Audit sustainability of CPAs in Thailand: effects of audit planning competency and audit report quality.

• Author: Chanruang, Sakchai
• Position: Certified Public Accountant - Report

1. INTRODUCTION

   The bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and dissolution of Arthur Anderson was one of the five largest audit and accountancy partnerships in the word, it leads to skepticism in the independence of auditor, responsibilities of auditors, operational performance auditing, and the quality of audit report. This suspicion has been extended throughout the world. It lends to the litigation in various businesses about fraud and to doubt the quality of the audit report, which affects the sustainability of the auditor impact of the ability from audit planning competency. Audit process is of 3 steps including 1) audit planning, 2) audit execution (Test of control and substantive test), and 3) audit completion. Audit planning is the first activity in financial audit process. In International audit standard (ISAs) section 300, planning an Audit of Financial Statements (2006) mentioned the objective of audit planning that "plan the audit so that it will be performed in an effective manner". The audit planning procedures are not isolated from other audit procedures, but to be held throughout the audit until the audit ends.

   In the past, most researchers examined the relationships among risk, fraud and audit planning (Basu and Wright, 1997; Boatsman, Moeckel, and Pei, 1997; Martinov and Roebuck, 1998; Newman, Evelyn, and Reed, 2001; Graham and Bedard, 2003; Bedard, Graham, and Jackson, 2005; Mock and Turner, 2005; Fukukawa, Mock, and Wright, 2006; Blay, Sneathen, and Kizirian, 2007). The result shows that risk and fraud significantly impacts the audit planning. ISAs section 300, planning an Audit of Financial Statements (2006) requires that auditor should consider the risk and fraud of the audit planning and develop audit planning. The audit planning determines the audit procedure, audit scope, and audit resources, but past research had confusion relationship between audit planning and audit procedure (Bedard, Gopi, and Vijayalakshmi, 1991). Because many auditors practiced audit procedure the same as those did last year (Bedard, Mock, and Wright, 1999; Hoffman and Zimbelman, 2009) and change audit procedure when the important business environments are changed. The auditors did not comply with audit planning nor did not plan the audit planning would impact with audit practice efficiency and effectiveness and quality of audit report. Many auditors are not focused on the development of audit plans. The auditors will develop an audit planning when the environment or risk changes. It does not meet the requirements set in the auditing standards. In fact, the risk of important business changes constantly. Auditors are not interested in the development of audit plans that will affect the audit practices, audit report and sustainability of the auditing. This research investigates the relationships among competency of audit planning, quality of audit report, and audit sustainability for answer the question that how audit planning competency has an impact on audit report quality and audit sustainability.

   Audit planning competency was stated in four dimensions including audit method efficiency, audit resource allocation quality, audit scope setting effectiveness, and audit knowledge utilization. Those have a direct effect and indirect effect on audit practice effectiveness, audit risk reduction, audit efficiency enhancement, audit report quality, audit success, audit reputation, and audit sustainability. Accounting competency, audit experience professional learning, and business turbulence are antecedents. This research uses the resource-advantage theory (R-A theory) and Social cognitive theory (SCT) to explain the conceptual model. The remainder of this research is organized as the follows: The second provides theoretical framework. The literature reviews and hypothesis development shows in the third. The fourth describes the research design, sample and procedure, and variable measurement. The results and discussion are presented in the fifth. The sixth indicates the contributions of this research and suggestions for the future research. The conclusion is presented in the last section.

2. THEORETICAL FRAMEWORK

   Audit planning competency was stated in four dimensions including audit method efficiency, audit resource allocation quality, audit scope setting effectiveness, and audit knowledge utilization. They have a direct effect and indirect effect on audit practice effectiveness, audit risk reduction, audit efficiency enhancement, audit report quality, audit success, audit reputation, and audit sustainability. Accounting competency, audit experience professional learning, and business turbulence are antecedents. This research uses the resource-advantage theory (R-A theory) and Social cognitive theory (SCT) explains the conceptual model.

