2006

Accounting, Auditing & Accountability Journal
Good hours, bad hours and auditors' defence mechanisms in audit firms
Breda Sweeney Bernard Pierce
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Breda Sweeney Bernard Pierce, (2006),"Good hours, bad hours and auditors' defence mechanisms in audit
firms", Accounting, Auditing & Accountability Journal, Vol. 19 Iss 6 pp. 858 - 892
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AAAJ REGULAR PAPERS

19,6
Good hours, bad hours and
auditors defence mechanisms in
858
audit firms
Breda Sweeney
Department of Accountancy and Finance,
National University of Ireland Galway, Galway, Ireland, and
Bernard Pierce
Dublin City University, Dublin, Ireland
Abstract
Purpose The aim of the research is to investigate, using a field survey, the concept of
underreporting of time (URT), from both an individual and organisational perspective as a defence
mechanism for coping with time budget pressure.
Design/methodology/approach Big Four audit partners and seniors are interviewed regarding
the factors that motivate staff auditors to engage in manipulation of time records and the
consequences of the behaviour for individual auditors and audit firms.
Findings Findings indicate that time record manipulation is not a single type of activity as
suggested previously, but includes a variety of behaviours, six of which are identified in the study.
Each of these constitutes a very different type of defence mechanism, motivated by different influences
and resulting in different outcomes for the individual and the organisation. The firms engage in a
defence mechanism characterised by a series of mixed messages to avoid dealing with inherent
cost/quality conflicts and elements of this mechanism become embedded in routine activities at
different levels in the firms.
Research limitations/implications The implications for audit firms vary with the type of time
record manipulation and future research therefore needs to concentrate on a closer examination of the
various practices that make up URT as identified in this study.
Originality/value The insights provided by the research are used to explain apparently
conflicting arguments in the literature and to set out implications for research and practice.
Keywords Time-based management, Auditors fees, Behaviour, Ireland
Paper type Research paper
Introduction
A lack of public acceptance of the legitimacy of auditing (Power, 2003) and issues of
audit cost-quality conflict (Kelley and Margheim, 1990; Sweeney and Pierce, 2004) have
assumed greater importance in recent times, fuelled by corporate scandals such as the
Enron collapse in 2001. The increased public scrutiny of auditors has highlighted the
Accounting, Auditing & need to address all aspects of the audit process, though many of the concerns over high
Accountability Journal profile corporate collapses related to wider issues such as auditor independence (Lin
Vol. 19 No. 6, 2006
pp. 858-892 et al., 2003). This business of auditing is one such aspect of the audit process where
q Emerald Group Publishing Limited
0951-3574
auditors are forced to make cost-quality trade-offs (McNair, 1991) and where the
DOI 10.1108/09513570610709908 internal legitimacy of auditors is framed in terms of supporting the business of
auditing (Power, 2003, p. 382). Underreporting of time (URT), where employees Good hours, bad
manipulate their time records to charge less time to an assignment than that actually hours
worked, has been found to be a ubiquitous form of behaviour in management
consultancy firms (Alvesson and Karreman, 2004) and audit firms (Otley and Pierce,
1996a; McNair, 1991) and is directly connected with the business of auditing and
cost-quality conflict. The implications of URT in audit firms have been widely
discussed in the literature, giving rise to conflicting views. For example, URT has been 859
presented as a dysfunctional form of behaviour with potentially serious negative
consequences arising from the perpetuation of unrealistically tight budgets which in
turn have been linked with quality threatening behaviours (Donnelly et al., 2003; Otley
and Pierce, 1996b). An alternative perspective views URT as a functional form of
behaviour signalling a willingness to make personal sacrifice with significant positive
outcomes for the organisation and the individual (McNair, 1991; Anderson-Gough et al.,
2001; Dirsmith and Covaleski, 1985).
Other behaviours in which individual auditors have been found to engage in response
to time pressure include those collectively referred to as quality threatening behaviours
such as premature sign-off and unauthorised sample size reduction (Pierce and Sweeney,
2003). URT has been singled out for further investigation in this study as it has a number
of distinctive features when compared to the other behaviours. Firstly, there is much
more ambiguity and discussion concerning the dysfunctionality of URT than that of the
other behaviours. Second, while all the behaviours have been strongly associated with
time pressure, in the case of URT this pressure emanates solely from internal targets
expressed in the form of time budgets, whereas the other forms of behaviour have also
been associated with externally influenced deadlines (Sweeney and Pierce, 2004). While
Sweeney and Pierce (2004) found that time budgets have decreased in importance in
audit firms, reported levels of URT remain high (Pierce and Sweeney, 2003), thereby
suggesting that there may be other reasons why auditors engage in the behaviours.
Third, URT has been linked with explicit and implicit management approval of the
behaviours in some situations (Otley and Pierce, 1996b), while no such linkage has been
reported for the other forms of behaviour. Finally, URT appears to be more complex than
sometimes portrayed in the literature and these complexities are illustrated by apparent
paradoxes arising from previous studies such as the decreasing importance of time
budgets noted above. Also, staff auditors appear to frequently engage in a form of
behaviour that deprives them of credit for working overtime and of which they
themselves disapprove (McNair, 1991). Although URT is contrary to the formal policies
espoused by audit firms, its widespread practice continues, apparently with tacit, and
sometimes explicit approval from top management (Otley and Pierce, 1996b). The
complex nature of URT, together with significant consequences, both positive and
negative, that have been attributed to it underline its importance as an issue for audit
firms, individual auditors and researchers. In more general terms, increasing public
scrutiny of auditors and a growing emphasis on balancing work and personal time
suggest a need to openly address issues which heretofore have been resolved through
underground activities such as URT.
Previous studies of URT have been mainly quantitative, based on large-scale
surveys or experimental laboratory studies and have concentrated on the audit
trainees perspective (for example, Otley and Pierce, 1996b; Kelley and Margheim, 1987,
1990; Ponemon, 1992). The purpose of this study is to examine, using semi structured
AAAJ interviews, the perspectives of both audit seniors and audit partners on the reasons
why auditors engage in URT, and the consequences of URT for individual auditors and
19,6 the audit firm[1]. The paper is organised as follows. Background literature is presented
in the next section, organised around the reasons for gaming behaviours as suggested
in the management control literature and the application of this literature to audit
firms. The research objectives and method are then set out, and the findings are
860 analysed in the context of organisational defence mechanisms (Argyris, 1990a) that
operate beneath the surface in organisations. The paper concludes by setting out the
implications of the findings and offering suggestions for future research.
Background literature
Previous research has addressed the issue of management control in audit firms,
highlighting in particular the possibility of major conflict in attempting to exercise

tight cost control without compromising quality standards (McNair, 1991). Formal cost
control is exercised by using time budgets, and time budget achievement has been
found to be the primary criterion for performance evaluation (Kelley and Seiler, 1982).
Gist and Davidson (1999) found that very often the time budgets are unattainable
under normal conditions on an audit assignment and not surprisingly, therefore,
auditors in general often experience severe pressure in attempting to meet budget
targets. Ettredge et al. (2004) found that although time budget increases arise from the
predominantly higher reported hours in a prior year, the adjustment is incomplete and
is less responsive when fixed fee contracts are involved. This suggests that budget
variances persist across years and that auditors do not generally meet the budgeted
time, though whether there exists an acceptable variance level was not examined.
When individual auditors are faced with the dilemma of trying to complete the work
assigned in the time allocated, they sometimes respond by engaging in gaming
behaviours such as manipulation of time records (McNair, 1991). Underreporting of
time (URT) refers to incidences where auditors do not charge all the time they worked
on an audit assignment to the particular client code relating to that audit. In most cases
the time is not charged to any code, resulting in the auditor failing to obtain
compensation for overtime but in some cases the time is charged to another client code
or to a non-chargeable code such as administration.
Though recent research suggests that time budgets have decreased in importance
(Sweeney and Pierce, 2004) and a decrease in levels of URT has been found (Buchheit
et al., 2003; Pierce and Sweeney, 2003), reported levels remain high. Pierce and Sweeney
(2003) found that almost 40 per cent of audit trainee respondents admitted to engaging
in the behaviour at least sometimes. This compares with 55 per cent of respondents in
Otley and Pierces (1996b) study and 63 per cent in Lightner et al.s (1982) study. In
response to a question on auditors in general, however, Pierce and Sweeney (2003)
found that 84 per cent reported that auditors in general at least sometimes URT.
Although URT has been frequently examined in previous studies most of the
findings have been quantitative, based either on postal questionnaires or experimental
lab studies, and have failed to provide a deeper analysis of the complexity of the issue.
The relationships between a number of different contextual and control variables and
URT have been examined in previous studies and time budget attainability has
consistently been found to be significantly related to URT (e.g. Otley and Pierce, 1996b;
Kelley and Margheim, 1990). Other variables examined include leadership style (Otley
and Pierce, 1996b), seniors personality (Kelley and Margheim, 1990), moral reasoning
and peer pressure (Ponemon, 1992), fee type (Kelley and Margheim, 1987), supervisors
requests to URT and motivational force to engage in URT (Lightner et al., 1982), and Good hours, bad
perception of a fair performance evaluation (Pany et al., 1989). These studies have hours
provided conflicting findings regarding the existence of a significant association
between URT and the specified variables.
Prior empirical findings provide consistent evidence of a link between budget
pressure and the incidence of URT. Budget pressure has been extensively studied in
the management control literature over a long period and the particular challenges 861
involved in the implementation of effective accounting information systems in
relatively unprogrammed work environments have been highlighted (Earl and
Hopwood, 1981). The contingency theory literature suggests that high reliance on
accounting data such as budgets results in dysfunctional behaviour when used in
inappropriate circumstances such as in conditions of high uncertainty (Hirst, 1981;
Govindarajan, 1984) and interdependence (Hopwood, 1972; Otley, 1978). Birnberg et al.
(1983) presented a set of behaviours employed by subordinates who are under severe
budget pressure and resort to manipulation of accounting information in a variety of
ways. These behaviours were labelled smoothing, biasing, focusing, gaming, filtering
and illegal acts. In situations where subordinates operate outside of a structured and
measurable framework, manipulation and distortion of accounting information is
difficult for superiors to detect and these behaviours therefore represent possible
strategies for coping with budget pressures.
Organisational defence mechanisms

