Using Undisclosed Time Budgets to Reduce the Magnitude of Auditors' Underreporting of Chargeable Time

Abstract

ABSTRACT The objectives of this study are to (1) propose a new budgetary control mechanism, previously not investigated in academia, i.e., an undisclosed time budget (UTB) and (2) test whether an UTB could be implemented as a pragmatic solution to decrease the magnitude of auditors' underreporting of chargeable time (URT). Over the past few decades, auditing researchers have relied on survey research to document the causes and negative consequences of URT. However, research has yet to experimentally test solutions to the URT problem. We define, propose, and find evidence that firms could utilize an UTB to reduce URT. In contrast to typical disclosed time budgets (where all parties concerned with a budget know the details), an UTB informs auditors of the existence of a time budget target, but does not disclose the specifics of budgeted task times. We predict and find support to suggest that while UTBs do not reduce auditors' perceptions of URT's moral intensity, UTBs do preventively reduce auditors' ability and perceived need to underreport. That is, a UTB increases self-efficacy (confidence in the appropriateness of the time spent on a task) and removes the external anchor of a disclosed time budget. By removing the external anchor, auditors assume a budget that resembles their actual task time is appropriate, which translates into a reduction in URT magnitude. Finally, our results also allow us to suggest that a UTB mitigates the negative reporting effects of tight time budget pressure.