint (“sometimes”) and the
endpoint (“never”); this indicates that the sampled auditors report committing RAQ
acts, despite the fact that most describe themselves as managers or partners. In
comparison, Otley and Pierce (1996a), based on a questionnaire including items about
RAQ acts identical to those used here, reported RAQ act frequencies that suggested a
total average value of only marginally above two for junior auditors. The present
sample of auditors appears suitable for study in that they are actively engaged in audit
practices where RAQ acts are apparently likely to be committed. This interpretation is
also supported by Otley and Pierce (1996b), who found average scores for RAQ acts of
“close to 2” for four of the RAQ acts considered in the present study. That earlier
study also used a five-point Likert scale with a score of two indicating “rarely”.
Judging from the RAQ acts scores from two of the studies most comparable to the
present one, the present sample of auditors appears to commit RAQ acts at the
same frequency.
 MAJ 4.2 Measurement model analysis
28,7 Exploratory factor analysis was performed to test the dimensionality of the ethical
culture scale and the results are presented in Table II. The results identify four factors
with eigenvalues in excess of one. However, one of the factors consists of only one item,
“top managers of this organization are models of unethical behavior”, and is excluded
from further analysis.
580 The three-factor solution accounted for 68 percent of the variance and all items
loaded above 0.50 on each factor. There are no cross loadings of 0.30 or higher, except
for the three items “employees in this organization perceive that people who violate the
professional code of ethics still get formal organizational rewards”, “ethical behavior is
rewarded in this organization”, and “people of integrity are rewarded in this
organization” which are excluded from the factors.
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The results suggest that the measure can be represented using three factors. The first
factor comprises five items designed by Treviño et al. (1998) to measure the presence of
ethical leadership and the general EE; we define this dimension as the EE. The second
factor comprises three items describing the punishment of unethical behavior; this factor
is referred to as penalties. The third factor, designed by Treviño et al. (1998) to measure
organizational expectations of obedience to authority, comprises three items and is
referred to as obedience to authority (OA). The internal reliability score, i.e. Cronbach a, is
0.87 for the EE scale, 0.88 for penalties, and 0.63 for OA, the last of which is only
marginally acceptable. The OA factor is interpreted in accordance with Treviño et al.
(1998) and Shafer and Wang (2010) as a measure of unethical culture. Greater demands
for obedience to authorities indicate less emphasis on professionalism, which is contrary
to the spirit of the audit profession. The factor structure corresponds to the findings of
Shafer and Wang (2010) and contains three factors rather than the two reported by
Treviño et al. (1998).

