Audit Intelligence and Audit Survival an Empirical Research of Tax Auditor

8/13/2019 Audit Intelligence and Audit Survival an Empirical Research of Tax Auditor

1/31

137

AUDIT INTELLIGENCE AND AUDIT SURVIVAL:AN EMPIRICAL RESEARCH OF TAX AUDITORS (TAs) IN THAILAND

Sudarat Pongsatitpat, Mahasarakham Business School, Mahasarakham University, ThailandPhapruke Ussahawanitchakit, Mahasarakham Business School, Mahasarakham University, ThailandKesinee Muenthaisong, Mahasarakham Business School, Mahasarakham University, Thailand

ABSTRACT

This study investigates the effects of audit intelligence, audit value increase, audit report quality andfinancial information usefulness on audit survival of TAs in Thailand. Long-term audit vision, audit moralitymindset, audit learning competency, regulatory force and stakeholder pressure become the antecedentsof audit intelligence by using valuable audit experience as the moderator. In this study, 209 TAs inThailand are the sample. The results indicate that audit intelligence influences audit value increase, auditreport quality and financial information usefulness of TAs in Thailand. The results also present that long-term audit vision, audit morality mindset, audit learning competency, regulatory force and stakeholderpressure are the antecedents of that audit intelligence. Furthermore, audit value increase and financial

information usefulness have a positive influence on audit survival. Finally, the advantages of auditintelligence will reach to long-term audit vision, audit morality mindset, audit learning competency,regulatory force and stakeholder pressure to support the auditors work and enhance audit survival.

Keywords:Audit Intelligence, Audit Survival,Internal Control Evaluation, Operational Risk Assessment,Best Audit Practice Focus, Audit Planning Orientation, Audit Review Awareness, Audit InformationIntegration Concern, Long-term Audit Vision, Audit Morality Mindset, Audit Learning Competency,Regulatory Force, Stakeholder Pressure, Valuable Audit Experience

1. INTRODUCTION

Todays business environment is changing greatly due to economic forces that result in the need to speedup product and service development, the redesign of systems to decrease cost, and the focus regarding

customers satisfaction. Accounting research has increasingly been concerned with investigatingprofessional expertise (Gendron, Cooper, and Townley, 2007). Auditing has always been a business.However, during the 1980s and 1990s, the audit approaches of large firms changed and evolved as theeconomics of auditing became more sensitive (Power, 2003).

Auditing increases added value by providing professional assurance for the accuracy and reliability offinancial information (Watt and Zimmerman, 1983), and stakeholders can depend on audited financialstatements for decision-making in business (Hopwood, Mckeown and Mutchler, 1989). Jeppesen (1998)is right in stating that the big accounting firms now attempt to distinguish themselves by adding value toaudit.Auditors attempt to develop the process of auditing and the information must reflect truth andfairness. Auditors should have the intelligence to ensure that the appropriate level of the evidenceobtained is sufficient and appropriate for the purposes of auditing to enhance the credibility of financialstatements for material misstatement. The performance of the external auditors plays an important role

and an effective audit plays critical roles in investor protection (Newman, Patterson, and Smith, 2005).The stakeholders require superior services to prevent fraud in the financial statements (Peecher,Schwartz, and Solomon, 2007).

Auditing standards require that auditors assess all relevant evidence in an unbiased and objectivemethod (Guiral, Ruiz and Rodgers, 2011), and require auditors to consider the reliability of the evidencethey use in making judgments (Reimers and Fennema, 1999). The auditors must audit financial reportswhich were prepared, based on generally accepted accounting principles such as accruals, consistency,going concern and basis conservation (Martin, 2007). Auditors must comply with auditing standards thatare the basis for best practices in auditing. Auditors with more knowledge about going concern and howto examine problems in that area make more accurate judgments about the probability of client failure(Choo, 1989). This greater ability leads to better performance in auditing tasks, requiring more judgment(Libby and Tan, 1994).


2/31

138

Auditing is now more than just a technical matter. It is no longer the generic audit designed just to meetstatutory requirements. Auditing has now become an avenue for adding value to clients businesses.

Especially, industry audit expertise involves developing constructive ideas to assist clients, includingproviding new insights or solutions to some of the issues clients face in their respective industries (Kend,2002). An industry audit expert requires a detailed knowledge of the operating environment of the clientsindustry. This assists them to better understand the risks that their clients manage and the dynamics andprocesses of their clients businesses. An audit firm is exposed to many industry views, and the audit firmtends to view an industry through the eyes of several clients. This allows the audit firm to provideindividual clients with several insights into their own industry, and therefore adds value to the serviceprovided to that client, above and beyond the knowledge and insights which the client could provide(Kend, 2002).

Audit intelligence represents knowledge which allows expert auditors to perform auditing tasks faster, withgreater consistency, and to achieve a higher quality of decision-making. Previous studies show thatauditors who are intelligent in the audit task will take advantage of identifying problems, assessing risk,evaluating evidence, and performing skeptical judgment (Nelson, 2009). Auditing is a challenging task,particularly when faced with the critical issue of an auditors professional judgment to solve their clients'problems. Clients request professional service with a high quality of staff intelligence. Tan and Libby(1997) found that while tacit managerial knowledge is important for superior performance at the auditmanager level, technical skills are important for superior performance at the staff level. The problem-solving abilities distinguish superior performance at the senior rank. These findings suggest that whilepersonality/social attributes such as tacit managerial knowledge are more important for superiorperformance at higher professional ranks, judgment/technical skills are more important for superiorperformance at the lower professional ranks. The quality of financial statement audits is dependent on thejob performance of auditors. Our understanding of the determinants of auditor job performance hasevolved from concentration on the quality of judgments made based on technical knowledge and ability,to overall job performance. This includes tacit knowledge of a broad set of performance attributes,including the ability to objectively evaluate subordinates. However, relatively little is known about whatdistinguishes auditors whose overall job performance is relatively superior (McKnight and Wright, 2011).

The early literature on intelligence in auditing focused on technical knowledge (Weber, 1980) andproblem-solving ability (Bonner and Lewis 1990). Koletar (2006) predicates that intelligence and auditfunctions are similar to each other and ask essentially the same question, although for different reasons:There is something going on out there that I should be concerned about. Ashton (1991) and Bonner andLewis (1990) found that industry expertise was positively correlated with an auditors ability to identifyproblems within financial statements. Likewise, audit intelligence is defined as the ability to apply specificskill to perform complex audit tasks and provide more superior quality service than competitors (Bedard,1991; Bedard and Chi, 1993). Abbott and Parker (2000) identify industrial specialization as an auditorwho acquires specific skill, experience and knowledge of a client industry and utilizes such skill tocomplete the audit task and provide a higher quality of audit service to his clients. Moreover, auditors withhigh experience will gain more effective risk assessment (Bedard and Wright 1994; Yang, Moyes, Din,and Omar, 2010). In this study, audit intelligence is defined as the expertise of auditors including specific

skills and experience to perform more complex audit tasks and provide more superior quality service thanother auditors.

The importance of audit intelligence increases for the audit professional. Consequently, this researchattempts to expand and contribute to audit intelligence. This research applies two theoretical frameworks,including the theory of successful intelligence and the contingency theory to describe the relationshipbetween audit intelligence and audit survival. Moreover, this research concentrates on six dimensions ofaudit intelligence, comprising: internal control evaluation, operational risk assessment, best audit practicefocus, audit planning orientation, audit review awareness and audit information integration concern.

Prior studies have hardly examined the impact of audit intelligence on subsequent audit actions such asaudit value, audit report and financial information, which can have an effect on audit survival. Thisresearch is one of the first known investigations to directly link audit intelligence to audit survival and to


3/31

139

test the mediating effects of audit value increase, audit report quality and financial information usefulnessin the audit intelligence - audit survival relationship. Thus, the motivation of this study is to find if theauditor is expected to survive in a profession in which audit expertise leads to achievement.

Thus, the motivation of this study is to investigate the effect of audit intelligence on audit value increase,audit report quality, financial information usefulness, and audit survival in the context of Thailand. The keyresearch question of this research is How does audit intelligence affect audit survival? The specificresearch questions are as follows: (1) How does each dimension of audit intelligence influence auditvalue increase, audit report quality and financial information usefulness? (2) How do audit value increase,audit report quality and financial information usefulness affect audit survival? (3) How do fiveantecedents: long-term audit vision, audit morality mindset, audit learning competency, regulatory forceand stakeholder pressure have an effect on each dimension of audit intelligence? And, (4) How doesvaluable audit experience moderate the relationships among five antecedents: long-term audit vision,audit morality mindset, audit learning competency, regulatory force and stakeholder pressure; and eachdimension of audit intelligence?.