Argyris (1990a) viewed these behaviours as typical responses to the threat of
embarrassment, such as that which can arise when a subordinate is confronted with a
very difficult budget target. The prospect of missing the target represents a major
threat, but the possibility of openly discussing the problem with superiors may
constitute an equally serious threat of embarrassment, since budget difficulties are
seen as an extremely difficult issue to discuss with superiors (referred to as
undiscussable in the literature, for example, Argyris, 1990a; McNair, 1991). The
typical response involves circumventing the threats by bypassing the situation that
may cause such threats to become a reality and then covering up the bypass: what is
common about all these activities is that they bypass the causes of the threat and that
they cover up the bypass while it is being produced (Argyris, 1990a, p. 506). These
behaviours arise from defensive reasoning by individuals and collectively constitute
what Argyris referred to as organisational defence mechanisms.
When an individual is faced with an embarrassing or threatening situation they
activate a human theory of how to remain in control (individual defensive routine)
(Argyris, 1990a). In order to legitimise individual defensive routines, employees create
organisational defensive routines that are consistent with their individual defensive
routines. Argyris defined organisational defensive routines as any routine policies or
actions that are intended to circumvent the experience of embarrassment or threat by
bypassing the situations that may trigger these responses (Argyris, 1990a, p. 505).
Defensive routines are contrary to productive reasoning and are based on cover up,
bypass, confusion and mixed messages. Argyris (1990a) provided examples of mixed
messages, i.e. messages that are simultaneously precise and imprecise, ambiguous and
clear, as an organisational defensive routine. Organisational defensive routines can
result in the production of distorted information due to gaming behaviour but Argyris
AAAJ pointed out that the distortion of the information is taken for granted because it is seen
19,6 as necessary for the survival of the players as well as for the organisation (Argyris,
1990a, p. 506). The gaming behaviour that results from the defence mechanisms is
simultaneously favourable and unfavourable for the individual. It is favourable in that
they are protecting their own interests, but at the same time it is unfavourable in the
sense that it is necessary to engage in this behaviour and cover it up. Argyris
862 suggested that if management become aware of the gaming activity they usually set
new rules to reduce the likelihood of the activity continuing but that these rules merely
bypass and cover up the problem. Eventually, defensive reasoning becomes
acceptable, if not required, by organisational practices and policies (Argyris, 1985).
In audit firms, auditors have been found to resort to individual defence routines
designed to create the impression of having met budgetary targets and thereby succeed
in bypassing the embarrassment and threat of failing to meet their objectives which
would result in a poor performance evaluation. The conflict between cost and quality
and the difficulty of simultaneously meeting both targets is apparently clearly
understood by subordinates and superiors to be undiscussable, and the consequence is
that a double bind (Argyris, 1990a) exists within the control system. Mixed messages
are given by the firms to audit trainees, in that a certain volume and quality of work is
required but often in an unattainable period of time. Trainees resolve the dilemma
privately by engaging in URT and the undiscussable remains undiscussable (McNair,
1991). These mixed messages constitute an organisational defence mechanism as they
allow the firms to bypass the potential threat and embarrassment of admitting that
they are striving to have work completed in an unreasonably short time.
Consequences of defence routines

Argyris (1990b) identified a number of negative consequences associated with
organisational defence routines. Specifically, these mechanisms contribute to a
diversion of attention away from actual dimensions of organisational effectiveness
such as learning, competence and justice. Therefore, organisational defensive routines
are anti-learning and over-protective (Argyris, 1990a, p. 505). Further, these routines
tend to be activated when they are least likely to be effective and most likely to inhibit
problem solving (Argyris, 1990a, p. 505). They tend to make it unlikely that the
organisation will address the factors that caused the embarrassment or threat in the
first place and cause budgetary problems to be undiscussable and to be resolved
privately. Given that the original problem or dilemma that gave rise to the defensive
routines was undiscussable, the routines themselves are sensitive and undiscussable.
They are therefore unmanageable and become the source of much distorted
information, which becomes necessary for individual and organisational survival and
promote skilled incompetence (Argyris, 1990b, p. 12). Furthermore, they may become
the foundations for unethical decision making, since the result of these countless
everyday actions is to deaden individuals awareness to the ethical pollution they are
producing (Argyris, 1990b, p. 161). Once they become embedded in organisational life,
organisational defence routines can lead people to feel helpless and cynical about
changing them (Argyris, 1990a, p. 506).
The literature on URT presents conflicting views on the consequences of URT and
whether URT constitutes a functional or dysfunctional response to time budget pressure,
though the consequences of URT have not been empirically investigated. For example,
McNair (1991) pointed out that URT may have multiple purposes and that reducing the Good hours, bad
time charged to a job may be viewed as a signal of competency, an indication of level of hours
dedication to the firm, a measure of inefficient time for auditors, and may help to identify
which individuals should be promoted. Regarding a measure of inefficient time, McNair
found that 100 per cent efficiency is expected, taking away the very human need to rest
(McNair, 1991, p. 646). Responsibility to only charge efficient time was understood and
accepted by audit seniors but audit juniors were less accepting, possibly reflecting a 863
shorter socialisation period for audit juniors. McNair suggested that a certain level of
time manipulation may be desirable for a firm as long as its costs, such as increased
turnover, are less than the benefits the behaviour provides for the firm.
Brunsson (1993) maintained that certain organisational behaviours which may
appear dysfunctional to the outside world may actually be functional for an
organisation. Dirsmith and Covaleski (1985) suggested that URT is part of the firms
informal communication structure and is viewed as a way to exhibit loyalty to firm
management. Anderson-Gough et al. (2001) also found that engaging in URT
demonstrated commitment to the firm. They argued that URT is simply part of the
firms politics and that it is prudent for the ambitious auditor to not charge all his/her
time on some assignments. They claimed that earlier studies on time budget pressure
might be missing this important link with internal firm politics.
Earlier studies, however, take a longer-term view of the impact of URT on audit
quality and argue that URT could lead to quality threatening behaviours on future
audits due to the perpetuation of artificially tight budgets (Otley and Pierce, 1996b;
Donnelly et al., 2003). Furthermore, there is consistent evidence that URT is contrary to
official firm policies, on the basis that it undermines the accuracy of time records,
which are a fundamental component of management information used for diverse
purposes such as client billing, staff evaluation, assignment planning and projecting
long term staff requirements (Donnelly et al., 2003; Shapeero and Killough, 1999).
Although there are varying views of the consequences of URT, its ability to serve a
unique purpose in an environment where cost quality trade-offs are inevitable is not
disputed (Ponemon, 1992).
Research method
Research objectives
The aim of the research is to conduct a field survey investigation of URT, from both an
individual and organisational perspective, as a defence mechanism for coping with
time budget pressure. In particular, the study examines the reasons why auditors
engage in URT, as perceived by audit seniors and audit partners, and seeks to establish
whether different motivational influences may be associated with separately
identifiable forms of behaviour that may fall under the general heading of URT. In
addition, the study examines the perceived consequences of URT for the individual
auditor and the audit firm from the perspective of both audit seniors and audit partners
and seeks to address apparent contradictions in the literature regarding the
functionality of URT.
Reasons for URT. Time budget pressure has been held to be the primary reason
why auditors engage in URT (McNair, 1991). Inability to meet time budgets may be
due to job complexity, client-created problems, auditor inefficiency or an unrealistic
time budget (Shapeero and Killough, 1999). Although URT may be associated with
AAAJ multiple purposes as suggested by McNair (1991), previous studies have been limited
19,6 to quantitative methods in examining the existence of reasons other than time budget
pressure to explain why audit staff (seniors and juniors) engage in URT. The decreased
importance of time budgets relative to time deadlines (Sweeney and Pierce, 2004) and
the continuation of high levels of the behaviour (Pierce and Sweeney, 2003) suggest
that further research is needed to address the reasons why auditors engage in URT.
864 Hence the following research questions are addressed:
Q1a. What are the reasons why audit staff engage in URT, as perceived by audit
seniors?
Q1b. What are the reasons why audit staff engage in URT, as perceived by audit
partners?
Consequences of URT. For the individual auditor, URT has been found to lead to
positive consequences such as better performance evaluations, supervisor recognition
of competency and increased job security (Lightner et al., 1982). Negative consequences
for the individual auditor such as loss of overtime and the perpetuation of artificially
tight budgets have also been associated with URT (Otley and Pierce, 1996b). No
previous study has examined audit seniors and partners perspectives on the
consequences of URT for individual auditors and this is addressed in the following
research questions:
Q2a. What are the consequences for audit staff that are associated with URT, as
perceived by audit seniors?
Q2b. What are the consequences for audit staff that are associated with URT, as
perceived by audit partners?
For the firm, reported hours are used to evaluate employee performance, set time
budgets for the following year and justify any changes to the audit fee (Shapeero and
Killough, 1999). These authors argued that it would be expected that the effectiveness
of these functions would be reduced when employees submit inaccurate timesheets.
High levels of URT were reported in previous studies (Pierce and Sweeney, 2003) and
there is no clear evidence of negative consequences for the firms, associated with those
behaviours. The following two research questions address the consequences of the
behaviours for audit firms:
Q3a. What are the consequences for audit firms that are associated with URT, as
Q3b. What are the consequences for audit firms that are associated with URT, as
Data collection
The study adopted a qualitative approach and semi structured interviews of
approximately 50 minutes were carried out with 25 audit seniors in 2000 and with 12
audit partners in 2002 from Big Four firms in Ireland[2]. Seniors were drawn from four
firms, while partners were drawn from three firms. Audit seniors were selected as they
have been identified as the most pressurised position in the audit firm hierarchy
(Kelley and Seiler, 1982), have been studied in a number of previous studies on URT
and have been found to engage in high levels of this behaviour (Otley and Pierce, Good hours, bad
1996b; Pierce and Sweeney, 2003). Given the level of pressure to which they are hours
subjected and the close proximity of the end of their training period, they should be in
an ideal position to identify reasons for the behaviours and consequences of the
behaviours. As audit partners are in the position of both owners and top management
and set the tone at the top, their views of the reasons auditors engage in these
behaviours and the consequences of the behaviours are likely to influence the 865
continuation of the behaviours in future periods and are considered particularly
important. Consistent with virtually all previous research on URT in audit firms the
study was based on Big Four firms. The interviews were taped and confidentiality
assured. Interview guides, based on examples in the literature (e.g. Lillis, 1999; Patton,
1990), were used to ensure consistent and complete coverage of the topics (relevant
sections of the interview guides are contained in Appendix 1).

