FACTORS INFLUENCING AUDITORS ACCEPTANCE OF THE PRACTICE REVIEW SYSTEM

Authors

SaifulFaculty of Economics, Bengkulu University

Prof. Dr. Hasnah Haron, School of Management, Universiti Sains Malaysia

Associate Prof. Dr. Ishak Ismail, School of Management, Universiti Sains Malaysia

Abstract

We examined the relationship between attitudinal belief structure dimensions and behavior intention toward Practice Review System. We also tested the mediating role of attitude toward Practice Review System on that relationship. The results suggest that perceived usefulness and perceived ease of use positively influence attitude toward practice review system. The findings indicate that perceived usefulness and perceived ease of used as the critical factors exhibiting tremendous influences on auditors attitude formation. Moreover, this study also found that attitude toward practice review system strongly mediate the relationship between perceived usefulness and perceived ease of use and behavior intention toward practice review system. This implied that to influence behavioral intention to accept the Practice Review System there needs to be a change in attitude towards Perceived Usefulness and Perceived Ease of Use.

Key words: practice review system, audit quality, TPB, SEM.

INTRODUCTION

The series of very high profile and recent corporate scandals involving Enron, WorldCom,

Adelphia and Tyco had resulted in Sarbanes Oxley Act (SOA) a US law passed in 2002

aimed at strengthening corporate governance and attempt to restore investor confidence in the

US financial system. The Act also creates and regulates the Public Company Accounting

Oversight Board (PCAOB) to oversee public company audits and establishes conflict of

interest rules for securities analysis. The establishment of Sarbanes Oxley Act and Public

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Company Accounting Oversight Board (PCAOB) in US thus becomes a model for other

countries in order to set their own auditing oversight board including Malaysia.

In Malaysia, the Malaysian Institute of Accountants (MIA) which is established by

statute in 1967 is currently playing a role as accounting oversight board to create a high

degree of public confidence through the insistence on setting and maintaining a high

professional standard. MIA has, on 26th July 2002, introduced Practice Review Framework as

one of the mechanism to monitor auditors compliance with technical and ethical standard.

Subsequently MIA in July 2005 came up with a quality manual, adopting the International

Standards on Quality Control (ISQC) 1 as an approved Standard on Auditing in Malaysia.

Member firms are required to establish compliance with the quality control systems as per

ISQC 1 by 1st July 2006. Practice Review Framework is a pro-active measure to ensure all

audit firms maintain, observe and apply the relevant professional and ethical standards.

Practice Review focuses on the audit firms quality control system for its accounting

and auditing practice including documentation of the system and compliance by firm

personnel. It is a periodic external review of a firms quality control system in accounting and

auditing by members of the same profession with the goal of maintaining and improving the

quality of these services on a comprehensive basis. Hence there would be a self regulatory

framework attempting to develop members professional work standard and increases the

credibility of a true and fair audited financial statement to decision makers.

For the purpose of this study, the Practice Review Framework will be referred to as

the Practice Review System. The practice review framework consists of two components: the

first is a study and evaluation of the quality control systems of the firm under review to

ensure it is in accordance with the requirements of the Standards on Auditing, while the

second relates to the testing of the firms compliance with its quality control procedures. To

ensure that the two key components are evaluated and the objectives are met, Practice

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Review is a process where audit practice standards and procedures are assessed by member of

the same profession. Practice review is already a norm in countries like Canada, New

Zealand, United Kingdom, Hong Kong and Singapore.

The initial Acceptance of Practice Review System among auditors is the important

driving force to further influence the adoption and of the system. The success of the Practice

Review System would particularly be dependent on the acceptance of the system among the

auditors and the public must be convinced that the practice review system would ensure

accountant in public practice is carrying out professional work at the highest quality standard.

Thus this study discussed the factors influencing auditors acceptance of the Practice Review

System. By identifying the factors will assist MIA to understand the reasons why auditors are

willing or not willing to accept the Practice Review System and what are the measures

needed to increase their acceptance level to use the system. Therefore it will lead to better

planning and implementation of the Practice Review System.

Despite being a mandatory requirement set by MIA to all its members, most auditors

are unwilling to subject their firm to the practice review system. Hence understanding the

factors influencing the behavioral intention to accept the system is critical in order to ensure

the success of the practice review system. As relationships between various factors become

clearer, practitioners specifically MIA can start to implement intervention programs to better

promote and increase the acceptance and implementation of the Practice Review System.

