UNIVERSITY OF GHANA COLLEGE OF HUMANITIES DETERMINANTS OF DYSFUNCTIONAL AUDIT BEHAVIOUR: THE MODERATING ROLE OF ETHICAL VALUES BY NICHOLAS MENSAH (10875883) THIS THESIS IS SUBMITTED TO THE UNIVERSITY OF GHANA, LEGON, IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF MASTER OF PHILOSOPHY (MPHIL) DEGREE IN ACCOUNTING. SEPTEMBER, 2023. University of Ghana http://ugspace.ug.edu.gh i DECLARATION I, Nicholas Mensah, hereby declare that this thesis is the result of the research I conducted and has not been offered by another person for academic award in this university or any other university. The study appropriately acknowledges all the references used. 2nd October, 2023. ………………………………… .………………… Nicholas Mensah Date (10875883) University of Ghana http://ugspace.ug.edu.gh ii CERTIFICATION We certify that this thesis was supervised per the guidelines of the University of Ghana. …………………………………………. …………………………… PROF. GODFRED MATTHEW YAW OWUSU DR. RITA AMOAH BEKOE (SUPERVISOR) (SUPERVISOR) 2nd October, 2023 2nd October, 2023 ……………………. …………………… DATE DATE University of Ghana http://ugspace.ug.edu.gh iii DEDICATION I dedicate this research to my lovely parents, Mr. Moses and Mrs. Esther Ohipeni, and my brothers Newman Asiedu, Edmund Teye and Richmond Mensah for their unwavering support during my academic journey. God richly bless you. Most importantly, I also dedicate this work to Prof. Godfred Matthew Yaw Owusu and Dr. Rita Amoah Bekoe. Their guidance and training made this journey much more worthwhile. University of Ghana http://ugspace.ug.edu.gh iv ACKNOWLEDGEMENT First, I give thanks to the Almighty God for the wisdom, strength and grace He bestowed on me which enabled me to complete this thesis. I am also sincerely thankful to my supervisory team, Prof. Godfred Matthew Yaw Owusu and Dr. Rita Amoah Bekoe, for their guidance during this entire period. Thank you for your patience and directions. I thank God for the amazing opportunity and honour I had to be under your tutelage. I am grateful to Mr. Richard Addae, Mr. Justice Agyemang and Mr. Derrick Awuah Peasah for their steadfast support and encouragement. I also appreciate all members of faculty of the Accounting Department of the University of Ghana Business School for their constructive criticisms, suggestions and corrections which helped shape this work. To my course mates, I am grateful for your help at various times. Special thanks to my brothers, parents and amazing friends who encouraged and prayed for me. Finally, I thank all my respondents who took precious time off from their busy schedules to complete my questionnaire. University of Ghana http://ugspace.ug.edu.gh v TABLE OF CONTENTS DECLARATION ............................................................................................................................. i DEDICATION ............................................................................................................................... iii ACKNOWLEDGEMENT ............................................................................................................. iv TABLE OF CONTENTS ................................................................................................................ v LIST OF TABLES ......................................................................................................................... ix LIST OF FIGURES ........................................................................................................................ x LIST OF ABBREVIATIONS ........................................................................................................ xi ABSTRACT .................................................................................................................................. xii CHAPTER ONE ............................................................................................................................. 1 INTRODUCTION .......................................................................................................................... 1 1.0 Background ...................................................................................................................... 1 1.1 Problem Statement ........................................................................................................... 4 1.2 Research Objectives .............................................................................................................. 7 1.3 Research Questions ............................................................................................................... 8 1.4 Significance of the Study ...................................................................................................... 8 1.5 Organization of the Study ..................................................................................................... 9 1.6 Chapter Summary ................................................................................................................ 10 CHAPTER TWO .......................................................................................................................... 11 LITERATURE REVIEW ............................................................................................................. 11 2.0 Introduction ......................................................................................................................... 11 2.1 Dysfunctional Behaviour..................................................................................................... 11 2.2 Dysfunctional Audit Behaviour .......................................................................................... 12 2.2.1 Under Reporting of Time (URT) .................................................................................. 14 2.2.2 Premature Sign-Off Behaviours (PMSO) ..................................................................... 15 2.2.3 Superficial Review of Audit Evidence ......................................................................... 16 2.2.4 Altering or Replacing Audit Procedures ...................................................................... 17 2.3 Audit Quality ....................................................................................................................... 17 2.4 Empirical Review ................................................................................................................ 18 2.4.1 Auditors’ Acceptance of Dysfunctional Audit Behaviour ........................................... 18 2.4.2 Dysfunctional Audit Behaviour and Audit Quality ...................................................... 25 University of Ghana http://ugspace.ug.edu.gh vi 2.5 Theoretical Review ............................................................................................................. 27 2.5.1 Fraud Triangle Theory (FTT) ....................................................................................... 28 2.5.2 Fraud S.C.O.R.E Model................................................................................................ 28 2.6 Conceptual Framework ....................................................................................................... 32 2.7 Hypothesis Development .................................................................................................... 34 2.7.1 Time Budget Pressures and Dysfunctional Audit Behaviour ....................................... 34 2.7.2 Opportunity and Dysfunctional Audit Behaviour ........................................................ 36 2.7.3 Rationalization and Dysfunctional Audit Behaviour .................................................... 38 2.7.4 Ego and Dysfunctional Audit Behaviour...................................................................... 39 2.7.5 Capability and Dysfunctional Audit Behaviour ........................................................... 40 2.7.6 Ethical Values and Dysfunctional Audit Behaviour ..................................................... 41 2.7.6.1 The Moderating Role of Ethical Values ........................................................................ 42 2.9 Chapter Summary ................................................................................................................ 43 CHAPTER THREE ...................................................................................................................... 44 METHODOLOGY ....................................................................................................................... 44 3.0 Introduction ......................................................................................................................... 44 3.1 Research Paradigm .............................................................................................................. 44 3.2 Research Design .................................................................................................................. 45 3.3 Unit of Analysis .................................................................................................................. 45 3.4 Population and Sample Size ................................................................................................ 46 3.5 Sampling Technique ............................................................................................................ 47 3.6 Data and Sources of Data .................................................................................................... 48 3.7 Questionnaire Design .......................................................................................................... 48 3.8 Measurement of Study Constructs ...................................................................................... 49 3.9 Ethical Considerations......................................................................................................... 50 3.10 Pilot Study ......................................................................................................................... 50 3.11 Pilot Testing of Questionnaires ......................................................................................... 51 3.12 Pilot Testing of the Study .................................................................................................. 52 3.13 Administration of Questionnaire ....................................................................................... 52 3.14 Data Analysis Technique .................................................................................................. 54 3.15 Structural Equation Modelling .......................................................................................... 54 3.15.1 Covariance-Based Structural Equation Model (CB-SEM) ......................................... 55 University of Ghana http://ugspace.ug.edu.gh vii 3.15.2 Partial Least Square Structural Equation Model (PLS-SEM) .................................... 56 3.15.3 Guidelines for Selection of CB-SEM or PLS-SEM ................................................... 57 3.16 Assessing the Measurement Model ................................................................................... 60 3.16.1 Internal Consistency Reliability ................................................................................. 61 3.16.2 Convergent Validity ................................................................................................... 61 3.16.3 Discriminant Validity ................................................................................................. 62 3.17 Assessing the Structural Model ......................................................................................... 63 CHAPTER FOUR ......................................................................................................................... 64 ANALYSIS AND DISCUSSION OF RESULTS ........................................................................ 