DEVELOPING IMPROVEMENT OF AUDITOR S PERFORMANCE MODEL USING PROFESSIONAL SKEPTICISM AND AUDITORS COMFORT AS A MEDIATOR

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1 International Journal of Civil Engineering and Technology (IJCIET) Volume 8, Issue 12, December 2017, pp , Article ID: IJCIET_08_12_004 Available online at ISSN Print: and ISSN Online: IAEME Publication Scopus Indexed DEVELOPING IMPROVEMENT OF AUDITOR S PERFORMANCE MODEL USING PROFESSIONAL SKEPTICISM AND AUDITORS COMFORT AS A MEDIATOR Lismawati Ph.D Student, Faculty of Economics and Business Diponegoro University, Semarang, Indonesia Lecturer at Faculty of Economic and Business, Bengkulu University, Indonesia Abdul Rohman, Anis Chariri Faculty of Economic and Business, Diponegoro University, Semarang, Indonesia ABSTRACT This study aims to investigate whether auditors professional skepticism and comfort play roles in mediating the relationship of competence and performance of internal auditors in local government in Indonesia. Empirical data were collected from local government internal auditors through online survey. Data were then analyzed using Equation Modeling Structure Partial Lease Square with the application program WarpPLS 5. The findings showed that professional skepticism did not play a role in mediating the relationship of auditors performance and competence. While auditors comfort is able to partially mediate the relationship of auditors competence and their performance. This research is the first successful research proves the existence of psychological factors in the form of auditor's comfort improvements to internal auditors of local government in Indonesia that had yet to be advised. Key words: competence, professional skepticism, auditor comfort, performance. Cite this Article: Lismawati, Abdul Rohman, Anis Chariri, Developing Improvement of Auditor s Performance Model Using Professional Skepticism and Auditors Comfort as a Mediator. International Journal of Civil Engineering and Technology, 8(12), 2017, pp INTRODUCTION The Indonesian Government Auditor Internal Audit Standars in 2008 has clarified two major roles of auditors in conducting internal audit in government organization: assurance and consulting. Assurance is the role focusing on giving an opinion or an independent assessment of the operations, functions, processes, systems or any other subjects. While consulting role 27 editor@iaeme.com

2 Developing Improvement of Auditor s Performance Model Using Professional Skepticism and Auditors Comfort as a Mediator focused on the provision of advice, training, and facilities to an entity, operations, processes, functions, systems, or any other subject (33). Auditor performance can not be separated from the successful implementation of assurance and consulting roles (4). However, in terms of implementation, the roles have not run as expected, especially the consulting roles. Indeed, auditor performance is not seen as optimal because the role of internal audit including consultation roles have not been implemented clearly (28). This will eventually put auditors find it difficult to achieve the best performance. The difficulties of internal auditors in achieving good performance caused by numbers of factors. One of them is lack of auditor competence in conducting assurance and consulting roles (35). The common problems faced by Indonesian local governments in regard to competence are concerned with the placement of non-job employees as internal auditors at inspectorat offices. Mostly, the non-job employees are local government employees who do not have any accounting background. This condition may lead the internal auditors difficult in achieving good performance (9). Inadequate competence may lead auditors unable to solve any problems concerned with assurance and consulting roles. Auditor's apprehension is a kind of disruption of auditor comfort in carrying out the audit assignment (15). In fact, the feel of discomfort will make it difficult for auditors to maximize performance (10). The internal auditors competence plays a significant role in performing audit assignments. Auditor competence can lead to the professional skepticism, which means that it is not easy for auditors to believe and conduct an assessment of audit evidence and information provided by auditee (1). Adequate competence can facilitate the auditors in providing various solutions related to the implementation of the consultation role (3). Psychologically, the existence of competence can improve the auditors confidence to carry out the audit assignment (22). Competence is an internal aspect of auditors that can be empowered in achieving audit assignment successfully. The importance of auditor competence in performing audit assignment can be explained by the attribution theory introduced by Frizt Heider in Attribution theory explains the process of how to determine the cause and motive of an individual behavior. Individual behavior can be determined by internal attributes, which exist within them self or can be influenced by external attributes, which are outside of them. Internal attributes and external attributes have been declared as important factors influencing individual decisions on works or the result of works achievement (37). Studies on the relationship of internal factors (individual characteristics) and performance improvement has been conducted by scholars. For example, studies to investigate the influence of individual characteristics like competence toward auditor performance have been done by (13); (34). Competence is defined as a continuous tendency that allows prediction of individual behavior in various situations and includes motives, traits, self-concept, skills, and knowledge (32). Overall, the results shows that competence has a significant effect on auditor performance. In contrast to previous research, studi by (1) found how competence determine auditor performance using qualitative approach. Moreover, the study indicated that it is difficult to achieve good performance if the auditors do not have professional competence. An interesting point to take note is that the previous study (1) is the only study which investigates the relationship of auditor competence and performance using qualitative research method. Respondents used as research samples are representative respondents because they are 28 editor@iaeme.com