The authors had developed strong relationships[3] with the audit firms and as a
result the study was not seen as threatening and access was facilitated. With regard to
the selection of seniors, listings of all auditors in their third and fourth year of
employment were obtained from the personnel office of each of the firms. A total of 25
auditors were selected at random from the listings and the firms were not made aware
of the individuals selected. Approximately equal numbers of males and females were
selected and individuals were selected from each of the main audit areas. Each
individual selected was phoned by the first author and asked to participate in the
study. Assurances of confidentiality and anonymity were given and all individuals
selected agreed to participate in the study. All the interviews were carried out by the
first author in a university location away from the offices and for the purposes of
presenting the findings the seniors selected are referred to as S1 to S25. Audit partners
were selected by the contact partner in each of the Big Four firms who was requested to
ensure that the partners selected had diverse ranges of experience and were from
different audit areas. The interviews with audit partners were carried out by both
authors in the offices of the firms. Again, assurances of confidentiality and anonymity
were given and partners are referred to as P1 to P12 in presenting the findings. Audit
partners were presented with a summary of the findings on URT at audit trainee levels
from Pierce and Sweeneys (2003) study (Appendix 2) in advance of the interviews and
their reaction to these findings provided a starting point for the interviews[4].
Data analysis
The importance of a disciplined approach to data analysis has been well documented in
previous research (e.g. Miles and Huberman, 1994) and a structured analytical
approach was used for data analysis in this study. Following completion of each
interview, the interview was transcribed using Microsoft word. The file was then
imported into NUD-IST and was coded around the main themes of the study. As
recommended by Patton (1990), an initial set of codes was developed before the
interviews commenced and these codes were refined as the interviews progressed and
patterns emerged. NUD-IST was used mainly for organising the data rather than data
analysis. Data analysis was carried out by both authors. The coded transcripts were
read through three times to determine the appropriateness of coding and to further
refine codes. Reports were made of all the sentences under each code and sentences
which expressed views well were used to present the thick description (Denzin, 1994)
AAAJ in the next section. Transcripts were read again in full to ensure these quotations were
19,6 not taken out of context and a search for negative evidence (Miles and Huberman, 1994)
was undertaken to ensure that all views were presented. The authors also searched for
inconsistencies in the views of each partner to increase the reliability of the findings.
As recommended by Silverman (2000), a summary of the findings from both audit
seniors and partners was prepared in tabular format (Tables I and II) organised around
866 the research questions of the study.
Findings
All audit senior interviewees believed that URT occurs in audit firms and some
personally admitted to engaging in URT where often you would work on a job and not
charge the full hours . . . the majority of people work a lot longer than they actually put
in on their timesheet (S4). Allocating time to a code other than the client code was also
referred to where some people wouldnt charge their time or they mightnt be charging
their time to that client (S3).
The majority of audit partners interviewed also acknowledged that it [URT] does
happen (P5), though some expressed surprise when presented with the levels of URT
reported in Pierce and Sweeney (2003). One partner admitted to being aware of serious
situations where people worked a significant amount of overtime and not charged it
(P11).
Reason Partner (n 12) Senior (n 25)
Efficiency
Inefficiency P5, P8, P12 S3, S7, S9, S12, S13, S17, S18,
S19, S22, S23
Perception of inefficiency P4 S25
Budgetary and performance evaluation system
Pressure to meet budget and prior year time or P1, P3, P7, P9 S4, S8, S9, S10, S11, S13, S14,
only exceed them by an acceptable amount S15, S19, S20, S22, S24, S25
Fee pressure on audits particularly small audits P3, P4, P8, P10, P12 S1, S3, S4, S6, S14, S15
Desire for good informal performance appraisal P4, P5, P12 S2, S7, S10, S14, S15, S16,
S19, S22, S23, S24, S25
Desire for good formal performance appraisal S8, S9, S11, S18
Competitive element in individuals P4, P5 S3, S25
Requests to engage in URT
Implicit or explicit requests to URT in certain P3, P5, P8, P11, P12 S1, S2, S3, S4, S5, S6, S10,
groups S11, S13, S17, S18, S19, S20,
S21, S23, S24
Culture in some areas to keep hours down P4, P6, P8, P11 S1, S4, S6, S8, S12, S21
Desire to avoid grief from the manager S2, S6, S13, S18, S19
Weak character and unable to resist pressure S10, S2
Fear that overtime will not be approved by S4, S12
manager
Desire to get job finished and told by manager S4
Table I. that job does not require overtime
Summary of interviewee Desire to have file up to standard normally S4
responses to Question 1 submitted if extra time on job
Good hours, bad
Consequences Partner (n 12) Senior (n 25)
hours
Individual
Better formal and informal performance S1, S10, S11, S17, S18, S24
evaluations
Better promotion prospects S4, S5, S16, S25
Greater satisfaction to have good file on time S4 867
Positive impact on salary review S22, S23
Perception of efficiency S2, S19, S20, S23, S24, S25
Avoidance of negative consequences where S21
culture is to URT
Booked for more jobs S3, S5, S15, S16, S17, S23
Increased pressure on future jobs to maintain S18, S23
same level of efficiency

Impact on auditors in subsequent years due to P2, P6, P5 S2, S3, S9, S10, S11, S12, S13,
perpetuation of artificially tight budgets S15, S19, S21, S22, S23, S24,
S25
Lower motivation and morale P3, P12 S1, S4, S6, S8, S14, S25
Reduction in chargeable hours which could have S20
adverse effects
Ethical implications S15, S19, S23
Makes individual weaker S14
Loss of pay or time off for overtime P3 S5, S6, S7, S19, S21, S25
Audit firm
Inaccurate management information for planning P1, P2, P3, P7, P10, S5, S6, S8, S9, S10, S13, S14,
and decision making P11, P12 S17, S18, S19, S21, S25
Loss of revenue for firm P1, P2, P5, P10, S9, S10, S11, S17, S23, S25
P11, P12
Impact on turnover P12 S1, S2, S6, S8, S21
Culture of having to be seen working late P6
develops
Potential to impact on quality of work P5, P12 S4, S5, S7, S24
Difficult to improve client efficiency where not P1, P4, P5, P10
aware of overruns
Impact on reputation of firm as audit staff may S14
complain about firm to clients
Improved performance evaluations for managers S18 Table II.
Reduced cost for firm S16, S20, S22, S25 Summary of partners
Fewer consequences of URT than QTB P9 and seniors responses to
No consequences for firm P8 S4 Questions 2 and 3
Reasons for URT