The key purpose of this research is to examine the relationships between audit intelligence and auditsurvival. Also, the specific research purposes are as follows: (1) to examine the relationships among thedimensions of audit intelligence (internal control evaluation, operational risk assessment, best auditpractice focus, audit planning orientation, audit review awareness and audit information integrationconcern), audit value increase, audit report quality and financial information usefulness; (2) to study therelationships among audit value increase, audit report quality, financial information usefulness and auditsurvival; (3) to determine the relationships among long-term audit vision, audit morality mindset, auditlearning competency, regulatory force, stakeholder pressure and dimensions of audit intelligence (internalcontrol evaluation, operational risk assessment, best audit practice focus, audit planning orientation, auditreview awareness and audit information integration concern); and, (4) to examine the moderating effect ofvaluable audit experience that affects the relationships among long-term audit vision, audit moralitymindset, audit learning competency, regulatory force, stakeholder pressure and dimensions of auditintelligence (internal control evaluation, operational risk assessment, best audit practice focus, auditplanning orientation, audit review awareness and audit information integration concern).

This study is organized as follows. The first section provides the theoretical framework of this study,including the literature review and hypotheses. The second describes the research design, sample,procedure, and variable measurements of each construct in this study. The third provides the results anddiscussion. The fourth provides theoretical and managerial contributions for future research. The lastprovides the conclusion.

2. THEORETICAL FOUNDATION

This research implements two main theories to define the meaning of audit intelligence, which are thetheory of successful intelligence and the contingency theory.

Theory of Successful Intelligence

Theory of Successful Intelligence (Sternberg, 2005) is applied to explain the superior attribute of auditintelligence that provides a more comprehensive description of intellectual competence of human ability.The Theory of Successful Intelligence is defined as an individuals assessment of success in life by theindividuals own (idiographic) standards and within the individuals socio-cultural context. Success isachieved by using combinations of analytical (evaluate, judge, or compare and contrast), creative(problem-assessing, or how well an individual can cope with relative novelty) and practical (adapt to,shape, and select) intelligence. These three aspects are referred to as processing skills. The processingskills are applied to the pursuit of success through what were the three elements of practical intelligence:adapting to, shaping of, and selecting of ones environments. The mechanisms that employ theprocessing skills to achieve success include utilizing ones strengths and compensating or correcting forones weaknesses (Stemler and others, 2009). Furthermore, all of three abilities of the theory ofsuccessful intelligence analytical, creative, and practical can significantly predict performance.


4/31

140

This research explains audit survival as the successful intelligence of TAs through the intelligenceattribute of the six dimensions of audit intelligence. Furthermore, five antecedents are treated asprocessing skills to achieve intelligence. Thus, TAs who have superior long-term audit vision, audit

morality mindset, audit learning competency, regulatory force and stakeholder pressure are more likely togain intelligence attribute, audit intelligence, and achieve successful intelligence, namely, audit survival.

Contingency theory

Contingency theory is applied to describe how audit intelligence achieves audit survival in a dynamicsituation. Based on the contingency theory, organizational structure is a function of context, and thiscontext is simultaneously determined by the external environment, history, and other organizationalfactors (Anderson and Lanen, 1999). Moreover, organizational structure becomes a competitive strategyto enhance organizational performance, which depends on a variety of endogenous and exogenouscontextual factors and audit practice. Exogenous factors are the environmental factors or external factorssuch as competition and environmental uncertainty (Govindarajan, 1984), whereas endogenous factorsare the organizational factors or internal factors such as implementation capability and culture.

Especially, this research attempts to adapt the structural contingency theory to explain the relationshipbetween the context and nature of audit experience that survives in the audit profession. The assumptionof the contingency theory is the contingency factor which is relevant to auditor intelligence. In thisresearch, contingency theory describes the moderating effects of valuable audit experience in therelationships between audit intelligence and antecedents (long-term audit vision, audit morality mindset,audit learning competency, regulatory force and stakeholder pressure). Valuable audit experience isviewed as the exogenous factors in auditing, affecting competitive advantage that has an effect onincreasing the number of auditors and audit performances.

3. RELEVANT LITERATURE REVIEWS AND RESEARCH HYPOTHESES

The audit intelligence, audit value increase, audit report quality, financial information usefulness, andaudit survival relationships of TAs in Thailand are elaborately examined. The conceptual, linkage, andresearch model presents the aforementioned relationships, as shown in Figure 1.

3.1 Audit Intelligence

The importance of audit intelligence increases for the audit professional. Audit intelligence representsknowledge which allows expert auditors to perform auditing tasks faster, with greater consistency, and toachieve a higher quality of decision-making. Previous studies show that auditors who are intelligent in theaudit task will take advantage of identifying problems, assessing risk, evaluating evidence and performingskeptical judgment (Nelson, 2009). Auditing is a challenging task, particularly when faced with a criticalissue involving an auditors professional judgment to solve their clients' problems. Clients requestprofessional service with a high quality of staff intelligence. Tan andLibby (1997) found that while tacitmanagerial knowledge is important for superior performance at the audit manager level, technical skillsare


5/31

141

FIGURE 1

CONCEPTUAL MODEL OF THE RELATIONSHIPS AMONG AUDIT INTELLIGENCE,

AUDIT VALUE INCREASE, AUDIT REPORT QUALITY, FINANCIAL INFORMATION USEFULNESS,

AND AUDIT SURVIVAL

important for superior performance at the staff level. The problem-solving abilities distinguish superiorperformance at the senior rank. These findings suggest that while personality/social attributes such astacit managerial knowledge are more important for superior performance at higher professional ranks,judgment/technical skills are more important for superior performance at the lower professional ranks.The quality of financial statement audits is dependent on the job performance of auditors. Ourunderstanding of the determinants of auditor job performance has evolved from concentration on thequality of judgments made based on technical knowledge and ability to overall job performance. Thisincludes tacit knowledge of a broad set of performance attributes, including the ability to objectivelyevaluate subordinates. However, relatively little is known about what distinguishes auditors whose overalljob performance is relatively superior (McKnight and Wright, 2011). Auditors must perform in accordancewith professional standards such as accounting and auditing standards. Auditors should plan and controlaudit task to sufficiently compile information and evidence in audit practice.

The early literature on intelligence in auditing focused on technical knowledge (Weber, 1980) andproblem-solving ability (Bonner and Lewis 1990). Koletar (2006) predicates that intelligence and auditfunctions are similar to each other and ask essentially the same question, although for different reasons:There is something going on out there that I should be concerned about. Ashton (1991) and Bonner andLewis (1990) found that industry expertise was positively correlated with an auditors ability to identify

problems within financial statements. Likewise, audit intelligence is defined as the ability to apply specificskill to perform complex audit tasks and more over provide superior quality service over that ofcompetitors (Bedard, 1991; Bedard and Chi, 1993).

Abbott and Parker (2000) identify industrial specialization as an auditor who acquires specific skill,experience and knowledge of client industry, and utilizes such skill to complete the audit task and providea higher quality of audit service to his clients. Moreover, auditors with high experience will gain moreeffective risk assessment (Bedard and Wright 1994; Yang, Moyes, Din, and Omar, 2010). In thisresearch, audit intelligence is defined as the expertise of auditors, including specific skills and experienceto perform more complex audit tasks and provide more superior quality service than other auditors(Nelson, 2009).


6/31

142

3.1.1 Internal Control Evaluation

Based on the importance of the internal controls of professional auditing, auditors have responsibilities tohelp the client recognize internal controls and the important roles played in corporate governance. The

primary objectives of the auditing standard-setters are to improve accuracy, reliability of corporatedisclosures, reliable financial reporting and to restore investor confidence. Auditing standards arerequired to report assessments of the effectiveness of the firms internal controls.

There is a rapidly-growing literature in the fields of accounting and auditing on internal control that relatesto financial statements (Ashbaugh-Skaife and others, 2008; Li and Rego, 2008), corporate governance(Engel, Hayes and Wang, 2007; Krishnan, 2005) and auditing (Ettredge, Li and Sun, 2006). The reliabilityof financial statements is claimed to be a function of a firms internal control effectiveness. Internal controlprovides reasonable assurance regarding the reliability of financial statements and prepares financialstatements for external purposes in accordance with generally accepted accounting principles.

As mentioned above, in this research, internal control evaluation is defined as an evaluation of watchingand checking internal control carefully in order to disclose operations and comply with applicable lawsand regulations. Internal control is relevant to the audit practice of preparing financial statements that arefairly presented in conformity with generally accepted accounting principles. Auditors obtain an in-depthunderstanding of the internal control structure and internal control evaluation under audit practices to beable to detect material misstatements in a clients financial statements. Therefore, audit value increase,audit report quality and financial information usefulness are under the influence of internal controlevaluation. Thus, the hypothesis is proposed as follows:

Hypothesis 1: The higher the internal control evaluation, the more likely that auditors will gaingreater (a) audit value increase, (b) audit report quality, (c) financial information usefulness, and(d) audit survival.