64 4.0 Introduction ......................................................................................................................... 64 4.1 Descriptive Statistics of Respondents ................................................................................. 64 4.2 Descriptive of Constructs .................................................................................................... 66 4.3 Assessment of Measurement Model ................................................................................... 71 4.3.1 Indicator Reliability ...................................................................................................... 71 4.3.2 Internal Consistency ..................................................................................................... 72 4.3.3 Convergent Validity ..................................................................................................... 72 4.3.4 Discriminant Validity ................................................................................................... 73 4.4 Assessing Structural Model ................................................................................................. 77 4.4.1 Multicollinearity ........................................................................................................... 79 4.4.2 Common Method Bias .................................................................................................. 79 4.4.3 Coefficient of Determination ........................................................................................ 80 4.4.4 Test of Predictive Relevance ........................................................................................ 80 4.5 Path Diagram ....................................................................................................................... 81 4.6 Hypothesis Testing .............................................................................................................. 83 4.7 Discussion of the Results .................................................................................................... 83 4.7.1 Time Budget Pressure and Dysfunctional Audit Behaviour ........................................ 84 4.7.2 Opportunity and Dysfunctional Audit Behaviour ........................................................ 84 4.7.3 Rationalization and Dysfunctional Audit Behaviour .................................................... 85 4.7.4 Ego and Dysfunctional Audit Behaviour...................................................................... 86 4.7.5 Capability and Dysfunctional Audit Behaviour ........................................................... 86 4.7.6 Ethical Values and Dysfunctional Audit Behaviour ..................................................... 87 4.8 Moderation Analysis ........................................................................................................... 88 University of Ghana http://ugspace.ug.edu.gh viii 4.8.2 Time Budget Pressure, Ethical Values and Dysfunctional Audit Behaviour ............... 90 4.8.3 Opportunity, Ethical Values and Dysfunctional Audit Behaviour ............................... 90 4.8.4 Rationalization, Ethical Values and Dysfunctional Audit Behaviour .......................... 91 4.8.5 Ego, Ethical Values and Dysfunctional Audit Behaviour ............................................ 91 4.8.6 Capability, Ethical Values and Dysfunctional Audit Behaviour .................................. 92 4.9 Chapter Summary ................................................................................................................ 92 CHAPTER FIVE .......................................................................................................................... 93 SUMMARY, RECOMMENDATION AND CONCLUSION ..................................................... 93 5.0 Introduction ......................................................................................................................... 93 5.1 Summary and Conclusion of the Study ............................................................................... 93 5.2 Implications of Findings...................................................................................................... 96 5.3 Contributions ....................................................................................................................... 97 5.4 Limitations of the Study ...................................................................................................... 98 5.5 Recommendation for Future Research ................................................................................ 99 5.6 Chapter Summary .............................................................................................................. 100 REFERENCES ........................................................................................................................... 101 “APPENDIX ............................................................................................................................... 120 University of Ghana http://ugspace.ug.edu.gh ix LIST OF TABLES Table 4.1: Descriptive Statistics on Respondents ......................................................................... 65 Table 4.2: Descriptive Statistics of Constructs ............................................................................. 68 Table 4.3: Cronbach Alpha, Composite Reliability and AVE ...................................................... 73 Table 4.4: Fornell and Larcker Criterion of Discriminant Validity .............................................. 75 Table 4.5: HTMT Criterion of Discriminant Validity .................................................................. 75 Table 4.6: Cross Loadings .......................................................................................................... 76 Table 4.7: VIF, R² and Q² ............................................................................................................. 81 Table 4.8: Coefficients, P-values for Hypotheses ......................................................................... 83 Table 4.9: Coefficients, P-values for Hypotheses ......................................................................... 89 University of Ghana http://ugspace.ug.edu.gh x LIST OF FIGURES Figure 2.1: The Fraud S.C.O.R.E Model .................................................................................................... 28 Figure 2.2: Conceptual Framework ............................................................................................................ 33 Figure 4.1: Path diagram 1……..……………………………………………………………………………………………………………82 Figure 4.2: Path diagram 2 .......................................................................................................................... 89 University of Ghana http://ugspace.ug.edu.gh xi LIST OF ABBREVIATIONS AVE - Average Variance Extracted CA - Cronbach Alpha CB-SEM - Co-variance Based Structural Equation Modelling CR - Composite Reliability DAB – Dysfunctional Audit Behaviour ECH - Ethics Committee for the Humanities ESQ - Emotional Spiritual Quotient FTT – Fraud Triangle Theory HTMT - Heterotrait- Monotrait ICAG – Institute of Chartered Accountants, Ghana ISA – International Standards of Auditing PLS-SEM - Partial Least Square Structural Equation Modelling PSMO – Premature Sign-Off Behaviours S.C.O.R.E. – Stimulus, Capability, Opportunity, Rationalization, Ego SEM - Structural Equation Modelling URT – Underreporting of Time VIF - Variance Inflation Factor University of Ghana http://ugspace.ug.edu.gh xii ABSTRACT This research examines the factors that influence auditors to engage in dysfunctional audit behaviour. It investigates this phenomenon from a different theoretical lens by adapting the Stimulus, Capability, Opportunity, Rationalization, Ego (S.C.O.R.E) Model to underpin the research. It is an attempt to examine this phenomenon from a developing country perspective as cases where auditors are found culpable in corporate scandals and failures in the last decade have been on the rise. It examines the constructs in the S.C.O.R.E Model as possible factors that influence auditors to engage in dysfunctional audit behaviour. Furthermore, the study introduces ethical values as moderating variable in the relationship between the factors identified and dysfunctional audit behaviour. The research is quantitative and employs the philosophical assumptions of the positivism paradigm to underpin the research. A total of 411 responses were received from the questionnaires administered to the individual auditors. The predicted relationships were examined using the Partial Least Square Structural Equation Modelling technique (PLS-SEM) and SmartPLS software was used to analyze the data. Time budget pressure, capability and rationalization are found to have a significant positive relationship with dysfunctional audit behaviour. The findings imply that auditors engage in dysfunctional audit behaviour when they are faced with intense pressure to complete audit procedures within a limited period. Moreover, auditors who possess special skills and are influential during audits are likely to engage in dysfunctional audit behaviour with the mindset that they can get away with such behaviours or that they will go unnoticed. The results indicate that ethical value is significantly and negatively related to dysfunctional audit behaviour. This suggests that auditors are unlikely to engage in dysfunctional audit behaviour when they possess strong ethical values. The result further University of Ghana http://ugspace.ug.edu.gh xiii reveals that ethical values moderate favourably the relationships between time budget pressure and dysfunctional audit behaviour as well as ego and dysfunctional audit behaviour. University of Ghana http://ugspace.ug.edu.gh 1 CHAPTER ONE INTRODUCTION 1.0 Background The audit profession has come under strong criticism in the last decade as a result of corporate failures. In the last decade, corporate failures have been on the rise and some of these high-profile failures were substantially linked to audit negligence and failures. On the global scene, the cases of Toshiba in 2015 in Japan; Odebrecht in 2016 in Brazil and Alberta Motor Association in 2016 in Canada provided a renewed focus on auditors and raised a number of questions about the integrity of auditors (Inagaki, 2017; Oboh, 2019; Enwereuzor et al., 2020). In Ghana, there have been multiple corporate failures in recent years which were linked to audit negligence. Most notable was the banking crisis in 2018 that resulted in the collapse of seven banks (ICAG report, 2018). This was part of a series of corporate failures that was partly attributed to the role of auditors (Agyemang et al., 2020). These incidents and several others have created a hideous image of the auditing profession in the mind of the public and continuous to bring the profession into disrepute (Adekoya et al., 2020). Investigation into each of these cases in Ghana uncovered a series of financial improprieties. Although several reasons were adduced for the eventual collapse of the banks such as non- performing loans, poor corporate governance, undercapitalization etc., among them is the role played by the auditors (Dwamena & Yusoff, 2022). For instance, the auditors in each of such cases affirmed the financial statements produced by the firms truly reflected their state of affairs which in reality was not the case (ICAG report, 2018). As a result, stakeholders of the audit report were bewildered and questioned the importance of the professional opinion of independent auditors. This was because among the highlights of these corporate disasters were the roles played by the University of Ghana http://ugspace.ug.edu.gh 2 auditors as they failed to adhere to the rules, ethical codes and standards that regulate them (Duho, 2019). The auditors’ actions ultimately eroded the hard-earned reputation of the auditing profession (Mohapatra