Our motivating question: Why isn’t more software (CAATs) used for audit testing?

1. An Examination ofContextual Factors andIndividual CharacteristicsAffectingTechnology Implementation Decisionsin AuditingMary B. Curtis, Univ of N. TexasElizabeth Payne, Univ of Louisville

2. Our motivating question:Why isn’t more software (CAATs) used for audit testing?

3. INTRODUCTION AND MOTIVATION • Audit technology has the potential to increase both effectiveness and efficiency • But, users sometimes resist implementation of new technologies, particularly auditors, and most particularly when software use is optional • There is currently little research in auditing relating to IT implementation or the use of CAATs • Such research is important • Factors not relevant to, or present in, other contexts may influence auditors’ implementation decisions • We examine • Contextual factors • Budget/performance evaluation period • Influence from superiors • Individual differences • Perceived budget pressure • Risk preference

4. THEORY AND HYPOTHESES We employ: • TAM - technology acceptance literature • Unified Theory of Acceptance and Use of Technology (UTAUT) • Performance Expectancy • Social Influence • Budgeting theory • Bias created by use of single budget for multiple purposes within organizations

5. Context - PERFORMANCE EXPECTANCY • TAM - Positive relationship between performance expectancy and intention to use technology • In audit, job performance includes budget attainment • Prior research in budgeting indicates that • Budgets typically serve multiple purposes • Multi-use budgets often lead to dysfunctional behavior • Possible solution? Spreading cost of CAATs over multiple years should result in cost of CAATs having less impact on annual budget, and therefore auditor’s evaluation • H1: Auditors with shorter-term (longer-term) budget and evaluation periods will be less (more) likely to implement audit technology

6. Context - SOCIAL INFLUENCE • Implementation – do important others believe he or she should use technology? • Individual decisions are often influenced by the known views of superiors • We move away from direct influence and examine the impact of remote superiors • Though not likely involved in performance reviews, we expect the remote superior’s preference to affect the implementation decision due to the up-or-out nature of accounting firms • H2: Auditors are more likely to implement technology when a remote superior favors implementation than when they have no knowledge of the superior’s preference.

7. Individual - RISK PREFERENCE • Technology implementation is risky to the budget and therefore to one’s career • Auditors who are risk-averse may be less inclined to partake of any activity which may increase the uncertainty in their environment, regardless of other external factors • H3a: Auditor risk preference is positively associated with the decision to implement technology • On the other hand, risk preference may moderate the influence of contextual factors on the implementation decision • H3b: Auditor risk preference is positively associated with the decision to implement technology, only in the absence of contextual factors.

8. Individual - BUDGET PRESSURE • Budgeting literature asserts there is a positive relationship between budget pressure and dysfunctional behavior • Auditors perceive budget pressure differently • Again, this individual difference may be strong enough to override contextual factors, or it may moderate these factors • H4a: Auditors who perceive greater (lesser) levels of pressure are less (more) likely to implement technology. • H4b: Auditor who perceive greater (lesser) levels of budget pressure are less (more) likely to implement technology, only in the absence of contextual factors.

9. RESEARCH QUESTION • Firms have multi-year commitments from clients, but longer-term budgets are not used • RQ: Do in-charge auditors believe their firms would be willing to use longer-term budgets?

10. RESEARCH METHOD • In-charge auditors from one Big 4 accounting firm • 139 usable responses • Case study followed by a questionnaire • 2 X 2 between-participants design manipulated • Budget period (1-year or 3-year), and • Influence from remote superior (managing partner encourages use vs. no information) • Measured • Intention to implement technology (dependent variable) • Risk preference • Budget pressure perception

11. RESULTS – Contextual Factors • H1: Auditors with shorter-term (longer-term) budget and evaluation periods will be less (more) likely to implement audit technology. • Individually correlated • Only marginally significant main effect in the presence of other factors • H2: Auditors are more likely to implement technology when a remote superior favors implementation than when they have no knowledge of the superior’s preference • Significant main effect

12. RESULTS – Individual Factors • H3a: Auditor risk preference is positively associated with the decision to implement technology • Main effect significant • H4a: Auditors who perceive greater (lesser) levels of pressure are less (more) likely to implement technology. • Main effect significant, but in the opposite direction hypothesized!

13. RESULTS – Individual Factors • H3b: Auditor risk preference is positively associated with the decision to implement technology, only in the absence of contextual factors. • Partner support – increases likelihood for risk averse • Budget period – doesn’t change behavior driven by risk preference • H4b: Auditor who perceive greater (lesser) levels of budget pressure are less (more) likely to implement technology, only in the absence of contextual factors. • Partner support – increases likelihood for those who perceive budget pressure • Budget period – longer budgetary period increases likelihood when feel pressured

14. RESULTS – Three way interactions • Partner Influence • Present • Perceptions of budget pressure do not affect intention to use technology for either risk-seekers or risk-averse • Absent • Perceptions of budget pressure • have no affect on intention to use technology for risk-seekers • encourage risk-averse individuals to use the technology • Budget Period • Longer • Perceptions of budget pressure have no affect for risk-seekers or risk-averse • Shorter • Perceptions of budget pressure • have no affect on risk-seekers • encourage risk averse individuals to use the technology

15. RESULTS – Research Question • RQ: Do in-charge auditors believe their firms would be willing to use longer-term budgets? • On a scale of1 (not at all likely) to 7 (definitely) • Did auditors think their firm would be willing to use long-term budgeting for • project management and cost control – mean = 3.6 • audit team performance evaluation – mean = 3.1 • suggest a somewhat pessimistic response since the means are less than the scale mid-point of 4

16. CONCLUSION • The use of longer-term budgets in auditing can help to overcome myopic decision making in some situations • Partners have extraordinary influence on individuals at all levels of their firms • Contextual factors appear to be strong enough to overcome individual characteristics • Further research is necessary to identify how fixed and flexible budgets differ • Firm resources and rewards must be aligned with the firm’s long-term interests in order to influence the use of optional software tools