3 Lismawati, Abdul Rohman, Anis Chariri certified internal auditors. Nevertheless, research conducted by (1) still have some weaknesses. The first weakness is the previous study cannot identify how significant is the influence of competence factor on auditor performance (1). Second, the research only considers competence as the only factor which determine of auditor performance. Third, recent studies have provided us with the findings on the weaknesses of the direct correlation between individual characteristics (competence) and auditor performance (38); (20). Such weaknesses imply that there should be other factors mediating the relationship of competence and performance. It is true that previous research has successfully provided new findings on the role of problem-solving ability and computerized inspection activity in mediating the relationship of auditors competence and performance (38). However, such studies have not considered the psychological aspect of auditors comfort (38) and professional skepticism in supporting performance improvement (10). This study believed that auditors comfort plays an important role in improving auditors performance. Auditors comfort is defined as the circumstances, relief and space which felt by auditors related to four aspects of physical, environmental, psycho spiritual and social aspects (25). It is claimed that as a practitioner, the internal auditor will think about the convenience when doing audit assignment, which is affected by the emotional aspects of his attitudes (5). It is also possible that convenience is a determinant in examining the quality of audit in relation to performance achievement. Comfortance can be seen as a positive situation that affects the auditors assignment (17). Such convenience allows the internal auditors to achieve the best audit performance (8). The next one is professional skepticism which is considered as an important part of achieving successfull audit (11). Professional skepticism is one of the individual personality characteristic required for a particular profession including the auditor. A research in psychology showed that professional skepticism will build an ever lasting individual personality (11). For auditors, professional skepticism is an important personality in achieving successfull performance (27). Based on the suggestions and weaknesses of the previous studies, this research is intended to propose a new research model, which is mostly ignored in the previous studies. In fact, this study aims to examine two psychological aspects: professional skepticism and auditor comfort, which can mediate the relationship of auditor competence and auditor performance. This research is expected to be one of the alternative choices of performance improvement model of an auditor in local government. It is also important to take a note, that auditors competence can be conceptually related to auditors performance through auditors professional skepticism and comfort. A professional auditor with appropriate competence should try to apply professional skepticism in carrying out the audit assignment. To achieve reliable audit performance, the auditor should ensure that the evidences presented by the client are trusted. The activities of the auditor to trust the evidences submitted by the auditee must be accompanied by auditor competence. In fact, the auditor competence enable auditors to convince and trust auditing evidences and information obtained from the auditee. Auditing evidence and accurate information can result in quality audit, which indicates the auditors success in achieving audit performance. Further more, it is believed that the relationship of competence and auditor comfort can optimize auditors performance. When internal auditors of local government have adequate 29 editor@iaeme.com