et al., 2015). A report by the Institute of Chartered Accountants Ghana (ICAG) in 2018 on the recently collapsed banks in Ghana revealed among other things that the auditors of the banks which included PKF chartered accountants failed to follow the necessary procedures to obtain sufficient appropriate audit evidence. The audit opinions they gave were therefore deemed flawed as they were not based on facts obtained during the audit. The auditors of the defunct banks were collectively fined an amount of GHȼ2.2 million due to their negligence (ICAG report, 2018). The effect of the debacle in the banking industry is still felt in Ghanaian society as most individuals and organizations were adversely affected (Blankson et al., 2020). Trust in the work of auditors was lost as many were baffled that the auditors affirmed the going concern statuses of the collapsed banks which were later discovered to have serious going concern problems (Duho, 2019; Kamason, 2020). Therefore, the behaviour of the auditors, had far-reaching consequences on the various stakeholders who depended on the audited financial statements to make crucial decisions (ICAG report, 2018). Although situations where auditors do not adhere to standards and procedures during audits have existed in the past, it is rather disturbing that there is a growing trend in such behaviours rather than a decrease (Beekes et al., 2014). This is especially disturbing after the notable cases of Enron and Worldcom among others that led to a revolution of the audit industry and enactment of various legislation such as the Sarban-Oxley Act among others which were meant to prevent the occurrence of similar incidents in the future. University of Ghana http://ugspace.ug.edu.gh 3 These incidents impaired the quality of audits and derailed the hard-earned reputation and stakeholders’ trust in the auditing profession (Yanti, 2018). As a result, the auditing profession is under much scrutiny and undergoing some sort of image crisis as the role of auditors is questioned by the public (Duho, 2019). In some cases of corporate fraud, external auditors were accused of either conniving with employees of the client or simply remaining silent when they detect unethical practices in the client’s business (Johari et al., 2017). These actions by the auditors depart from proven standards and pose a major challenge to the auditing profession (Putra, 2020). In response to these happenings, there had been several calls for the quality of audits to be improved to enhance public confidence in auditors’ professional opinion. Stakeholders have therefore sought to identify ways to mitigate the actions of auditors that have the propensity to reduce the quality of audits. As such, regulatory bodies such as the Institute of Chartered Accountants, Ghana (ICAG) are on high alert to incidents where auditors do not follow laid down procedures during audits. Moreover, due to the prevalence of audit failures, over the years, there has been a shift in the academic landscape with the focus now on behavioural antecedents that impair audit quality (Shabana et al., 2016). There has been a concerted effort in academia in the last decade to understand the phenomenon of dysfunctional audit behaviour because of its vast detrimental effect. This is particularly important because the life of every audit firm is reflected in the behaviour of its auditors (Nehme, 2013). Auditors play an important role in determining the level of trust that users place in financial information and as such their behaviour can impact the quality of the audit (Yessie, 2021). With the recent negative climate around auditors, it is important to conduct research to ultimately University of Ghana http://ugspace.ug.edu.gh 4 identify, curtail or even eliminate incidents of dysfunctional audit behaviours to enhance audit quality. Dysfunctional audit behaviours which include premature signing off of audit procedures, alteration of audit processes, insufficient audit evidence gathered, superficial review of audit evidence and lack of evaluation of the client's internal controls system among others (Nadi, 2020) have dire consequences as various empirical studies indicate that it adversely impacts audit quality either directly or indirectly (Syam et al., 2020; Ghorbanpour et al., 2014; Baldaccino, et al 2016; Dunstan, 2017; Janie & Isgiyarta, 2019; Putu et al., 2020). Thus, the quality of audit opinion provided by auditors is reduced when they engage in dysfunctional audit behaviour. 1.1 Problem Statement Audits are very important as they give credibility to the financial statements prepared by companies and provide key stakeholders with reasonable assurance that the financial statements are true and fair and do not contain material mistakes. It is therefore imperative that the quality of audits must not be compromised (Mohd-Sanusi et al., 2012). However, in the last decade, the quality of audits has been low as evidenced by cases where auditors were found culpable in corporate scandals and failures and have therefore generated a strong interest in behavioural auditing within the last decade (Shabana et al., 2016; Yessie, 2021). Two strands of research emerged as a result with initial studies focusing extensively on the role of auditing in reducing wrongdoing at the workplace. However, the focus has shifted in academia to exploring counterproductive behaviours exhibited by the auditors themselves during audits which University of Ghana http://ugspace.ug.edu.gh 5 impede audit quality often referred to as dysfunctional audit behaviours. This research is an attempt to add to the literature on dysfunctional audit behaviour. Although globally, studies on dysfunctional audit behaviour have increased exponentially in recent years, however, it is apparent that research in behavioural auditing in Ghana is scanty and the issue of dysfunctional audit behaviour has barely received research attention. This is particularly problematic because there has been an increase in reported cases where auditors engage in unethical behaviours which led to corporate failures in Ghana as evidenced by the banking crisis in 2018 (Duho, 2019). There is therefore the need for research work to be conducted to unravel the phenomenon of auditors’ unethical behaviours. This study is therefore one of the few studies conducted to understand the phenomenon of dysfunctional audit behaviour from a developing country’s perspective. Although the subject of dysfunctional audit behaviour has received increased research attention and recognition in recent years, most of those studies focused extensively on the auditor’s acceptance of dysfunctional audit behaviour by their colleagues rather than the auditor’s actual dysfunctional action or behaviour (Paino et al., 2014; Komalasari et al., 2018; Abdillah, 2018; Jaya et al., 2018). Peytcheva and Gillett (2012) also observed that most studies on dysfunctional audit behaviour do not shed light on auditors’ actual behaviour. Thus, prior studies fail to provide insight into the factors that may influence auditors to engage in dysfunctional audit behaviour and instead measure auditors’ reaction to and disposition towards dysfunctional audit behaviour by their colleagues (Abdillah, 2018; Jaya et al., 2018). This imposes a limitation on the insight provided on auditors’ involvement in such deviant acts. Actual dysfunctional audit behaviour may provide an important and detailed understanding of this phenomenon from the perspective of the University of Ghana http://ugspace.ug.edu.gh 6 perpetrators. Therefore, this research is an attempt to fill this gap as it seeks to investigate the factors that can influence auditors to engage in dysfunctional audit behaviours. Moreover, this study is an attempt to add to the existing literature on dysfunctional audit behaviour from a different theoretical lens. Theories are fundamental to understanding a phenomenon and as such the study seeks to explore the use of the Stimulus, Capability, Opportunity, Rationalization, Ego (S.C.O.R.E) model, a recent variant of the fraud pentagon theory to evaluate factors that influence auditors’ dysfunctional behaviour. Although this theory is predominantly used in fraud literature, fraud is considered an extreme dysfunctional behaviour (Salin, 2015). Dysfunctional audit behaviour may include extreme behaviours such as auditors colluding with their clients, manipulation of audit evidence or fraud (Sampetoding, 2014; Syam et al., 2017; Yessie, 2021). Therefore, the study adapts this theory as it can help shed more light on Individuals’ dysfunctional behaviours. Moreover, prior studies on workplace deviance have established that individuals engage in deviant behaviours due to factors such as pressure, opportunity, rationalization, capability and ego (Schnatterly et al., 2018; Vousinas, 2019). This study broadens the scope of study and discourse on dysfunctional audit behaviour by examining whether these factors can influence auditors to engage in these counterproductive behaviours. The S.C.O.RE Model by Vousinas (2019) introduced ego as a key determinant of fraudulent behaviours to the already existing constructs of the fraud diamond theory. He argued that in most cases where individuals engage in wrong acts, their strong ego was often cited as a key reason. Individuals with a strong standing in society can be exposed to unethical behaviours due to their obsession to maintain their status at all costs (Awang et al., 2020). Auditors are individuals with strong egos due to their competencies and status in society. Therefore, the study seeks to determine whether the ego of auditors can influence them to engage in unethical behaviours. This study is University of Ghana http://ugspace.ug.edu.gh 7 unique in that it adapts the S.C.O.R.E model which is predominantly used to study fraudulent behaviours among individuals at the workplace to investigate the recently surging phenomenon of dysfunctional audit behaviour. Prior studies have established the role of ethical climate or culture in reducing dysfunctional audit behaviour (Morris, 2014; Komalasari et al., 2018; Alsudairi & Khalid 2020). The culture of a firm creates shared values among employees of the organization (Morris, 2014). Haron et al. (2011) posit that the existence of strong ethical values among employees can curtail dysfunctional behaviours in organizations. Therefore, this study uniquely examines whether ethical values that auditors possess can moderate favourably the relationship between time budget pressure, opportunity, rationalization, capability, ego and dysfunctional audit behaviour. This is because extant literature suggests that people who engage in wrongdoing do so because of a lack of ethical values and thus individuals who possess strong ethical values abhor acts of wrongdoing (Awang & Ismail, 2017; Said et al., 2017). Based on this, the study argues that the relationship between time budget pressure, rationalization, opportunity, capability, ego and dysfunctional audit behaviour could change when an auditor possesses strong ethical values. 1.2 Research Objectives 1. To examine the determinants of dysfunctional audit behaviour. 2. To investigate whether ethical values moderate the relationship between time budget pressure, opportunity, rationalization, capability, ego and dysfunctional audit behaviour. University of Ghana http://ugspace.ug.edu.gh 8 1.3 Research Questions 1. What are the factors that influence auditors to engage in dysfunctional audit behaviour? 2. Do the ethical values of the auditor moderate the relationships between the identified factors and dysfunctional audit behaviour? 