Ultimately Practice Review System can help to improve efficiency and effectiveness in

business operations.

This study will extend the Decomposed TPB model to an accounting related decision

specifically to auditors behavioral intention towards acceptance of the Practice Review

System. Hence this study hopes to contribute to the literature on behavioral intention relating

to the accounting profession in Malaysia.

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Most research on users intentions to accept various applications usually are

conducted in environments in which usage is voluntary (Davis, 1989, 1993; Jackson, Chow,

& Leitch, 1997; Ventakesh & Davis, 2000), the question arises as to whether findings of

those studies are generalizable to mandatory systems. While previous results from prior

studies provide consistent support for relationships among perceptions, attitudes, behavioral

intention, and usage, it is unclear whether these relationships will hold when behavior is

mandatory. As most business systems are in fact mandatory, it is important to extend study of

user behavior into these environments (Rawstorne, Jayasuriya & Caputi, 2000). User

resistance to mandatory systems imposed by employers has implication whether short term or

long term implications that could be detrimental to organizational efficiency and

effectiveness. Thus, it is important to provide theory based investigations of user behavior in

mandatory system context (Bedard, Ettredge & Johnstone, 2003). Brown, Massey, Montoya-

Weiss and Burkman (2002) note that while results from prior studies provide consistent

support for relationships among perceptions, attitudes, behavioral intention and usage, it is

unclear whether these relationships will hold when behavior is mandatory, hence it is

important to extend study of acceptance behavior into mandatory setting

The objectives of this study are: (1) to determine whether auditors perception

measured by Perceived Usefulness, Perceived Ease of Use, Professional Commitment and

Rule Observant Behavior will influence their behavior intention to accept the Practice

Review System and (2) to determine whether Attitude towards the practice review system

will mediate the relationship between auditor perception and behavior intention to accept the

Practice Review System.

Remainder of this paper is organized as follows: first next section is literature review

which discus on audit quality, practice review, Decomposed Theory of Planned Behavior,

behavior intention, attitude, perceived usefulness, perceived ease of use, professional

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commitment, rule observance behavior, and theoretical framework. Second next section of

this paper will discus development of hypothesis of the impact of perceived usefulness,

perceived ease of use, professional commitment, and rule observance behavior on attitude as

well as the mediating effect of attitude. And Followed by research methodology section

including population, sample, data collection techniques, variables and measurement. Then

this paper highlighted data analysis and result and then followed by discussion and

conclusion section. Lastly this paper demonstrates the implication of this study.

LITERATURE REVIEW

Audit Quality

DeAngelo (1981) defines audit quality as the joint probability that a given auditor will both

discover a breach in the accounting system and report the breach. Quality of services

provided by audit firms is a very important issue when many signal of dissatisfaction on the

services arise (Sutton, 1993). It is generally associated that high quality audit translates in

high earnings quality (Teoh & Wong, 1993). Kane and Velury (2001) found in their study

that audit firms may increase their attractiveness to institutional investors when they provide

high quality audit services.

The marketing for auditing services, and perceptions of how audit quality might best

be obtained, are rapidly changing in the wake of recent events such as the collapse of Enron,

World Com and so forth. Hence the ongoing public scrutiny of the professions behavior and

the quality of its product (Chow, Kramer & Wallace, 1988) and the intensifying dialogue

around the concept of an expectation gap and its impact on the value of auditors services

(Chow, Kramer & Wallace, 1988) had implied that audit quality is a pertinent issue.

High quality audited information would enhance investors confidence and ensure

efficiency and effectiveness of the overall economy. Therefore effective monitoring or

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oversight of the auditing profession is critical to ensure that the highest quality of audited

financial statements is maintained and simultaneously building trust and reliance on the

financial statements. Strong oversight helps to strengthen audit practice and to detect and

deter any weaknesses that could detract from an accountants ability to fulfill the goal of

having financial statements audited by competent, independent auditors. Further, when

oversight is compromised, the quality of financial information can be affected and investors

trust in quality of financial information will be affected. . As part of the effort of ensuring

effective oversight of the accounting profession, MIA has, on 26th July 2002, approved the

implementation of the Practice Review System.