3.1.2 Operational Risk Assessment

The importance of risk assessment as a basis for audit practice is investigated with regard to auditeffectiveness (ODonnell and Schultz, 2005; Wilks and Zimbelman, 2004; Elliott, 2002). The relevant risk

reliability of financial reports is associated with specific events or transactions. Prior research indicatesthat risk assessment has provided for audit effectiveness as related to financial statements. Riskassessment has an effect on audit effectiveness.

The risk assessment process for financial statements is defined as identification, analysis, andmanagement of risks relevant to the preparation of financial statements that are presented fairly inconformity with generally accepted accounting principles. Risks relevant to financial statements includeexternal and internal events, and circumstances that may occur and affect an ability to initiate, authorize,record, process and report financial data consistent with the assertions of management in the financialstatements (Chang and others, 2008). The risk assessment process for financial report purposes isidentification, analysis, and management of risks relevant to the preparation of financial statements thatare presented fairly in conformity with generally accepted accounting principles.

Audit specialization responds to the role of the board when making judgments with respect to control riskassessment and the scope planning of audit tests (Cohen, Krishnamoorthy, and Wright, 2007). Thespecialized auditor know more than the non-specialized auditor about relevant industry factors whichinclude industry conditions such as the competitive environment, supplier and customer relationship, andtechnological development. These are conditions that may give rise to specific risks of materialmisstatements arising from the nature of the business or the degree of regulation. In this research,operational risk assessment refers to the risk assessment process for financial report purposes inidentification, analysis, and management of risks relevant to preparation of financial statements that arepresented fairly in conformity with generally accepted accounting principles, including providing auditeffectiveness as related to financial statements (ODonnell and Schultz, 2005). This prior researchindicates that operational risk assessment has provided audit effectiveness as related to financialstatements. Therefore, operational risk assessment has an effect on audit value increase, audit report


7/31

143

quality and financial information usefulness. It can have consequences on audit survival because auditorswish to survive the professional auditing. Thus, the hypothesis is proposed as follows:

Hypothesis 2: The higher the operational risk assessment is, the more likely that auditors will gaingreater (a) audit value increase, (b) audit report quality, (c) financial information usefulness, and(d) audit survival.

3.1.3 Best Audit Practice Focus

In the auditing context, best audit practices can be explained by the auditors perception of audit work toprovide an audit experience with respect and trust, commitment, ethics, continuous improvement, andunderstanding of a client (Lan et al., 2008). The objective of audit practice is to create the way orimplementation technique that auditors use in audit-planning effectiveness in order to achieve the goal ofauditing. They are very important and are used in audit marketing, finance, and accounting (Ulaga andChacour, 2001). This research, based on the auditors expertise, knowledge, learning competency andexperience in audit tasks is to improve the standard quality itself. The standard quality is related to theauditors physical attributes in which the auditors perception is of high quality regarding the audit task.Consequently, the auditor is satisfied and full of self-esteem. If an auditor has positive attitudes in theaudit task, working standards are likelyto increase. Therefore, the working standard leads to the clientsrespect and trust in the audit task (Weis and Schank, 2000).

The best auditors have advanced the characteristics of knowledge, skill, competence, due carefulness,ethics in decision-making (Struweg and Meintjes, 2008; McMillan, 2004), and professional skepticism(McMillan and White, 1993). Furthermore, being an auditor requires expert knowledge and experience inaudit independence and judgment (Smith, 2005; Cohen and Kol, 2004). Competency and skills theimportant tools to measure audit performance and affect audit credibility (Dorotta and others, 2006).

The expanded and extended role of best audit practices is now stretching beyond its traditional focus oncompliance and financial audit, to encompass an evaluation of the efficiency and effectiveness oforganizations, leading to achievement of their objectives. Best audit practices have become an auditmanagement tool for the auditor which can lead to a decision or choice among alternative good actions

(Solomon and Trotman, 2003). Auditors have implemented accurate judgment, as well as for auditperformance (Hui and Fatt, 2007). Likewise, best audit practices framework is necessary to evaluate theefficiency of audit methodology which can improve audit execution, business process development andcontrol risk. Best audit practices include those related to roles, responsibilities and authorities of the auditactivities, processes, and evaluation of audit credibility.

The prior research on auditing focuses on audit areas at both the individual and firm level. The individuallevel of auditing has many issues about the audit task so that the result of research needs to suggest theeffectiveness of auditor work, such as: audit quality, audit value, audit vision, audit experience and auditlearning until audit survival. In the literature reviews, audit task can be grouped into the following areas:ability to use standard and core principles for audit work (Joshi and Porth, 2003), interpersonalcommunication, the relationship between auditor and client (Hilton and Southgate, 2007; Dorotta andothers, 2006; Smith, 2005), knowledge, skill and expertise of audit techniques (Dittenhofer, 2001),

competitive environmental auditing, and stakeholder need ( Struweg and Meintijes, 2008; Jayalakshmyand others, 2005). In this research, best audit practice focus refers to an emphasis on audit managementtools for auditors that can lead to a decision or choice among alternative good actions (Solomon andTrotman, 2003).

Auditors have implemented accurate judgment, as well as audit performance (Hui and Fatt, 2007).Therefore, best audit practice focus has an effect on audit value increase, audit report quality andfinancial information usefulness. It can have consequences on audit survival because auditors wish tosurvive within their professional auditing. Thus, the hypothesis is proposed as follows:

Hypothesis 3: The higher the best audit practice focus is, the more likely that auditors will gaingreater (a) audit value increase, (b) audit report quality, (c) financial information usefulness, and(d) audit survival.


8/31

144

3.1.4 Audit Planning Orientation

Audit planning is an activity in the financial audit process. The International Audit Standard (ISAs) section

300, Planning an Audit of Financial Statements, (2006), states that the objective of audit planning is sothat it will be performed in an effective manner. The audit planning procedures are not isolated from otheraudit procedures and are held throughout the audit until the audit ends. Auditors will be updated at anytime after the audit plan to get more information from the auditing. ISAs section 300, Planning an Auditof Financial Statements, (2006), requires that auditors create an overall audit strategy that sets thescope, timing, direction of the inspection, and development of audit plans. Accordingly, Shoommuangpakand Ussahawanitchakit (2009) defined audit strategy as the way or technique of auditors. Its used inaudit practice in order to achieve the goal of auditing or audit effectiveness. In prior research, Bedard etal., (1999) regarded focus on audit planning in five types including focus, extent, audit method (nature),timing, and staffing. According to the research, timing and staffing are a resource, and focus and extentare the audit scope. Bedard et al., (1991) found that the audit method and audit resource depended oninherent or control risk factors, environment, client-industries and audit experience; but audit scope hadthe contrasting result and depended on judgment and information. Bedard et al., (2005) suggest that theauditor's ability to sufficiently and appropriately determine the nature, timing, and extent of auditevidences and allocation of audit resources are consistent with the level of audit risk assessment.

Researchers found a confused relationship between audit planning and audit procedure (Bedard et al.,1999). Many auditors practiced audit procedures the same as those who did in previous years (Bedard,Mock, and Wright, 1999; Hoffman and Zimbelman,2009). They changed their audit procedure when theimportant control environments were changed. This does not meet the requirements of a standard audit.ISAs section 300, Planning an Audit of Financial Statements, (2006), requires that auditors shouldconsider the risk and fraud of the audit planning and develop audit planning throughout the audit process.Auditors who did not comply with audit planning nor plan the audit planning would impact audit practiceefficiency, effectiveness, and quality of the audit report. In this research, audit planning orientation refersto the focus and ability to create strategy for the overall auditing. The auditing development plan is for thepurpose of the auditing performance to be effective. This includes present audit planning competencywhich is audit method efficiency, audit resource allocation quality, audit scope setting effectiveness, and

audit knowledge utilization, in order to provide achievement (Bedard et al., 2005). The development of theaudit task is used in all stages in the audit process. Audit planning is designed and developed throughrisk assessment and audit practice or audit method.Therefore, audit planning orientationhas an effect onaudit value increase, audit report quality, and financial information usefulness. It can have consequenceson audit survival because auditors wish to survive the professional auditing. Thus, the hypothesis isproposed as follows:

Hypothesis 4: The higher the audit planning orientation is, the more likely that auditors will gaingreater (a) audit value increase, (b) audit report quality, (c) financial information usefulness, and(d) audit survival.