1.4 Significance of the Study This study is timely and provides new insights and important contributions to the growing literature on dysfunctional audit behaviour. Thus, it provides important theoretical and practical contributions to the extant literature on dysfunctional audit behaviour in a number of ways. The research adapts a different theoretical lens, the S.C.O.R.E Model which provides a different but useful perspective on the antecedents of dysfunctional behaviour among auditors. Thus, the study adapts the S.C.O.R.E Model, which is predominantly used in fraud literature to investigate fraudulent behaviours and explores the constructs of the S.C.O.R.E model (stimulus/pressure, capability, opportunity, rationalization, ego) as determinants of dysfunctional audit behaviour. The S.C.O.R.E model is appropriate for the current study because it is often used to understand individuals’ fraudulent behaviour; which is considered an extreme form of dysfunctional behaviour. The study extends the S.C.O.R.E model by incorporating the moderating role of ethical values in the framework. Thus, it highlights the key role of ethical values in reducing auditors’ dysfunctional behaviours. The study argues that auditors who possess strong ethical values are unlikely to engage in wrongdoing at the workplace. University of Ghana http://ugspace.ug.edu.gh 9 Moreover, the study adds to the scanty literature on dysfunctional audit behaviour in Ghana. Even though audit negligence is on the rise in Ghana, little research work has been conducted by way of investigating the behaviours of auditors that harms the quality of audits. This research attempts to address this gap in the literature from a developing country perspective. Finally, the study has policy implications for audit firms and regulatory authorities such as the Institute of Chartered Accountants, Ghana (ICAG) and standard setters to formulate policies and measures to curb incidents of dysfunctional audit behaviour both internationally and domestically. This is important to ensure that the image of the auditing profession is not in disrepute. 1.5 Organization of the Study This research is organized into five chapters as indicated below: Chapter one presents an overall summary that encapsulates the subject matter of the research and the central problem the research aims to address. It entails the background of the study, the problem statement, the study’s objectives, and the significance of the research. Chapter two reviews the current literature on dysfunctional audit behaviour and discusses the factors that influence auditors to engage in dysfunctional behaviours by adopting the S.C.O.R.E model to understand the phenomenon. This chapter also discusses the conceptual framework of the research and how the research hypotheses are developed. Chapter three provides detailed insight into the methodology and research tools adopted to achieve the objectives of the study. This chapter discussed the data collection method, the population and the sampling technique adopted, the research design and the data analysis technique among other things. University of Ghana http://ugspace.ug.edu.gh 10 Chapter four identified and provided a detailed discussion of the key findings from the data gathered and analyzed. Chapter five provides a conclusion to the entire study by highlighting the principal findings of the research. Moreover, this section of the research discussed key contributions and limitations of the study and provided appropriate recommendations for future studies. 1.6 Chapter Summary This chapter of the research began with a thorough discussion of the background of the study and the research problem. The researcher’s motivation for the study was discussed in the background. In the research problem, gaps in extant literature were identified and discussed in details. Subsequently the research objectives and significance were discussed. It provided insight into what the researcher sets out to achieve and the importance of the research. The chapter ended by outlining how the research was organized. University of Ghana http://ugspace.ug.edu.gh 11 CHAPTER TWO LITERATURE REVIEW 2.0 Introduction This chapter of the research provides a comprehensive review of theoretical as well as empirical literature that are essential for the present research. The chapter begins with a review of the phenomena of dysfunctional behaviour and dysfunctional audit behaviour and the various forms of dysfunctional audit behaviours that exist. Subsequently, the study presents a detailed review of the antecedents of dysfunctional behaviour that exist among auditors. The study then presents a review of the theory (The S.C.O.R.E Model) that was used to underpin the research and finally the chapter concluded by providing a comprehensive discussion of the conceptual framework and the hypotheses that were formulated as a result. 2.1 Dysfunctional Behaviour Dysfunctional behaviours can be considered as “actions in which a subordinate attempts to manipulate elements of an established control system for his/her purposes. A subordinate’s behaviour is dysfunctional if he/she knowingly violates established control systems, rules and procedures” (Jaworski &Young, 1992, p.18). Thus, dysfunctional behaviours at the workplace often have a detrimental effect on the various stakeholder groups of the organization such as employees, and customers among others and may adversely affect the overall performance of the business. This is a major issue in most organizations and therefore it is imperative to implement appropriate measures and procedures to deal with it (MacKenzie et al., 2015; van Fleet & van Fleet, 2012). University of Ghana http://ugspace.ug.edu.gh 12 Several studies had been conducted to provide insight into the different forms of dysfunctional behaviours that employees engage in when discharging their responsibilities including extreme dysfunctional behaviours like fraud, destruction of an organization’s assets or theft among others (Salin, 2015). It can however also take a mild form such as a violation of ethical codes at the workplace (Salin, 2015). According to Ramzy et al. (2018), dysfunctional behaviours at the workplace predominantly occur due to the absence of ethical codes and the failure of management to address reported cases of dysfunctional behaviour (Shabrawy & Afifi, 2014). Moreover, prior studies suggest that the factors which influence individuals to engage in dysfunctional behaviours include weak ethical culture in the organization and lack of supervision (MacKenzie et al., 2015; Salin, 2015). 2.2 Dysfunctional Audit Behaviour Auditors’ dysfunctional behaviours are behaviours that directly or indirectly reduce the quality of audit reports (Paino et al., 2014; Yessie, 2021). Dysfunctional audit behaviour is a serious problem because it does not only harm the individual auditor, but it threatens the validity of the audit opinion and affects the decisions taken by the various stakeholders which were based on the audit report (Amiruddin, 2019). Thus, dysfunctional audit behaviour refers to the action of the auditor that negatively impacts the client, the auditor, and brings the entire profession into disrepute, done intentionally or not and includes improper verification of sampling method or reduction in the number of samples that have been planned during the audit, and auditors’ acceptance of questionable evidence from their clients among others (Amiruddin, 2019). Dysfunctional audit behaviours occur when auditors do not follow the audit program designed in the course of auditing clients (Al-Shbiel, 2016). This behavioural phenomenon is referred to differently by various University of Ghana http://ugspace.ug.edu.gh 13 scholars such as dysfunctional audit behaviour (Paino et al., 2014; Iswari, 2020; Svanström, 2016; Komalasari et al., 2018), audit quality-threatening behaviour (Beekes et al., 2014; Sweeney et al., 2013) and reduced audit quality behaviour (Mohd et al., 2016; Meilinda & Harefa, 2017; Gaol, 2018; Amiruddin, 2019). Dysfunctional audit behaviour can also be considered as misleading behaviour of an auditor during an audit that takes the form of fraud, manipulation or inappropriate application of the auditing standards (Sampetoding, 2014; Yessie, 2021). According to Herrbach (2001), dysfunctional audit behaviour is a negative consequence of audit procedure which minimizes the level of audit evidence obtained. As a result, the audit evidence gathered is unreliable, inappropriate or inadequate either qualitatively or quantitatively. Khan et al. (2013) also espoused that dysfunctional audit behaviours are unethical attitudes that are manifested by an auditor in the course of an audit and it involves actions such as prematurely signing off audit procedures and discretionarily changing the audit procedures among other things. Thus, these behaviours can be deliberate or not as it also involves unintended errors made by auditors as a result of a lack of an understanding of audit demands or incompetence. These behaviours are sometimes viewed by their perpetrators as necessary sacrifices for them to survive in the challenging audit environment (Donnelly et al., 2003). Furthermore, in the course of an audit, the auditor may encounter challenging situations and make decisions that can eventually reduce the quality of the audit and result in providing a wrong audit opinion. Some of the actions of the auditor that can adversely affect the audit quality include the auditor’s acceptance of weak clarifications by management without proper due diligence to obtain corroborative evidence, failure to make a necessary enquiry on technical matters, shallow evaluation of the documents of the client, alteration of the audit procedures, underreporting of time University of Ghana http://ugspace.ug.edu.gh 14 and premature signing off of the audit among others (Paino et al., 2011; Smith & Hutton, 2016; Svanstrom, 2016; Lukman, 2017). Thus, dysfunctional audit behaviours are actions by auditors during the audit that have the potential of reducing the quality of the audit. Syam et al. (2017) asserted that auditors are sometimes influenced by their clients to reduce the procedures of the audit, delete the value of some accounts, or refuse to disclose cases of fraud in the audit report. Auditors’ unethical behaviour can result in the collapse of not only the audited corporate business but can also result in the failure of the audit firms themselves (Akpotu & Israel, 2013). It therefore has dire consequences and as such, it is of utmost importance that studies must be conducted to investigate this phenomenon. 2.2.1 Under Reporting of Time (URT) A known dysfunctional audit behaviour is Under Reporting of Time (URT). Auditors underreport time when they indicate that they have performed an audit assignment for fewer hours than were the case or their refusal to indicate the excess time used over the time given for such procedure (Agoglia et al., 2010). Underreporting of Time can also be regarded as a phenomenon where auditors fail to accurately document the total time taken to complete audits with the intention of not exceeding the time allocated for that particular audit (Kustinah, 2013; Khan et al. 2015). Zakaria et al. (2013) espouse that auditors’ refusal to indicate the accurate time spent during a particular task was a result of their objective to prevent or curtail budget overruns. URT has several consequences and paramount among them is the impractical time budgets for future audits. Underreporting of time can lead to auditors manipulating audit evidence which will eventually result in poor quality of audit and a compromised audit report (Khan et al., 2015). Zakaria et al. (2013) revealed that when the time budget for an audit assignment is unrealistic, University of Ghana http://ugspace.ug.edu.gh 15 auditors tend to engage in dysfunctional behaviours. Moreover, Nehme (2017) espouses that, auditors tend to underreport the time spent during an audit assignment for a favourable job evaluation and ultimately to increase their chances of promotion. Underreporting of time is a behaviour that indirectly influences the audit quality as it adversely affects the time budgets and the allocated audit staff for subsequent audits. 