Practice Review System

Practice Review System attempts to assure quality audit performance and to reduce or

eliminate substandard performance. It requires member firms to understand what is necessary

for quality practice, establish appropriate policies and procedures for quality performance as

per the standards set by the MIA such as the ISQC, subject their compliance to an

independent quality review and take remedial or corrective actions as needed. The practice

review framework consists of two components: (1) the first is a study and evaluation of the

quality control systems of the firm under review to ensure it is in accordance with the

requirements of the Standards on Auditing, while the (2) second relates to the testing of the

firms compliance with its quality control procedures.

Practice Review System is intended to provide educational and supportive and assist

practitioners to maintain and improve their professional standards. The implementation of

Practice Review System will create awareness among practicing members to the need to

maintain such a level of professional standard and ensuring the highest standard of audit

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quality in their work regardless of whether they are practicing as sole practitioners or as

partners of large firms.

The practice review system is mandatory to all MIA members, however the

acceptance rate of Practice Review System is still very low and the implementation is still in

the early stage despite being included as a monitoring mechanism for the auditing profession

in the MIA by law issued in 2002.

The advantages of practice review in the Malaysian accounting context can be

summarized as follows

a. To inspire a greater confidence in the Profession by the Malaysia Community.

b. The need for Self regulation. In the past, MIA has been instrumental in the

setting, developing and implementation of various accounting and auditing

standards and guidelines. However the adherence to such standards and

guideline are rarely subject to monitoring by MIA. Therefore there is a need for

self regulation within the profession.

c. Obligation for Continuous Improvements of Professional Standards. The

accounting profession has an obligation to continue to improve its standards on

professional work. The Practice Review System is aimed at helping members to

raise their professional work standards. It is aimed at improving internal quality

control system of audit firms that will enable the firm to develop and refine the

technical skills of their employees. Hence, enabling the firm to deliver high

quality professional services and products to their clients.

Some of the key challengers which may have resulted in concerns among auditors are

mentioned below (Yong, 1999).

a. Confidentiality. As Practice Review requires the reviewer to have access and

view another accounting firms procedures and working documents, such as

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specific files and work done on a particular client, care must be given to ensure

the confidentiality of the firm reviewed is safeguarded. The audit firms being

reviewed also challenges whether MIA has the right to access the documents as

according to them, the documents of their audit clients are confidential and the

audit firms are bound by duty of confidentiality to their clients under the

Accountant Act 1975. Hence by providing access to MIA the duty is breached.

Under the MIA by Law, MIA is given the right to perform the practice review

audit to ascertain whether quality audit was performed. Due to this conflict,

audit firms are posing a question as to whether the Accountant Acts 1975 is

more superior than the MIA by Law.

b. Objectivity. The reviewer for a Practice review should also be seen and act

objectively when conducting the Practice Review. Also as part of the

improvement objective or practice review process, firms are required to take

corrective actions to overcome their weaknesses after a practice review is

conducted. If firms fail to take the appropriate corrective action then various

sanctions can be imposed. As such, the chosen reviewer must be objective in

the assessment and should provide constructive feedback without any bias or

malicious intention.

c. Practice Review Risk. In addition, there may be the Practice Review Risk

whereby the Practice Review team may fail to identify significant weaknesses in

the reviewed firms system of quality control or compliance with it, or issuing

an inappropriate opinion on the reviewed firms system of quality control for its

accounting and auditing practice and/or compliance with that system. Therefore,

steps should be taken to reduce or mitigate this risk to an acceptable level.

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d. Professional Fees. The professional charges for the practice review audit may

range from RM3000 to RM5000 per review conducted. This is expensive

especially to small audit firms.

The objective of the Practice Review System is to ensure that all members in the

public practice maintain, observe and apply the relevant professional standards. Primarily the

Practice Review System is intended to be educational and assist member in public practice

improve their professional standards and audit quality where necessary. Essentially through a

review of current engagement files, the Practice Review System will identify the areas where

a member firm may require assistance in improving or maintaining professional standards

and audit quality.

As in the ISQC, the member firms system of quality control should include policies

and procedures, appropriately documented and communicated to the firms personnel,

addressing each of the six key elements.

a. Leadership responsibilities within the firm

b. Ethical requirements

c. Acceptance and commitment of clients relationships and specific engagements

d. Human resources

e. Engagement performance an engagement quality control review

f. Monitoring

As part of the quality control system designed to provide member firms in public

practice with reasonable assurance that the firm and its personnel comply with professional

standards, regulatory and legal requirements and that auditors reports issued by the firm are

appropriate in circumstances.