3.1.5 Audit Review Awareness

The objective of the review is to ensure that the audits are in accordance with generally-accepted auditing

standards, company policies, and procedures which affect the review, since the feedback and effects onpreparer behavior after the reviews have not received much attention (Miller, Fedor, and Ramsay, 2006).The review process is shifting from a sequential to a more real-time process (Wilk, 2002). An importantfunction of the review process is to ensure the quality and work under the pressure of time which mayresult in the reduced performance of the auditor (Agoglia, Kida, and Hanno, 2003). A review can be doneby reading the workpaper and notes for following up and improving the general review. Knowledge is thekey factor in the spreadsheet. The review process will reduce the variance of the decision. The judgmentwill come from the review of the audit (Ramsay, 1994).

Audit reviewers play a critical role to improve the quality of the audit by ensuring that the conclusionsreach prevention (Tan and Shankar, 2010). The audit review process helps public accounting firmscontrol quality, and it also provides information for performance appraisal and timely feedback. Reviewersmust objectively assess their subordinates work for the review process to achieve the objectives (Tan


9/31

145

and Jamal, 2001). Reviewers often work with a regular group of preparers with whom reviewers becomefamiliar and with subordinates whose performance they must assess. This familiarity with subordinatescan improve the efficiency and effectiveness of the review process (Tan and Jamal, 2001). Auditing

standards require that auditors assess all relevant evidence in an unbiased and objective manner (Guiral,Ruiz and Rodgers, 2011), and require auditors to consider the reliability of the evidence they use inmaking judgments (Reimers and Fennema, 1999). The audit review process is an integral part of thequality control approach in audit practice and standards (Favere-Marchesi, 2006). Audit practice tends tobecome more interactive, including face-to-face discussions between the preparers and the reviewers(Wilk, 2002). The review process is a control mechanism implemented by CPA firms to enhance thequality of the workpaper documentation, conclusions made (Tan and Trotman, 2003), and properrendering of the audit judgments (Tan and Shankar, 2010). The review is a part of the quality controlmechanism in the implementation and auditing standards (Agoglia, Hatfield, and Brazel., 2009; Favere-Marchesi, 2006; Ismail and Trotman, 1999), and as a part of quality control procedures of the financialstatement audits. This documentation is prepared by the auditors and reviewed by supervisors (Miller,Fedor, and Ramsay, 2006).

Audit review is an important source of accountability for field auditors, and the anticipation of reviewincreases audit effort and improves audit performance (Payne, Ramsay, and Bamber, 2010). Audit reviewis a primary means of audit quality control and auditor training (Payne, Ramsay, and Bamber, 2010). Inaddition, the conduct of the audit, and external quality reviews are important tools to enhance audit quality(Favere-Marchesi, 2000). In this research, audit review awareness refers to the audits that perform tasksin accordance with generally accepted auditing standards, firm policies and procedures, including theanticipation of review, increasing audit effort and improving audit performance (Miller, Fedor, andRamsay, 2006; Payne, Ramsay, and Bamber, 2010). Audit review plays an important role in audit work.Therefore, audit review awarenesshas an effect on audit value increase, audit report quality and financialinformation usefulness. It can have consequences on audit survival because auditors wish to survive theprofessional auditing.Thus, the hypothesis is proposed as follows:

Hypothesis 5: The higher the audit review awareness is, the more likely that auditors will gaingreater (a) audit value increase, (b) audit report quality, (c) financial information usefulness, and

(d) audit survival.

3.1.6 Audit Information Integration Concern

Audit information integration leads internal auditors to assess overall and review the work that theyevaluate. The objectives of auditing information integration are the creation of an integrated audit systemfor the evaluation of management system performance including qualitative, environmental, economic,and financial audit subsystems (Karapetrovic and Willborn, 1998). Within the integration of financialstatements and information audits, it helps internal auditors to understand the impact and significance ofthe resulting control of information technology in financial statements (Chaney and Kim, 2007). Toevaluate how processes are automated and generally how applications facilitate the movement ofinformation in their relationships with interfacing applications, auditing integration helps internal auditorsto find the mistakes in financial statements that are caused by programming errors. Internal auditorsincrease the confidence of assurance in the correction of financial statements. Lack of effective

integration may result in a failure to converge in the audit task. The result is an inadequate overallconclusion about the process under evaluation (Chaney and Kim, 2007). Likewise, overall processauditing more easily uncovers the ineffectiveness of processes and more easily evaluates theperformance of risk management than does the spot focus. This helps firms improve their processes andincreases the effectiveness of risk management.

Therefore, the separation of auditing for all standards leads internal auditors to have a greater workload.The result requires a larger budget and the work is less efficient and effective. In order to improve theefficiency and effectiveness of the internal audit task, the integrating of internal audit procedures isnecessary (Brandts, 2007; Chaney and Kim, 2007). Auditing integration is likely to produce nothing, but ithas many benefits for firms. The advantage of auditing integration is decreasing internal audit time, auditcost and workload, more integrated compliance views, fewer risks, and increasing the quality of work(Bradts, 2007). Consequently, it decreases the amount of similar-looking assessments and audits. The


10/31

146

efforts integrate all compliance allow documenting and testing a control only once, and uses it for manydifferent regulations (Brandts, 2007). In this research, auditing information integration concern refers tolinking all audit procedures together into the audit system in order to achieve the audit goals, such as

financial reliability, process quality, information technology security, and environmental protection activity(Chaney and Kim, 2007). Therefore, audit information integration concernhas an effect on audit valueincrease, audit report quality, and financial information usefulness. It can have consequences on auditsurvival because auditors wish to survive the professional auditing. Thus, the hypothesis is proposed asfollows:

Hypothesis 6:The higher the audit information integration concern is, the more likely that auditorswill gain greater (a) audit value increase, (b) audit report quality, (c) financial informationusefulness, and (d) audit survival.

3.2 Audit Value Increase

Audit value is the value audited and verified by the auditors. Investors and other stakeholders must trustauditors if they are to attribute any value to the auditors reports (Power, 1999). Audit quality requiresauditors to design and apply audit procedures to detect material misstatements due to fraud. Priorresearch (Pentland, 1993) describes the detection of fraud is implicit in how the audit report providescomfort to the users. Financial users may expect some assurance that the financial statements are free ofmaterial misstatements due to fraud and/or errors, with explicit statements to that effect in the auditorsreports (Foster, McClain and Shastri, 2009).

Value increase is defined as the resources which can be used to exploit external circumstances that arelikely to bring in organizational revenues, or the resource which can be used to counterbalance negativeexternal situations that are likely to keep revenue from flowing in. (Coulter, 2002). From an economicperspective, organizations must be responsible to their stockholders who have owned resources bymaking earnings as a return on their investment (Watts and Zimmerman, 1986). On the other side ofeconomic responsibility, making profit serves employees and the community on a large scale due to itseffect on employment and the level of national income, called social welfare. If businessmen seebusiness as a part of ecology, then the existence of organizations or firms become interdependent of all

groups in the ecological system.

Auditors perceive audit quality in terms of strict adherence to GAAS requirements. Auditors working with acompany reduce their business risk by minimizing auditees dissatisfaction, avoiding litigation, and limitingthe damage to their reputation, which could result from audit failure. The demise of Arthur Andersen(2002) is an example of the ultimate results of audit failure (Al-Ajmi, 2009). In this research, audit valueincrease refers to the value audited and verified by the auditors which ensures that audit proceduresdetect material misstatements due to fraud, including avoiding litigation, and limiting the damage toreputation, which could result from audit failure (Higgin and Nandram, 2009). Therefore, audit valueincrease can be provided to enhance audit survival. Thus, the hypothesis is proposed as follows:

Hypothesis 7: The higher the audit value increase is, the more likely that auditors will gain greateraudit survival.

3.3 Audit Report Quality

Audit report is one of the very observable outputs available to outside stakeholders to evaluate auditefficiency (Habib and Bhuiyan, 2010).The audit report is the final outcome of the audit process, and is theonly external communication of what the auditor has done and concluded concerning the audit (Geigerand Raghunandan, 2002). The purpose of the audit report is to communicate the outcome of the auditorsreview of the financial statements. Auditors are required to investigate the clients financial statements incompliance with generally accepted auditing standards (GAAS) and provide an audit opinion to assureinvestors that the statements are free from material misstatements (Bhattacharjee, Moreno and Yardley,2005). The quality of financial statement audits is dependent on the job performance of auditors(McKnight and Wright, 2011). The audit report is defined as the reliable and timely auditors opinions toassure users that the financial statements are free from material misstatements(Garcia-Benau and Zorio,2004).


