Audit Quality Perception: Beyond the ‘Role‐Perception Gap’

• Author: Nathalie Gonthier‐Besacier,Géraldine Hottegindre,Sandrine Fine‐Falcy
• Published date: 01 July 2016
• DOI: http://doi.org/10.1111/ijau.12066
• Date: 01 July 2016

Audit Quality Perception: Beyond the ‘Role-Perception Gap’

Nathalie Gonthier-Besacier,

1

* Géraldine Hottegindre

2

and Sandrine Fine-Falcy

1

1

Grenoble AlpesUniversity, CERAG, Grenoble,France

2

EMLYON BusinessSchool, France

This paper measuresdifferences in the perception of audit quality between professionals, and attempts to categorise

the professionals on the basis of their perceptions. We firstly perform a REBUS-PLS analysis. We thus identify three

groups of professionals with different audit quality perceptions. We then run chi-square tests to evaluate differences

in perception depending firstly on the professional’s role in the audit process (auditor vs. preparer) and then by

incorporating other variables connected with the individuals’own characteristics. Contrary to existing research, our

study revealsno significant differences inperception between auditors andpreparers. In contrast, our studyindicates

that differences in audit quality perception can be explained in particular by the professionals’level of expertise and

the existence of shared values among professionals. This study therefore demonstrates the need to look beyond the

‘role-perception gap’in order to understand differences in audit quality perception. It confirms the existence of an

‘epistemic community’that explains the differences in audit quality perception.

Key words: Audit expectation gap, audit quality, external audit

INTRODUCTION

Recent decades have seen a global shift to re-regulation

(Kinney, 2005), with the Sarbanes Oxley Act (SOX) in the

US and similar regulatory changes in many other countries

(Lennox, 2009). Scandals have also brought attendant

changes in the conceptualisation of practice, with

developments in audit over the last decade consistently

shifting from a ‘business value’approach to one of ‘audit

quality’(Khalifa et al., 2007). Thus, in the majority of

developed countries, twenty-first-century statutory audit

regulations underline the importance placed on audit

quality and on its perception.

Given that the two aspects of DeAngelo’s (1981)

definition of audit quality –detection and reporting –are

unobservable (Krishnan & Schauer, 2000), the way in

which audit quality is perceived outside the audit process

is essential (Kilgore, Radich & Harrison, 2011; Knechel

et al., 2013) for maintaining public confidence in the value

of auditing, more so than auditors’actual behaviour. Poor

perceived audit quality may thus either underpin the

credibility of the audit report (Shockley, 1981) or,

alternatively, erode the confidence placed by the public in

the quality of the financial statements (Pany & Reckers,

1988). The perception of audit quality is thus a central

avenue both in terms of audit research and the concerns

of standards setters such as the International Auditing

and Assurance Standards Board (IAASB), which recently

(2011) emphasised that: ‘[u]nderstanding each other’s

views and how one’s actions may impact on others’

perceptions of audit quality is critical to efforts to enhance

audit quality’.

Yet both regulators and previous research studies

emphasise the existence of differences in perception

between the various stakeholders. Until now, these

differences have only been studied in terms of the

individual’s role in the audit process (auditor/preparer/

user), qualified by Humphrey (1997) as a ‘role-perception

gap’. Certain studies, however, encourage us to consider

individuals’perceptions as being influenced by the social

relations that they build through their role as actors in a

given social situation (Lee, 1994; Khalifa et al., 2007). In this

context, individuals’personal attributes (in this case their

role in the audit process) may not be sufficient to capture

the diversityof their differences in perception.We therefore

mobilise the ‘epistemic community’concept, defined by

Håkanson (2010) as a ‘sociological conceptualization of

knowledge (…) residing in groups of practitioners’.