Decomposed Theory of Planned Behavior

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This study adopted the Decomposed TPB as the model used to study the factors influencing

auditors acceptance of the Practice Review System. Attitudinal belief structure is

decomposed based on the assumption that the belief structure may reflect a variety of

underlying dimensions that obscure it relationship to attitude (Taylor & Todd, 1995). Based

on previous literature, the study has examined four attitudinal belief dimensions, (1)

Perceived Usefulness (PU), (2) Perceived Ease of Use (PEOU), (3) Rule Observance

Behavior, and (4) Professional Commitment.

Behavioral Intention

Acceptance of the Practice Review System is defined as an individuals psychological state

with regard to his or her intended use of the system (Hung, Chang & Yu, 2006).

Collectively, findings from most prior research suggest than an individuals intention to use

an information system can sufficiently approximately or measure his or her actual use.

Behavioral Intention has been shown to explain or predict an individuals performing

a conscious act such as deciding to accept (or use) an information system (Sheppard,

Hartwick & Warshaw, 1988; Venkatesh & Davis, 2000).

Attitude

Azjen (1988) defined attitude as an individuals positive or negative feelings (evaluative

affect) about performing the target behavior. Attitude can be conceptualized in terms of

values whereby individual develops particular values about behaviors. Fishbein and Ajzen

(1975) noted that individual attitudes towards behavior are based on estimates of the

likelihood and desirability of the various possible consequences of that behavior. It is related

to behavioral intention because people form intentions to perform behaviors towards which

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they have positive feeling. Favorable attitude towards the practice review system is expected

to positively influence auditors acceptance of the practice review system.

Perceived Usefulness (PU)

Davis (1989) defines PU as the degree to which a person believes that using a particular

system would enhance his or her job performance. This is an important belief identified as

providing insight into how user attitude towards acceptance and intention to accept are

influenced. A significant body of prior research has shown that perceived usefulness had a

positive effect on behavioral intention to use and it is suggested that the most critical belief

underlying an individuals attitude towards the behavioral intention to accept is the perceived

usefulness of the system (Venkatesh, 1999, 2000; Venkatesh & Davis, 2000; Venkatesh &

Morris, 2000). Perceived usefulness refers job related productivity, performance and

effectiveness (Davis, 1989). A significant body of studies has shown that perceived

usefulness and perceived ease of use are determinants of usage (e.g., Igbaria, Zinatelli, Cragg

& Cavaye, 1997; Szajna, 1994). Hence the study included perceived usefulness and perceived

ease of use.

Perceived Ease of Use (PEOU)

Perceived Ease of Use (PEOU) refers to the degree to which a person believes that using a

particular system would be free of effort (Davis 1989, p.320). Davis et al., (1989) identified

PEOU as an important factor of system usage. Effort is a finite resource that a person may

allocate to the various activities for which he or she is responsible. All being equal, an

application perceived to be easier to use than another is more likely to be accepted by users.

PEOU is found to be less consistent in its relationship to attitude (Vijayasarathy, 2004).

However PEOU may be relevant to this study hence the variable is retained for this study.

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Professional Commitment (PC)

Professional commitment entails the (1) belief and acceptance of the goals and values of the

profession, (2) a willingness to exert effort on its behalf, and (3) a desire to maintain

membership into the profession (Aranya, Pollock & Amemic,. 1981; Aranya & Ferris, 1984).

Professional committed accountants would be more responsive in making efforts to advance

the professionals values as well as to improve their own job performance (Larson, 1977).

The accounting profession is subject to a code of professional conduct. Jeffrey and

Weatherholt (1996) discussed that many of the values of the accounting profession are

included in this code, and socialization into the profession and the development of

professional commitment should include acceptance of the Practice Review System espoused

by the code.

Rule Observance Behavior (ROB)

The accounting professions emphasis on techniques or tools or systems has been a variable

that may be related to the ethical behavior of accountant. Trevino (1986) discussed a model

of ethical decision making wherein situational and individual moderators interact with an

individuals cognitions to determine ethical or unethical behavior. One situational moderator

included in the framework is obedience to authority. Thus it there is a connection between

the tendency to follow rules as a factor influencing attitude formation behavior and have an

influence in auditors intention to accept the practice review system.

