The Balanced Scorecard: Measures That Drive Performance Evaluation in Auditing Firms

Mohamed Hegazy,Karim Hegazy,Mohamed Eldeeb

doi:10.1177/0148558x20962915

Abstract

The purpose of this article is to establish a framework with its related measures for the development of a balanced scorecard (BSC) for auditing firms. A BSC was developed providing the detailed measures for performance evaluation comprising five key elements: learning and growth, clients, internal business processes, financials, and audit-related perspectives of corporate ethics. A survey was undertaken along with descriptive statistics and confirmatory factor analysis in four auditing firms, to assess the external auditors’ opinions for the proposed BSC measures. The results suggest that the development and use of the proposed BSC measures will enhance audit firms’ performance. Audit firms would have a better understanding of the various drivers of performance and strategies thereby creating a competitive advantage. The results are valuable to not only audit firms but also auditing oversight boards who could direct the design of their monitoring process by understanding performance systems in different size audit firms.

Highlights

Auditing standards provide guidelines for audit quality with little attention given to how audit firms should be managed
As to the effect of the above analysis on the research hypotheses, the results provide partial support for Hypothesis 1 (H1) related to the components of the balanced scorecard (BSC) for auditing firms
The development of the BSC was based on the review of the literature for similar BSCs in service industries and interviews made in two audit firms and with academics from reputable universities in Egypt

Summary

Introduction

Auditing standards provide guidelines for audit quality with little attention given to how audit firms should be managed. While more emphasis was given to external peer reviews and internal reviews by quality control partners, performance and benchmarking started to gain more attention in recent years (Albright et al, 2015; Ditillo et al, 2016; Hoque, 2014; Kaplan & Norton, 2001; Kunz et al, 2016; Neely et al, 2002; Sayed, 2013) Such performance measurement systems should include important elements of performance, such as customer satisfaction, growth, and financial viability of conducting the audit (Hoque, 2014; Kaplan, 1984; Kaplan and Norton, 1992, 1996a, 1996b). This view was shared by Kaplan and Norton (1996a, 1996b): ‘‘(the) extent (of) research lacks valid constructs for the BSC and focuses too much on planning (ex-ante) with the BSC and not sufficiently on evaluation and control (ex-post).’’

Objectives

Methods

Findings

Conclusion