   The resource-advantage theory (R-A Theory) was first proposed by Hunt and Morgan (1995) and has been adopted by many disciplines such as marketing, management, economics, ethics, law, and general business (Hunt and Davis , 2008). This theory describes the advantages of competition, which Hunt and Madhavaram (2006) called a "process" of the competition. Whether the company will have advantage competition depends on resources or "competition-suppliers". The resource can be defined as the tangible and intangible (Hunt and Davis, 2008). The resources have heterogeneous and immobile and focus on resource of comparative advantages. From the definition the resources are as skill, knowledge of individual staff, control, audit method, audit scope, knowledge of client, and knowledge from past job. Those resources lend to competitive advantage by make to audit practice effectiveness, reduce in audit risk, audit efficiency and quality of audit report. The result of audit planning competency is superior performance are audit success, audit reputation and audit sustainability. R-A theory is competitive theory that explains theory under competition. Auditors are subject to professional competition. It helps clearly superior performance.

   SCT explains the antecedent of competency of audit planning. SCT explains human behavior and cognition. Auditors use social cognitive environmental including accounting. Social cognitive theory (SCT) explains that human behavior is a result of the interrelationships between social environmental factors such as friends, family, and co-workers and personal factors involving cognitive, affective, and biological events (Bandura, 2001). Social environmental factors make self-regulation mechanisms, cause cognitive or learning behaviors, to set the goal. Self-regulation mechanisms make a way to respond to exceptional behavior such as sleeping late (Galperin et al, 2010). The cognition is not limited experience or performance in the past, but also depends on other factors, perceiving environment opportunities and impediment (Zhu et al, 2010). SCT believes that humans are creatures who have organized themselves.

   Humans have known about their life and controlled themselves. They do not meet the environmental appeals or they do indulge the emotions. Human activities are a consequence of the dynamics between environmental factors, behavior, and identity. In this research, SCT is applied to describe the relationships among accounting competency, audit experience, professional learning, business turbulence and audit planning competency. The assumption is that individual auditor behavior in audit financial statement through audit planning is based on environment factor including knowledge, learning, experience, and environment of client's business. Their higher knowledge, learning, and experience tend to obtain greater audit planning competency and audit practices. The environment of client is significant audit planning competency and audit practices. If client's business is not some sorts of trouble, audit planning and audit practices are effective and efficient.

3. LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT

   With regard to the literature review on audit planning competency and supporting with the resource-advantage theory and social cognitive theory, this research proposed a conceptual model to empirical testing in topic "audit sustainability of CPAs in Thailand: effects of audit planning competency and audit report quality" This research provides relevant literature review in four sections. First, the integrative review of audit planning competency. Second. It explains positively consequence of audit planning competency (audit practice effectiveness, audit risk reduction, audit efficiency enhancement, audit report quality, audit success, audit reputation, and audit sustainability). Third, the antecedents of audit planning competency are illustrated. Finally, it illustrates the moderating effects. The full conceptual model is presented in Figure 1 below.

   3.1 Audit Planning Competency

   Audit processes have 3 steps including 1) audit planning 2) audit execution (Test of control and substantive test) and 3) audit completion. Audit planning is a first activity in financial audit process. International audit standard (ISAs) section 300, planning an Audit of Financial Statements (2006) mentioned the objective of audit planning that it plans the audit so that it will be performed in an effective manner. The audit planning procedures are not isolated from other audit procedures, but the audit planning procedures to be held throughout the audit until the audit ends. The auditor will be updated at any time after the audit plan to get more information from auditing. ISAs section 300, planning an Audit of Financial Statements (2006) require that auditors should create an overall audit strategy that sets the scope, timing, direction of the inspection, and development of audit plans. It is according with Shoommuangpak and Ussahawanitchakit (2009). They defined audit strategy that it is the way or technique of CPAs. It's used in audit...