Theoretical Framework

The aim of this study is to examine factors that influence acceptance of the Practice Review

System. Based on the discussion above and review from past literature, a theoretical

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framework of the present study is presented in Figure 1 The framework is DTPB which is

build based upon TPB and TAM and is expanded to include constructs and relations that

might be important in the context of acceptance of the practice review system.

Based on considerable empirical support, actual acceptance is determined by their

behavioral intention to accept the system. Behavioral intention to accept the practice review

system is then jointly determined by three conceptually distinct constructs based on the

Theory of Planned Behavior: attitude toward the acceptance of the system, subjective norm

which reflects the perceptions of social pressures affecting acceptance of the system, and

perceived behavioral control which may reflect the beliefs regarding their control over the

factors may facilitate or impede acceptance of the system. Hence, attitudinal belief structure

is decomposed in to 4 dimensions; (1) Perceived Usefulness (PU), (2) Perceived Ease of Use

(PEOU), (3) rule observance behavior (ROB) and (4) professional commitment (PC).

Insert figure 1 here

DEVELOPMENT OF HYPOTHESES

Perceived Usefulness (PU) and Attitude

There is extensive research that provides evidence of the significant effect of perceived

usefulness on acceptance intention (Agarwal & Prasad, 1999; Davis et al., 1989; Hu Chau,

Sheng & Tam, 1999, Ventakesh, 1999, 2000). Hence the formation of positive attitude among

auditors towards acceptance of the system increases with perceived usefulness of the Practice

Review System. Therefore it is hypothesized that:

H1: Perceived Usefulness (PU) of the Practice Review System will positively affect

attitude towards the system.

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Perceived Ease of Use (PEOU) and Attitude

Perceived Ease of Use (PEOU) was proposed by Davis (1989) to be an important factors

influencing system acceptance. Han (2003) found that 18 studies that have found PEOU to be

significantly related to behavioral intention. Compared to PU, PEOU is the second most

important factors of a users behavioral intention towards a system. Hence the formation of

positive attitude among auditors towards acceptance of the system increases with PEOU of

the system. Hence it is hypothesized that:

H2: Perceived Ease of Use (PEOU) of the Practice Review System will positively affect

attitude towards the Practice Review System.

Professional Commitment (ProfComm) and Attitude

Professional independence is a basic value of profession (Larson 1977). Hence those auditors

that are professionally committed would be less acceptable to situations or occurrences in

which accounting principles are used in ways which are different from those implied by the

professional standards. Such individuals would consider it essential to work within the

framework set by the profession and more responsive to values and standards governing the

accounting profession. Therefore it is hypothesized that professional commitment would

positively affect auditors attitude towards Practice Review System.

H3: Professional Commitment will positively affect attitude towards Practice Review

System

Rule Observance Behavior (ROB) and Attitude

Lampe and Finn (1992) concluded that the ethical development of auditors reflects an

orientation to internalized compliance with GAAP, GAAS, code of ethics and other rules of

social order. Arlow and Ulrich (1980) posited that accountants are trained in hard and fast

rule and obedience to authority (Gaa, 1992) hence it make good sense to test whether Rule

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Observant Behavior will positively affect auditors attitude to accept the Practice Review

System. Therefore it is hypothesized that:

H4: Rule Observance Behavior will positive affect attitude to accept the Practice Review

System

Attitude as a Mediator

Attitude may be considered as mediator to the extent to which it carries the influence of

independent variables to intention. Cheng, Lam and Hsu (2004) found that attitude serves as

mediating variables in various relationships between past behavior and customer

dissatisfaction. Ndubisi (2004) adopted the Decomposed TPB in a study examining the

factors influencing intention to adopt e learning in Malaysian education system. He found

that attitude serve as a mediating variables in various relationships between factors and

adoption intention.

H5: Attitude mediates the relationship of Perceived Usefulness, Perceived Ease of Use,

Professional Commitment and Rule Observant Behavior to behavioral intention

H6: Attitude will mediate the relationship of Perceived Usefulness to behavioral

intention

H7: Attitude will mediate the relationship of Perceived Ease of Use to behavioral

intention

H8: Attitude will mediate the relationship of Professional Commitment to behavioral

intention

H9: Attitude will mediate the relationship of Rule Observant Behavior to behavioral

intention

METHODOLOGY

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Population

As the practice review is implemented among audit companies or applied to firms offering

audit services hence the population of this study consists of auditors in Malaysia who are

working for audit companies that are registered in the 2005 MIA directory list. Hence the unit

of analysis of this study was individual auditors working specifically in companies offering

audit services.