Epistemic communities consist of individuals with

identical or similar ‘frames of reference’and cognitive

‘orientation systems’. These are associated with specific

social roles, suchas those of different occupational groups,

and are acquired in a process of cognitive socialisation,

usually through a combination of formal training and on-

the-job experience. This definition islinked to the ‘thought

collective’notion proposed by Fleck (1979), which is

defined as ‘a sociological group with a common style of

thinking’. These observations lead us to question the ‘lens’

through which the different players perceive audit quality

and to explore additional potential influences.

Wemeasure differencesin the perception of audit quality

attributes among professionals involved in the audit

process (auditors and preparers) in a French context.

Beyond the specific characteristics of French regulation

(joint auditors, strict conflict-of-interest rules, etc.), this

context is particularly appropriate because these two

stakeholders have been proven to share a specific ‘peers’

relationship’in France as shown by Richard and Reix

(2002) and Richard (2006). It is therefore appropriate to go

beyond the classic categorisation (auditor or preparer)

and attempt to categorise French professionals using the

‘epistemic community’concept, where individuals are

categorised on the basis of their different perceptions,

independently of their role in the audit process.

Previous studies have proposed the use of

multidimensional models to ascertain audit quality.

Following this tendency, we adopt structural equation

models, and in particularthose using the PLS (partial least

squares) method, to identify the different dimensions of

audit quality perception. In line with the methodology

taken by Carcello, Hermanson and McGrath (1992) and

Beattie, Fearnley and Hines (2013), a survey of 55 audit

quality attributes split into three themes (audit

Correspondence to: Nathalie Gonthier-Besacier, IAE Grenoble/CERAG

CNRS –FR 3748 DomaineUniversitaire, BP47 –F 38040Grenoble, France.

Email: nathalie.gonthier@iae-grenoble.fr

International Journal of Auditing doi: 10.1111/ijau.12066

Int. J. Audit. 20:186–201 (2016)

©2016 John Wiley& Sons Ltd ISSN 1090-6738

engagement,audit team and audit regulation) is completed

by 271 professionals. Principal component analysis (PCA)

and confirmatory analysis (PLS) then identify 20

constituent factors of audit quality. We then perform a

REBUS-PLS, supplemented by variance analyses and

Bonferroni tests, to identify and qualify groups of

professionals with different perceptions of audit quality.

Lastly, chi-square tests are run to measure the influence

on audit quality perception of variables characterising the

professionals themselves (their role in the audit, their level

of expertise and the existence of shared values).

Our results show that auditors and preparers generally

have a very similar perception of audit quality: for

educated stakeholders in France, no significant differences

in perception arise from the individual’s role in the audit

process. However, the size of the audit firm they work for

or with, the fact that the firm(s) they work for or audit

is/are public, and their professional rank in the firm

(senior/junior) are more influential than the traditional

split ‘auditor/preparer’described in the literature. This

indicates that differences in the perception of audit quality

attributes in France may be strongly characterised by an

‘audit experience gap’, and confirms the existence of a

French ‘epistemic community’comprised of the Big 4

auditors and their alumni, whose members sharethe same

values and knowledge and have developed within a

unique socialisation framework (Huault, Lazega &

Richard, 2012; Ramirez, 2012). This points towards an

interpretationof perception structures thatis more focused

on social interactions than that of the traditionalapproach,

which is based on the individual’s role in the audit process

(Humphrey, 1997).

This study makesseveral contributions. Firstly,although

research on the auditexpectation gap has existed for many

years, we show that the phenomenon is not yet fully

understood. Although regulators use differences in

perception between auditors and other stakeholders to

justify theiractions, our study demonstratesthat this might

not be the most relevant differentiating factor. Awareness

of the ‘correct’differentiatingfactors would help to activate

the appropriate drivers in the quest to improve audit

quality. In addition, given the different environments

(especially regulatory) that exist across countries, it is

important to conduct audit quality studies in different

countries (Wallace, 1987) and little research comparing

audit quality perceptions has been performed in France to

date. Because of the characteristics of this specific context,

the present study makes a genuine academic contribution

to this field of research.