Factor loadings
Item Com 1 2 3

Top managers of this organization represent high

ethical standards 0.677 0.792 0.222 2 0.018
Top managers of this organization regularly show
that they care about ethics 0.749 0.845 0.166 2 0.087
Ethical behavior is the norm in this organization 0.588 0.749 0.096 2 0.135
Top managers of this organization guide decision
making in an ethical direction 0.767 0.845 0.224 0.058
Professional ethics code requirements are consistent
with informal organizational norms 0.541 0.694 0.242 2 0.002
Management in this organization disciplines
unethical behavior when it occurs 0.685 0.221 0.797 2 0.042
Penalties for unethical behavior are strictly enforced
in this organization 0.844 0.222 0.891 2 0.015
Unethical behavior is punished in this organization 0.876 0.259 0.899 0.020
Table II. This organization demands obedience to authority
Summary of factor figures, without question 0.647 2 0.196 0.077 0.777
loadings with Varimax People in this organization are expected to do as they
rotation for the perceived are told 0.454 0.103 2 0.027 0.665
ethical culture measure The boss is always right in this organization 0.684 2 0.064 2 0.071 0.821
 4.3 Hypothesis test results Auditors’ time
Table III presents the Pearson product-moment correlation coefficients for the variables, pressure
and the analysis of correlations reveals potentially significant relationships between
variables of interest to the study. One of the correlations, between age and working
experience in auditing, is so high that we suggest that the variables are essentially the
same construct. In the following analyses, the age variable is excluded from the
regressions to avoid multicollinearity. 581
The Pearson correlations provide preliminary support for H1a and H1b, i.e. RAQ acts
and URT are positively correlated with TBP. Furthermore, the correlations provide
preliminary support for H2a and H2b. For example, the correlations between RAQ
acts, EE, and penalties, respectively, are negative and the correlation between RAQ acts
and OA is positive as anticipated, bearing in mind that higher levels of OA indicate a
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less ethical culture. H3 receives preliminary support from the negative correlations
between TBP, EE, and penalties, respectively, and the positive correlation between TBP
and OA.
Table IV presents the regression analysis with RAQ acts as dependent variable as a
test of H1a and H2a. The regression is presented hierarchically to display a possible
indirect effect of TBP on RAQ acts. In Model 1, TBP and the control variables are
entered and Model 2 contains the ethical culture variables in addition to the variables
in Model 1. The first regression model is insignificant ( p ¼ 0.082), indicating that TBP
does not have a significant effect on RAQ acts (although the significance level for TBP
is 0.006). The lack of effect when the ethical culture variables are not controlled for
excludes the possibility that ethical culture mediates an indirect effect of TBP on RAQ
acts (Baron and Kenny, 1986). The regression of Model 2 is significant ( p ¼ 0.000) and
the three ethical culture dimensions all have significant coefficients. We note that TBP
has an insignificant coefficient, providing no support for H1a. The explanatory power
of the regression is 0.15.
Regarding H2a, the regression coefficient for EE is significantly negative
( p ¼ 0.000), which indicates support for that hypothesis. More supportive EEs tend
to reduce the extent of RAQ acts. H2a is also supported by the significantly
negative regression coefficient for penalties ( p , 0.05). The OA dimension of the
hypothesis is supported by the significantly positive coefficient for OA ( p , 0.05),
indicating that a less ethical culture is related to more RAQ acts. Somewhat
unexpectedly, the control variable Big 4 has no significant relationship with RAQ acts,
indicating that auditors in Big 4 firms react to time pressure with the same level of
RAQ acts as do auditors employed in other audit firms when ethical culture is
controlled for.
Table V presents the regression results for the regression model with URT as
dependent variable as a test of H1b and H2b. The regression model is significant
( p ¼ 0.000) and has an explanatory power of 0.11. In the model, TBP has a significant
regression coefficient ( p ¼ 0.000), but all three ethical culture dimensions have
insignificant coefficients. None of the control variables has significant coefficients
except for Big 4 ( p , 0.05).
H1b is supported by the significantly positive coefficient for TBP. This indicates
that higher levels of TBP are associated with higher levels of URT. The regression
results provide no support for H2b, leading to the conclusion that URT is not affected
by ethical culture.
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28,7

582
MAJ

Table III.

correlations
Pearson product-moment
Variables Penalties OA TBP RAQ URT Big 4 Man/Partn Age Experience

EE 0.000 0.000 20.198 * * 20.300 * * 20.083 20.128 * 0.141 * 0.016 0.070

Penalties 0.000 20.137 * 20.206 * * 20.133 * 0.152 * 20.125 * 20.218 * * 20.084
OA 0.062 0.166 * * 0.106 20.019 20.077 0.063 20.012
TBP 0.146 * 0.294 * * 0.377 * * 0.038 20.139 * 20.171 * *
RAQ 0.234 * * 20.033 0.012 20.005 20.032
URT 0.016 0.013 0.051 20.022
Big 4 0.138 * 20.154 * * 20.158 *
Man/Partn 0.037 0.089
Age 0.668 * *
Experience
Note: Significant at: *p , 0.05 and * *p , 0.01
 Auditors’ time
Coefficient SE Sig.
pressure
Model 1
TBPa 0.134 0.048 0.006
Big 4 2 0.115 0.071 0.105
Man/Partn 0.23 0.093 0.809
Experience 2 0.006 0.039 0.868 583
Model summary Adj. R 2 ¼ 0.017 F ¼ 2.098 p ¼ 0.082
Model 2
EE 2 0.162 0.031 0.000
Penalties 2 0.100 0.031 0.002
OA 0.088 0.031 0.004
TBPa 0.056 0.047 0.233
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Big 4 2 0.091 0.067 0.176