Q1a. What are the reasons why audit staff engage in URT, as perceived by audit
seniors?
Audit partners and seniors identified three main reasons why audit staff engage in
URT: inefficiency, pressure from budgetary and performance evaluation systems, and
requests from management to URT (Table I). Each of these is presented in the
following sections.
Inefficiency. URT can arise from inefficiency and many audit seniors (Table I) did
not perceive that inefficient time should be charged to a client code. A number of
AAAJ reasons for inefficient time were given such as inefficiencies due to a half-hour on the
19,6 phone and a half-hour chatting away (S3) or inefficiencies due to lack of concentration
arising from, for example, being hung over one day and not working very well (S23).
It became apparent during one interview that this particular senior who regarded URT
as a ridiculous behaviour did not regard time he worked during lunch or between
eight and nine in the morning as chargeable time due to inefficiencies later in the day
868 and by the end of the interview acknowledged that he was probably underreporting
time to a small extent. Inefficiency due to lack of experience was also mentioned by
audit seniors and was thought to apply particularly to new seniors (whether recruited
externally or just promoted in the firm):
I know one guy who joined from a smaller firm as qualified about a year ago and I know he
did a lot of overtime last winter and didnt charge it because he felt that he was a very high
chargeout rate being a qualified senior and yet he felt that he wouldnt be producing as much
work within the time as somebody who came up in the firm (S18).
The following quote relating to newly promoted audit seniors refers to 100 per cent
efficiency suggesting that it is unacceptable to charge for anything less than this:
In second year it will be your first experience of senioring jobs and you want to do a good job
but you havent the experience so you might be slower. In those cases they might charge less
time. You might say well I am not operating on 100 per cent efficiency myself so I am not
going to charge 12 hours if I worked 12 hours in the day (S7).
Also, inefficiencies due to mistakes and errors by the auditor were not considered
chargeable because it was my fault (S22). A perception of inefficiency rather than
actual inefficiency was considered another reason for not charging time and was
thought to arise from lack of confidence by an auditor in their work or due to
exceptional efficiency in the time charged the prior year:
Some people are a bit lacking in confidence in their own ability and they kind of feel . . . it
shouldnt have taken me that long to do it, it is only because I wasnt up to speed . . . Some
people do it [URT] because in the prior year, people didnt charge that amount of time and
they dont want to look stupid compared to the prior person (S25).
Overall audit seniors appeared to experience pressure to meet high levels of efficiency
with no allowances for any normal inefficiencies during the day.
Budgetary and performance evaluation systems. The majority of audit seniors
maintained that where a job is specified in terms of number of hours (budget) rather
than a deadline, auditors sometimes URT to either meet the budget or reduce the
amount by which their time exceeds the budget (Table I). Many audit seniors
considered that URT was only necessary where the budget was being exceeded
considerably as for the first X per cent over budget, you are expected to go over
anyway so you probably wouldnt be too worried about it, but in the third week if you
are clocking up overtime you might rack your head and come up with a plan to cut it
down (S11). The tightness of the prior year time was considered significant in
determining how much the budget could be blown without there being a problem for
the auditor as if it got through last year you would be okay this year (S10). In some
cases even where a budget overrun was clearly not the auditors fault, there seemed to
be a sense of responsibility not to charge too much time to a job:
I have a tendency now on a couple of jobs with big problems with clients, couldnt get Good hours, bad
information, we ripped through the budget, tore it apart and went over the cliff and
everything with it, destroyed it, and I had to stop charging because it was just going to look hours
ridiculous (S13).
Staff shortages and the opportunity for the firm to obtain additional consultancy work
on the larger jobs were thought to have decreased the emphasis on budgets. In general,
budget pressure was thought to be related to the audit fee which was considered 869
particularly tight on small audits and some people wouldnt charge their time on the
smaller ones [audits] (S3).
A number of seniors mentioned pressure from the performance evaluation system
as auditors desire a good performance evaluation and meeting the budget was thought
to be a key criterion as it would be mentioned if you charge a lot of hours to a job (S7).
Even where external pressure from a manager to meet a target did not exist, internal
pressure due to the competitive thing inside (S3) the individual to meet targets was
also referred to as a reason for URT.
Requests to engage in URT. The findings indicate that auditors also engage in URT
due to requests from managers not to charge all their time to a particular code. These
requests can be either explicit where a senior would get a ring from the manager . . . and
asked why we are charging this time (S1) or implicit where the manager would not
have the guts to ask you to not charge your time. . . what they might say is you have a
certain number of hours to do it, so maybe the person would feel obliged to not charge it
because they have gone over it (S6). Implicit requests were seen to be more frequent
than explicit requests. In general, a request from a manager to URT was considered to be
one of those practices that goes on that is kind of murky, nobody really knows about it
(S11). The detachment in the rhetoric reportedly used by managers to legitimise URT is
evident where a senior referred to the instruction from a manager that basically the
work has to get done but the costs have to stop at this point (S17). The phrase the costs
have to stop is used rather than any explicit reference to reducing time charged.
Another interviewee referred to a manager who regularly asked how is my code
looking? (S18) to emphasise his concern with time. Others referred to managers
mentioning the budget is really straining (S10) or a more direct instruction such as
you are going to do this job in two weeks and no overtime is allowed (S4).
The main reason perceived by audit seniors for manager requests to URT was
pressure from partners to meet the budget (S6). Managers performance is assessed
on the recovery on jobs and in some cases their bonuses are linked to the recovery.
Audit seniors referred to situations where some managers would reallocate [staff]
time themselves in the timesheet without you [audit senior] even knowing (S20). It
was considered that managers who were trying to make partner would be more likely
to want to impress partners with good recoveries and that everybody knows them,
everybody could name them (S13).
Also, requests to URT were thought to be more likely in audit groups with small
clients and in other groups controlled by particular partners where a culture exists to
keep hours down:
It comes from partner on high and they have their meeting every month the group and he
would tell them not to charge, like we are the best in the group and the most efficient and all
this stuff and like we can beat the world . . . it would come from on high and he wouldnt
AAAJ specifically say dont charge overtime. He would tell the manager and I know that the
manager tells them (S1).
19,6
Audit seniors perceived that URT was only occasionally discussed as an issue at
training courses. One interviewee mentioned a training course where there was a
request that we dont underreport time because . . . they want to be able to budget in
future . . . for charging fees for the next year (S8).
870 The impact of requests to URT on behaviour was thought to vary depending on
whether the request was to charge time to a non chargeable code (I dont think there is
a big issue between charging admin and charging the client because they are all
chargeable hours (S4)) or not charge the time to any code (being asked not to charge
the time is . . . not good for motivation within the firm but it does happen on a regular
basis (S4)). Either type of request to URT was thought to increase time pressure
because you would feel before you started you are going to look inefficient and they
will be expecting something really unrealistic if they are asking you not to charge all
your time (S21). It was also thought that requests to URT could lead to audit staff
trying to personally justify not charging all their time to make it seem more acceptable:
Maybe that hour I wasnt really working that hard . . . in the back of their mind they are
probably shaving off half hours and hours here and there (S10).
Because the request comes from a manager and there is a culture of URT in certain
groups, some audit seniors believed that there was no choice but to obey the request as
if you did charge it you would probably come across as really aggressive and
managers wouldnt want you on their jobs and you would be ruining the system (S21).
The audit partners attitude in one of these groups was considered to be:
We have the elite group . . . I have trained you up for the last three years. You are only
working for me. You are not allowed work for anybody else if we are not busy and no one else
is allowed work for us. So they end up during the busy season working horrendous hours and
half the time not charging it . . . and they are pretty much taught that from first year (S1).
Other audit seniors emphasised that long-term auditors do have a choice on whether to
accede to a request to URT as there is turnover of managers. At the same time a
number of seniors acknowledged that auditors want to avoid hassle or grief from a
manager by not charging time. Strength of character of the individual was thought to
be important in determining how an auditor dealt with requests to URT. Regarding
auditors who accede to a request to URT, a distinction was also made between . . .
people who do it [URT] and people who do it begrudgingly (S1). A few audit seniors
claimed that they did not charge overtime as they were concerned that managers
would not approve it. For one audit senior maintaining personal standards of work was
more important than being compensated for the time.
Q1b. What are the reasons why audit staff engage in URT, as perceived by audit
partners?
Inefficiency. Pressure to be efficient was also mentioned by partners and it was thought
that some auditors may not fully understand the work and may feel they are not as
efficient as other auditors or may not spend the entire day working productively.
Pressure caused by the prior year time was also mentioned by partners:
There is an element of pressure to say Mary did it last year in seventy hours, Im at seventy Good hours, bad
five why, has it been any different? . . . so that goes on, its not encouraged but it does go on
(P9). hours
Partners also referred to managers who did not fully charge their time as they felt they
were not as efficient as they should be, given the faster promotion track to manager
level:
871
We have had people made manager 6 months after qualification . . . they werent ready to
handle it and I think that has definitely been part of the reason why you have people working
very long hours and not charging their hours because they are very conscious that they are
learning on the job (P12).
In general, inefficiency was presented by partners as an understandable and
straightforward reason for URT, though the following quote from a partner revealed
the complexity of the URT issue for audit staff in determining which hours are good
hours and which are inefficient or bad hours:
They [auditors] might be chatting during the day and you know they will knock a couple of
hours in the evening [and] just charge a seven and a half hour day. People dont naturally do a
lot of work and not get paid for it. They will do a bit... you get a sense of if its a good hour or
a bad hour, if it is a good hour I will charge it (P8).
Budgetary and performance evaluation systems. Tight time budgets and audit fees
were the main reasons given by partners for URT. Though audit partners
acknowledged that the conflict between cost and quality can put pressure on auditors,
they considered it essential to set time targets for work. The tightness of the targets
was thought by partners to vary between audits as different partners have different
styles and some would be more concerned about the time budget and the fee than
others:
The partners would report to the management of the firm on their performance and their
performance is partly judged on the control of time. There has been for a long time, and its no
less now than it was before, pressure to get the budget right and to get the budget as close to
the fee as possible. But in this firm and Id say it would vary, thered be quite a lot of
flexibility in professional accounting firms, partners would run their sections of the business
on a fairly individual basis (P3).
This partner gave an example of undue pressure being transferred by a partner to a
manager and in turn to the audit team:
Because its so competitive to get the budget as close to the fee as possible and that message
gets exaggerated down the line and staff become sort of scared. If you add a sort of
dominating partner to a dominating manager and they say look we want our numbers to be
better this month . . . if we had a 30 per cent loss this year were going to get it down to 25 per
cent arent we and the manager commits to that Yeah Ill do that for you. You know then the
manager goes to his staff and he says to his seniors . . . look Ive committed to getting this
loss rate down from 30 per cent to 25 per centyou are going to do it arent you and if you do it
youre great and if you dont, what went wrong? Did you not control the staff properly? Did
the client not give you the information and if the client didnt give you the information, can we
bill it? If you can get extra fees then thats grand (P3).
Whenever extra time can be billed to the client this relieves the pressure. Fixed fees
were regarded as a major part of the problem as fees can put pressure on the firm to
AAAJ make a profit even with a very low fee and the pressure starts to come I think on all
19,6 levels including partner level (P4). Undue pressure to meet time budgets was
perceived to arise from the performance evaluation system for partners but it was
thought that most partners are now aware of the negative effects of this pressure on
staff such as high staff turnover particularly in the current environment:
We have a partnership assessment system part of which looks at our hours, our recovery on
872 our jobs and in the past I think there would have been an over emphasis on that particular
dial . . . there would have been some partners who would have taken the view well I am not
going to have my recovery down so I will push that pressure all the way down but I think less
and less because of the fact that the market we are in, you know staff just wont stay in that
environment . . . because they wont want to work like a dog (P12).
A few partners thought that the current environment should have reduced the
emphasis on budgets and pressure to engage in URT as there might have been less
pressure to squeeze the last hour or the last bit of efficiency out of our people (P4).
Other partners considered however that there are pressures to be efficient in the
current environment particularly with the investment in technology which is expected
to result in efficiencies. A desire for good informal performance appraisals where
auditors are labelled good was mentioned by three partners as a reason for URT
where seniors sometimes feel that if I can do my work in less hours or the perception is
that I have done less hours somehow I will be held on higher regard (P4). Partners also
referred to the competitive element and internal pressure by auditors themselves to
make an impression and therefore they got it done it on time, on budget (P5). Evidence
from audit partner interviews suggests that URT also occurs at partner level as most
partners charge a normal week in their timesheet . . . but yet they are on 50 or 60 hours
a week so its just a flaw in the time reporting system (P8).
Requests to URT. Interviews with audit partners suggest that they are aware of audit
managers say[ing] to people dont charge your time (P5) and that there is a culture in
some areas of keeping the hours down. The official position in all the participating firms
is that the full time worked on a particular job should be charged to the client code
relating to that job and this was supported by the majority of partners interviewed:
Well the firms position insofar as I understand it is quite clear, that every minute that you
spend is to be charged and certainly I would recall within the last year if not the last six
months a note from the senior partner to everybody saying just that, so the position is quite
clear (P2).
One audit partner, however, referred to time worked on a client after a code was closed
that was not chargeable to that audit suggesting that even within the system there are
exceptions to the official firm position. It was also acknowledged by some partners that
there could be varying levels of commitment to the official firm policy. One of the partners
was adamant that pressure to URT was not part of his management style, though he
acknowledged that other partners could be different. Another partner commented:
Certainly weve had many debates on the idea of not charging time . . . but the firm is firmly of
the view officially that people should charge their time, but if you pushed a lot of audit
partners you might get a variety of commitment to that policy . . . I wouldnt say its followed
100 per cent . . . youll hear staff and managers talking about well different partners have
different ways of doing things and some of them are tougher in some areas than others (P3).
One partner admitted that he believes URT occurs due to pressure from managers but Good hours, bad
is undiscussable: hours
Does it [URT] go on? I believe it does [but] when you ask anyone they will never own up to it
. . . we all know its probably more manager level led, probably the timesheets have to be
acceptable in terms of chargeability and recovery of the jobs. I could have done it myself, I
know the form, I presume others are doing it . . . I know people do it, oh Im sorry I believe
people do it but if you cant get a partner to own up to doing it you would never get a staff 873
member to own up to eating their own time (P8).
Other partners reported that URT was an issue that was discussed by them at
meetings and discussed with staff, and one partner mentioned that this year we
emphasised the time targets to make sure we were getting it, getting the costs in (P10).
Because individual audit partners cannot be relied on to encourage full recording of