4 Developing Improvement of Auditor s Performance Model Using Professional Skepticism and Auditors Comfort as a Mediator competence in conducting internal audit assignments, they will feel calm, relieved and confident, and can result in comfortable feelings in dealing with their works. Auditors comfort will be able to encourage auditors to achieve a good performance. Based on the above arguments, this study aims to investigate whether auditor competence affects his/her performance and to examine whether auditor professional skepticism and comfort play roles in mediating the relationship of competence and auditor performance. 2. LITERATURE REVIEW AND DEVELOPMENT OF HYPOTHESES 2.1. Competence and Professional Skepticism Professional skepticism is an individual psychological factor influenced by many factors. Study by (30) explains that auditors will be able to behave more skeptically because of their competence in knowledge, training and understanding of audit standards. It is believed that knowledge and skills can shape professional skepticism (23). The relationship between competence and professional skepticism can also be explained by attribution theory. The theory claims that internal attribution concerning the auditors effort in optimizing the various personal potencies that exist within them self to determine certain individual behavior (19). According to the theory, auditors can create professional skepticism attitudes because they have abilities to utilize their competencies such as knowledge, ability, experience in inquiring and assessing the provided information and auditing evidence. Empirically, the relationship between competence and professional skepticism has been demonstrated by previous study (30). Based on the theory of attribution and previous research, this study proposes the following hypothesis: H1: Competence positively affect professional skepticism 2.2. Competence and Auditor Comfort Auditors comfort is closely related to auditors competence. When an auditor has a certain set of knowledges, skills and experiences, the auditors will feel confident and passionate in carrying out the work that has become their responsibility. Confidence and spirit in carrying out professional duties will lead the auditors confidence and at the same time they feel comfortable in performing internal audit as they are responsible for. In other words, the more competent the auditor the more comfortable the auditor in carrying out audit assignment. According to attribution theory, competence as an auditor attitude can be seen as an internal attribute that make the auditor feel comfortable in dealing with various problems in the audit assignment. Hence, the more competent the auditor, the more comfortable the auditor because they have a feeling of relief and confidence in dealing with various auditing problems. The relationship of auditing competence and auditors comfort has been empirically investigated by (6); (7); (15); (12). Thus, the second hypothesis is proposed as follow: H2: Competence has a positive effect on auditor comfort 2.3. Competence and Auditors Performance Competence can be constructed through knowledge, experience, skills, and behavior. Competence enables auditor to employ their knowledge and skills to carry out all audit assignment successfully. In addition, competence can help internal auditors find the best method in carrying out assignments to achieve the best performance editor@iaeme.com

5 Lismawati, Abdul Rohman, Anis Chariri The relationship of competence and auditors performance can be explained by attribution theory. The competencies including knowledge, ability, and behavior of auditors is an internal attribution that can be optimized by auditors in achieving the best performance. The capabilities of internal auditors in performing internal audit assignment can be considered as one of indicators that the auditors have adequate competence. The relationship of auditor competence and performance of auditors has been studied by (1) and (13). Based on the theory of attribution and previous studies, the third hypothesis is proposed as follow: H3: Competence has a positive effect on auditor performance 2.4. Professional Skepticism and Auditors Performance Professional skepticism is the auditors personality which the auditor does not easily believe in any evidence and information obtained during the auditing process (31). With their available knowledge, experience, and skills, the auditors can access all evidence and information that will be used as the basis in conduct auditing. If all valid evidence and information are obtained by the auditor then they performs audit assignment successfully. The attribution theory is seen as useful in explaining how attitude of professional skepticism plays an important role in producing the best auditor performance. Internal attribution as explained in attribution theory provides auditors with certain characteristics that can be optimized to achieve good performance. Professional skepticism is one of the internal attributions which lead to the auditor best performance. Studies on the relationship of professional skepticism and performance were conducted by (26); and (36). Based on attribution theory and previous research, the hypothesis can be developed as follows: H4: Professional skepticism positively affects the auditor's performance 2.5. Auditors Comfort and Auditors Performance The relationship of auditors comfort and performance in carrying out the internal auditing activities is an important thing that must always be noticed. Any jobs can not be resolved properly if individuals including auditors do not perceive them selves as comfortable. Success or failure of the work carried out by the auditor is influenced by many factors. However, some researchers of psychology state that feeling comfortable in work is the dominant factor which affects the success of the job achievement (18). The relationship of auditors comfort and auditors performance can conceptually be explained by the comfort theory. It states that the state, renewal, and relief felt by the auditor in the achievement of auditing assignment are related to the four aspects: physical, environmental, psychospiritual and social aspects (21). The more comfortable the individuals in doing their jobs, the better the achievement of their performance (16). The relationship of auditor convenience and performance has been empirically verified by previous studies (24); (10). Accordingly, we propose the following hypothesis. H5: Auditor comfort positively affects the auditor's performance 3. RESEARCH METHODS This study used primary data obtained through respondent answers to the questionnaires. The questionnaire items were developed from study by (29), and instruments by (10), on a 5-point likert scale, ranging from strongly disagree to strongly agree. The respondents of this study are 138 internal auditors of local government in Indonesia. Sample selection technique is based on cluster sampling. Data were then analyzed using SEM_PLS with WarpPLS 5 program editor@iaeme.com