Our paper is organised as follows. The next section sets

out the theoretical background and the hypotheses. We

then detail the methodology and present our results. The

final section summarises and discusses our findings with

an acknowledgmentof limitations and potentialnext steps.

BACKGROUND AND HYPOTHESES

The ‘role-perception gap’

Francis (2004)explains that ‘perceptionsare very important

with respect to auditor credibility, particularly since audit

qualityis difficult to observe directly’.To justifynew action,

regulators frequently rely on the existence of differences in

perceptionbetween individuals that they grouptogether in

function of their role in the audit process. In particular, the

various recent debates (European Commission, 2010a,

2010b; International Auditing and Assurance Standards

Board, 2011;Financial Accounting Standards Board, 2012)

have systematically focused on reducing the presumed

‘expectation gap’, defined as ‘the difference between what

users expect from the auditor and the financial statement

audit, and the reality of what an audit is’(International

Auditingand Assurance Standards Board,2011). This focus

on comparing perceptions is also found in academic

research, in termsof measuring both the ‘audit expectation

gap’and the differences in perception in terms of audit

quality (Carcelloet al., 1992).

The ‘audit expectation gap’–a generic term that

generally encompasses different‘sub-gaps’–has thus been

the subject of numerous studies over an extended period

(Porter, Ó hÓgartaigh & Baskerville, 2012). Concerning

potential information-communication gaps, academic

research has proceeded by comparing the perceptions of

users and auditors, by holding constant the type of audit

report (Libby, 1979; Best, Buckby & Tan, 2001; McEnroe &

Martens, 2001), or by comparing the perceptions of users

under different reporting formats (Bailey, Bylinski &

Shields, 1983; Best et al.,2001). Most authors conclude that

such a gap does indeed exist (Hassink et al., 2009).

Concerning potential expectation-performance gaps,

previous studies all found that financial statement users

(and, in some cases,a broad range of interest groups)have

little understanding of the role and responsibilities of

external auditors and, in general, expect far more of

auditors than it is feasible for them to provide, often

assuming auditsto have a broader scope than they actually

have (Gold, Gronewold & Pott, 2012). Further, comparing

the results of earlier and later studies, Porter et al. (2012)

conclude that interest groups’understanding has not

improved over time.

Conversely, there have been relatively few surveys of

attitudes and beliefs relating to the perception of audit

quality and its key dimensions (Freidson, 2001). Such

studies converge to assign a greater importance to audit

team (versus audit firm) attributes in perceptions of audit

quality (Kilgore et al., 2011). As a particular characteristic

of auditing is that it is aimed at various stakeholders with

occasionally diverging interests, previous perception

studies have focused on diverse groups of professionals:

bankers (Schroeder, Solomon & Vickrey, 1986; Gaynor,

McDaniel & Neal, 2006), chief financial officers or

company directors (Beattie & Fearnley, 1995; Freidson,

2001), audit committee members (Gaynor et al., 2006), or

exclusively on auditors (Mock & Samet, 1982; Sutton &

Lampe, 1991; Sutton, 1993; Robson et al., 1994). Only very

few studies have compared perceptions of audit quality

attributes across different types of professionals, for

example, audit committee chairpersons and audit

partners (Schroeder et al., 1986) or audit partners,

preparers and users (Carcello et al., 1992; Warming-

Rasmussen & Jensen, 1998). Authors are generally in

agreement that the importance attached to the various

perception attributes differs according to the stakeholders,

depending ‘very much on whose eyes one looks through’

(Knechel et al., 2013).

Finally, and consistent with the assuring finality of the

auditing process, the different research fields show a great

number of perception studies. Given the unobservable

nature of the audit engagement, they mostly rely on

surrogates or wide-perception interpretation frameworks.

Moreover, studies generally compare the perceptions of

professionalsaccording to the rolethey play in the auditing

process; with these differences in perception traditionally

studied by comparing the views of preparers, auditors

Audit QualityPerception 187

©2016 John Wiley & Sons Ltd Int. J. Audit. 20:186–201 (2016)