2.2.2 Premature Sign-Off Behaviours (PMSO) This is another form of dysfunctional behaviour that is prevalent in the audit profession. Premature sign-off behaviours refer to situations where auditors hastily sign off the audit without exhausting the laid down audit procedures required in conducting the audit (Khan et al., 2015). Premature sign-off behaviours also involve situations where auditors deliberately omit required procedures in the audit but indicate in the working papers that such procedures have been completed (Hyatt & Taylor, 2013). It must be emphasized that this behaviour is unethical and contravenes the standards of auditing (Mohd et al. 2016). According to Nehme (2013), Premature Sign-Off (PMSO) can be a reactionary behaviour to time constraints often experienced by auditors in the course of the audit and predominantly occurs at the initial phase of the audit. PMSO is a direct threat to audit quality because the audit procedures are not performed or are uncompleted (Malone & Roberts, 1996). Auditors who engage in such acts do not disclose the omissions of procedures. Notably, Hyatt and Taylor (2013) suggest that premature signing off that occurs accidentally and as a result of time budget pressure is unlikely to be reported. Premature signing off of audit procedures is destructive because it adversely affects audit quality. Thus, the independent opinion of the auditor is fundamentally flawed as such an opinion is premised on forged or non-existent audit evidence. Ideally, auditors should conduct audits by following all the required audit processes University of Ghana http://ugspace.ug.edu.gh 16 and steps to give the client a reasonable assurance as to whether the financial statements prepared are devoid of material misstatements or not (Olatunji & Adekola, 2017). However, according to Nehme (2013), due to the immense pressure faced by auditors in the conduct of audit assignments, they tend to skip audit procedures that they regard to be irrelevant. Khan et al. (2015) reveal that incidences of deliberate false sign-offs are frequent, however, even more so they reveal that situations where auditors unintentionally prematurely sign off on audit procedures are much more. 2.2.3 Superficial Review of Audit Evidence With this phenomenon, the auditor does not properly review audit evidence obtained from the client. According to Coram et al. (2008), superficial review of audit evidence refers to situations where auditors hurriedly review the supporting documents presented by the management or employees of the client without being critical and exercising the necessary professional scepticism. This behaviour can reduce significantly the audit quality and audit opinion issued as the auditor does not exercise professional scepticism. For instance, where an auditor in the course of conducting an audit instead of reviewing records for the sample of sales, rather shows tick marks on audit agendas without thoroughly considering the content of the supporting documents. According to Coram et al. (2008), auditors engage in these particular acts because it is difficult to detect. Auditors can miss important clues and fail to detect various malpractices in the client’s organization due to dysfunctional audit behaviours. Thus, dysfunctional audit behaviours can be exhibited when auditors accept questionable audit evidence at face value from the client. In situations where audit evidence is not collected and evaluated thoroughly, it can lead to mistakes being missed that otherwise would have been noticed through an extensive review of the evidence obtained (Khan et al., 2014). The auditor accepts the University of Ghana http://ugspace.ug.edu.gh 17 explanation and evidence offered by management easily. This is concerning as it shows an absence of a questioning mind (professional scepticism) and due diligence. Thus, the auditor failed to obtain corroborative evidence about management’s assertions. This contravenes the principle of professional scepticism which is required throughout the audit engagement. 2.2.4 Altering or Replacing Audit Procedures This is a situation where the auditor changes or replaces the procedures that he or she deems complex and time-consuming during the audit without authorization (Coram et al., 2008). Furthermore, this situation occurs when the auditor deems the original procedures unnecessary and therefore applies his or her discretion to change such steps in the audit process. This can therefore adversely affect the quality of the audit. Altering the procedures during audits without prior approval can lead auditors to miss very important steps which enhance the quality of the audit. 2.3 Audit Quality Knechel et al. (2013) espouse that audit quality is a complex phenomenon that can be viewed from various lenses as a result of the perceptions of the different stakeholders in the financial reporting supply chain. They argued that whereas audit quality to some stakeholders involves completely undertaking all the required audit procedures, to others it is the lack of material misstatements in the financial reports. There are broadly two perspectives of audit quality, namely the input approach otherwise known as the process approach and the output approach (PCAOB, 2013). According to Yuen et al. (2013), the quality of an audit is dependent on the behaviour that the auditor exhibits during the audit. Conducting quality audits is not only essential in ensuring the University of Ghana http://ugspace.ug.edu.gh 18 efficient operation of businesses, but also imperative in enhancing the value of the auditing profession. The extent to which the various stakeholders rely on the audit report is primarily based on the quality of the audit (Christensen et al., 2016). Furthermore, Christensen et al. (2016) discovered through their research that auditors and investors viewed the concept of audit quality differently. According to them, whereas auditors view audit quality from the lens of the auditing standards, investors use individual auditor’s traits as a yardstick to measure audit quality. According to Dama and Monoarfa (2018), audit quality exists in situations where there is a high tendency that the auditor detects and report misstatements and errors in the financial statement of the client. It is important to note that audited financial statements give reasonable assurance to the stakeholders that they have been prepared with respect to all relevant accounting standards and that they are materially correct and devoid of significant mistakes (Defond et al., 2010). Prior studies on behavioural auditing suggest auditors’ dysfunctional behaviour is negatively related to audit quality (Paino et al., 2014; Yessie, 2021). 2.4 Empirical Review This aspect of the review of literature focuses on key findings of prior studies that were conducted in the area of dysfunctional audit behaviour. The following themes emerged from the review of extant literature. 2.4.1 Auditors’ Acceptance of Dysfunctional Audit Behaviour Over the past decade, there has been increased research attention on the phenomenon of dysfunctional audit behaviour. Most of these studies are focused extensively on auditors’ reactions University of Ghana http://ugspace.ug.edu.gh 19 to (acceptance of) dysfunctional audit behaviours by their colleagues. The study provides review of literature on the discourse of auditors’ acceptance of dysfunctional audit behaviour over the last decade. Peytcheva and Gillett (2012) investigated the influence of prior involvement and reputational threats as factors leading to the acceptance of dysfunctional audit behaviours among auditors in the USA. This research was quantitative as data were gathered via questionnaires administered to the auditors. The findings reveal that there is a high tendency that auditors with prior involvement will suppress audit evidence more than auditors without prior involvement. The limitation of this study was that it did not investigate actual auditors’ behaviour. Rather, it measured auditors’ beliefs and attitudes towards others’ actions. According to research conducted by Svanberg & Ohman (2013), ethical culture negatively influences auditors’ acceptance of dysfunctional audit behaviours. However, the study found no relationship between the ethical culture of the audit firm and underreporting of time. Also, dysfunctional audit behaviour measured by underreporting of time and time budget pressure was found to be positively related. This implies that auditors who are faced with excessive pressure to complete audits are likely to have a positive disposition towards dysfunctional audit behaviour. This result is consistent with prior studies that considered the relationship between time budget pressure and acceptance of dysfunctional audit behaviour. Contrary to earlier studies that found time budget pressure to influence auditors’ acceptance of dysfunctional audit behaviours, the research by Zakaria et al. (2013) in Malaysia found time budget pressure not to influence the acceptance of dysfunctional audit behaviours. This research mainly considered auditors employed in big audit firms in Malaysia. The weakness of this research is that only auditors from two of the big audit firms were used. This makes it difficult to extrapolate the University of Ghana http://ugspace.ug.edu.gh 20 results of this research. Future research should therefore consider auditors from all the big four auditing firms in Malaysia to enable firm conclusion to be made. Moreover, auditors from both non-big four and big four auditing firms could be considered in a similar study to identify whether time budget pressure influence their acceptance of dysfunctional audit behaviour or not. Beekes et al. (2014) hypothesized that hierarchical level, organizational commitment, task difficulty, the level of fairness, reward and the level of interaction with supervisors could influence auditors’ acceptance of dysfunctional audit behaviour in a big four UK audit firm. This research used a web-based questionnaire to gather data. The results show that the acceptance of dysfunctional audit behaviours among auditors reduce when the perception of fairness, organizational commitment and interactions with their superiors increase. However, the strength of the relationships differs across hierarchical levels. This study has inherent limitations because data were collected from only one of the big four audit firms in the UK. This makes it difficult to generalize the findings of the study. It is important therefore for future studies to replicate it to include all the big four audit firms or consider all audit firms in the UK. Paino et. al (2014) considered the influence of external locus of control and turnover intention on auditors’ acceptance of dysfunctional audit behaviour in Malaysia. Data were obtained through a questionnaire. A total of 621 questionnaires were distributed with only 225 usable questionnaires returned. The study found external locus of control and turnover intention to have a significant positive relationship with auditors’ acceptance of dysfunctional audit behaviour. The number of usable questionnaires (less than 40% of the questionnaires administered) may indicate that the data collection technique employed in the study was not efficient. Future studies may consider employing different technique to collect the data needed. University of Ghana http://ugspace.ug.edu.gh 21 Morris (2014) examined the impact of authentic leadership and ethical firm culture on dysfunctional audit behaviour in the USA. The study was quantitative. Authentic leadership theory was used to underpin this study. The results of the study suggest that when subordinates perceive their leadership as authentic and view themselves as part of an ethical firm culture, dysfunctional audit behaviour declines. Nor et al. (2015) researched on the existence of dysfunctional