11/31

147

The objective of audit reports is the assurance of the financial statement user (Law, 2008), and theoutcome of the auditors review of the financial statement (Lim-u-sanno and Ussahawanitchakit, 2009).

The audit report quality can enhance timeliness and reliability for investors and creditors. It helpsmanagement maintain relationships with investors and creditors. The timeliness is an important factor ofthe financial statement. The investor and creditor use the information in the financial statement as a basisfor discussion. Futhermore, DeAngelo (1981) defines the audit report as an auditor who will both discoverand truthfully report material errors, misrepresentations, or omissions in the client's material financialstatements. Garcia-Benau and Zorio (2004) assent that reliable and timely auditors' opinions assureusers that the financial statements are free from material misstatements. Bhattacharjee et al., (2005),state that the audit opinion assures investors that the statements are free from material misstatement.The definitions show that the audit report is the auditors opinion about material misstatements withtimeliness and reliability. The quality of the audit report provides reasonable assurance and shows asummary in the form of opinion under recognition, measurement, and disclosures in the financialstatements on materiality.

The audit report is the final result of the auditors. Auditors must express their opinion in audit reports thatthe financial the statements are correct in accordance with general principles of accounting. Muchresearch uses audit reports to represent audit quality (DeAngelo, 1981; Davidson and Neu, 1993). Auditreports are a final result of auditing, and they represent audit work. The key feature of the audit report istimeliness and reliability (Lim-u-sanno and Ussahawanitchakit, 2009). Audit report quality is related tocredibility and success. The audit success is due to acceptance by clients, client satisfaction, andreliability of financial statements. In this research, audit report quality refers to the audit report of theauditors review of the financial statements that consists of significance and reliability of the auditorsopinion which, in turn, assures the financial statements are free from material misstatements (Martin,2007). The timeliness and clarity of audit reports are useful for decision-making as are the qualificationsof the auditors reservations regarding GAAP and GAAS (Al-Ajmi, 2009). This quality is good andexcellent for the interests and needs of users and other stakeholders (Habib and Bhuiyan, 2010; Martin,2007).Audit report quality has an effect on audit survival because auditors wish to survive theprofessional auditing. Therefore, audit report quality can be provided to enhance audit survival. Thus, the

hypothesis is proposed as follows:

Hypothesis 8: The higher the audit report quality is, the more likely that auditors will gain greateraudit survival.

3.4 Financial Information Usefulness

The purpose of financial information is to provide users with relevant and timely information for decision-making, including analysis for forecasting future performance. Decision-making is concerned with futureactions (Bello, 2009) or financial information that is the basis of internal financial information. This assistsmanagers to make business decisions such as providing new products, making or buying a product,product pricing, and creating a new type of product. Managerial accounting innovation literature indicatesthat managerial accounting innovation implementation has a significant influence on decision-making

effectiveness.

Information usefulness is perceived by inside and outside users, which can be used to decide correctlyand in a timely manner, following the objectives of the financial report defined by professional standards(Kieso, Weygandt, and Warfield, 2004). Krumwiede et al. (2007) indicated that it is useful to havefinancial information in the context of the decision process. The financial analysis is necessary in order toobtain the actual available data. In this research, financial information usefulness refers to the result ofgood reporting which can reflect the financial position and operating results that are accurate and reliable.Also they can be analyzed to forecast future performance (Fisher and Kingma, 2001). Therefore, financialinformation usefulness can be provided to enhance audit survival. Thus, the hypothesis is proposed asfollows:


12/31

148

Hypothesis 9: The higher the financial information usefulness is, the more likely that auditors willgain greater audit survival.

3.5 Audit SurvivalThe current structures of audit markets are the result of the long-term processes of auditor entry and exit.This raises two questions: 1) Why are some auditors more successful than the others? And 2) Whatmakes a new auditor a likely candidate for survival? (Brocheler and others, 2004). Prior research hasindicated that there is an important reason for auditors to step forward and show how serious they areabout their own survival (Mano, 2003). High education contributes to an auditors professionalcapabilities. Firms having auditors with a higher education level are expected to be more successful as anindependent audit firm and to be associated with greater longevity. Auditor-switching and the selection ofaudit quality by clients show fairly systematic relationships between audit firm characteristics (brandname) and clients futures (DeFond, 1992). As an auditor provides a professional service, human capitalcan be expected to play a key role in the explanation of auditor success and failure (Brocheler and others,2004). In this research, audit survival refers to the existence of a professional accountant who ismeasured by continuing clients, creation of new clients, and providing other services which the auditorsmust present fairly in the statement in accordance with GAAP (Mano, 2003).

3.6 Antecedents of Audit Intelligence

There are five antecedents: long-term audit vision, audit morality mindset, audit learning competency,regulatory force and stakeholder pressure.

3.6.1 Long-Term Audit Vision

Vision manifests the organizational value and expectations of stakeholders (Fereira and Otley, 2009). Inthe face of a changing environment, organizational vision and mission statements are symbols that guidethe process of deciding what to change and what to preserve in strategies and activities (Chenhell, 2003).Moreover, focusing on organizational and economic factors, which is the parameter of the CEOs vision,is the crucial catalyst for organizational survival (Tregoe and others, 1990). Long-term views provide aplatform on which the organization is built (Kober, Ng, and Paul, 2007).

Prior research shows that long-term vision is defined as a mind-set of the desired future state which isbuilt upon multidimensional performance concepts, including long-term financial success, long-termgrowth and social commitment (Davidson, 2005). Evidence from qualitative research, (Gratton, 1996)indicates the most important question to seven multi-national companies that can achieve long-termorganizational vision is, What are the factors which place at risk the capability to deliver long-termcorporate success? To gain successful implementation of organizational vision and strategies,executives must be prepared to identify the actions required to bridge into the future (Gratton, 1996). Inthis research, long-term audit vision refers to an auditors view of the future toward the desired audit task.Its intention and consideration is to achieve audit survival in the long-term (Davidson, 2005). Therefore,long-term audit visioncan be effective to gain greater audit intelligence. Thus, the hypothesis is proposedas follows:

Hypothesis 10: The higher the long-term audit vision is, the more likely that auditors will gain

greater (a) internal control evaluation, (b) operational risk assessment, (c) best audit practicefocus, (d) audit planning orientation, (e) audit review awareness, and (f) audit informationintegration concern.

3.6.2 Audit Morality Mindset

Professionals play strategic roles in the development and continuing existence of major economic,political, and cultural institutions of industrial society. Professionals identify the most feasible, desirable,and efficient solutions to important problems posed by clients or society. The relevance of professionalstasks to the basic needs of society, in combination with societys restricted ability to comprehend theirspecialized areas of expertise, justifies the critical examination of professionals and their roles. Therefore,a professionals role is to evaluate professional guidance and practice (Roberts and Dwyer, 1998). In theauditing profession, auditors perform self-governance over the auditing profession through the statements


13/31

149

on auditing standards, especially by the American Institute of Certified Public Accountants (AICPA) codeof professional conduct (AICPA, 1988c).

The auditing profession defines the code of ethics as a set of rules and principles designed to rule outundesirable activities. Other rules make explicit references to the public interest, integrity, objectivity andindependence of the membership. Karcher (1996) shows that code of professional morality is lookedupon as a step in the right direction to serve two purposes. First, it confirms to the general public that theprofession intends to protect the public interest. Second, the code provides guidance to the profession foracceptable behavior. Such rules outline the broader context within which auditors must exercise theiractivities. These sets of rules are distinctive elements of professionalism, which distinguish theseprofessions from other occupations (Dedoulis, 2006). The code of professional conduct establishesprinciples of conduct and specific rules of conduct that cannot be violated. Particularly, the code ofmorality is the comprehensive statement of values and principles guiding the daily work of auditors.

Previous studies indicate that auditors who perform auditing under the base line of professional morality,provide audit effectiveness and audit efficiency through audit planning quality and audit operationtransparency, which have made auditors report accuracy increase audit report value. In addition, Flint(1988) states that the code of ethics is a set of rules which are the basic principles of correct action formembers of a profession, designed to protect the institutional reputation of professionalism, such as topromote adherence to the kind of conduct that the public requires. Moreover, Meigs and Whittington(1989) argued that the code is a main element of professionalism which provides the members with theguidelines for maintaining a professional attitude and conducting themselves in a manner that willenhance the professional stature of their discipline. The code of ethics guides its members in theperformance of their professional duties, and observance of these rules is effective (Bakre, 2007). In thisresearch, audit morality mindset refers to the principles that are outlined for auditing professionals toaccept the obligation to serve the public interest, honor the public trust, and demonstrate commitment toprofessionalism that comprises independence, integrity, objectivity, secrecy, and competency (Bakre,2007). Therefore, audit morality mindset can be effective to gain greater audit intelligence. Thus, thehypothesis is proposed as follows:

Hypothesis 11: The higher the audit morality mindset is, the more likely that auditors will gaingreater (a) internal control evaluation, (b) operational risk assessment, (c) best audit practicefocus, (d) audit planning orientation, (e) audit review awareness, and (f) audit informationintegration concern.

