An Examination of Contextual Factors and Individual Characteristics Affecting Technology Implementation Decisions in Auditing Mary B. Curtis, Univ of N. Texas Elizabeth Payne, Univ of Louisville

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

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

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

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

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.

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.

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.

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?

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

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

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!

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

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

RESULTS – Research Question  RQ: Do in-charge auditors believe their firms would be willing to use longer-term budgets?  On a scale of 1 (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

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