time it was considered important to have an overall policy on time recording and to
reinforce this policy as part of the social controls. Yet, partners were aware that this
policy was not working (whats said here (in the summary of findings from trainees
survey) is sort of more or less what Id expect to see (P3)) and they did not appear to be
trying to set new rules to reduce the behaviour continuing.
Consequences of URT
Q2a. What are the consequences for audit staff that are associated with URT, as
Both positive and negative consequences were identified by audit seniors for individual
auditors who engage in URT (Table II). Positive consequences identified included
improved performance evaluations, higher salary, better promotion prospects, greater
job satisfaction, perception of greater efficiency, avoidance of negative consequences in
groups where URT culture exists, and booking for more attractive jobs. Negative
consequences included additional work due to a greater number of job bookings,
pressure to maintain an efficient image, ethical implications, lower motivation and
morale, lower chargeable hours on timesheet which could be viewed negatively, a weaker
personality, loss of pay for overtime, and increased time pressure in future years due to
perpetuation of artificially tight budgets. Whether the perceived consequences were
positive or negative appeared to depend to a large extent on whether auditors were
choosing to URT or whether they believed they had been forced to by the manager.
Regarding positive consequences, improved performance evaluations were
perceived to result from URT as it would be reflected in their evaluation form that
the job came in, it was done on time (S24). In turn, improved performance evaluations
were perceived to lead to higher salary, better promotion prospects and greater job
satisfaction. A perception of greater efficiency was held to be another benefit of URT
and auditors acknowledged that it looks better to spend 20 hours doing something
than 25 (S2). URT was also perceived to lead to assignments on larger audits (the
good people get good jobs and you want somebody good on big jobs and those people
get the jobs (S15)) which were considered more attractive as auditors could gain
valuable experience.
Where there was a group culture of engaging in URT, not fitting in with this culture
was believed to have negative consequences for an individual in terms of poor audit
assignments, hassle from a manager and reduction in time from their time sheet by the
AAAJ manager without their consent. Engaging in URT allowed auditors to avoid these
19,6 negative consequences where managers bad mouth you around the office that you
have blown budgets ridiculously and then that would affect what jobs you would be
scheduled on in the future (S17).
In terms of negative consequences, some auditors believed that URT resulted in
additional bookings for jobs and this could lead to more continuous time pressure on
874 the auditor:
They are not rewarded for the simple fact they are getting less time off. They probably end up
on more jobs with a tighter scale so they probably end up working harder hours, longer hours
than what they are reporting (S3).
Pressure on the individual auditor to maintain an image of efficiency on future audits
was considered another downside of URT. URT was thought to be a vicious circle as
auditors in future years would be under more pressure to engage in the behaviour. It
was thought that this could lead to loss of morale and motivation in future years as
that person cant do it and gets cheesed off (S25). A few auditors believed that this
form of URT was very deceptive to your peers so it is a bit unethical, and as I said the
budget next year will be based on what you have done (S15).
However, the majority of audit seniors did not believe that URT had any ethical
consequences for the individual auditor as at the end of the day you are saving the firm
but you are not doing anything too detrimental (S5). Another auditor mentioned that
something that is unethical is very strong, it is like a crime and I think if somebody is
underreporting time they are losing their time and that is the main concern, not that it is
unethical (S7). One auditor considered that URT might be the ethical thing to do where
it was the result of auditors own inefficiencies as you dont want to do one over on a
client because you know it will probably get charged on (S23).
A further negative consequence of URT was reduced chargeable hours for the period
and auditors commented on the pressure to have a high number of chargeable hours
during busy periods. A few audit senior interviewees believed that in general, if you
charge more time on your timesheet it is rewarded as hard work and not seen as
inefficient. However, these auditors did admit that there is a lot of reallocation as well
(S13) on the timesheets if there are too many hours charged to one job. An emphasis on a
high number of chargeable hours per week was seen as a result of the imbalance between
the number of jobs and the availability of staff. In this environment, audit firms do not
need to emphasise cost reduction. It was thought that this pressure could sometimes
even result in overcharging time where other people might even bump up the hours . . .
if they want to make it look like they really worked (S21). Difficulties in grappling with
the conflicting pressure to reduce the number of hours charged to a job but also to
increase the total number of chargeable hours was mentioned by audit seniors:
If you dont charge all your time they think okay you are efficient at getting the work done
but Im not sure if they look at that. But if you are working long hours and stuff I mean it
seems to be rewarded (S20).
In addition, a number of seniors referred to the simple fact that they are getting less
time off (S3) and less pay (S1)[5].
Q2b. What are the consequences for audit staff that are associated with URT, as
Audit partners claimed that they did not see any positive consequences for auditors Good hours, bad
who URT. An impact on auditors in future years, loss of overtime and reduced morale hours
and motivation were the only negative consequences for individual auditors identified
by audit partners. Regarding the impact on auditors in future years, references were
made to passing a problem on from one year to the next (P2). Loss of overtime and
reduced morale were referred to by other partners as its very bad for staff morale
point of view if they are under pressure consistently to meet a budget that is 875
unrealistic (P12). A reduction in chargeable hours was also referred to as there is an
expectation of a high number of chargeable hours in the peak period where we would
expect people to be in the 50-60 bracket consistently during that period (P6). However,
only one audit partner interviewed referred to a problem of overcharging time as a
result of pressure for high chargeable hours suggesting that this is not seen to occur on
a large scale:
There is another phenomenon that I have seen in more recent years is that if somebody works
until 6 oclock and they have taken an extra hour for lunch they charge a half hour overtime
even though they have already worked a half hour less than they should have worked (P11).
The other audit partners did not seem to identify with the individual auditors
perspective and no consequences for individual auditors were identified.
Q3a. What are the consequences for audit firms that are associated with URT, as
A number of consequences for audit firms were identified by audit seniors including
inaccurate management information, loss of revenue, impact on staff turnover,
increased potential for reduction in quality of work, adverse impact on reputation and
improved manager evaluations (Table II). Only one positive consequence of reduced
cost was identified as they dont have to give you overtime or give you holidays you
have built up (S20). The saving in overtime resulted in bigger profit on the job that
year (S25).
The main negative consequence for audit firms identified by most audit seniors was
distorted information and inaccurate budgets, though where managers requested URT
it was thought that the distortion was taken into account in making decisions.
According to the majority of audit seniors, most managers are aware of underreporting
of time on their jobs but do not try to reduce the behaviour:
If there is 100 hours budgeted for the job and the in-charge charges 90 hours and realistically
he probably did 110 hours, like most jobs are under houred anyway, I would say most
managers know that he is after underreporting and they are not going to say anything to him
(S3).
One audit senior referred to an incident where the manager was getting worried about
it (time charged) and I said look I will just stop charging it and we will take it from
there (S13). The same audit senior perceived that also letting the manager know
indirectly that time has been underreported by claiming expenses for working late was
a way to impress the manager.
Where managers were not aware of the real time, one auditor believed that more
accurate budgets would lead to the firm refusing work. Where information was
distorted, difficulty in measuring true performance and understanding the real level of
time pressure that auditors are under were thought to result. Loss of revenue for the
AAAJ firms was also mentioned by a number of seniors. A further consequence mentioned
was an impact on staff turnover but the effect of URT on staff turnover was thought to
19,6 depend on whether the individual auditor had decided to URT or whether there was
pressure from superiors to URT. Where there was pressure from superiors to URT it
was thought . . . that the minute their contract is up they are out of there (S6) but
where individuals had decided themselves to URT they . . . probably would be more
876 likely to stay because of their dedication and you know, wanting to look good (S8).
A number of audit seniors mentioned the possibility of reduced quality of audit
work in future years due to the perpetuation of artificially tight budgets as the
tendency is if something gets done in three weeks this year . . . sure it will be done in
two weeks next year . . . whereas in actual fact there was five weeks worth of hours put
in . . . then it has just got to start impacting on the quality of the work that is being
done (S24):
It depends on what is the norm in the group and there are some groups there like that you are
told you just cant charge your overtime. I suppose in groups like that you are just going to
say well Im not going to sit here until seven or eight oclock, I am just going to skip through
a few things here and I will be off at half five. . . especially when you know your partner or
senior manager is not going to be sitting there beside you either (S5).
While a few auditors considered that it would be too hard to generalise whether the
same auditors engage in both types of behaviour, most audit seniors believed that it
would be different individuals who underreported time from those who reduced the
quality of work and that the conscientiousness of the individual determined the type of
behaviour in which they engaged.
Other consequences with lesser support included an impact on the reputation of the
firm where members of the audit team might be speaking to clients about the firm and
maybe why they dont like it (S14), and improved performance evaluations for
managers.
Q3b. What are the consequences for audit firms that are associated with URT, as
Audit partners identified a number of negative consequences for the audit firm
including inaccurate management information, loss of revenue, impact on staff
turnover, increased potential for quality reduction and increased difficulty of
improving client efficiency (Table II). In general, all audit partners were opposed to
URT and maintained that there is nothing to be got for anybody (P5) by engaging in
this behaviour. At best, it was thought that a partner or a manager might get a
short-term benefit but itll come back to haunt them in due course (P3). One partner
commented that consequences will only arise where there is real URT and not where
there is waste of time somewhere else for which it was compensation (P1).
The main consequence identified by audit partners was unreliable management
information which could firstly impact on audit fee negotiations with audit clients
which was probably a longer term than a shorter term (consequence) (P2). However
one partner pointed out that in relation to fee negotiations most of the time you are
building on the income of the previous year anyway so its very hard to get an
increase (P8). A greater level of communication now exists with the client on how
auditors do their work and it was considered important to have reliable management
information for these discussions:
If people do that they are basically destroying the management information, in terms of our Good hours, bad
discussions with clients and indeed with audit committees about how we do our work which
is much more open than it was, we need to know and be ready and say well it takes so much hours
here because (P1).
Unreliable management information was perceived to also impact on the ability of
audit firms to assess both the opportunity costs of not doing other work and the
efficiency of a job over time, and also to identify uneconomic work. Another partner 877
referred to higher staff turnover as a problem due to work life balance issues as people
are leaving because they are saying they dont have enough balance in their lives (P12)
and it was considered difficult to monitor who may not have enough balance if auditors
are underreporting their time.
Two audit partners perceived that URT could lead to reductions in the quality of
work where the firm undertakes uneconomic work as if we continue to do work that is
unprofitable, eventually people will cut corners (P12). However, a conflicting view was
expressed by another partner:
I dont really feel that whether people charge time or dont charge time damages the audit
work (P8).
URT was considered the least negative of the dysfunctional responses to time pressure
by one audit partner and in the context of QTB, not a serious behaviour. If the reason
for URT was client delays, then partners felt that it could impact on the ability of the
firm to ensure the client has all the work ready for the auditors in future years as it
[URT] hides what might be general issues of the clients, there might be delays in
getting the material and the information you need (P4).
Though some or all of the above consequences of URT were mentioned by the
majority of partners, one partner saw few consequences for the firms from URT:
There may be some internal messing around with timesheets and there may be a culture in
some areas of not charging all your time . . . Does that damage things? No, I dont believe so
because the charging system is good for some purposes but it doesnt necessarily reflect an
economic reality . . . the marginal cost of disengaged time is zero (P8).
However, another partner pointed out that its very complex because its not simply a
recording issue, you get into issues such as overtime, overtime being paid, overtime
liabilities accumulating, its a very delicate balance (P6).
Most partners were of the view that if auditors have underreported time on an audit
it will be picked up in future years when the correct time is charged. Detection of URT
by managers was considered easier, as managers work in the office and partners can
monitor when managers are working late. One partner claimed that it was also possible
to monitor seniors time and if somebody was there till midnight we would know they
were there till midnight, if they hadnt charged for the time the manager would be on
saying why didnt you put it in (P10).
Another partner was of the view that if there were time problems during an audit,
then open communication should occur as to the reasons for the problems and this
could highlight URT in previous years. URT was detected in one of the firms from
benchmarking information on all the other offices which showed that the Dublin office
had lower recorded chargeability time than other offices:
AAAJ We got a little concerned that maybe [URT]. . . was a bit pervasive . . . we did say to people
look be quite clear we want all time recorded accurately . . . there was a noticeable and
19,6 measurable impact of that particular initiative in that a lot more time started to get recorded
and in a sense okay that suddenly made some of the statistics look worse in a way because
clearly the fees werent changing but at least we were flushing out what I would say probably
was incorrectly perceived as constructive behaviour (P6).
878 Overall, the majority of seniors and partners perceived negative consequences of URT
for audit firms. Only a minority of seniors commented on the positive consequences of
cost savings for firms. No positive consequences were mentioned by partners, though
not all partners considered URT a serious behaviour.
Discussion
The findings show that the term underreporting of time, as presented in the literature,
is an ambiguous term. The ambiguity arises from the fact that, instead of constituting
a single form of behaviour, the term represents a group of behaviours, with three
distinctly different motivational influences (see Figure 1). Although the apparent effect
of the various behaviours is the same, in that they result in less time being charged to
the chargeable code on the timesheet (i.e. the client) than that actually clocked up by
the individual auditor, the behaviours are very different, in terms of the factors that
drive them and the likely consequences for individual auditors, the firms and the
profession. Furthermore, the study revealed differences between the perspectives of
audit partners and seniors regarding each of the behaviours. These differences and
distinctions, both in terms of the alternative forms of behaviour and the perspectives of
partners and seniors on those behaviours, are significant enough to offer a plausible
explanation for the conflicts that have been apparent in the literature, most notably
regarding the implications and dysfunctionality of URT.
Of the alternative forms of behaviour, the least harmful arises when the individual
auditor makes a voluntary judgement that part of their time did not meet required
Figure 1.
Three motivational
influences and associated
response behaviours
standards of productivity and should not therefore be charged (referred to as voluntary Good hours, bad
time adjustment (VTA) in Figure 1). The decision may be driven by many possible hours
factors, mainly associated with perceived personal inefficiency, but the distinguishing
features of this behaviour are that it is based on a judgement regarding the amount of
time that should properly be charged, that the decision is made solely by the individual
auditor without prompting from a superior and that it is based on an internalised view
of what constitutes a good hour. Voluntary time adjustments due to personal 879
inefficiency do not really constitute a form of underreporting of time, since the time not
charged is adjudged to equate to a shortfall in productivity and is consequently not
chargeable to the client. This form of behaviour is associated with many favourable
outcomes such as facilitating an adjustment for inefficiencies that the auditor
attributes to their personal performance and allowing the individual scope to exercise
personal judgement regarding the amount of time that should be charged. The issue of
lost revenue for the firm does not arise since the unrecorded time does not constitute a
legitimate charge. The practice of making such adjustments may provide learning and
development for individual auditors by creating an incentive to identify and correct
inefficient work practices and thereby improve future performance. The importance of
time allocation and efficiency is learned through the examination system and feeds into
the work environment (Power, 1991). On the face of it, this practice therefore appears
consistent with fundamental principles of organisational effectiveness such as
learning, justice and competence (Argyris, 1990b), but as discussed below, the line
between this type of behaviour and potentially harmful defence mechanisms can
quickly become blurred.
An important distinction arises in situations where the auditor voluntarily reduces
time charged because of perceived personal inefficiency, but where this inefficiency
arises from factors outside the control of the individual, such as lack of experience or
training. This category of behaviour is referred to as voluntary unrecorded time (VUT)
in Figure 1 because, although it is voluntary, it results in the auditor being improperly
deprived of credit for a portion of hours worked that remain unrecorded. In these
situations, the productivity shortfall represented by hours not charged to the client
should be allocated to a non-chargeable code such as staff training and development.
Instead, the time remains unrecorded at the expense of the individual auditor, not
because of management pressure but due to a misguided sense of personal
responsibility arising from lack of experience and perceived greater efficiency of peers.
Consistent with these findings, Ponemon (1992) identified peer pressure as a reason for
URT. Immediate implications of this behaviour appear positive, in that individual
auditors compare favourably to their peers with greater experience, audit management
achieve enhanced performance statistics as reflected in a higher proportion of
chargeable hours, and the client is only charged with productive time. Despite these
positive consequences, the existence of this behaviour provides evidence of potentially
harmful defence mechanisms and these are discussed in the next section, headed
Defence mechanisms.
A very different motivational influence (referred to as external pressure in Figure 1)
is present when the auditor considers that the time worked has been productive and
efficient but, again without intervention by superiors, decides to reduce the time
actually recorded to the client code. In this case, the behaviour is driven by perceived
external pressures to achieve an acceptable budgetary outcome which is seen by audit
AAAJ seniors as being instrumental in achieving a good performance evaluation and is
19,6 therefore motivated by utilitarian considerations rather than personal justifications of
efficient hours. The amount of unrecorded time is decided by reference to what would
be deemed to be the outer limits of acceptable chargeable time to the assignment (P3:
that message gets exaggerated down the line and staff become sort of scared), rather
than any considerations of efficiency or productivity. The use of a budget-constrained
880 style of behaviour has been associated with dysfunctional behaviour in the
management control literature (e.g., Hopwood, 1974; Otley, 1978), and findings in
this study suggest that manipulation of time records is a frequent response when
ability to meet tight budgets is seen as an important criterion for performance
evaluation of audit staff. While previous findings suggest that time budgets have
decreased in importance as a source of time pressure (Sweeney and Pierce, 2004), the
importance of meeting managements expectation on the number of acceptable