Sampling Method

The sampling technique used is systematic random sampling from the MIA member list. MIA

member list was chosen as the sampling frame as audit firms are required to register with

MIA hence the sample size will be an adequate representation of the sample population.

There are 1335 member companies registered as audit firms in the 2005 MIA membership

directory list. The researcher aims at sending out 1000 mailed questionnaire, thus every third

company on the list is removed. By doing so will enable the researcher to identify 1000

companies as sampling units.

Sample size was determined using a general rule that is the minimum number of

respondents is to be at least five times of the total number of variables to be analyzed, and the

more acceptable size would be a ten-to-one ratio (Hair, Anderson, Tatham and Black, 2006).

Hence the sampling technique and sampling size in this study was selected as it was the most

viable alternative considering the constraint of time, speed, cost and conveniences in order to

obtain enough respondents

Data Collection Techniques

Data was collected through the self administrated questionnaire survey. Questionnaires were

placed in an envelope, with a cover letter explaining the objective of the research. A stamped

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self-addressed envelope, a support letter from MIA and a set of questionnaire were also

included in the envelope. All respondents were guaranteed confidentiality of individual

responses.

Variables and Measurements

The independent variable of this study, attitudinal belief structure is decomposed into 4

dimensions; (1) Perceived Usefulness (PU), (2) Perceived Ease of Use (PEOU), (3) Rule

Observance Behavior and (5) Professional Commitment. To measure the decomposed

dimensions of attitudinal belief structure various instruments was adapted from published

literature. The survey measurement scale (except demographic profile) utilizes a 7-point

Likert ranging from (1) Strongly Disagree to (7) Strongly Agree was used.

The dependent variable of this study is behavioral intention. Table 1 depicts the layout

of the questions in the questionnaire that was used in this study.

Insert table 1 here

DATA ANALYSIS AND RESULTS

Response Rate

A total of 1000 questionnaires were distributed to auditors who are working in audit firms

that are registered with MIA. Out of the 1000 questionnaires sent out, 130 were returned. Of

the 130 questionnaires received, 23 were found to be incomplete or spoilt thus were

discarded. Therefore only 107 questionnaires were used in the analysis representing a

response rate of 10.7%. Although some of the answers in the returned questionnaires were

missed out, they were treated as missing data and excluded from processing on that particular

section, the whole questionnaire was still treated as valid sample. Hence the number of

respondent met the criteria of minimum number of respondents is to be at least five times of

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the total number of variables to be analyzed, and the more acceptable size would be a ten-to-

one ratio (Hair, Anderson, Tatham and Black, 2006).

Profile of Respondents

Majority of respondents (57.4%) were of the middle age (aged between 35 years and above)

and have professional qualifications (82.9%). There were 80.3% males and 19.7% females

who have participated in the study. Majority of respondents (73.2%) were partners of audit

firms.

It can be seen that most (82.1%) of the respondent are working in small sized firms

which is defined as having a workforce with less than 25 professional followed by 16.3%

working in medium sized firms which is defined as having a workforce with 25 but less than

50 professionals. 55.3% are working in audit firms than have a major client based in the

trading industry. 63.6% of the respondents are working in firms. 63.6% of the respondents are

working in firms that have about 300 or less number of clients.

Reliability Analysis

Reliability analysis were conducted to measure the internal validity and consistency of the

items used for each variable in the survey instrument. Hair et al., (2006) suggested that

Cronbach alpha of more than .70 indicate the items are homogeneous and measuring the

same construct. From Table 2, it can be observed that the instruments were reliable since the

coefficients for each study variable exceeded the minimum acceptance level of .60 (Sekaran,

2000). Hence as the internal consistency reliability coefficients for the research construct are

all above 0.70 level, the reliability of the research constructs is supported.

Insert table 2 here

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Descriptive Statistics

The mean and standard deviation for each study variable is depicted in Table 3. It can be

observed that the overall mean values for all the variables on a scale of 1 to 7 ranging from

3.96 to 5.39 and standard deviation ranges from 0.81 to 1.72. Mean scores for most variables

measures were close to midpoint, suggesting that the respondents were fairly neutral on these

items. The respondents indicated slightly more positive on Professional Commitment and

Rule Observant Behavior. Perceived Financial Cost is also an important criteria based on the

higher mean score.