3.6.3 Audit Learning Competency

Audit learning leads to new and higher levels of knowledge, both in internal and external audits forindividual knowledge (Wong and Chueng, 2008). The auditor is successfully developed via training inaudit tasks, which training is also important in professions such as nursing, engineering, law, andmedicine. The auditor necessarily takes a course before taking on the profession. Furthermore, as acompetence requirement for audit professionals, auditors must finish training required by the InternationalFederation of Accountants (IFAC) and the International Accounting Education Standard Board (IAESB),that regulate the guidance for auditors improvement. It is also for those under their authority in a

professional capacity who must also have appropriate training and supervision to be competent toundertake the work they perform. Education and development for acquiring and maintaining thecapabilities of the audit professional include: (a) advanced professional education pursued at academicinstitutions or through the programs of professional bodies; (b) on-the-job training and experienceprograms; (c) off-the-job training; and (d) continuing professional development (CPD) courses andactivities. The IAESB recognizes that assessing capability measuring output is likely to be superior tomeasuring input. Output-based approaches concentrate on measuring the development and maintenanceof competence actually achieved through learning, rather than measuring the various learning activities.Thus, an auditor who has continued learning by training and has pursued relevant news such asaccounting and auditing standard announcements, professional regulations, and economic changes willincrease his competence.


14/31

150

Furthermore, audit skills, beliefs, schemas, and behaviors can be modified or changed for the better fromcontinuous professional learning, (Real, Leal and Roldan, 2006; Wong and Cheung, 2008). Audit learningleads to new and higher levels of knowledge for both the internal audit (Wong and Chueng, 2008) and the

external audit. Furthermore, individual knowledge can be constantly renewed, widened, and improved(Goh and Richards, 1997). Also improved extensive and updated knowledge bases help the auditor tomake a special effort to keep up with facts, trends, and developments. The audit context has lessempirical statements of the audit learning. The ongoing process of forming, storing, and retrievingmodifies mental models and schemas in a response to the audit of situations and environments (Choe,2004). This learning is the aware or unaware process where by tacit and/or explicit knowledge is createdby a person through sensing and interpretating information (Wouters and Wilderom, 2008). In thisresearch, audit learning competency refers to an auditors continuous learning attitude in which a varietyof knowledge is acquired mainly through education and training in accounting and auditing programs.These programs have pursued relevant news such as accounting and auditing standard announcement,dynamic regulation, and economic change, including improved audit performance, communication orinteraction the external environments such as clients and others, and conservation among auditors(Wong and Chueng, 2008). Moreover, the auditor has more knowledge to demonstrate learning ability.Therefore, audit learning competency can be effective to gain greater audit intelligence. Thus, thehypothesis is proposed as follows:

Hypothesis 12:The higher the audit learning competency is, the more likely that auditors will gain(a) internal control evaluation, (b) operational risk assessment, (c) best audit practice focus, (d)audit planning orientation, (e) audit review awareness, and (f) audit information integrationconcern.

3.6.4 Regulatory Force

Regulations are a part of the external effect on internal audit practices (Seal, 2006). The regulations affectdirect practices which is something regulation provides as an alternative for audit practice. Theregulations are not only limited to audit standards, but are also to rule out force by governance, and torule the general clients operations, such as the rules of the board of investment. In Thailand, the auditormay be under many regulations. Enforcement of each regulation is different. Each auditor is under

different regulations depending on rights and licenses. However, audit practices of auditors also havesimilar standards. The regulator has their regulations which are different from those that the regulatorenforces. It lends to different competencies in audit planning.

Prior research has investigated the relationship between regulation forces and audit work (Sinchuen andUssahawanitchakit, 2010; Boonmunewai and Ussahawanitchakit, 2010) but it has not related it tomanagement audit effectiveness (Srikarsem and Ussahawanitchakit, 2010). However, the regulationforce would not have a direct effect with the audit work. In this research, regulatory force refers to rulesand regulations that effect audit practice of which some rules or/and regulations provide alternatives inthe audit task (Seal, 2006). Therefore, regulatory force can affect greater audit intelligence. Thus, thehypothesis is proposed as follows:

Hypothesis 13:The higher the regulatory force is, the more likely that auditors will gain greater (a)

internal control evaluation, (b) operational risk assessment, (c) best audit practice focus, (d) auditplanning orientation, (e) audit review awareness, and (f) audit information integration concern.

3.6.5 Stakeholder Pressure

Stakeholder pressures affect audit conduct, which also relate to performance outcomes (Siegel andWright, 2006; Boons and Wagner, 2009). Generally, stakeholder requirements are an increasing relevanttopic for auditors involved in audit practice. The interest is inspired by the increasing recognition thatsustainability challenges of the empirical findings show that stakeholder pressures drive auditors actions(Krajnc and Glavic, 2005; Qi and others, 2010). Wood (1991) concurs when stating that social issues andstakeholder concerns affect auditors decision-making. Burke and Logsdon (1996) have seen the totalpressure from different stakeholder groups have positively correlated with the level of activities andperformance. Pressure from different stakeholder domains therefore has correlated with auditperformance. This is because high pressure implies that auditors have had to ensure more legitimacy in


15/31

151

their operations, thus being forced to define proactive strategies which imply higher levels ofperformance.

In prior research, Sarkis and others (2010) found that stakeholder pressure impacts auditors actionconsistent with social expectations. Similarly, Freeman (1984) took the position that auditors produceexternalities that affect many parties which are both internal and external. Externalities often cause thestakeholder to increase pressure on auditors to reduce negative impacts and increase positive ones.Thus, stakeholder engagement is important in order for auditors to establish social legitimacy. Moreover,audit capabilities that foster cooperation and learning are a critical part of stakeholder engagement.Responding to stakeholder pressure requires audit-learning capabilities, especially when there areconflicting pressures derived from a variety of stakeholders (Roome and Wijen, 2006). Thus, it facilitatesthat the conducted audits were associated with a wider array of stakeholder pressures in that they weremore likely to have greater perceived stakeholder influence from internal, regulatory and externalstakeholders (Darnall, Seol and Sarkis, 2009). In this research, stakeholder pressure refers to auditorswho perceive stakeholder pressures that can affect or be affected by the achievement of the auditobjective (Sarkis and others, 2010). Therefore, stakeholder pressure can be effective to gain greater auditintelligence.Thus, the hypothesis is proposed as follows:

Hypothesis 14: The higher the stakeholder pressure is, the more likely that auditors will gaingreater (a) internal control evaluation, (b) operational risk assessment, (c) best audit practicefocus, (d) audit planning orientation, (e) audit review awareness, and (f) audit informationintegration concern.

3.7 Valuable Audit Experience

Experience is used to explain the advantage relationship between independent and dependent variablessuch as the recommendation that a moderating effect of experience has an interaction with sales forceperceptions, attitudes, and behavior (Russ and McNeilly, 1995). Joshi, Kathuria and Porth (2003)investigated experiences moderating effect on relationships between managers and manufacturingperformance. To utilize the concepts and relevant studies of audit experience, auditors have moreexperience in auditing strength and audit dynamism. Auditors use analytical skills in the audit to interpret

and integrate evidence in the audit process (Kaplan, O'Donnell and Arel, 2008). Audit experience refers to skills which are obtained from audit tasks concerning relevant audit standardsand accounting guidance, critical analysis, demonstrating professional skepticism, and error-specificexperiences (financial misstatements), which affect audit task and audit performance. Zhau and Wong(2008) defined audit experience as auditors individually learning from successes and mistakes based ontheir prior experience. Audit experience has expanded on knowledgeable judgment performance in thatauditors gain experience by developing and accumulating persuasive knowledge (Kaplan, O'Donnell andArel, 2008). Audit experience is used in all stages of the audit task. The auditor applies experience inaudit planning. Audit experience leads to knowledge creation and accumulation to help auditors correct apass (Meschi and Metais, 2006), and knowledge is a condition for the development of dynamic action.

