Auditor Workload Stress and Audit Conservatism


Student thesis: Doctoral Thesis

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Award date1 Aug 2019


Current literature on audit workload stress presents inconclusive findings related to the impact of the auditor workload stress on audit quality. Goodwin and Wu (2016) explain that audit partner busyness could have a beneficial and detrimental effect on audit quality. The inconsistent results of workload stress effect on audit quality motivates this thesis to use a new perspective by elaborating the impact of workload stress on auditors’ tendency to be conservative. While the current research on audit conservatism mainly focuses on the client’s characteristics, this thesis examines auditor workload stress specifically, as the determinants of audit conservatism. This thesis also examines whether auditor resources and knowledge such as the audit firm size, audit specialization, and audit tenure moderate the workload stress effect.

This thesis conjectures that workload stress would increase the audit conservatism to maintain audit risk at an acceptably low level and to avoid future litigation risk. This thesis also posits that audit firm size, audit tenure, and audit specialization moderate the workload stress effect. This thesis measures audit workload stress as the busyness at the December financial year-end and the number of audit clients per partner. Meanwhile, audit conservatism is measured as the likelihood of issuing a modified audit opinion (MAO) and a going concern opinion (GCO).

The findings of this research show that audit workload stress increases audit conservatism. Audit workload stress also increases the probability of making type I error by issuing a GCO for clients that subsequently do not file for bankruptcy. The findings are robust to several workload stress measures. Related to the moderating effect of firm size, this thesis finds that the stress effect is more pronounced in non-big four firms. Furthermore, when busy audit firms have an industry specialization that matches the client’s industry, those firms are less likely to modify the audit opinion. However, this thesis cannot find evidence of an audit tenure moderating effect. The additional test reveals that the workload stress effect is less pronounced when auditors are concerned with the client’s financial distress and the litigation risk. The findings of this thesis suggest that workload stress management is essential to maintain audit performance.

    Research areas

  • audit conservatism, auditor workload stress, modified audit opinion, going concern opinion