behaviours among auditors in Malaysia. Data was gathered via questionnaires that were administered to 274 auditors. The findings show that dysfunctional audit behaviours did occur among auditors in Malaysia. The result further reveals that dysfunctional audit behaviours predominantly exist among auditors in non-big audit firms with less experience. The limitation of this study was that the respondents were only from non-big audit firms. This limits the generalizability of the findings to include all auditors. Svanberg & Ohman (2016) conducted a study on the impact of time budget pressure and organizational commitment on the acceptance of dysfunctional audit behaviours among auditors. The findings revealed among other things that time budget pressure positively impacts underreporting time (URT) but not reduced audit quality behaviours. Moreover, audit firm ethical culture was found to reduce incidents of dysfunctional behaviours among auditors. Dabor et al. (2016) examined factors that influence auditors in Nigeria to engage in dysfunctional audit behaviour. Data were obtained through questionnaires administered to the auditors. The result of this study revealed that the construct “perceived harm” had a negative relationship with dysfunctional audit behaviour. However, perceived pressure was found to be positively related to dysfunctional audit behaviour. University of Ghana http://ugspace.ug.edu.gh 22 Gaol (2018) examined the relationship between time budget pressure and auditors’ acceptance of dysfunctional audit behaviour. Data was gathered through questionnaires that were administered to 240 auditors. The researcher adopted judgmental sampling as the sampling technique. Data were analyzed through PLS-SEM. The findings revealed that time budget pressure was significantly and positively related to dysfunctional audit behaviours. This finding is consistent with the findings of prior studies. Komalasari et al. (2018) examined the Influence of Personal Value, Moral Philosophy, and Organizational Ethical Culture on an auditor’s actions and acceptance of Dysfunctional Audit Behaviour. The research was a quantitative study conducted in Indonesia. 52 questionnaires were distributed and the data was analyzed using PLS-SEM. The ethical culture of the organization and self-enhancement was found to have a significant negative effect on the auditors’ acceptance of dysfunctional audit behaviour. Personal value was however found to not affect auditors’ dysfunctional actions. Cognitive learning theory was used to underpin this research. The relatively small sample size however limits the generalizability of the result from the research. Jaya et al. (2018) conducted a study to understand the mediating role of performance in auditors’ acceptance of dysfunctional audit behaviour in Indonesia. The study was a quantitative study that used primary data. The questionnaire was administered to 83 respondents. The data was analyzed using the PLS-SEM technique. Role theory and attribution theory were the theories that underpinned this research. The study found auditor performance and organizational commitment to be negatively associated with auditors’ acceptance of dysfunctional audit behaviour. However, role conflict was found to be positively associated with auditors’ acceptance of dysfunctional audit behaviour. It is however difficult to generalize the result of the study due to its relatively small sample size. University of Ghana http://ugspace.ug.edu.gh 23 Febriana Kartasari et al. (2018) considered the impact of professionalism, Emotional Spiritual Quotient (ESQ) and locus of control on auditors’ acceptance of dysfunctional behaviour in Indonesia with the performance of the internal auditor as an intervening variable. The study was quantitative and data were obtained through questionnaires administered to 52 auditors. Data were analyzed using the PLS-SEM technique. The result shows professionalism to be negatively associated with auditors’ acceptance of dysfunctional audit behaviour. However, the constructs ESQ and locus of control were positively related to the acceptance of dysfunctional audit behaviour. A drawback of this research is the small sample size and therefore it limits generalizing the results from this research. Future researchers should therefore consider expanding the sample size. Abdillah (2018) conducted a study on the determinants of auditors’ acceptance of dysfunctional audit behaviour in Indonesia. This was a quantitative study and data was collected through questionnaires administered to 129 respondents. The PLS-SEM technique was employed to analyze the data obtained. According to the findings, auditors who have high turnover intention are more accepting of dysfunctional audit behaviour. However, an organizational commitment was found to be negatively related to the acceptance of dysfunctional audit behaviour. This implies that auditors who are highly committed to their audit firms are unlikely to accept dysfunctional audit behaviours. The outcome of this research is limited by the relatively small sample size. Majid & Asse (2018) examined the relationship between the intention of the auditor to leave his or her job (turnover intention) and the pressure they face to complete audits on time and acceptance of dysfunctional audit behaviour in Indonesia. The study was qualitative research and data was obtained through interviews and documentation study. The attribution theory was used to underpin this research. This research is important as the subjective opinions of the respondents were University of Ghana http://ugspace.ug.edu.gh 24 considered. The study found time budget pressure and turnover intention to influence auditors’ acceptance of dysfunctional audit behaviour. The result is therefore consistent with previous studies. A divergent yet important study was conducted by Nehme et al. (2018) to investigate the differences in dysfunctional audit behaviour when auditors expect performance appraisal in Kuwait and UK. Stakeholder theory and Hofstede’s cultural dimensions theory were used to underpin this study. The study found appraising the performance of auditors while working in a competitive environment in a developed country as a driver of dysfunctional audit behaviour. However, assessing auditors’ performance in a developing economy is a stabilizer of dysfunctional audit behaviour. Furthermore, the result revealed that auditors who are experienced have a higher tendency to engage in dysfunctional behaviours than inexperienced auditors. The sample for the study is auditors from the big-four audit firms in Kuwait and UK and therefore it is difficult to generalize the result. Auditors from non-big auditing firms should also be considered in subsequent studies to enrich the findings. Yessie (2021) examined the factors that influence auditors’ dysfunctional behaviour in Indonesia. This study was quantitative research. A sample of 53 auditors was used for the study. The study found turnover intention, time budget pressure and professional commitment have a significant positive relationship with auditors’ dysfunctional behaviour whereas organizational commitment and locus of control were found to be negatively related to dysfunctional behaviours among auditors. The relatively smaller sample size makes it difficult to generalize the result of the study. Nehme et. al (2021) considered two different forms of pressure on auditors; thus, time budget pressure and time deadline pressure and their relationship with dysfunctional audit behaviour in the UK. The study adopted a mixed method as both interviews and questionnaires were used to University of Ghana http://ugspace.ug.edu.gh 25 collect the data from the respondents. Stakeholder theory was used to underpin this research. Time budget and time deadline pressures were found to be important determinants of dysfunctional audit behaviour. Recently, Johari et al. (2022) conducted a study on the factors that influence dysfunctional audit behaviour in Malaysia. The study was quantitative and data were collected by administering questionnaires to 130 auditors who were registered members of the Malaysian Institute of Accountants. According to the research findings, time budget pressure significantly influences auditors to engage in dysfunctional audit behaviour. The outcome of this research agrees with prior research works which expose that time budget pressure is a very important determinant of dysfunctional audit behaviour. However, the study found professional skills, work experience and independence of the auditor do not influence auditors’ dysfunctional behaviour. This study is limited in that it focuses only on auditors who are registered members of the Malaysian Institute of Accountants. Thus, other practicing auditors who are not members of the Institute were not considered and therefore limits the findings of the research. 2.4.2 Dysfunctional Audit Behaviour and Audit Quality Few studies provide empirical evidence on the relationship between dysfunctional audit behaviour and audit quality (Hamdani et al., 2020). The following studies establish the relationship that exists between dysfunctional audit behaviour and the quality of audit performed. Thus, these studies examine whether dysfunctional audit behaviour impedes audit quality or not. Kustinah (2013) examined how auditors’ dysfunctional behaviour and ethical culture influence audit quality. The study employed a survey research design by administering questionnaires. The University of Ghana http://ugspace.ug.edu.gh 26 researcher adopted a purposive sampling method for the study. The results indicate that dysfunctional audit behaviour has a significant negative relationship with audit quality and ethical culture positively influences audit quality. Furthermore, Mohd et al. (2016) investigated the impact of premature sign-off behaviours, a form of dysfunctional audit behaviour on reducing audit quality among small and medium size audit firms in Malaysia. The data was collected from 20 respondents using questionnaires. The study found that premature sign-off audit was practiced by about 50% of the respondents. This practice of signing off the audit without completing the necessary audit procedures reduces the credibility of the audit report. This study has some obvious weaknesses such as the smaller sample size of the study. Therefore, it is difficult to generalize the findings of the study. Also, only descriptive analysis of the data was provided. The results may lack some accuracy and robustness. Kusumo et al. (2018) investigated the effect of dysfunctional audit behaviour on audit quality in Indonesia. The study concludes that dysfunctional audit behaviour has a significant negative impact on audit quality. This is consistent with the outcomes of earlier research works. The research was quantitative and the respondents were 92 sampled auditors. The result implies that when dysfunctional audit behaviour increases, the quality of audits conducted by the auditor is adversely affected. Contrary to prior studies, from the outcome of research conducted by Hamdani et al. (2020), dysfunctional audit behaviour is found not to significantly influence audit quality. This implies that when auditors engage in dysfunctional audit behaviour, it does not impair the quality of audits. This is quantitative research conducted in Indonesia among 50 selected auditors. The sample size is too small and therefore it is difficult to generalize the findings. Future research should therefore expand the sample size to determine whether the outcome will be the same. University of Ghana http://ugspace.ug.edu.gh 27 More recently, Asriningpuri and Gruben (2021) found dysfunctional audit behaviour to have a detrimental effect on the quality of audits. The qualitative research method was adopted in this research and data was collected by way of structured interviews administered to four participants employed at Chris Hermawan Public Accountant Firm. This research has weaknesses which include the study’s use of only one accounting firm. It is important for future studies to include other auditing firms to enhance the generalizability of the research. 