An Exploratory Study of the Influence of Client Factors on Audit Time Budget Variances

Abstract

This study provides a descriptive analysis of audit time budgets and considers the effect of client factors on the achievement of audit time budgets. Using archival data obtained from four of the Big 6 firms, we find that differences between audit time budgets and reported audit hours are significantly related to factors reflecting client size, risk, complexity and profitability, ceteris paribus. We also find that the degree to which client factors explain budget variances (defined as reported hours minus budgeted hours) depends on staff level. Specifically, differences in the achievement of audit time budgets for partners, seniors and juniors are related to certain client factors, but manager time is not. The results of the size variable suggest an attempt at substitution of more junior hours relative to other staff hours as the size of the auditee increases. Partner and senior models indicate a tendency for actual hours to be in excess of budgeted hours as size increases. Potential explanations for these and other findings along with the limitations and implications of the study are provided.

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