Man/Partn 0.116 0.108 0.190
Experience 2 0.012 0.036 0.747
Model summary Adj. R 2 ¼ 0.151 F ¼ 7.586; Sig DF ¼ 0.000 p ¼ 0.000
Table IV.
Notes: Factor scores for EE, penalties, and OA were used in the regression; aa separate regression Multiple regression
from which ethical culture was excluded also indicated that the impact of TBP was insignificant; in with dependent variable
this way, we excluded the possibility that an indirect effect of TBP was mediated by ethical culture RAQ acts

Coefficient SE Sig.

EE 20.035 0.049 0.478

Penalties 20.049 0.050 0.324
OA 0.063 0.048 0.195
TBP 0.346 0.074 0.000
Big 4 20.252 0.106 0.018
Man/Partn 0.047 0.140 0.735 Table V.
Experience 0.048 0.057 0.404 Multiple regression with
Model summary Adj. R 2 ¼ 0.090 F ¼ 4.633 p ¼ 0.000 dependent variable URT

Table VI presents the regression results for the regression model with TBP as
dependent variable for the test of H3. The regression is significant ( p ¼ 0.000) and has an
explanatory power of 0.17. The regression results indicate partial support for H3. We note
that, while OA is insignificant, the two other ethical culture dimensions are significant
in this regression, indicating that EE has a negative impact on TBP and that the use of

Coefficient SE Sig.

EE 20.109 0.042 0.009

Penalties 20.141 0.041 0.001
OA 0.051 0.041 0.213
Big 4 0.472 0.085 0.000
Man/Partn 0.024 0.118 0.839 Table VI.
Experience 20.097 0.048 0.046 Multiple regression with
Model summary Adj. R 2 ¼ 0.170 F ¼ 9.878 p ¼ 0.000 dependent variable TBP
 MAJ sanctions to prevent unethical behavior is negatively related to TBP. The coefficient for
28,7 Big 4 is significant ( p , 0.05) and positive, indicating that auditors working for Big 4
firms perceive higher levels of TBP, which is consistent with expectations.