2.5 Theoretical Review Prior studies on the phenomenon of dysfunctional audit behaviour were conducted from several theoretical lenses. Among the dominant theories used is the attribution theory which was heavily relied on to understand both the internal and external factors that lead to an auditor’s acceptance of dysfunctional audit behaviour (Majid & Asse, 2018; Jaya et al., 2018; Riandanu & Jalil, 2018; Nadi, 2020; Putu et al., 2020). Another theory that has been predominantly applied by researchers to understand the phenomenon of dysfunctional audit behaviour is the theory of reasoned action (Khan et al., 2013; Kusumastuti, 2014; Janie & Isgiyarta, 2019). Yet again other researchers employed the stress theory (Umar et al., 2017; Amiruddin, 2019; Prabangkara & Fitriany, 2021). Although these theories provided crucial insights into the phenomenon of dysfunctional audit behaviour, the application of the S.C.O.R.E model in this study gives a great insight into dysfunctional audit behaviour as well as provides a different dimension to this phenomenon. University of Ghana http://ugspace.ug.edu.gh 28 2.5.1 Fraud Triangle Theory (FTT) Most researchers employed the fraud triangle theory to understand the determinants of individuals’ fraudulent behaviours (Dorminey et al., 2012). The fraud triangle theory was developed and predominantly used to understand the antecedents of fraud and fraudulent behaviours. The theory consists of three (3) constructs namely, pressure or stimulus, rationalization and opportunity. Pressure depicts the need to engage in dysfunctional acts (“have to”). Opportunity relates to the capacity to engage in dysfunctional acts with the belief that the act will not be discovered or penalized. Moreover, rationalization is the ability to justify a deviant act as ethically correct (“it’s okay”) (Dorminey et al., 2012). The results of extant literature indicate that the tendency of fraudulent and other forms of dysfunctional behaviours will be higher when all three elements of the fraud triangle theory are present (Dorminey et al. 2010; Dorminey et al. 2012). FTT was later developed further by Wolfe and Hermanson in 2004 to include capability and referred to as the Fraud Diamond Theory. 2.5.2 Fraud S.C.O.R.E Model Figure 2.1: The Fraud S.C.O.R.E Model University of Ghana http://ugspace.ug.edu.gh 29 The fraud S.C.O.R.E Model was propounded by Vousinas in 2019 as an extension of the fraud diamond theory by including an extra construct referred to as ego. This model is a variant of the fraud pentagon theory. He argued that egoistic individuals want to maintain their status in society at all costs and as such, they are likely to engage in deviant acts such as fraud. Thus, egoistic individuals are power conscious and always crave to be regarded as important. 2.5.2.1 Pressure In the research by Cressey (1953), pressure was regarded as the incentive that propels individuals to engage in fraudulent behaviours. He argued that when individuals are under severe pressure, the tendency to engage in wrongdoing is high. According to Vousinas (2019), Stimulus refers to pressure, both financial and non-financial that individuals encounter that influences them to commit fraud. This pressure may be internal such as the pressure that emanates from the need to attain a particular set standard, frustrations that involve the environment within which the individual work etc. Sujeewa et al. (2018) suggest that at the workplace, management and employees alike can be under huge pressure or offered incentive to engage in various acts of wrongdoing. For instance, promotion and remuneration which are significantly based on an individual’s performance may influence them to manipulate results or compel others to do so. Moreover, the source of the pressure can be external such as the pressure from home as a result of the need to meet a particular financial obligation among others. Individuals who are under pressure explore shortcuts and quick options to resolve issues or perform their tasks and eventually engage in deviant acts as it becomes an attractive alternative (Omar & Mohamad Din, 2010). Furthermore, pressure can emanate from unrealistic expectations at the workplace or outsiders like investors. University of Ghana http://ugspace.ug.edu.gh 30 2.5.2.2 Opportunity Opportunity relates to weaknesses in the control system in organizations that can easily be explored by employees when they are in a position with a certain degree of power and ability to engage in fraudulent behaviours (Rasha & Andrew, 2012). Thus, opportunities arise when the systems that are put in place to detect and prevent fraud and wrongdoing are in themselves weak. According to Hooper and Fornelli (2010), when employees are faced with extreme pressures, they may not engage in wrongdoing unless an opportunity exists. Thus, ineffective or non-existent controls such as lack of segregation of duty and poor supervision among others can influence individuals to engage in wrongdoing. Furthermore, Moyes et al. (2005) argued that among the opportunity risk factors is the issue of related party transactions. For instance, when an auditor has a close association with key management personnel in the client’s business, it creates a breeding ground for fraud and other forms of deviant behaviours. Moreover, according to Zaki (2017), opportunity depicts the existence of a suitable environment to commit fraud. Sujeewa et al. (2018) argued that, although pressure creates the motive to commit fraud, employees who engage in fraud also perceive the opportunity to do so without detection. 2.5.2.3 Rationalization According to Abdullahi and Mansor (2018), rationalization refers to the belief or the mindset that an individual possesses that the unethical behaviour he or she engaged in is something else rather than an act that is detrimental to the organization. Moreover, they suggested that individuals who engage in fraudulent behaviours cannot proceed without obtaining an appropriate justification for University of Ghana http://ugspace.ug.edu.gh 31 their unethical behaviours. According to Cressey (1953), rationalization is not an afterthought when an individual engages in wrongdoing, however, it is a prerequisite and necessary before wrongdoing occurs. An Individual who engages in wrongdoing needs an appropriate justification to resolve the conflict between his or her action and society’s norms (Trompeter et al., 2013 as cited in Vousinas, 2019). Rationalization is important as it enables the perpetrators to view their wayward behaviours as intelligent acts and still hold themselves as trustworthy (Sujeewa et al., 2018). Rationalization involves minimizing the cognitive dissonance experienced by individuals after engaging in an activity or behaviour that violates legal, ethical or societal norms (Desai, 2020). Thus, it involves downplaying the severity of the wrongful act. 2.5.2.4 Capability Wolfe and Hermanson (2004) argued that in addition to the three factors proposed by Cressey (1953) that influence individuals to engage in fraudulent behaviours, such behaviours are unlikely to occur unless the potential perpetrators can engage in such acts. According to Vousinas (2019), capability can be defined as the personal traits and abilities that determine the tendency of fraudulent activity to occur in the presence of pressure, rationalization and opportunity. A lot of cases of fraud that led to most corporate failures would otherwise not have happened without the right individuals who possess the right capabilities that enable them to engage in such acts (Vousinas, 2019). According to Sukmadilaga et al. (2022), individuals with the capability can recognize the opportunity to engage in fraud and turn it into reality. Moreover, DeBlanc (2015) also suggests that individuals with capability are the most trusted in organizations as they often hold important positions and are usually among the last persons to be suspected during an investigation into wrongdoing in an organization. University of Ghana http://ugspace.ug.edu.gh 32 2.5.2.5 Ego According to Awang et al. (2020), ego is a kind of social pressure to maintain a good reputation in the sight of colleagues and the general public. Some cases of fraud provided evidence that proves that individuals with ego often rejects the notion of failure by engaging in unethical behaviours (Awang et al., 2020). Vousinas (2019) argued that individuals who have strong egos have a high tendency of engaging in wrongdoing due to their quest to maintain their position and status at all costs. Therefore, the pursuit of self-interest is a primary threat to the objectivity of auditors (Shafer et al., 2013). Moreover, Vousinas argued that the ego of the perpetrators appeared to be a common factor in fraud cases in recent years. Moreover, Stotland (1977) posits that one of the primary reasons why individuals engage in wrongdoing includes deception, and collusion among others includes a sense of superiority and mastery over systems and situations. Furthermore, Pedneault et al. (2012) espoused that people who engage in wrongdoing often possess strong egos and confidence that make them believe that their acts of wrongdoing will go undetected. 2.6 Conceptual Framework This framework presents a pictorial view of the entire research and assists the researcher to achieve the objectives of the research. This framework was developed based on the S.C.O.R.E Model (Vousinas, 2019) as had been used in some recent studies on employee wrongdoing. Thus, the conceptual framework indicated below in Figure 2 shows the relationships among the research constructs. The S.C.O.R.E. model is an essential model adapted in this study to describe the factors that influence auditors to engage in dysfunctional behaviours in the course of an audit engagement. Therefore, the study predicts that the pressure to meet the time budget during the audit, opportunity, rationalization, capability and ego of the auditor tend influencing the auditor’s University of Ghana http://ugspace.ug.edu.gh 33 dysfunctional behaviour. Unlike prior studies, however, this study argues that auditors engaging in dysfunctional behaviours also depends substantially on the auditor’s ethical values. As such, the study conceptualizes ethical values not to influence auditors to engage in wrongdoing irrespective of the pressure they face to complete the audit on time, capability, ego, opportunity and the tendency to rationalize wrongdoing. Therefore, the framework also predicts the moderating role of ethical values in the relationship between time budget pressure, rationalization, opportunity, ego, capability and dysfunctional audit behaviour. Figure 2.2: Conceptual Framework Based on the above conceptual framework, the following hypothesis are developed: H1: Time Budget pressure has a significant and positive relationship with dysfunctional audit behaviour Time budget pressure Opportunity Rationalization Capability Ego Ethical Values Dysfunctional Audit Behavior University of Ghana http://ugspace.ug.edu.gh 34 H2: Opportunity has a significant and positive relationship with dysfunctional audit behaviour H3: Rationalization has a positive and significant relationship with dysfunctional audit behaviour H4: Ego has a positive and significant relationship with dysfunctional audit behaviour H5: Capability has a positive and significant relationship with dysfunctional audit behaviour H6: Ethical values have a significant and negative relationship with dysfunctional audit behaviour 2.7 Hypothesis Development 2.7.1 Time Budget Pressures and Dysfunctional Audit Behaviour Mangiwa et al. (2017) espouse that since the timely completion of audit assignments is