6 Developing Improvement of Auditor s Performance Model Using Professional Skepticism and Auditors Comfort as a Mediator 4. RESULT AND DISCUSSION 4.1. Validity and Reliability Test Prior to hypothesis testing, the research data were tested to evaluate the level of validity and reliability. Table 1 shows the value of Composite Reliability (CR) and Cronbach's alpha respectively with the value above This value means the level of reliability of each indicator is high and has an internal consistency. Furthermore, in line with the level of validity, it can be seen that the value of outer loading for all indicators of variables is greater than The Average Variance Extracted (AVE) value of each variable is greater than 0.50 (14). Table 2 also shows cross loading factor which measurement is greater than the size of other variables. Thus, all the indicators are valid and reliable and can be further analyzed. Table 1 Reliability and Validity Test Results Latent Variable Loading AVE C.R Cronbach's alpha Competence KM KM KM KM KM KM KM KM KM Professional skepticism SP SP SP SP SP SP SP Auditor Comfort KY KY KY KY Auditor Performance KR KR KR KR KR KR Source: results of data processing 2017 Table 2 Discriminant Validity Test Results KM ID KR SP KY KM (0.781) KR (0.770) SP (0.806) KY (0.644) Source: results of data processing editor@iaeme.com

7 Lismawati, Abdul Rohman, Anis Chariri 4.2. Hypothesis Testing Figure 1 described the research model along with the coefficient correlation and p-value of each predicted variables. The findings showed that empirical data supported four proposed hypotheses where one hypothesis was rejected. Indeed, hypothesis 4 claiming that professional skepticism positively influence auditor performance was not supported by empirical data. Four other hypotheses (H1, H2, H3, and H5), were supported by empirical data (p level <0.05). Figure 1 Full Model InDirect Effect The findings of this study showed that there is significant relationship between competence and professional skepticism, and auditor comfort and auditor performance. The statistical results of the relationship of competence and professional skepticism has coefficient value=0,16 and P-Value=0.03, which means that the more competent the auditors, the higher their level of professional skepticism in carrying out an internal audit. In addition, the relationship of auditor competence and auditor comfort was indicated by the coefficient value=0.33 and p-value<0.01, which means the more competent the auditor, the more comfortable the auditor in performing the audit assignment. Finally, the relationship of competence and auditors performance was shown by the coefficient value=0.45 and p- value<0.01. This implies that the more competent the auditor, the better the auditor in achieving audit performance. Professional competence in the form of knowledge, skills, and behavior supports internal auditors professional skepticism in assessing and verifying accuracy of information and auditing evidence. In addition, the auditors competence increase the auditors confidence in solving various problems during the internal audit process and can also be empowered in providing the auditee with suggestions for improvements (the consultative role). The existence of high self-confidenc provides the auditor with high comfortance in performing the audit assignment. The findings of this study also supported by attribution theory. Competence is an internal attribution, which enables and empowers auditors in realizing the attitude of professional skepticism, achieving the best performance and being able to feel comfortable in carrying out an internal auditing. The results of this study are also consistent with findings of previous studies by (6); (8); (7); (38); (15); (30); (12) editor@iaeme.com

8 Developing Improvement of Auditor s Performance Model Using Professional Skepticism and Auditors Comfort as a Mediator Two subsequent hypotheses H4 and H5 prove that the relationship of professional skepticism and auditors comfort between the performance of auditors. Hypothesis test of professional skepticism in relation to the auditor performance show coefficient value=0.03 and p-value=0.35 which means hypothesis 4 is rejected. The rejection of hypothesis 4 means that there is no relationship between professional skepticism of the auditor's performance. While hypothesis 5 that correlate auditors comfort to the auditor performance show coefficient value=0.48 and p-value<0.01, it means hypothesis accepted. The acceptance of hypothesis 5 means that auditors comfort affects the performance of the auditor. The more comfortable the auditor, the better performance they have. Hypothesis 5 test results have supported the comfort theory, the auditors convenience which is a feeling of freedom and confidence will be able to encourage auditors to provide the best performance. Mean while, hypothesis 4 which implies a relation between professional skepticism towards auditors performance can not be proven in this study or does not support attribution theory. As the information obtained from the respondents, there was so many audit assignments to be carried out, leaves the internal auditor ignore to be skeptic or assess the reliability of auditing evidence and information obtained from the auditee, but they can still complete the audit assignments. The hypothesis test is presented table 3 below. Table 3 Conclusion Hypothesis Test Result Hypothesis Coefficient P-Value Decision Hypothesis P=0,03 * Accepted Hypothesis P<0,01 * Accepted Hypothesis P<0,01 * Accepted Hypothesis P=0.35 Rejected Hypothesis P<0,01 * Accepted Assumptions: * p<0.05 Referring to the concept of (14) in determining the mediation variables, this study has successfully proved the auditors comfort as a variable which able to partially mediating the relationship of competence to the auditors performance. However, it is unable to prove the existence of professional skepticism variable as a mediator of competence related to auditor performance. The able 4 below presents the calculation of VAF values to determine the comfort variables fully or partially mediating the auditors. Table 4 The Indirect, Direct, and Total Effects of Competence on Auditor Performance Indirect effect: Path ( KM KY KR) x Direct effect: KM - KR Total effect VAF= indirect effect/total effect 0.120/0.700 = (17%) = Partial mediation Source: results of data processing CONCLUTIONS AND RECOMMENDATIONS This research has proved that the role of auditors comfort in mediating the relationship of competence and performance of internal auditors. However, this study failed to prove the role of professional skepticism as a mediator in the relationship of competence and the auditors 34 editor@iaeme.com