chargeable hours for each job continues to drive URT on many audits, particularly the
smaller audits and those where few opportunities exist for the firm to gain additional
work. The notion of acceptable time may be reinforced by the firms attitude to the
professional examination system where auditors considered it important to be
successful in examinations without being seen as bookworms (Power, 1991), thus
potentially creating a pressure to conceal the total hours spent on study.
Immediate short term consequences of this behaviour appear positive for both the
individual and the organisation. The auditor avoids developing a bad reputation in
the firm, individual superiors avoid fee recovery difficulties and potentially awkward
fee re-negotiations with the client are also avoided. However, deeper analysis identifies
potentially serious negative long-term consequences. Where the option exists for the
auditor to re-allocate the excess time to a non-chargeable code such as internal
administration, instead of the clients chargeable code, they engage in what is termed
pressurised time adjustment (PTA) in Figure 1. Although this does not entail loss of
earnings for the auditor, it has a potentially de-motivating effect due to an
understatement of the individuals chargeable hours and an implied devaluation of
work which the individual auditor feels has been productive and efficient. Where the
option to re-allocate to a non-chargeable code does not exist (these codes are usually
carefully monitored through the budgeting system), auditors feel pressurised to
completely omit the excess time from their timesheets (PUT in Figure 1) and it
therefore remains unrecorded. Seniors highlighted inner resentment from having to
confront a budgetary dilemma in a manner that resulted in loss of credit for overtime in
terms of payment or leave. This is exacerbated by the fact that such dilemmas are not
perceived to be evenly distributed among seniors and appear to arise from a
combination of circumstances beyond the seniors control such as bad luck, inefficient
clients and a preponderance of small and fixed fee clients. From the firms perspective,
long term quality issues arise in that seniors highlighted the possibility that their
successors in future years may elect to address similar budget difficulties through
alternative means, some of which may constitute a direct threat to audit quality. These
findings reflect similar concerns raised by McNair (1991, p. 650), that it is quite likely
that the proper compromises will no longer be greeted with willing acceptance by the
audit staff member and highlight the potential for significant adverse long term
consequences associated with pressure-related forms of time record manipulation
(PTA and PUT in Figure 1).
The third category of behaviour (labelled instruction in Figure 1) is distinguished Good hours, bad
by the fact that it is initiated by a superior, usually a manager, and involuntarily hours
implemented by a senior who feels there is no practical alternative but to comply with
the superiors wishes. The superiors action is motivated by a need to prevent fee
recovery difficulties which could threaten his reputation within the firm and also
impair client relationships. For the senior, compliance with the superiors explicit or
implied instruction offers the means of avoiding potentially damaging outcomes, while 881
at the same time demonstrating loyalty and commitment to the firm. If the instruction
is to merely re-allocate time to a non-chargeable code instead of a chargeable client
code (ITA), then the seniors total chargeable time is reduced but, within limits, the
consequences in terms of the seniors feelings and behaviour are not seen as major. If,
however, the senior is instructed to omit the time completely and thereby lose the
associated benefit of pay or leave (IUT), then the consequences are seen as potentially
very serious, including loss of motivation, high staff turnover and performing skimpy
audit procedures that directly threaten audit quality. Similar consequences have
previously been associated with extreme time pressure which leaves the auditor in a
stressful position, one which can result in dysfunctional forms of behavior during an
audit, and exceedingly high levels of audit staff turnover for the firm (McNair, 1991, p.
650). The managers behaviour in this case goes far beyond a budget-constrained style
of management as portrayed in the management control literature (Hopwood, 1974;
Otley, 1978) in that subordinates are instructed to breach official firm policy in order to
achieve short term targets.
Defence mechanisms
Argyris (1990b) referred to defence mechanisms as an underground management
system which will remain largely unmanageable unless it is firstly understood and
then challenged. The foregoing analysis of motivational influences and separately
identifiable forms of time record manipulation facilitates an improved understanding
of what has heretofore been referred to as URT in the literature, using the defence
mechanisms framework.
Although the voluntary behaviours were associated with mostly positive outcomes,
they still portray some of the characteristics attributed to defence mechanisms. For
example, the decision regarding the amount of time to be charged seems to be taken by
the individual auditor without reference to a higher authority, thereby of necessity
resulting in a cover up of the behaviour. Anything less than 100 per cent efficiency
becomes unacceptable and as McNair (1991) pointed out, even Taylorites allowed for
the human need to rest when setting standards. While VTA is designed to compensate
for obvious personal inefficiencies, VUT is driven by other, less clearcut
considerations. An example of this is where the auditor has been allocated a higher
level of responsibility and needs extra time to gain the necessary experience. This
additional time really represents a learning exercise but by leaving the decision to the
individual auditor, the time is not charged to any code, resulting in the auditor not
receiving payment for the time and personally carrying the cost for an element of
training and development. In failing to provide procedures to charge this time to a
training and development cost code, organisational defence routines that develop to
eliminate inefficiencies create communication barriers that are in conflict with
principles of learning and justice (Argyris, 1990a) and drive individual auditors to
AAAJ develop personal defence mechanisms. These decisions are usually taken voluntarily
19,6 and privately in order to avoid looking stupid and therefore represent a bypassing of
a perceived threat of embarrassment and a form of individual defence mechanism. The
fact that the decisions are taken privately without consulting with superiors in the firm
is indicative that informal signals and mixed messages have been transmitted by
organisational defence mechanisms, resulting in the issue being seen as undiscussable.
882 Utilitarian or pressure-related time record manipulations (PTA and PUT) provide
insights into other forms of individual and organisational defence mechanisms. Here,
the auditors decision process is driven by the perceived implications of budgetary or
acceptable outcomes for personal performance evaluation and career (S15: good
people get good jobs). Issues of efficiency and productivity are not of major concern
but the upper limit on chargeable time for the assignment is now of paramount
importance. In similar fashion to voluntary time adjustments to compensate for