a key metric in assessing the performance of auditors and those who fail to meet deadlines hardly get promoted, it can therefore result in auditors truncating the audit procedures to keep the audit within the time budget for the audit procedure. Thus, time budget pressure is one of the perceived pressures that auditors face which could have a detrimental effect on the conduct of audits. Thus, pressure in the context of this research explains the stressful condition that is imposed on auditors to complete an audit on time. It is an undeniable fact that the audit profession is a stressful one with a heavy workload and auditors are often expected to meet tight deadlines. Auditors often are required to complete the audit engagement within a given period. Time budget pressure is associated with limited time given compared to the voluminous work to be performed (Coram et al., 2003). The mismatch between the time assigned and the work to be performed results in auditors speeding up the audit procedures which often leads to poor work done and effectively impairs the quality of the audit (Ong et al., 2022). University of Ghana http://ugspace.ug.edu.gh 35 Previous studies found that when there is high time budget pressure, the tendency that auditors will exhibit dysfunctional behaviour is high (Sari et al., 2016; Balasingam et al., 2019; Yessie, 2021). This is a result of the pressure to work within the stipulated time and not exceed time budgets during audits. This suggests that the quality of the audit may be at risk in situations where the time budget faced by the auditor is immense. Time budget pressure can be regarded as a situation where an auditor is under intense pressure to complete the audit of the client within a particular period (Said & Munandar, 2018). According to Sayed Hussin et al. (2017), time budget pressure occurs when the budgeted hours given to complete an audit is less than the actual hours needed. Auditors can respond in one of two ways when they encounter time budget pressure; work more efficiently and effectively spending several hours working overtime to meet the time budget or work within the time budget by accelerating the audit procedures or not performing procedures they deem not necessary. The latter can reduce the quality of the audit. Asare et al. (2015) posit that time and fee budgets can result in auditors minimizing costs by undertaking a reduced level of audit testing quantitatively or quality wise which can eventually impede the audit quality. However, the findings of the study from Zakaria et al. (2013) revealed that time budget pressure does not influence dysfunctional behaviour among auditors in Malaysia’s big audit firms. Imposing strict time deadlines on auditors during audits may result in them engaging in dysfunctional audit behaviours which may eventually result in minimal audit quality (Paino et al., 2010). This is because auditors are generally appraised and their career development is often linked to their ability to efficiently audit clients within the time given (Syam et al., 2017). This can result in the acceptance of weak explanations by clients or curtailing audit procedures necessary to obtain University of Ghana http://ugspace.ug.edu.gh 36 sufficient appropriate audit evidence during audits and can affect the opinion given by the auditor (Zakaria et al., 2013). Zakaria et al. (2013) espouse that as auditors work under pressure to meet deadlines, it can stifle creativity or even prevent them from acting appropriately to follow the necessary procedures. Moreover, auditors in a bid to achieve time budgets, spend long hours on audit assignments which can lead to the high tendency of such auditors to change jobs and ultimately engage in dysfunctional audit behaviours (Anugerah et al., 2016). Time budget pressure curtails the auditor’s predisposition to make ethical decisions (Koh et al., 2018). Time budget Pressure is a major factor that can lead to dysfunctional audit behaviours among auditors as it propels them to take shortcuts (Nehme, 2013; Svanberg and Öhman, 2013; Svanström, 2016). The audit industry is characterized by intense competition and as such tighter time budget is a consequence. Therefore, the study hypothesizes that: H1: Time Budget pressure has a significant and positive relationship with dysfunctional audit behaviour 2.7.2 Opportunity and Dysfunctional Audit Behaviour As earlier indicated, the fraud S.C.O.R.E model is used to underpin the research. Consistent with the S.C.O.R.E model, this research espouses that when an opportunity exists at the workplace due to control systems weaknesses, it can facilitate dysfunctional audit behaviour. Auditors’ ability to engage in dysfunctional acts is dependent on the available opportunity, which can be reflected in weak controls systems available such as a lack of review procedures, monitoring etc. Accordingly, an opportunity exists when there is a lack of controls, the ability to override existing controls and University of Ghana http://ugspace.ug.edu.gh 37 a lack of appropriate policies to govern the conduct of employees at the workplace among others (Thanasak, 2013). Thus, this opportunity is created as a result of a weak system of controls in the firm and in a worse case, when such controls are non-existent. Adeoti et al. (2020) argue that employees are likely to exploit loopholes in the regulations and policies of the organization as it presents them with an opportunity to engage in dysfunctional behaviours to achieve their personal goals at the expense of the organization. Dysfunctional audit behaviours may also arise as a result of the absence of audit firms having relevant policies to guide auditors in the discharge of their duties or lack of supervision during the audit engagement. For instance, Mohd et al. (2016) and Yuen et al. (2013) suggest in their respective studies that dysfunctional audit behaviour may also be the result of a lack of supervision of an engagement team member while undertaking an audit procedure during the audit. According to the extant literature, opportunity is a crucial factor that influences individuals to engage in fraudulent behaviours and other forms of dysfunctional behaviours at the workplace which is primarily a consequence of the absence of control systems or weak controls (Albrecht et al., 2010; Kassem et al., 2012; Dellaportas, 2013). Moreover, in situations where control systems are strong, that is, when the required procedures and processes are devoid of ambiguity, the tendency to engage in dysfunctional behaviours is less (Liu, Wright, & Wu, 2015). Mohd et al. (2016) investigated the factors that influence an auditor’s dysfunctional behaviour and the result shows that when there is poor supervision during an audit assignment, the tendency of the auditor prematurely signing off the audit is high. Moreover, some scholars conducted studies to understand the influence of control systems on dysfunctional behaviours among auditors. For instance, Malone and Roberts (1996) conclude that strong control and review procedures during an audit reduce the occurrence of dysfunctional audit University of Ghana http://ugspace.ug.edu.gh 38 behaviours. According to Paino et al. (2011), audit review effectiveness is negatively associated with the frequency with which auditors engage in dysfunctional audit behaviours. Thus, this study provides empirical support that a strong control system during the audit is related to a lower tendency of auditors to engage in dysfunctional behaviours. This is because, when auditors perceive that the control systems are strong, there is a lower likelihood that they will engage in dysfunctional audit behaviours for fear of detection. Therefore, the study hypothesizes that: H2: Opportunity has a significant and positive relationship with dysfunctional audit behaviour 2.7.3 Rationalization and Dysfunctional Audit Behaviour Rationalization refers to a situation whereby an individual legitimizes an act or behaviour that is contrary to the norm (Slezak, 2013). For instance, auditors who alter audit procedures or prematurely sign off the audit may have the opinion or try to justify their decisions and actions as are in the best interest of the audit firm or the client. According to Said et al. (2017), rationalization occurs when an individual’s ability makes him or her misinterpret his or her deviant acts or behaviours as ethically correct. Kula et al. (2011) reveal that rationalization is a major cause of deviant behaviours at the workplace. Rationalization enables persons who do not follow the required standards and rules while performing their duties to continue to uphold themselves as moral and competent (Troy et al., 2011). Prior to wrongdoing, an individual convinces himself or herself that an action he or she is about to take will not be detrimental to his or her reputation or endanger the organization and therefore the deviant act is morally acceptable (Schnatterly et al., 2018). Moreover, Schnatterly et al. (2018) espouse that, individuals rationalize wrong acts by believing that “everyone is doing it". To University of Ghana http://ugspace.ug.edu.gh 39 conclude, the study indicates that when auditors rationalize their wrong decisions as ethically correct, the tendency to engage in dysfunctional audit behaviours will increase. Therefore, the research hypothesizes that: H3: Rationalization has a significant and positive relationship with dysfunctional audit behaviour 2.7.4 Ego and Dysfunctional Audit Behaviour Individuals care about others’ opinions of them because of their ego. Individuals develop their reputation and status in life over time and they do everything possible within their means to maintain it. Vousinas (2019) argues that people do not want to lose their status in society especially one of power. They may or may not engage in some behaviours and activities just to maintain that status (Vousinas, 2019). On the positive side, individuals who want to maintain their status may avoid engaging in behaviours that can destroy their hard-earned reputation and integrity. Such people are less likely to engage in unethical practices. However, others may use unapproved means to maintain their status. This may include extreme behaviours such as fraud. According to Vousinas (2019), egoistic individuals want to maintain their status in society and therefore might engage in wrongdoing. Ego as an important determinant of fraudulent behaviours was emphasized in the studies of Crowe (2011) and Yusof et al. (2016) and recently reinforced by Vousinas (2019). Primarily, Crowe (2011) and Yusof et al. (2016) categorized ego as a component of arrogance that influences individuals to engage in unethical behaviours. Vousinas (2019) suggests that in situations where individuals have power over others and processes, they may use all possible ways that include unlawful means to accomplish a particular task. He further posits that individuals who engage in various dysfunctional acts such as fraud predominantly do so to University of Ghana http://ugspace.ug.edu.gh 40 maintain their ego and sense of pride. Individuals who undertake unethical behaviours without detection often hold the opinion that they are superior to others. They continually engage in such behaviours to boost their ego (Vousinas, 2019). Therefore, the research hypothesizes that: H4: Ego has a significant and positive relationship with dysfunctional audit behaviour 2.7.5 Capability and Dysfunctional Audit Behaviour According to Wolfe and Hermanson (2004), a person’s capabilities are the traits and abilities that an individual possesses that enable them to engage in various forms of deviant behaviours such as fraud. They argue that in addition to opportunity, pressure and rationalization of the fraud triangle, dysfunctional behaviours are unlikely to occur unless the potential perpetrators can engage in such acts without detection. Among these traits are the funct