Underreporting of chargeable time: the impact of gender and characteristics of underreporters.

While prior research has examined the dysfunctional effects of time pressure and the underreporting of chargeable hours (e.g., Rhode, 1978; Lightner et al., 1982; McDaniel, 1990; Ponemon, 1992, Akers and Eaton, 1999), the purpose of this study is to expand the literature on underreporting chargeable hours. We contribute to the existing literature in two specific ways. First, the impact of gender is examined. Prior research has not examined this issue. Second, a discriminant model, which has never been used before, is used to compare characteristics of those individuals who underreport time with those individuals who do not. Based on the responses of over two hundred practicing accountants we find significant differences between males and females in their perceptions regarding the underreporting of time. Utilizing variables from prior research, we test a model to predict the propensity to underreport time. While the model was statistically significant, it did not predict underreporting any better than chance. This finding suggests that additional research is needed in this area to identify other factors that could be important in explaining an individual's propensity to underreport time.

The first section of the paper provides a literature review and the resulting hypotheses. Specifically, research related to time pressure, gender and characteristics or factors that could lead to underreporting are examined. Next, we examined the research methodology and then present and discuss the results. Concluding comments and limitations of the study are presented in the final section.

REVIEW OF PRIOR LITERATURE

Time Pressure

Time pressure is present when the information-processing demands of a decision exceed a decision-maker's information-processing capabilities (Newell and Simon, 1972). Auditors are subjected to substantial time pressure in audit and tax engagements. Such time pressures often impact accountants' behaviors. Budgeted time on an audit/tax engagement is often influenced by the actual time spent during the previous engagement. When accountants underreport time on a current engagement, the amount of time budgeted on that same engagement in the future might not be adequate. If during the future engagement, an accountant feels pressured to perform the task in the budgeted time, he/she will do one of three things: (1) perform the necessary work and report the actual time, thus going over budget and face the consequences, (2) perform the necessary work but not report the actual time, thus underreporting again, or (3) not perform the necessary work but claim he/she did (i.e., a premature sign-aft).

There is evidence in the accounting literature that the underreporting of chargeable time is an issue that the profession has struggled with for the past twenty years. Lightner et aL (1983) found that 67% of the accountants responding to their survey admitted to underreporting time. More recent studies show that underreporting continues within public accounting firms. Kelley and Margheim (1990) surveyed staff auditors from a national firm. Their results showed an inverted-U shaped relationship between pressure and underreporting. Ponemon (1992) found that subjects participating in his experiment underreported time an average of more than 12 percent. Smith et aL (1996) found that 89% of the CPA respondents did not report all of their chargeable time while Akers and Eaton (1999) found that 71% of their respondents did not report all chargeable time.

As noted above, one of the possible dysfunctional effects of time pressure is substandard audits or tax returns/ planning. Research over the past twenty years illustrates this fact. In 1978 the Cohen Commission reported that time pressure was the most significant cause of substandard audits. Rhode's 1978 survey, commissioned by the American Institute of Certified Public Accountants' (AICPA) to examine the auditing work environment, found over one-half of AICPA members questioned admitted to prematurely signing off on audit procedures due to time pressure. Alderman and Dietrick (1982) found results consistent with the AJCPA study: 31% of audit seniors admitted to premature sign-offs. Kermis and Mahapatra (1985) conducted an experiment with seniors and managers from Big-Eight firms and found that as time pressure increased, auditors decreased their assessment of the amount of time necessary to complete the audit. McDaniel (1990) found that increasing time pressure resulted in decreased audit effectiveness but i ncreased audit efficiency. Subjects performed more work in the same interval of time but the work performed was of lesser quality. Azad (1994) surveyed internal auditors and found the respondents felt time budgets were tightening, which impacted the conduct of a proper audit. Houston (1999) used audit seniors from four of the Big-Six firms to examine the joint effects of audit fee pressure and client risk on audit planning decisions. One of his findings showed that seniors expected to work more than budgeted hours when client risk increased.

A major problem in addressing underreporting behavior is the inconsistency between formal external policies and informal internal policies. Although individual firms and the accounting profession in general prohibit the underreporting of time, research has shown that penalties are not actually exercised when such behavior occurs (Ponemon, 1992).

Gender

Thirty years ago accounting was primarily a male dominated profession. However, over the last twenty years, particularly in the last decade females have gradually increased their numbers. Approximately one-half of new professionals currently entering the accounting profession with public accounting firms are female (Doucet and Hooks, 1999). Unfortunately, these numbers do not extend to the highest levels of the profession. Doucet and Hooks (1999) report on a recent survey of accountants, which shows that while staff level accountants are approximately 50% female, the numbers at upper ranks were far less. Doucet and Hooks report that only 32% of senior managers and 19% of new partners are female. Similarly, Erugman (2000) reports that only 17% of females are partners. This evidence suggests that although initial entry has been gained, retention and advancement appears to remain a problem (Business Week, 1997; Doucet and Hooks 1999). Some firms however are attempting to address the problem. In 1992, Deloitte an d Touche established a Task Force on the Retention and Advancement of women to attempt to help identify the determinants of the gender problem. This work is having an impact. Recently, the firm was in the top ten of Fortune magazine's best companies to work for and has substantially cut turnover (Krugman, 2000). Arthur Andersen, Ernst & Young, PricewaterhouseCoopers, and KPMG have all implemented programs aimed at retaining women as well.

One potential source of bias found against women is in the area of performance evaluation. Women, in general, receive lower performance evaluations than men (Igbaria and Baroudi, 1995). Research also suggests that females receive lower performance evaluations than their actual performance dictates (Heilman, 1983; Kraiger and Ford, 1985). The results of such prior research are also applicable to the accounting profession. Picolli et al. (1988) state that women accountants may be particularly vulnerable to time-pressure stress due to the additional time demands outside of work. A recent survey by Catalyst reports that billable hours is also a significant problem facing women accountants today (Krugman, 2000). The implication from such research is that women might be more likely to underreport chargeable time since performance evaluations in the accounting profession can be influenced by one's ability to perform his/her job within budgeted time constraints.