perceived personal inefficiencies, utilitarian manipulation of time records involves a
bypassing of a major threat of embarrassment (S13: it was just going to look
ridiculous; S21: managers wouldnt want you on their jobs) by means of a private
decision rendered undiscussable through a series of mixed messages and coded signals
from the organisation. A major difference, however, arises from the relative
opportunity costs of pressure-induced behaviours compared to voluntary behaviours.
VTA carries little or no opportunity cost for the individual or the firm, since this time
has no economic value. However, PTA and in particular PUT is seen by seniors to
carry a personal and potentially large financial loss, which they must weigh against
the anticipated benefits of a more favourable performance evaluation. Whether or not
there is an opportunity cost for the firm in terms of lost revenue is not usually
established, since the prospect of recovering a budget over-run from the client is often
not even discussed. Possibilities may exist to present a convincing case to the client for
increasing the fee but the undiscussability of the undiscussable (Argyris, 1990a) may
mean that those possibilities are never pursued within the firm and consequently not
presented to the client. All the characteristics of individual and organisational defence
mechanisms are present in this situation, including mixed messages which are
deliberately rendered undiscussable, bypass of potential embarrassment and a double
bind for seniors. Layers of double bind (Argyris, 1990b) are also in evidence, with audit
management choosing to risk the potential adverse consequences of continuing
organisational defence mechanisms instead of confronting the underlying threat of
embarrassment. The organisational defence mechanisms may therefore militate
against learning, competence and justice, while short term outcomes are seen as
evidence of loyalty, satisfaction and morale, and misinterpreted as measures of
organisational success (Argyris, 1990a).
Instruction-related time record manipulations represent very different forms of
defence mechanisms, in that they are initiated by a superior who conveys either an
explicit or implied instruction to the senior. In doing so, superiors are themselves
engaging in a defence routine that enhances their reputation as it allows them to
bypass either the potential embarrassment of fee under-recoveries or the threat of
approaching the client to negotiate a higher fee. This bypass is then covered up, in that
the requests are kind of murky and nobody knows about them (S11), thereby
confirming their undiscussability. The messages are often given implicitly in the form
of language such as: how is my code looking? (S18), which manage to convey a
message that is clear and ambiguous at the same time (Argyris, 1990b) and is also seen Good hours, bad
to be undiscussable. Interestingly, there was also evidence of mixed messages being hours
transmitted back up through the audit firm hierarchy. For example, seniors referred to
claiming expenses for working late but not recording the time as a strategy for making
the manager aware that the time was being worked but avoiding the risk of cost
overruns that might reflect badly on both manager and senior. In the absence of open
discussion, a two-way communication procedure has developed as part of the 883
underground management system (Argyris, 1990b) that manages overground activity
such as fee recovery and staff performance evaluation. One partner openly
acknowledged that when partners do not: own up to doing it (P8) then it is
unrealistic to expect staff to admit to the behaviour.
Even though time record manipulation is officially forbidden there is no evidence

that the firms have set new rules or actively sought to reduce the likelihood of the
behaviour continuing. A reference was made to a note from the senior partner in one
of the firms emphasising the official policy, but there was no evidence that this note
resulted in any change in behaviour. During the interviews, the partners conceded that
there were various levels of commitment to the official policy and did not appear overly
concerned that the official policy is not followed 100 per cent, suggesting, as noted by
Argyris (1985), an acceptability by the organisation and even a requirement in certain
groups to engage in the behaviour. ITA and IUT appear to become embedded features
of the organisations cost control procedures in certain groups, with the result that
failing to engage in the behaviours was referred to by seniors as: ruining the system
(S21). There was evidence that seniors feel helpless and cynical about changing the
system and that the defence mechanisms are learned through socialisation (S1: taught
that from first year).
Manager and partner levels in audit firms are comprised largely of home-grown
personnel, most of whom previously worked as seniors in the same firm. Given the
prevalence of the practice of adjusting recorded time and its association with improved
personal evaluation and reputation, it seems inevitable that some of the seniors who
engage in the practice will trickle up to manager and partner level in the firm. What
may have started out as a relatively harmless practice of adjusting for perceived
inefficiencies as an inexperienced senior (VTA) may become embedded in individual
and organisational routines and ultimately manifest itself in a managers instruction to
manipulate time records (ITA and IUT), with a consequent widening and deepening of
implications for individuals and the organisation.
Bypass, cover-up and undiscussability are again features of this murky behaviour
and the associated language is characterised by vagueness (P3: different partners
have different ways of doing things) and mixed messages (S17: the work has to get
done but the costs have to stop at this point). Whereas the other two drivers of
behaviour represent defence mechanisms at the level of individual seniors, this driver
reflects defence mechanisms operating at the level of firm management, i.e. the senior
is not free to exercise choice. These mechanisms may have an adverse impact on the
feelings and motivation of seniors and the response behaviours seem likely to involve
the development of a further layer of individual defences such as cutting corners,
quality reduction (S5: skip through a few things) and staff turnover.
AAAJ Implications
19,6 In common with mainstream management control literature where it is shown that the
impact of accounting controls is contingent on circumstances such as uncertainty
(Hirst, 1981) and interdependence (Otley, 1978), the type of URT and implications of
URT are contingent on a wide range of variables such as whether the individual
attributes blame to themselves for the time overrun. The implications of these
884 behaviours for the management of audit firms can best be considered by grouping the
six behaviours presented in Figure 1 into three logical categories (see Table III). While
the three different motivational influences set out in Figure 1 are helpful in gaining an
understanding of the alternative forms of behaviour, a more important distinction from
the point of view of implications is that between voluntary behaviours (both VTA and
VUT in Figure 1), time adjustment (both PTA and ITA) and unrecorded time (both
PUT and IUT). Despite fundamental differences between the behaviours, some
implications can be identified in the first instance as being common to all six types of
behaviour. For example, in all cases the time charged to the client code represents a
lower figure than time clocked up, resulting from the senior making an estimate of the
number of hours that would be deemed acceptable and a decision as to how to deal
with excess hours. Furthermore, the senior achieves a more acceptable budgetary
outcome than if all hours were recorded and this in turn tends to be linked to bookings
for more attractive jobs, improved performance evaluation, and enhanced salary and
promotion prospects. The audit manager also stands to benefit, most notably in terms
of improved operating statistics which feed directly into managers performance
evaluation, remuneration and promotion considerations. Additional implications can
be identified for specific behaviours and these are set out in Table III, classified as
favourable or unfavourable outcomes (Argyris, 1990a).
From an audit management perspective, the most important distinction is that
between time adjustments (where the auditor receives credit for time worked, in the
form of non-chargeable hours) and the more serious issue of unrecorded time (where
the auditor forfeits credit for time worked). Four potentially serious consequences of
unrecorded time were highlighted which do not arise for time adjustments: loss of
overtime for the senior, loss of motivation and morale for the senior, increased staff
turnover and, most seriously of all, an increased risk of deliberate quality reduction
behaviour. A less critical distinction exists between the pressurised and instructed
behaviours in that with instructed behaviours, distortions that arise in management
information as a result of time record manipulation appear to be taken for granted
(Argyris, 1990a) and may not significantly impact on management decisions due to a
general understanding at all levels that the behaviour has occurred. In addition, seniors
tend to be motivated to engage in the behaviours to avoid the negative outcomes that
arise from non-compliance with instructions rather than solely to achieve the positive
outcomes of improved performance evaluations.
The official position in all the participating firms is that time adjustment or
unrecording of good hours is against firm policy. Seniors and partners from all the
firms appeared to be well aware of this and there were no signs of any inconsistency or
differences between the two groups of interviewees concerning the existence of the
formal policy. There were notable ambiguities, however, regarding what constitutes
good (chargeable) hours and bad (non-chargeable) hours. From the partners
perspective, if the time is necessarily worked in order to achieve the required standards
Good hours, bad
Category of behaviour
(see Figure 1) Favourable outcomes Unfavourable outcomes hours
VTA and VUT Eliminates personal efficiency and No allowance made for human need
is an ethical behaviour (VTA only) to rest (VTA only)
Allows less experienced seniors to Personal cost for senior (VUT only)
appear as efficient as more On the job training may become an 885
experienced seniors (VUT only) unacceptable activity in the firm
Increases senior confidence that (VUT only)
they will appear efficient where
senior lacks confidence
Reduced training cost for firm
(VUT only)
PTA and ITA Increased job satisfaction for senior No immediate cost for senior but
to have good file on time reduction in total chargeable time
Avoidance of negative outcomes by Seniors who engage in behaviours
compliance with instructions (ITA may be overworked
only) Pressure on senior to maintain same
Avoidance of fee recovery level of efficiency on future audits
difficulties for firm Perpetuation of artificially tight
Seniors inwardly justify hours as budgets
bad hours to make behaviour more Client inefficiency may be hidden
acceptable to themselves Potential lost revenue
Inaccurate management
information for planning and
decision making (PTA only)
PUT and IUT Allows firm to recoup investment in Personal cost for senior as loss of
technology overtime
Reduced audit cost for firm Seniors who engage in behaviours
Avoidance of negative outcomes by may be overworked
compliance with instructions (IUT Pressure on senior to maintain same
only) level of efficiency on future audits
Avoidance of fee recovery Perpetuation of artificially tight
difficulties for firm budgets
Seniors inwardly justify hours as Client inefficiency may be hidden
bad hours to make behaviour more Potential lost revenue
acceptable to themselves Loss of motivation and morale for
senior
Risk of QTB
Increased staff turnover
Possible adverse impact on
reputation of firm Table III.
Inaccurate management Summary of implications
information for planning and of alternative forms of
decision making (PUT only) time record manipulation
of quality, then it should be charged in order to provide an accurate reflection of the