5. Discussion
This study examines the threat to audit quality posed by poor organizational culture in
584 audit firms and, by doing so, extends prior literature that has focused mostly on the
impact of time pressure on audit quality. Organizational culture is one factor that is
under management control, while time pressure may emanate from the competition
between audit firms. We developed hypotheses about how ethical culture in audit firms
affects RAQ acts and URT. The results suggest that audit firm ethical culture plays a
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key role in the processes that determine audit quality under time constraints.
We conclude that RAQ acts and URT relate to ethical culture differently. RAQ acts
are related to all three ethical culture factors studied here, while URT is not related to
ethical culture. The difference between RAQ acts and URT in this respect can be
explained by a difference in how unethical the behaviors are perceived to be.
Sweeney et al. (2010) confirm previous research (Pierce and Sweeney, 2006; Coram et al.,
2008) with their finding that RAQ acts are perceived as more unethical than is URT.
Some auditors even think that underreporting of time can be quite acceptable from an
ethical perspective. This aspect of our results could be interpreted as indicating that
RAQ acts are sensitive to factors that encourage ethical behavior, while URT is largely a
matter of acting according to an informal cultural norm, which is not affected by
increased concern about ethics in an audit firm.
We find that TBP is not related to RAQ acts when analyzed in the same model as
ethical culture. This result does not contradict the findings of previous studies that have
investigated TBP as the primary source of audit quality deterioration and dysfunctional
behaviors (Kelley and Margheim, 1990; Cook and Kelley, 1991; McNair, 1991; Otley and
Pierce, 1996a; Moreno and Bhattacharjee, 2003; Pierce and Sweeney, 2004), because these
studies use samples quite different from the present one. We suggest that, at least for
auditors with many years in the profession, organizational cultures in audit firms
may have a greater impact on audit quality than does TBP.
The present research also extends the pioneering study of Sweeney et al. (2010).
Whereas Sweeney et al. (2010) find a weak relationship between ethical culture and
dysfunctional audit behaviors, with their ethical culture factor “unethical pressure” as the
only significant component of their regressions indicating intention to act unethically,
the present study reports results that indicate a substantial relationship between ethical
culture and RAQ acts. Judging from Sweeney et al. (2010), audit firms would have little to
gain by improving their cultures. We claim, however, that the gains from better ethical
cultures are greater and have more dimensions, finding that three ethical culture
factors are significantly related to dysfunctional audit behaviors. The two studies are not
quite comparable, though, because whereas Sweeney et al. (2010) is based on hypothetical
audit scenarios, the present study uses reports of perceived frequencies of actual
occurrences of RAQ acts. Furthermore, the present study is connected more closely to
earlier studies that adopted self-reported frequencies of dysfunctional auditor behavior
as a measure of audit quality.
Specifically, regarding the penalties factor, previous evidence indicates that seniors
believe that dysfunctional behaviors will not be detected (Pierce and Sweeney, 2006),
 that audit partners will not agree about how misbehavior should be punished Auditors’ time
(Pierce and Sweeney, 2005), and that perceived lack of penalties is not related to intent pressure
to engage in hypothetical acts leading to RAQ (Sweeney et al., 2010). On the contrary,
our finding that penalties constitute an effective way of reducing unethical audit
practices is supported by Kaptein (2011), who researched a business context other than
auditing. It is also supported by a long tradition of research in legal sociology and legal
theory that claims that penalties constitute the dominant method of preventing 585
criminality and other forms of undesirable behaviors and of ensuring the effectiveness
of legal orders (Ingram, 1983; Torpman and Jörgensen, 2005).
We find relationships between two of the ethical culture factors and TBP, and these
are indications that the practice of strict time budgeting occurs in firms having weak
ethical culture. We also tested whether ethical culture mediated an indirect effect of
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TBP on RAQ acts and found no such mediation. The lack of mediation further
supports the notion that ethical culture is a more important factor determining RAQ
acts than is TBP for the experienced auditors in the present sample.
In addition, research could productively test the impact of organizational context on
dysfunctional auditor behavior by employing Kaptein’s (2008) multidimensional model
of ethical culture, which deals with more dimensions of culture than are covered here.
The combined effects of formal, procedural factors and the more informal, ideational
aspects of context that are captured by ethical climate (Victor and Cullen, 1987, 1988)
also need further investigation.
Limitations of this study relate to generalizability and the particular method used.
Although the questionnaire was distributed to a random selection of auditors, the resulting
sample is biased toward managers and partners. This bias may have contributed to our
finding that time pressure has no effect on dysfunctional auditor behavior when we control
for ethical culture. Previous research has indicated that time pressure is a more severe
problem for juniors and seniors. A limitation concerns the partition of the data. Managers
and partners who reported that they never committed RAQ acts were considered
insufficiently involved in practical auditing and therefore excluded. Furthermore, the results
of this study may not be applicable to countries outside Scandinavia due to differences in
the relationship between time pressure and audit quality between countries. Several
previous studies of TBP indicate variation between countries, higher levels of dysfunctional
behaviors being reported from Ireland (Otley and Pierce, 1996a; Pierce and Sweeney, 2004)
than from the USA (Malone and Roberts, 1996; Buchheit et al., 2003). Scandinavian countries
have not been researched in this respect. It is possible that the patterns of ethical culture,
TBP, and dysfunctional behaviors vary between countries as well, and that the conclusions
of the present study will prove to be limited in generalizability for this reason.
Despite these differences between countries, our results partly confirm previous
findings. The level of RAQ acts found in the present study is the same as found by Otley
and Pierce (1996a, b) using the same measurement items. Furthermore, our finding that a
strong ethical culture is associated with lower levels of RAQ acts confirms the effect of a
strong ethical culture on RAQ acts (Sweeney et al., 2010). Our results also confirm other
findings that ethical decisions made by auditors can be greatly influenced by the ethical
culture of their audit firms (Ponemon, 1992; Windsor and Ashkanasy, 1995; Douglas et al.,
2001). Although the levels of TBP, RAQ acts, and URT differ between countries, we suggest
that the effect of a strong ethical culture in reducing RAQ acts can be seen as a general
pattern.
 MAJ Other limitations associated with the study, including the response rate and
28,7 non-response bias from administering the questionnaire by e-mail, call for caution
when interpreting the results. However, the study does not suffer from the uncertainty
associated with using abstract scenarios. Instead, the present study is aligned with a
series of previous studies by using self-reported frequencies of RAQ acts and URT.
This method, which gains by being concrete and realistic, may suffer from social
586 desirability bias. Nevertheless, the results provide a distinct picture of the effects of
ethical culture.