Insert table 3 here

HYPOTHESES TESTING

Data Analysis Method

Since the independent variables of this study consist of multi-dimension, the examination

oriented model of structural equation modeling (SEM) will be more appropriate approach for

testing of hypothesis of this study. SEM is comprised a structural model and a measurement

model, where the structural model is used to specify the linear relationship between latent

independent variables and latent dependent variables, and the measurement model is used to

specify the relationship between dependent and independent variables (Hsu,2007).

Direct Effect of attitudinal belief structure and attitude

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It was hypothesized that four attitudinal belief structure factors have direct effect on attitude.

Those Hypotheses were tested by using statistical program AMOS 4 for windows. Figure 2

and table 4 show the result of hypothesis testing.

The table shows that Perceived Usefulness (PU) of the Practice Review System will

positively affect attitude towards the system. The path coefficient on PU as against attitude

toward system is 0.48 and it relationship statistically significant at 1% level. The direct effect

perceived ease of use (PEOU) on attitude toward system is 0.45 with 1% significant level.

Rule Observance Behavior (ROB) positively has direct effect to attitude to accept the

Practice Review System, which the path coefficient is 0.19 but statistically it effect is not

significant. Meanwhile, Professional Commitment (PC) negatively has direct effect to

attitude towards Practice Review System, which the path coefficient is -0.08, but statistically

is not significant. Based on path coefficient of influence of each dimension of attitudinal

belief structure on attitude toward practice review system, we can conclude that the influence

of perceived usefulness and perceived ease of use on attitude toward practice review system

is higher than that of rule observance behavior and professional commitment.

Insert figure 2 here

The relationship between attitudinal belief structure and behavioral intention and the role of attitude as a mediator variable

Figure 1 and table 4 also show the hypothesis testing for mediating effect of attitude on the

relationship between attitudinal belief structure and behavior intention. Based on figure 1

and table 4, the result indicates that the path coefficient of indirect effect of Perceived

Usefulness (PU) to behavioral intention is 0.42. The path coefficient indirect effect of

Perceived Ease of Use (PROU) to behavioral intention (BI) is 0.39. The path coefficient

indirect effect of Professional Commitment (PC) to behavioral intention (BI) is 0.16.

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Meanwhile, the path coefficient indirect effect of Rule Observant Behavior to behavioral

intention (BI) is -0.07. Furthermore, table 4 shows that attitude strongly mediate the

relationship between perceived usefulness and perceived ease to use and behavior intention

toward practice review system. Whereas, attitude has a weak mediating role on the

relationship between rules observant behavior and professional commitment and behavior

intention toward practice review system.

The results suggest that attitude fully mediates the relationship between the Perceived

Usefulness and perceived ease to use and behavioral intention to accept the Practice review

System. Hence there is an indirect relationship via (attitude) between Perceived Usefulness,

Rule Observant Behavior and behavioral intention to accept the System. This implied that to

influence behavioral intention to accept the Practice Review System there needs to be a

change in attitude towards Perceived Usefulness and Rule Observant Behavior.

Insert table 4 here

Goodness of fit of Structural Equation Model (SEM)

In order to determine whether models goodness of fit, this study used 2/d.f, RMR, GFI,

AGFI, PGFI, PNI, and AIC. Table 5 shows 2/d.f =2.37 which was less than 3 (p>0.05), GFI

= 0.58 and AGFI = 0.53 which not far from 0.90, PGFI =0.52 and PNFI =0.58 both which

were higher than 0.5, AIC = 1817.90 which higher than standardized value of 156. based

those goodness of fit measurement, this study conclude that the structural model is strong

goodness of fit.

Insert table 4 here

DISCUSSION AND CONCLUSIONS

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This study adopted the Decomposed Theory of Planned Behavior to determine the

relationship between attitudinal belief structure dimensions and behavior intention toward

Practice Review System. The results suggest that perceived usefulness and perceived ease of

use positively influence attitude toward practice review system.

The findings indicate that perceived usefulness and perceived ease of used as the

critical factors exhibiting tremendous influences on auditors attitude formation. Hence with

reference to the study, auditors acceptance of the Practice Review System occurs when the

system demonstrated proven or desired outcome in their practices. This is consistent with

previous research hence reinforced that perceived usefulness is a key factor influencing

system acceptance or usage.

