LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT

The major theoretical foundation of the study is that auditors’ information search when performing an audit assignment is highly correlated to the audit quality (Gregson 1990), and audit structure of the CPA firm will affect auditors’ audit behavior (Rudolph and Welker 1998). Thus, audit structure will impact the audit quality of the CPA firm.

Audit Structure and Information Search Behavior

The auditing literature indicates that CPA firms have increased their audit structure to enhance audit efficiency and consensus of audit judgment (e.g., Cushing and Loebbecke 1986; McDaniel 1990). A commonly used vehicle to increase structure is to provide more guidance and rules for performing audit assignments. In other words, auditors need to follow the so called “systemized audit approach” which gives more procedures and rules for conducting the audit work. A systemized audit approach, thus, will determine the types and amount of information exchange (Klauss and Bass 1982;

Cushing and Loebbecke 1986; Rudolph and Welker 1998). Bacharach and Aiken (1977)

suggested that in a structured or mechanistic organization, job scope and boundary are more specific, and its members’ information search activity will follow a certain pattern.

This creates what Cushing and Loebbecke (1986) termed “mechanistic mind-set” which actually limits or confines members’ quantity of information search and exchange. Leifer and Huber (1977) also found that mechanistic structure will reduce information search activity in the organization because the confining property of structure will limit employees’ information gathering behavior, such as by boundary spanning. Boundary spanning is an activity engaged by auditors to cross the team boundary in the accounting firm to gather audit information for the successful completion of the audit assignment (e.g., Leifer and Delbecq 1978; Danos et al. 1991; Rudolph and Welker 1998). The more the boundary spanning is, the more the information search breadth and depth is.

The organizational behavior literature indicates that because more decision authorities and resources are controlled by the higher-level superiors in a structured organization, lower-level subordinates tend to do things by following the existing rules and regulations. Thus, subordinates’ information searches will take place within the existing range. Any deflection from the existing range will require a proper explanation to superiors and assume more responsibility for any resulting mistakes (e.g., Robbins 1984;

Zenger and Hesterly 1997; Lawler 1998; Richardson et al. 2002). So, employees’

information search activities for completing the assignment will be limited to the ones that have been required. Hall (1999, p. 157) also suggests that obeying rules becomes more important than achieving the goals the rules were designed to achieve in a highly structured organization. Likewise, Hage (1980) also argues that because task uncertainty and risk are getting higher, decision making is becoming more important and the organizations are getting more decentralized. In addition, discussion frequency among organizational members is getting higher and they will conduct more information search activities. Thus, the structure of an organization has the ability to influence employees to conduct more information searches for the completion of an audit assignment.

As mentioned previously, the confining property of increasing structure will inhibit auditors’ ability to effectively process information (Chang 1996) or handle uncertainty (Dirsmith and McAllister 1982). In other words, a structured audit environment will hamper an audit team’s information processing ability and, thus, its information search ability (Bamber and Bylinski 1982, p.41). Choo and Firth (1998) also found that auditors would reduce their information search and processing activities under a certain structured environment, such as time pressure. However, Cushing and Loebbecke (1986, p.42) claim that a standardized or systemized audit approach can provide the members of an audit team a common ground for information exchange which is instrumental to the communication and information exchange among auditors. Bamber and Snowball (1988) found a positive and significant correlation between audit structure and auditors’

boundary spanning. The higher the audit structure, the more the boundary spanning.

Prawitt (1995) also has the similar findings. However, Rudolph and Welker (1998) used the audit team as the unit and found mixed results of the effects of audit structure on auditors’ communication behavior within the audit team. For audit teams with higher structure, auditors engage in less boundary spanning for audit information. And, communication is also a part of information search behavior (Cushing and Loebbecke 1986).Thus, the following hypotheses are established:

R. D. Chang Audit Structure Fairness Perception on Info. Search 185

Hypothesis 1a: Audit structure (accounting firm’s structure) has a significant impact on auditors’ information search breadth.

Hypothesis 1b: Audit structure (accounting firm’s structure) has a significant impact on auditors’ information search depth.

Auditors’ Perceived Fairness and Information Search Behavior

Increasing auditors’ commitment to their job and identity with the firm is very important to the accounting firm. If the auditors feel that they are an important part of the firm and if they have strong commitment to their job, they certainly will do the best they can to complete the audit assignments. Their efforts to complete an audit assignment will not be limited to what is required by the rules. Thus, every effort auditors make will help assure and even enhance the quality of their audit work. To enhance auditors’

commitment to their job and identity with the firm, we have to understand what the related variables are and whether they can be used to measure whether the commitment and identity exist. The organizational behavior literature indicates that employees’

perception of fairness is an important variable that has an impact on their behavior. Thus, it can be used to predict or measure employees’ behavior, such as job satisfaction, organizational commitment and organizational citizenship behavior (e.g., Buchanan 1974;

Brooke et al. 1988; Greenberg 1990, 1993; Dyne et al. 1994; Konovsky 2000).

Numerous researchers have tried to conceptualize fairness perception and to separate distributive fairness (fairness of the final distribution) and procedural fairness (fairness of the means, and ways of final distribution) (Sweeney and McFarlin 1993).

Early studies on fairness focused mostly on distributive fairness and argued that fairness perception would have a significant impact on employees’ behavior in the organization (e.g. Adams 1965; Leventhal 1976). Recently, more research has been conducted on procedural fairness (Konovsky 2000). The stress of distributive fairness is on whether employees are satisfied with the final outcome, while that of procedural fairness is on the means for achieving the outcome rather than the outcome itself (Cobb et al. 1995).

Greenberg (1990) indicates that procedural fairness is composed of two parts: (1) the process involved in the final distribution, and (2) the fairness of interaction, that is the process explaining how the system works in the organization. Thus, employees’

perception of procedural fairness influences their attitude and behavior as well.

In the equity literature, the relation between fairness perception and employee behavior has always been an important research direction. Studies have indicated that difference of employee fairness perception has an impact on their work performance (e.g., Greenberg 1990; Moorman 1991; McFarlin and Sweeney 1992; Ehlen and Welker 1996;

Chang et al. 2001a), in other words, how much effort employees will put into their work may depend on their fairness perception. Taylor et al. (1995) and Holbrook (1999) find that when employees have a higher fairness perception (especially in procedural fairness), their work performance will be better, too. This may be a result of their spending more time in information search and processing for completing the audit assignments. Chang et al. (2001b) also find that the interacting relationship between superiors and auditors in the CPA firms has a significant influence on the auditors’ information search behavior

(information search breadth and depth). Thus, since the fairness perception has a major impact on employees’ behavior, and auditors’ information search behavior is an important factor in completing the audit assignments (Rudolph and Welker 1998; Chang et al.

2001b), perceived fairness will influence auditors’ information search behavior. Thus, the following hypotheses are established:

Hypothesis 2a: Auditors’ fairness perception has a significant impact on auditors’

information search breadth.

Hypothesis 2b: Auditors’ fairness perception has a significant impact on auditors’

information search depth.

III. RESEARCH METHODOLOGY