Can Distributed Teams Reduce Audit Staff Reliance on a Supervisor's Client-Favorable Preferences?

Abstract

With advances in technology, audit firms have increasingly been using geographically distributed auditors to staff engagements. Recently, however, regulators have expressed concern about the effectiveness of distributed teams and have suggested increasing distributed auditors’ involvement to improve audit quality (IAASB 2015; PCAOB 2016). We conduct an experiment to examine how team member proximity (distributed versus co-located) and involvement length (temporary versus continuing assignment) jointly affect auditor judgment when staff auditors are given client-favorable guidance from their supervisor. Relying on the impression management literature, we predict and find that distributed auditors are less influenced by client-favorable preferences than co-located auditors when they are on temporary assignments, but distributed auditors tend to react more like co-located auditors on continuing assignments. We also find that while distributed auditors on continuing assignment are more influenced by their supervisor’s client favorable guidance than distributed auditors on temporary assignment, the opposite is true of co-located auditors.