Dynamic audit competency and the antecedents and consequences: evidence from tax auditors in Thailand.

AuthorMusig, Pornpun
PositionReport - Survey
  1. INTRODUCTION

    During the past decade, economic growth has been despoiled for numerous reasons such as corruption, fraud, or bankruptcies which are destroying the confidence of those concerned. One of the classic cases is the accounting debacle of Enron in 2002. The cause that hit the Enron is investors who do not trust the financial reports. Consequently, the Enron debacle leads to the social needs of a clearer role and responsibilities of auditor duty (Munter, 2002) and audit competency. Then, social and public are asking for the audit competency that makes an influence and the auditors' work fail. The higher the auditor in audit competency is, the higher an auditor gains greater development in performance auditing and a sustainable audit success. Auditing is a professional service performed by auditor compatibility, task, reliability and independence. What causes making auditing a challenging work is that an auditor has a duty directly related with the clients. Consequently, audit services can serve both clients and auditors to gain satisfaction because clients need an audit quality from the auditors while the auditors wish to achieve audit success.

    Auditors are as both insurance provider and information intermediary that provide independent verification of manager-prepared financial statement; audit performance contributes to the reliability and quality of financial reporting. Prior researches attempt to seek the element for audit performance and how the audits sustain in market. Consequently, the auditing profession has increased audit capabilities which make the reliability and creditability sure of auditor performance leading to usefulness for decision making of financial users and stakeholder trust.

    Currently, audit competency was an important factor in the competitive environment especially the climate of competition in the audit market is the pressure to auditor to gain audit competency. Therefore, Federation of Accounting Profession and the regulators have created the role to take disciplinary action that serves high standard in auditing. Furthermore, auditors should develop and improve themselves for sustainable in current competitive environment. Thus, the ways to audit success in the market have increased auditing research. Prior research on auditing has many issues about audit task that the results of research need to suggest the effectiveness of auditor work that attempts to explain the performing of auditor work (competencies). Accordingly, the advantage of competence-performance approach is that the competencies help to predict performance outcomes and sustainability.

    Previous auditing researches show that the diversity of elements has an impact on audit performance including ability to apply standard and core principle for audit work (Demirguc-Kunt et al., 2008; AlShammari and others, 2008), communication and relationships between auditors and clients (Hilton and Souhgate, 2007; Dorotta and others, 2006), effectiveness of audit judgment (Leung and Trotman, 2005), consciousness of professional ethical in job and environmental auditing change (Struweg and Meintijes, 2008). Nevertheless, this research proposes that the dynamic audit competencies are the element of audit performance. Dimensions of dynamic audit competencies are continuous audit learning, diversify audit knowledge, flexible audit practice, renewal audit skills, and proactive audit planning. In this research, audit performance refers to audit efficiency, audit quality, audit effectiveness, audit reputation, audit success, and audit sustainability. Dynamic audit competency is defined as an audit ability that an auditor will both discover and report an error in a client's accounting system by correct audit process and trustworthiness of financial reporting useful for decision making. In addition, audit reputation refers to stakeholder acceptance and client perceived value for audit work. Then, audit success refers to client satisfaction in audit work related to survival in audit market. This research adapts the dynamic capability concept to explain this phenomenon regarded as in person level rather than in firm level. This research attempts to explain the dynamic capability concept that confirms the resource different of the firm leading to the difference in performance and competitive advantage similar to the difference in capabilities of person that affect the difference in individual performs in long term. Thus, dynamic audit competencies influence audit efficiency, audit quality, audit effectiveness, audit reputation, audit success, and audit sustainability.

    On the other hand, the audit performance literature demonstrates that knowledge, experience, and learning influence auditor competency (Solomon and Trotman, 2003). Therefore, this research suggests that an auditor has high audit achievement, professional mindset, technology growth, and regulation change that lead to high dynamic audit competencies explained by cognitive theory. Furthermore, dynamic audit competencies are affected by several external environment factors. External environment factors in this research focus on audit market competition, audit experience, and auditor-client relationships. The influence of external environment factors on dynamic audit competencies is explained by the content of contingency theory.

    Thus, this research is a primary work that extends the concept of dynamic audit competencies of tax audit in Thailand. It focuses on dynamic audit competencies which have audit achievement; professional mindset, technology growth, and regulation change are antecedent. Additionally, the consequences of dynamic audit competency are audit efficiency, audit quality, audit effectiveness, audit reputation, audit success, and audit sustainability. Dimensions of dynamic audit competencies are continuous audit learning, diversify audit knowledge, flexible audit practice, renewal audit skills, and proactive audit planning. The findings of this research can be used as a guideline to improve and develop auditor capabilities that lead to good audit performance until survival in audit market. Moreover, the findings can serve as an instruction to Thai auditing standard setters and regulators to support and develop high audit performance.

    Audit sustainability is the long term view and the key factor that auditor must preserve to stay in business and existing achievement that auditors commit to the long-term thriving of the profession. The concept of sustainability is fundamental for the auditor to provide professional outputs for clients' satisfaction. In short sustaining audit success is the high standard for auditor accomplishment (Radcliffe, 1999; Hopwood, 1998).

    The purposes of this study are to investigate the relationships among dynamic audit competency and audit sustainability, audit efficiency, audit quality, audit effectiveness, audit reputation, and audit success. And also it investigates the relationships among four antecedents: audit goal achievement, professional mindset, technology growth, and regulation change and dynamic audit competency. Moreover, it examines three moderating effects: audit market competition, audit experience, and auditor-client relationship on the relationships. The key research question is how dynamic audit competencies has an impact on audit efficiency, audit effectiveness, audit quality, audit reputation, audit success and audit sustainability?

    The remainder of this paper is organized as follows. In Section 2, we provide the theoretical framework. Section 3, we provide the relevant literature and develop our hypotheses. Then, we describe our research methodology in section 4. Section 5 is the results and discussion. The contributions respectively and directions for future research and conclusions are presented in Section 5, 6 and 7.

  2. THEORETICAL FOUNDATION

    This study attempts to fill this theoretical gap by seeking to identify the dynamic audit competency dimension by integrating between dynamic capability theory, social cognitive theory and adaptation theory. Thus, three theories make this conceptual model clearly understood. Firstly, Dynamic Capability theory, recent literature in the field of strategic management has explained that dynamic capabilities is a new paradigm to explain how firms can create and maintain competitive advantage in increasing dynamic business environments. Dynamic capabilities are introduced by Teece, Pisano, and Schuen (1997). They define dynamic capabilities as the firm's ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments. Many researchers find dynamic capabilities potentially powerful in explanation for sustainable competitive advantage sources in dynamic environments (Teece and Pisano, 1994; Helfat, 1997; Eisenhardt and Martin, 2000; Zott, 2003; Helfat and Peteraf, 2003; Dutta et al., 2005). However, we use dynamic capabilities as a framework to integrate and explain the relationships between the variables in the present study. This study challenges to understand the dynamic audit competency which considers individual auditor factors such as continuous audit learning, diversify audit knowledge, flexible audit practice, renewal audit skills, and proactive audit planning effect on audit sustainability in the dynamic environments.

    Secondly, social cognitive theory explains human psychosocial functioning in terms of the interaction between behavior, cognitive and other personal factors and environment events (Bandura, 1989. As a construct, cognitive style has been widely studied. It is defined as an individual's "preferred" way of gathering, processing, and evaluating information relating to creativity, problem-solving and decision making. Thus, we use social cognitive theory as a framework to integrate and explain the relationship between the variables in the present study. This study challenges to understand the...

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