The accounting profession in Malaysia is subject to a code of professional conduct.

Arlow and Ulrich (1980) posited that the accounting profession is trained in hard and fast

rules and association with emphasis on techniques and tools. Hence rule observance

behavior is an important component of an auditors training and socialization into the

accounting profession which include acceptance of system or guidelines espoused by the

code. Therefore the finding from the study is consistent with the behaviors associated with

the accounting profession.

Moreover, this study also found that attitude toward practice review system strongly

mediate the relationship between perceived usefulness and perceived ease of use and

behavior intention toward practice review system. This implied that to influence behavioral

intention to accept the Practice Review System there needs to be a change in attitude towards

Perceived Usefulness and Perceived Ease of Use.

IMPLICATIONS OF FINDINGS

22

The academic value of this study is could be explained as; Firstly, it was shown that

the decomposed TPB can be used to explain the intention to accept the practice review

system. Secondly, the sample group were real auditors hence the validity of the findings is

not limited. Thirdly, the high explanatory power suggests that the model can be adopted for

mandatory setting hence contributed towards behavioral intention research in a mandatory

setting.

For practitioners specifically Malaysia Institute of Accounting (MIA), important

factors influencing auditors acceptance of the practice review are perceived usefulness and

rule observant behavior.

Firstly to increase positive attitude towards Practice Review System, MIA should

develop implementation strategies that emphasize the usefulness of the system by providing

tangible benefits of the system to the auditing profession. Furthermore the benefit must

outweigh the cost and the various stakeholders should be convinced that practice review will

raise audit quality to an acceptable level. Hence possible solutions include tailoring practice

review system to the size of firm and requesting lower insurance premiums for firms that

participate.

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Appendices

Figure 1: Theoretical Framework

Table 1Layout of Questionnaire

Layout Number items AdaptedAttitude (AT) 4 items Battacherjee (2000)Perceived Usefulness (PU) 5 items Davis, 1989Perceived Ease of Use (PEOU) 7 items Davis, 1989Rule Observant Behaviour (ROB) 5 items Jeffrey and Wetherholt, 1996Professional Commitment (PC) 15 items Jeffrey and Wetherholt, 1996Behavioral Intention 3 items Battacherjee (2000)

Table 2Reliability coefficients of the study variablesType of Variables N Number of items Cronbach Alpha

ValueAttitude (AT) 107 4 items 0.9595Perceived Usefulness (PU) 107 5 items 0.9504Perceived Ease of Use (PEOU) 107 2 items 0.8984Rule Observation Behaviour (ROB) 107 4 items 0.8269Professional Commitment (PC) 107 15 items 0.8715Behavior Intention (BI) 107 3 items 0.9171

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Perceived Usefulness

Perceived Ease of Use

Rule Observant Behavior

ProfessionalCommitment

Behavioral IntentionAttitude

Table 3Overall descriptive statistics of the study variablesType of Variables N Mean Standard DeviationAttitude (AT) 107 4.49 1.49Perceived Usefulness (PU) 107 4.19 1.72Perceived Ease of Use (PEOU) 107 4.67 1.61Rule Observation Behaviour (ROB) 107 5.39 0.90Professional Commitment(PC) 107 5.25 1.08Behavior Intention (BI) 107 4.40 1.53

Figure 2: The result of test of the relationship between attitudinal belief structure, attitude, and behavior intention

*** indicate statistically significant 1% level

Table 4The result of test of the relationship between attitudinal belief structure and behavior intention and the role of attitude as a mediator variableEndogenous variables

Direct Effect Indirect Effect Total Effect

PU PEOU ROB PC PU PEOU ROB PC ATAT 0.48 0.45 0.19 -0.08BI 0.03 0.04 -0.11 -0.01 0.42 0.39 0.16 -0.07 0.87

PU

PEOU

ROB

PC

AT BI

0.03

0.48***0.04

0.45****

0.190.87***

-0.11

-0.08

-0.01

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Table 5The summary of goodness-of-fit of the structural equation modelModel Goodness of fit

Index of Absolute Fit Measure

Index of Incremental Fit

Measure

Index of Simple Fit Measure

Index of Measurement

2 2/d.f RMR GFI AGFI NFI PGFI PNFI AIC1643.90 2.37 0.60 0.58 0.53 0.62 0.52 0.58 1817.90

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