cost of the job. Any pressures that may be experienced down the line to do otherwise
are based on misinterpretation and an exaggeration of the importance of budgetary
targets. Bad hours only occur when time is clearly wasted due to lack of effort or
inefficiency (VTA).
AAAJ The seniors perspective, however, portrays a considerably more complex situation
19,6 in which the classification of hours as good or bad is much less clearcut, variable
over time and between jobs, and dependent on a variety of factors. The game of
budget control (Argyris, 1952) is considerably more complicated than typically is the
case in a single operating unit, owing to the fact that each audit assignment presents a
different combination of client, audit task, audit management and audit team
886 characteristics. An essential part of the seniors defence mechanism is the ability to
accurately interpret and assess those factors. While the existence of the formal and
apparently straightforward policy espousing full reporting of chargeable hours is not
disputed, seniors also perceive a strong message that the classification of hours as
good or bad is far from straightforward (for example, many seniors are convinced
that some partners foster a culture where manipulation of time records is an acceptable
part of the system). They thus experience the classic signs of organisational defence
mechanisms powerful mixed messages that succeed in being precise and vague at
the same time (Argyris, 1990a). These defence mechanisms provide a foundation for
unethical decision-making (Argyris, 1990a) and seniors appear to be deadened to the
ethical implications of their behaviours. Although time adjustment of good hours
(PTA and ITA) has a number of unfavourable outcomes, the most serious
consequences arise from having to under-state good hours (PUT and IUT). To avoid
some of the unfavourable outcomes, there was evidence that some seniors self justify
the hours as bad hours which makes the behaviour appear more acceptable and
lessens the impact on motivation and morale.
The audit environment at the time of the study was characterised by staff shortages
resulting in a reduced emphasis on time budgets and an increased emphasis on time
deadlines as forms of time pressure (Sweeney and Pierce, 2004). Ponemon (1992)
identified both peer pressure and time budget pressure as causes of URT, with peer
pressure having a more significant impact on URT than time budget pressure. This
finding could help explain the consistently high levels of URT reported in previous
studies, despite a perceived reduction in importance of time budgets. However,
findings in this study reveal that the motivational influences on URT are more complex
than suggested by Ponemon and other quantitative studies. Behind the three
motivational influences of URT which have been identified is one overall driving force,
which is a perception of managements expectations of the acceptable number of
chargeable hours for each job. These perceptions are formed through a varied and
often subtle communication process. In its most subtle form, the expectations can be
embedded in the socialisation process (Anderson-Gough et al., 2001) through a learned
definition of efficient or good hours, thus creating peer expectations and internalised
notions of acceptable levels of efficiency. Here, audit seniors voluntarily engage in URT
due to a belief that their work rate has not met an acceptable efficiency level. In its most
explicit form, managements expectations can be communicated through requests to
URT where there is less ambiguity as to managements expectations, though
interpretation by the senior is still required in some cases. In between these extremes is
the expression of expectations in a time budget which can be considered both explicit
(in that the number of budgeted hours is clearly defined) but also subtle (in that a
certain variance over the budget is expected and accepted by management but this
variance depends on a range of factors such as prior year time and client difficulties).
This form of communication of expectations has some similarities with the instructed
behaviours as both clearly emanate from a management system and are external forms Good hours, bad
of pressure. However, lines between internal and external forms of pressure can hours
become blurred as in some cases auditors impose internal pressure on themselves to
meet the time budget and personalise the decision to URT. Also, given that the overall
driving force behind the voluntary behaviours is managements expectations it can be
argued that these behaviours also arise from external pressure.
Audit firms have a formal policy in existence which forbids URT; however, a culture 887
has developed in which it is acceptable for partners to exercise varied levels of
commitment to this policy. It seems unlikely that the firms will significantly change this
culture in the short term but immediate steps can be taken to bring about a change in the
culture over a longer period. Partners need to be made aware of the consequences of
these behaviours, some of which can involve potentially damaging threats to audit
quality. Exit interviews with staff may prove useful in identifying the areas within the
firm where a URT culture exists. According to the seniors interviewed in this study,
everybody knows the areas of the firm where URT is encouraged, and people who are
leaving the firm may be willing to divulge this information. Furthermore, if the firms are
serious about addressing the URT issue, then appropriate reporting mechanisms need to
be put in place to facilitate existing audit staff in reporting situations where they have
felt pressure to URT. Major corporate collapses in recent years and the increased public
focus on the audit profession demand that every aspect of audit quality warrants close
attention and that every possible threat to quality is addressed. URT, in all its forms,
represents one such threat as it perpetuates artificially tight time budgets which have
been linked with URT and it also raises questions about the integrity of individual
auditors who are prepared to falsify time records. Power (2003, p. 380) maintained that
in order to generate trust in financial statements, audit practice must generate trust in
itself. The complex mixed signals surrounding the business of auditing evident from
these findings are associated with a number of undesirable outcomes such as a lowering
of morale and motivation and a threat to audit quality which could ultimately further
undermine public confidence in the audit process.
Conclusion
The research has provided useful insights into the practice of manipulating time
records which has been found to be prevalent in audit firms. In particular, it has
provided a plausible explanation for conflicting arguments in prior literature
concerning the dysfunctionality of URT. Previous studies have failed to distinguish
between the six distinctly different types of time record adjustment practices identified
in this paper, all of which are associated with individual and organisational defence
mechanisms. A wide variety of motivations exist for these behaviours, ranging from an
inexperienced senior voluntarily making adjustments for perceived personal
inefficiencies to a superior explicitly instructing a senior to manipulate time records
against the seniors will. Recognition of this diversity offers insights that help resolve
contradictory arguments in prior literature regarding the dysfunctionality of URT. In
its most benign form, VTA results in largely positive outcomes, with little or no
adverse consequences. In that sense, it is a functional form of behaviour. However, in
the complex web of professional, commercial and ethical influences that impinge on the
audit work environment, lines can quickly become blurred, and the distinction between
different forms of time record adjustment can be quickly lost. In practice, the
AAAJ widespread incidence of URT as reported in research studies is likely to be represented
19,6 by a mixture of practices, even at the level of an individual auditor. The previous
classification of URT as a single behaviour (Buchheit et al., 2003; McNair, 1991) in
response to time budget pressure has over simplified the complexity of the pressures
facing audit seniors. For this reason, future research should focus on the development
of a better understanding of the various practices that fall under the general heading of
888 time record manipulation, together with their influences and potential implications.
The relationship between ethics and URT may also prove to be a fruitful area for
further research. Ponemon (1992) found that auditors with low levels of moral
reasoning underreported time more severely. The implication in Ponemon (1992) and
other URT studies is that URT is a single form of behaviour that constitutes an
unethical response to pressure. Findings in this study reveal however that the
ethicality of URT may be more complex than previously suggested and that certain
forms of URT (VTA and VUT) may be considered ethical behaviours, since they
provide a mechanism for ensuring that the audit client is not being charged for
perceived personal inefficiency.
Although research exists on the socialisation process and the concept of time in
audit firms (Anderson-Gough et al., 2001; Coffey, 1994), this literature does not
specifically examine URT or reasons why the formal policies espoused by the firms on
URT appear to operate outside the socialisation process. Opportunities exist for further
research on the complex mixed signals on time recording that are learned by audit
seniors through the socialisation process, particularly given the potentially damaging
outcomes of those mixed signals for audit quality. The socialisation process appears to
impact on all forms of URT, as auditors have to interpret managements expectations
of acceptable time which can contain some ambiguity even in their most explicit form
of instructed behaviour.
Particular strengths of the study lie in the inclusion of both top management and
trainee perspectives, the structured and comprehensive approach to data analysis, and
the involvement of both researchers in conducting the interviews and separately
analysing the data. Mixed messages associated with individual and organisational
defence mechanisms were encountered during the course of the research and
contributed to an enhanced understanding of the different forms of time record
adjustment and their implications. A limitation of the study is that audit partners may
have engaged in image management (Power, 2003), which could have resulted in a
reluctance to reveal their true level of awareness of the URT issue. Many of the
findings however reveal that partners did disclose information such as lack of
commitment by some partners to the official firm policy, which could be considered
contrary to image management objectives.
URT has, in the past, been interpreted as a sign of loyalty and commitment, and in
that sense it has been viewed by some as a functional form of behaviour. Deeper
analysis has identified several different forms of time record manipulation behaviour,
only a small minority of which have long-term functional consequences. Viewed in the
context of organisational defence mechanisms, the majority of these behaviours
display signs of skilled incompetence and are clearly in conflict with principles of
fairness, justice and competence (Argyris, 1990b).
Notes Good hours, bad
1. The study is based on data collected from the same sample of audit seniors as the Sweeney hours
and Pierce (2004) study of auditors quality threatening behaviour. However, that study
focused on specific quality threatening behaviours and excluded any consideration of URT.
Consequently, there is no overlap in the framework, objectives or findings of the two studies.
2. The two-year time delay between interviews with seniors and partners was due to the
analysis of senior interviews which were part of a larger study. While there was no evidence 889
of significant changes in either the firms control systems or the general audit environment
that were of relevance to the study, the possibility of some changes during the intervening
period cannot be completely ruled out and therefore constitutes a limitation of the study.
3. These relationships were helped by the fact that both authors possess professional
accountancy qualifications and have completed a number of earlier studies in this
environment.
4. The summary of previous research presented to audit partners in advance of the interviews
was very useful in explaining the need for further research on URT and in requesting the
participation of partners in the interviews. The partners did not seek to influence either the
subject matter of the study or the manner in which the study was conducted.
5. Staff who work overtime are given the choice of receiving payment or leave in lieu.
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Appendix 1. Extract from interview schedules

Audit senior interview schedule
(1) In the survey results some auditors said that they would under report time, that is they
would not charge all the time they worked to a job and they might charge it to admin or
they may not charge it at all. What causes some auditors to do this? Potential probe: Are
there any situations where auditors are more likely to do this?
(2) How do you think auditors respond to requests from management to URT? Potential probe:
What reasons do you think management have for requesting juniors/seniors to URT?
(3) What are the consequences of URT for the auditor? Potential probes. Are there official
firm sanctions and penalties? Can firms detect URT? Are auditors reprimanded? What
about the incentives to engage in the behaviours? Auditor satisfaction? Any affect on job
turnover? Career progression
(4) What are the consequences of URT for the firm? Potential probes. Any positive
consequences? Any negative consequences?
Audit partner interview schedule
(1) Were you surprised by the findings from the work to date? Potential probes. Are partners
aware of these pressure induced behaviours? How are they aware of the behaviours? Are the
behaviours ever discussed at partner meetings? Are they discussed in training courses for
juniors and seniors? Have these behaviours ever been detected? What were the
consequences of detection for individual auditors? Did these behaviours occur when you
were at audit junior or senior levels in the firm? Why do auditors engage in these behaviours?
(2) URT was not generally perceived by juniors and seniors as having any negative
consequences for audit firms and in fact juniors and seniors reported that they are
AAAJ sometimes requested to URT by audit managers. Do you see URT as having any
consequences for audit firms? Potential probes. Are these currently visible as
19,6 consequences in the firm? Accuracy of budgets? Reliability of performance measures?
Planning difficulties? Staff turnover?
(3) Why would managers request auditors to URT? Potential probes. How frequently do
these requests occur? In general are the requests explicit or implicit? Are the requests
generally to charge time to a different code or not charge the time at all? How would audit
892 partners react if requests to URT were detected? Are you are aware of any partners or
managers who encourage URT? To what extent is there communication on
URT/requests to URT?
(4) Do you perceive URT as having any consequences for individual auditors? Potential
probes. Any positive consequences? Any negative consequences?
Appendix 2. Summary of audit trainee survey findings given to audit partners in

advance of interviews (Figure A1)
Figure A1.
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highlighting in particular the possibility of major conflict in attempting to exercise

Organisational defence mechanisms

Consequences of defence routines

sections of the interview guides are contained in Appendix 1).

Reason Partner (n 12) Senior (n 25)

same level of efficiency

Reasons for URT

Because individual audit partners cannot be relied on to encourage full recording of

importance of meeting managements expectation on the number of acceptable

importance. In similar fashion to voluntary time adjustments to compensate for

Even though time record manipulation is officially forbidden there is no evidence

of quality, then it should be charged in order to provide an accurate reflection of the

Govindarajan, V. (1984), Appropriateness of accounting data in performance evaluation: an

Shapeero, M. and Killough, L.N. (1999), Underreporting of chargeable hours in public

Appendix 1. Extract from interview schedules

Appendix 2. Summary of audit trainee survey findings given to audit partners in

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

dilemmas in the audit conflict. Revista de Contabilidad 19:1, 10-20. [CrossRef]

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