Rewards and Pressure to Improve Audit Quality: Facilitative for Auditors With Low Drive but Undermining for Auditors With High Drive

• In Event: Audit Quality

Abstract

The Public Company Accounting Oversight Board has proposed that rewarding auditors for high audit quality might create incentives for improving audit quality. Prior research indicates that the effects of financial rewards on performance are influenced by the work environment (e.g., pressure) and/or the person (e.g., motivation). We therefore investigate the effectiveness of audit quality bonuses by focusing on their combined influence with engagement pressure and auditors’ drive levels. In an experimental study with 420 auditors, we manipulated the audit quality bonus (“present” versus “absent”) and level of engagement pressure (“low” versus “high”). Both the audit quality bonus and high engagement pressure are intended to control participants’ motivation and undermine their feelings of autonomy and self-determination. Drive is a measured personality factor regarding autonomous or inherent motivation. We find, as expected, that the presence of an audit quality bonus and high engagement pressure increase the level of audit quality for auditors with low drive but decrease it for auditors with high drive. Overall, our findings suggest that audit firms need to reconsider their practice of providing financial rewards to auditors who contribute to improving audit quality because, in their current form, these rewards undermine audit quality for the majority of professionals (auditors with high drive).

Authors

• Herman van Brenk, Nyenrode Business University

• Barbara Majoor, Nyenrode Business University