Essentially, auditors should be dynamic in their experience in audit techniques when they gather audit

evidence from the audit process (Dixon and others, 2004). Moreover, auditing experience also includesknow-how that requires a specific action from the individual auditor to consider expertise in dynamicjudgment (Bonner and Lewis, 1990). In this research, valuable audit experience refers to the value ofaudit experience as auditors develop and accumulate persuasive knowledge, including both direct andindirect experience, as well as individually learning from successes and mistakes based on their priorexperience (Kaplan and others, 2008; Zhau and Wong, 2008). Therefore, valuable audit experience canincrease the competency of the relationship among antecedents (long-term audit vision, audit moralitymindset, audit learning competency, regulatory force and stakeholder pressure) and audit intelligence.Thus, the hypotheses are proposed as follows:

Hypothesis 15: Valuable audit experience will result in positive relationships between the long-term audit vision and (a) internal control evaluation, (b) operational risk assessment, (c) best audit


16/31

152

practice focus, (d) audit planning orientation, (e) audit review awareness, and (f) audit informationintegration concern.

Hypothesis 16: Valuable audit experience will result in positive relationships between the auditmorality mindset and (a) internal control evaluation, (b) operational risk assessment, (c) best auditpractice focus, (d) audit planning orientation, (e) audit review awareness, and (f) audit informationintegration concern.

Hypothesis 17: Valuable audit experience will result in positive relationships between the auditlearning competency and (a) internal control evaluation, (b) operational risk assessment, (c) bestaudit practice focus, (d) audit planning orientation, (e) audit review awareness, and (f) auditinformation integration concern.

Hypothesis 18: Valuable audit experience will result in positive relationships between theregulatory force and (a) internal control evaluation, (b) operational risk assessment, (c) best auditpractice focus, (d) audit planning orientation, (e) audit review awareness, and (f) audit informationintegration concern.

Hypothesis 19: Valuable audit experience will result in positive relationships between thestakeholder pressure and (a) internal control evaluation, (b) operational risk assessment, (c) bestaudit practice focus, (d) audit planning orientation, (e) audit review awareness, and (f) auditinformation integration concern.

4. RESEARCH METHODS

4.1 Sample Selection and Data Collection Procedure

In this study, the sample was selected from the Revenue Department, Ministry of Finance database onFebruary 4, 2013 of 2,688 tax auditors (TAs) in Thailand of which 1,740 TAs were selected as the

sample. A mail survey procedure via questionnaire was used for data collection. The key informants weretax auditors (TAs) in Thailand. With regard to the questionnaire mailing, 209 were usable. Thequestionnaire was evaluated by an academic professional in terms of content validity and face validity.

In order to protect bias, the early and late respondents were tested for non-response-bias according toArmstrong and Overton (1977). Accordingly, the test results showed no significant difference. Therefore,there is no problem for a non-response bias.

4.2 Variables

The measure development procedures involve the multiple-item development for measuring eachconstruct in the conceptual model. To measure each construct in the conceptual model, all of thevariables gained from the survey are measured by a five-point Likert scale, ranging from 1 (stronglydisagree) to 5 (strongly agree).

4.2.1 Dependent Variable

Audit survival refers to the existence of professional accountants who are measured by continuing clients,creating new clients, and providing other services which the auditors must present fairly in accordancewith GAAP.

4.2.2 Independent Variables

Internal control evaluation refers to the auditors in-depth understanding of the internal control structureand internal control evaluation under audit practices, to be able to detect material misstatements inclients financial statements.

Operational risk assessmentrefers to the risk assessment process for financial report purposes which areidentification, analysis, and management of risks relevant to the preparation of financial statements.


17/31

153

These are presented fairly in conformity with generally accepted accounting principles, including providedaudit effectiveness as related to financial statements.

Best audit practice focusrefers to an emphasis on audit management tools for the auditor which can leadto a decision or choice among alternative good actions. Auditors have implemented accurate judgment,as well as audit performance.

Audit planning orientationrefers to the focus on an ability to create strategy for the overall auditing andauditing development plan. This is for the purpose of the auditing performance to be effective, includingpresent audit planning competency, which is audit method efficiency, audit resource allocation quality,audit scope-setting effectiveness, and plus audit knowledge utilization in order to provide achievement.

Audit review awareness refers to the audits that perform tasks in accordance with generally acceptedauditing standards and firm policies and procedures, including the anticipation of reviews that increaseaudit effort and improve audit performance, which audit review plays an important role in audit work.

Audit information integration concern refers to linking all the audit procedures together into the auditsystem in order to achieve the audit goals, such as financial reliability, process quality, informationtechnology security, and environmental protection activity.

4.2.3 Mediating Variables

Audit value increase refers to the value audited and verified by the auditors which ensure that auditprocedures detect material misstatements due to fraud, including avoiding litigation and limiting thedamage to their reputation, possibly resulting from audit failure.

Audit report quality refers to the audit report of the auditors review of the financial statements thatconsists of significance and reliability of the auditors opinion that assures the financial statement ofmaterial misstatement, timeliness and clarity of audit report useful for decision-making and the

qualification of the auditors reservations regarding GAAP and GAAS as the quality which is goodnessand excellence for the interests and needs of users and other stakeholders.

Financial information usefulness refers to the result of good reporting which can reflect on the financialposition and operating results that are accurate and reliable, and can be analyzed to forecast futureperformance.

4.2.4 Antecedent Variables

Long-term audit visionrefers to an auditors view of the future toward the desired audit task. Its intentionand consideration is to achieve audit survival in the long term.

Audit morality mindsetrefers to the principles outlined for auditing professionals to accept the obligationto serve the public interest, honor the public trust, and demonstrate commitment to professionalism that

comprises independence, integrity, objectivity, secrecy, and competency.

Audit learning competency refers to an auditors continuous learning attitude, namely, that a variety ofknowledge is acquired mainly through education and training in accounting and auditing programs. Theseare pursued in relevant news such as accounting and auditing standard announcements, dynamicregulations, and economic changes, including improvements in audit performance, communication orinteraction with the external environments (such as with clients and others), and conservation amongauditors.

Regulatory force refers to rules and regulatory effects on audit practice of which some rules andregulations provide alternatives to the audit task.


18/31

154

Stakeholder pressurerefers to auditors who perceive stakeholder pressures that can affect or be affectedby the achievement of the audit objective.

4.2.5 Moderating VariableValuable audit experience refers to the value of audit experience as auditors develop and accumulatepersuasive knowledge of which both direct and indirect experience includes individual learning fromsuccesses and mistakes based on their prior experience.

4.2.6 Control VariablesAs to gender, prior research suggests that sex-role stereotypes negatively influence the evaluation offemale auditors, thus reducing the upward mobility of women to partnerships in public accounting. Theresult shows that the gender differences are comprised of impersonal qualities, by arguing that scarcity ofwomen in top management positions is due to female personality traits and behavior patterns that makewomen less-suited than men for leadership roles (Hull and Umansky, 2002). Thus, this researchdemonstrates that gender that has an impact on audit intelligence and audit survival. For analysis, genderis represented by a dummy variable including 0 (male), and 1 (female).

Audit Experience. Auditor experience affects the relationships among audit intelligence, audit value, auditreport and audit survival. Prior research suggests that firms with longer auditor tenure provide morereliable financial information (Ghosh and Moon, 2005). Auditor tenure is measured by a dummy variableincluding 0 (less than or equal to 10 years), and 1 (more than 10 years).

4.3 Methods

Here, factor analysis was implemented to assess the underlying relationships of a large number of itemsand to determine whether they can be reduced to a smaller set of factors. The factor analysis wasconducted separately on each set of the items, representing a particular scale due to limitedobservations. This analysis has a high potential to inflate the component loadings. Thus, a higher rule-of-thumb, a cut-off value of 0.40, was adopted (Nunnally and Bernstein, 1994). All factor loadings aregreater than the 0.40 cut-off and are statistically significant. The reliability of the measurements wasevaluated by Cronbachs alpha coefficients. In the scale reliability, Cronbachs alpha coefficients are

greater than 0.70 (Nunnally and Bernstein, 1994). The scales of all measures appear to produceinternally consistent results; thus, these measures are deemed appropriate for further analysis becausethey express an accepted validity and reliability in this study. Table 1 presents the results for both factorloadings and Cronbachs alpha for multiple-item scales used in this study.

The ordinary least squares (OLS) regression analysis is used to test and examine the hypothesizedrelationships between audit intelligence, audit value increase, audit report quality, financial informationusefulness, audit survival, long-term audit vision, audit morality mindset, audit learning competency,regulatory force, stakeholder pressure, and valuable audit experience of tax auditors (TAs) in Thailand.Thus, the aforementioned variables play significant roles in explaining the research relationships.Because the dependent variable, independent variables, and the control variables in this study wereneither nominal data nor categorical data, OLS is an appropriate method for examining the hypothesizedrelationships (Aulakh, Kotabe and Teegen, 2000). With the interest of understanding the relationships in

this study, the research model of these relationships is depicted as follows.