Notes
1. As a robustness test, we analyzed the correlations and regressions in Tables III-VI, also
including the 40 auditors who did not commit any RAQ acts at all during the study period,
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and found that the results were almost identical to those reported in Tables III-VI in which
the 40 auditors had been excluded. Thus, the results were unaffected by the exclusion of the
40 auditors.
2. In Sweden, two categories of public accountants are sanctioned to perform statutory audits;
few juridical differences remain between these two types of auditors. Typically, but not
necessarily, an approved auditor has a less rigorous educational background than does an
authorized auditor.

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590
Appendix. Survey questions (translated into English)
Part one
1. Gender
Male or Female
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2. How old are you?

3. How many years have you worked as an auditor?
4. What is your highest level of authorization?
Approved Auditor or Authorized Auditor
5. What position do you have in the audit firm?
Junior/Senior or Manager/Partner
6. Do you work for any of the following audit firms: Deloitte, Ernst & Young,
KPMG, or PwC?
Yes or No

Part two (adopted from Otley and Pierce, 1996b)

1. In general were the time budgets for the jobs you worked on during the last year
(choose one alternative):
1. Very easy to attain, 2. Attainable with reasonable effort, 3. Attainable with considerable
effort, 4. Very tight, practically unattainable, 5. Impossible to attain

The questions below are all responded to using the following five alternatives:
1. Never, 2. Rarely, 3. Sometimes, 4. Often, 5. Nearly always.
2. How often do you achieve your time budgets? (choose one alternative).
3. If you did not under-report time, how often would you attain your time budget?
(choose one alternative).
4. During the last year, how often did you act in the following manner when carrying out an
audit? (choose one alternative for each question):
(a) Accepted weak client explanations.
(b) Made superficial reviews of client documents.
(c) Failed to research an accounting principle.
(d) Reduced the amount of work performed on an audit step below what you consider
reasonable.
(e) Signed off an audit-program step without completing the work or noting the omission.
5. In response to tight time budgets, do you ever? (choose one alternative for each question):
(a) Under-report time by working on personal time.
(b) Shift time to non-chargeable.
 Part three (adopted from Shafer and Wang, 2010 and originally from Treviño et al., 1998) Auditors’ time
The questions below are all responded to using the following six alternatives:
1. Completely true, 2. Mainly true, 3. To a significant extent true, 4. Partly true, 5. Marginally pressure
true, 6. Completely false (choose one alternative for each statement):
(1) Management in this organization disciplines unethical behavior when it occurs.
(2) Employees in this organization perceive that people who violate the professional code of
ethics still get formal organizational rewards. 591
(3) Penalties for unethical behavior are strictly enforced in this organization.
(4) Unethical behavior is punished in this organization.
(5) Top managers of this organization represent high ethical standards.
(6) People of integrity are rewarded in this organization.
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(7) Top managers of this organization regularly show that they care about ethics.
(8) Top managers of this organization are models of unethical behavior.
(9) Ethical behavior is the norm in this organization.
(10) Top managers of this organization guide decision making in an ethical direction.
(11) Ethical behavior is rewarded in this organization.
(12) Professional ethics code requirements are consistent with informal organizational norms.
(13) This organization demands obedience to authority figures, without question.
(14) People in this organization are expected to do as they are told.
(15) The boss is always right in this organization.

Corresponding author
Peter Öhman can be contacted at: Peter.Ohman@miun.se

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