9 Lismawati, Abdul Rohman, Anis Chariri performance. The success of this research in proving the role of auditors comfort in mediating in the relationship of competence and the auditors performance, indicate the important role in improving the performance auditors which has not been considered during this time. The auditors comfort may help the auditor with adequate competence in realizing the role of assurance and consultation in achieving good performance. Future research is expected to prove a factor in relationship to other mediation competencies on performance Auditors, given the auditor comfort only partially mediated. REFERENCES [1] Abbott, L. J., B. Daugherty, S. Parker, dan G. F. Peters. Internal Audit Quality and Financial Reporting Quality: The Joint Importance Of Independence And Competence. Journal of Accounting Research, 54(1), 2015, pp [2] Abbott, L. J., B. Daugherty, S. Parker, dan G. F. Peters. Internal Audit Quality In Public Sector. Journal of Accounting Research, 55 (1), 2016, pp [3] Abernathy, J., K. E. Hackenbrack, J. R. Joe, M. Pevzner, dan Y.-J. Wu. Comments of the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Staff Consultation Paper, Auditing Accounting Estimates and Fair Value Measurements: Participating Committee Members. Current Issues in Auditing, 9 (1), 2015, pp. C1-C11. [4] Bawole, J. N., and M. Ibrahim. Contesting Claims On Measuring Performance In The Public Sector Using Performance Audits: Evidence From The Literature. Public Organization Review, 16 (3), 2015, pp [5] Broberg, P. The Auditor at Work: A Study Of Auditor Practice In Big 4 Audit Firms. Doctoral Dissertation Department of Business Administration, School of Economics and Management, Lund University, [6] Burleson, B. R. Social Cognition, Empathic Motivation, and Adults' Comforting Strategies. Human Communication Research, 10(2), 1983, pp [7] Burriss, K., & Burriss, L. Competency and Comfort: Teacher Candidates' Attitudes Toward Diversity. Journal Of Research In Childhood Education, 18(3), 2003, pp [8] Coetzee, P., and D. Lubbe. Improving the Efficiency and Effectiveness of Risk Based Internal Audit Engagements. International Journal of Auditing 18 (2), 2014, pp [9] Devlin, M. Bridging Socio-Cultural Incongruity: Conceptualising The Success Of Students From Low Socio-Economic Status Backgrounds In Australian Higher Education. Studies in Higher Education, 38 (6), 2013, pp [10] Ekström, L., and D. Persson. Becoming Comfortable With Audit Quality: A Quantitative Study Of The Relationship Between Ethical Climates and Auditors Comfort. Bachelor Thesis Society Kristianstad University, [11] Farag, M. S., and R. Z. Elias. The Relationship Between Accounting Students Personality, Professional Skepticism And Anticipatory Socialization. Accounting Education, 25 (2), 2016, pp [12] Flasch, P., Taylor, D., Clauber, R. N., and Robinson III, E. Examining Students Self- Perceived Competence and Comfort in an Experiential Play Therapy Counseling Course: A Single Group Pretest-Posttest Investigation. International Journal for the Scholarship of Teaching and Learning, 11(1), 2017, pp [13] George, D., K. Theofanis, and A. Konstantinos. Factors Associated With Internal Audit Effectiveness: Evidence From Greece. Journal of Accounting and Taxation, 7 (7), 2015, pp editor@iaeme.com

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