Equation 1: AVI = 01+ 1ICE + 2ORA + 3BAP + 4APO + 5ARA + 6AII+ 7GEN +8EXP +

1Equation 2: ARQ = 02+ 9ICE + 10ORA + 11BAP + 12APO + 13ARA + 14AII +15GEN +

16EXP + 2

Equation 3: FIU = 03+ 17ICE + 18ORA + 19BAP + 20APO + 21ARA + 22AII + 23GEN +

24EXP + 3Equation 4: AUS = 04+ 25ICE + 26ORA + 27BAP + 28APO + 29ARA + 30AII + 31AVI +

32ARQ + 33FIU +34GEN + 35EXP + 4

Equation 5: ICE = 05+ 36LAV + 37AMM + 38ALC + 39REF + 40STP+ 41GEN + 42EXP +

5


19/31

155

Equation 6: ICE = 06+ 43LAV + 44AMM + 45ALC + 46REF + 47STP + 48VAE

+49(LAV*VAE) + 50(AMM*VAE) + 51(ALC*VAE) + 52(REF*VAE) +

53(STP*VAE) + 54GEN + 55EXP + 6

Equation 7: ORA = 07+ 56LAV + 57AMM + 58ALC + 59REF + 60STP + 61GEN + 62EXP +7

Equation 8: ORA = 08+ 63LAV + 64AMM + 65ALC + 66REF + 67STP + 68VAE

+69(LAV*VAE) + 70(AMM*VAE) + 71(ALC*VAE) + 72(REF*VAE) +

73(STP*VAE) + 74GEN + 75EXP + 8

Equation 9: BAP = 09+ 76LAV + 77AMM + 78ALC + 79REF + 80STP + 81GEN +82EXP +

9

Equation 10: BAP = 10+ 83LAV + 84AMM + 85ALC + 86REF + 87STP + 88VAE

+89(LAV*VAE)+ 90(AMM*VAE) + 91(ALC*VAE)+92(REF*VAE)

+93(STP*VAE) + 94GEN + 95EXP + 10

Equation 11: APO = 11+ 96LAV + 97AMM + 98ALC + 99REF + 100STP + 101GEN +102EXP

+ 11

Equation 12: APO = 12+ 103LAV + 104AMM + 105ALC + 106REF + 107STP + 108VAE

+109(LAV*VAE) + 110(AMM*VAE) + 111(ALC*VAE) + 112(REF*VAE)

+113(STP*VAE) + 114GEN + 115EXP + 12

Equation 13: ARA = 13+ 116LAV + 117AMM + 118ALC + 119REF + 120STP + 121GEN +

122EXP + 13

Equation 14: ARA = 14+ 123LAV + 124AMM + 125ALC + 126REF + 127STP + 128VAE

+129(LAV*VAE) + 130(AMM*VAE) + 131(ALC*VAE) + 132(REF*VAE)

+133(STP*VAE) + 134GEN + 135EXP + 14

Equation 15: AII = 15+ 136LAV + 137AMM + 138ALC + 139REF + 140STP + 141GEN +

142EXP + 15

Equation 16: AII = 16+ 143LAV + 144AMM + 145ALC + 146REF + 147STP + 148VAE +

149(LAV*VAE) + 150(AMM*VAE) + 151(ALC*VAE) + 152(REF*VAE) +

153(STP*VAE) + 154GEN + 155EXP + 16

TABLE 1RESULTS OF MEASURE VALIDATION

Items Factor Loadings Cronbachs Alpha

Internal Control Evaluation (ICE) 0.69-0.99 0.92Operational Risk Assessment (ORA) 0.72-0.95 0.88Best Audit Practice Focus (BAP) 0.81-0.90 0.89Audit Planning Orientation (APO) 0.73-0.90 0.89Audit Review Awareness (ARA) 0.71-0.95 0.88Audit Information Integration Concern (AII) 0.79-0.86 0.87Audit Value Increase (AVI) 0.78-0.89 0.87Audit Report Quality (ARQ) 0.83-0.91 0.92

Financial Information Usefulness (FIU) 0.82-0.87 0.81

Audit Survival (AUS) 0.84-0.88 0.81Long-Term Audit Vision (LAV) 0.84-0.91 0.90Audit Morality Mindset (AMM) 0.79-0.91 0.92Audit Learning Competency (ALC) 0.74-0.88 0.84Regulatory Force (REF) 0.83-0.95 0.92Stakeholder Pressure (STP) 0.79-0.87 0.85Valuable Audit Experience (VAE) 0.83-0.89 0.88


20/31

156

5. RESULTS AND DISCUSSION

Table 2 presents the descriptive statistics and correlation matrix for all variables. With respect to potential

problems relating to multicollinearity, Variance Inflation Factors (VIFs) were used to provide informationon the extent to which non-orthogonality among independent variables inflates standard errors. The VIFsrange from 1.01 to 8.40, well below the cut-off value of 10 recommended by Neter, Wasserman andKutner (1985), meaning that the independent variables are not correlated with each other. Therefore,there are no substantial multicollinearity problems encountered in this study.

Table 3 shows the results of OLS regression analysis of the relationships between audit intelligence, auditvalue increase, audit report quality, financial information usefulness, and audit survival. Audit intelligenceincludes internal control evaluation, operational risk assessment, best audit practice focus, audit planningorientation, audit review awareness and audit information integration concern. The results are based onfour equations. The results affect the six dimensions of audit intelligence on audit value increase, auditreport quality, financial information usefulness, and audit survival.

Internal control evaluation is significantly positively related to audit value increase (b1 = 0.11, p < 0.1).Thus, Hypothesis 1a is supported, but Hypotheses 1b, 1c, and 1d are not supported. Operationalrisk assessment is not related to audit value increase, audit report quality, financial informationusefulness, and audit survival. Thus, Hypotheses 2a, 2b, 2c, and 2d are not supported. Best auditpractice focus is significantly positively related to audit value increase (b3= 0.26, p < 0.01), audit reportquality (b11 = 0.32, p < 0.01), and financial information usefulness (b19 = 0.30, p < 0.01). Thus,Hypotheses 3a, 3b, and 3c are supported, and 3d is not supported. Audit planning orientation issignificantly positively related to audit survival (b28= 0.30, p < 0.05).

TABLE 2

DESCRIPTIVE STATISTICS AND CORRELATION MATRIX

Variables ICE ORA BAP APO ARA AII AVI ARQ FIU AUS LAV AMM ALC REF STP VAE GEN EXP

Mean 4.00 4.17 4.17 4.20 4.24 4.10 4.08 4.15 4.08 4.07 4.27 4.32 4.24 4.09 4.01 4.28S.D. 0.63 0.55 0.52 0.53 0.55 0.56 0.61 0.58 0.60 0.65 0.57 0.56 0.53 0.60 0.58 0.54

ICE

ORA .61***

BAP .64*** .67***

APO .66*** .59*** .75***

ARA .59*** .57*** .71*** .90***

AII .60*** .60*** .80*** .77*** .72***

AVI .58*** .54*** .70*** .71*** .73*** .66***

ARQ .52*** .56*** .71*** .70*** .74*** .65*** .82***

FIU .52*** .51*** .68*** .66*** .70*** .65*** .80*** .92***

AUS .46*** .44*** .58*** .68*** .69*** .53*** .71*** .70*** .68***

LAV .50*** .58*** .66*** .70*** .71*** .61*** .71*** .73*** .70*** .66***

AMM .45*** .51*** .71*** .68*** .69*** .66*** .71*** .73*** .71*** .69*** .79***

ALC .43*** .42*** .58*** .62*** .64*** .53*** .61*** .61*** .56*** .58*** .70*** .69***

REF .43*** .47*** .53*** .55*** .56*** .48*** .56*** .61*** .61*** .56*** .59*** .62*** .65***

STP .50*** .53*** .62*** .67*** .70*** .59*** .69*** .70*** .67*** .61*** .70*** .68*** .66*** .67***

VAE .53*** .52*** .66*** .71*** .72*** .66*** .69*** .70*** .68*** .65*** .72*** .71*** .68*** .59*** .70***

GEN -.05 -.08 -.06 -.07 -.05 -.10 -.07 -.11 -.11 -.04 -.11 -.07 -.03 .03 -.03 -.18***

EXP .10 .04 -.01 .07 .04 .08 .05 -.01 .02 -.02 .02 -.03 -.04 -.04 .02 .08 -.08***

p


21/31

157

integration concern is significantly positively related to financial information usefulness (b22 = 0.14, p

Documents

Audit Intelligence and Audit Survival an Empirical Research of Tax Auditor