Introduction

Auditing is an essential process for companies to undergo as it ensures the legitimacy,

honesty, and transparency of its operations. Research suggests that through having external
parties compose audits, companies are encouraged to exhibit more accountability and
diligence, as well as increasing stakeholders’ confidence in governance quality
(Archambeault et al., 2008). For these reasons, auditing is a widely researched area of great
significance in the accounting industry, as it provides the foundations of honest accounting
and representation, having auditors enforce accuracy, legitimacy, and honesty in businesses.
Due to the high volume of individuals that rely on the outcomes of audits, audit quality has
become a focus with an increasing number of studies and research being conducted on audits
to verify ‘audit quality’ (Qatamin & Salleh, 2020). Audit quality doesn’t have a single
definition, and can refer to several things, but it generally regards the ability of an auditor to
obtain reasonable evidence to conduct the audit, as well as recognising when there has been
material misstatement in financial statements and explaining through the report when
material deficiencies have been detected (Australian Securities & Investments Commission,
2017). Many measures have been implemented and remained in place historically to ensure
audit quality and accuracy, one of which is conducting auditing on-site with an in-person
physical evidence collection to ensure that accurate and complete data has been retrieved
(Appelbaum et al., 2020). With the onset of Covid-19 however, it has become increasingly
difficult to utilise traditional auditing processes, and in their place new virtual auditing
processes are becoming more apparent. This is evident as traditional manual auditors have
been heavily restricted from conducting their manual audits due to lockdowns and social
distancing requirements, and thus they have been forced to digitise their entire profession as
audits are still required even through such societal shifts (Bambang & Ang Swat, 2022). Due
to the lack of physical presence and evidence, many questions are raised concerning the
quality and accuracy of output when such drastic changes have occurred throughout the
profession (Eulerich et al., 2022). Considering this situation, the aim of this report is to
evaluate remote auditing processes, and to answer a significant question;
What is the effect of remote auditing on audit quality?
As the pressures of Covid-19 continue to mount, this question is becoming exceedingly
significant, as the entire audit process which relies on collecting physical evidence such as
assessment of property plant and equipment, collecting documentation such as receipts, and
observing and verifying levels of inventory, is overturned (Appelbaum et al., 2020). This
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proposal will add to existing literature by conducting research to source evidence around
remote auditing quality as discussed later, but also by addressing significant gaps in the
current research pool such as the effects that auditees can have on the quality of a remote
audit. The practical implication of this research is that it will allow auditors to have a greater
understanding of measures that must be put in place going forward to increase remote audit
quality, and decrease fraudulent behaviour from both auditees and auditors.

Research Hypothesis and Proposition

Social interaction and presence in any professional environment can have a positive impact
on the effectiveness of workers (Deepa et al., 2022), including that of auditors. This is
supported by social presence theory, which considers the implications of the perceived sense
of being with another on one’s actions, in any form of personal or professional relationship
(Oh et al., 2018). Social presence theory (STP) considers the degree of salience of another
person, or the degree to which another person is perceived as a ‘real person’ in any
communication medium (Short et al., 1976). It suggests that peoples’ actions and
communication in any professional or personal relationship are dictated by two things;
intimacy and immediacy (Harsma et al., 2021). Intimacy in communication is influenced by
things such as eye contact, physical distance, and affiliation (Argyle et al., 1965), and
immediacy is regarding the psychological distance when communicating that one puts
between themselves and the object of their communication (Cobb, 2009). Subsequently,
social presence theory dictates that throughout the process of remote auditing, the lack of
immediacy between an auditor and the auditee can provide more opportunities for fraud due
to the reduced social interactions, as well as making it more difficult for the auditor to
understand the organisation’s culture. Social presence theory determines that there are two
main factors that impact remote audit quality, namely the auditor’s perception of the level of
social presence (high or low), and their perceived level of accountability. Studies indicate that
auditors who perceive a greater degree of social presence have a higher level of professional
scepticism (Sorensen & Ortegren, 2021). This is apparent as evidence dictates that as the
physical distance between auditors and auditees increases, as seen throughout the Covid-19
pandemic, the level of professional scepticism of auditors decreases, and thus the level of
audit quality and assurance decreases (Satya & Shauki, 2022). This lack of professional
scepticism is of significance as auditors must apply sufficient scepticism when reviewing
accounting treatments and assessing the validity of audit evidence when conducting an audit,
as this level of professional scepticism plays a critical role in conducting quality audits
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(Australian Securities & Investments Commission, 2017). Consequently, one of the most
instrumental effects on remote audit quality as determined by SPT is an auditor’s reduced
ability to exercise professional scepticism due to their physical absence (Satya & Shauki,
2022). Therefore, the hypothesis in this proposal is as follows:

H: Remote auditing will have a negative effect on auditors’ performances, decreasing the
quality of their work output and efficiency and more generally, the overall audit quality.

Literature Review
Due to its increased prevalence throughout the Covid-19 pandemic, many researchers have
conducted studies on the effects of remote auditing, including Caucasus International
University who surveyed 102 small-medium accounting firms in Georgia to evaluate the
effects Covid-19 had on their businesses. Their study predominantly focussed on how
auditing firms were affected in terms of revenue and other factors, as well as reporting that
88.1% of firms didn’t implement any change in policies throughout the Covid-19 pandemic,
even though it changed their business model (McHedlishvili et al., 2021). Specifically due to
the rapid transformation of auditing procedures due to the Covid-19 pandemic, it is critical
that through the transition to remote auditing, policies and frameworks are created to ensure
that the integrity of auditors and the quality of audits remains the same (Farcane et al., 2021).
In light of this, with the knowledge that 88.1% of firms did not make changes to their policies
or procedures, the researchers should have discussed the implications of the decisions of
these firms not to implement changes to ensure the quality of the audits remain the same.
According to social presence theory auditors may not produce the same quality audit when
not in physical proximity to the auditee, and their decision-making abilities may be impaired
which can result in low quality audits. For this reason, the research conducted through this
report will address the importance of increasing auditing policies and procedures specifically
throughout remote auditing practices, as well as specifically targeting the gap of information
surrounding what policy changes need to be made that would increase the quality of remote
audits given the increased risk of fraud or corruption from either party due to increased
perception of distance between parties as supported by social presence theory.

Likewise, a researcher from the University of South Carolina conducted a study around social
presence theory and whether an increased distance between auditors and supervisors could
result in reduced audit quality behaviour. She found through presenting hypothetical
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situations to 156 auditors and recording their responses, that auditors working remotely are
much more likely to engage in such fraudulent or dishonest behaviour than those who are
working in a close proximity to their supervisor (Thompson, 2022). Although this research
was well conducted and evidence was gathered from a wide range of sources, the author
should have also considered what role auditees have in producing inaccurate, low-quality
audits. The researcher discussed the likelihood of auditors to take shortcuts and engage in
unethical and dishonest behaviour due to the lack of supervision and proximity to their co-
workers and clients, however the paper completely omitted the consideration of the
opportunity for auditees to engage in fraudulent behaviour such as providing falsified,
fabricated evidence, especially since there is no physical presence as outlined in social
presence theory. Therefore, this report will also research the gap in this area, by focussing not
only on auditors’ actions in creating misleading audit reports, but also on the ability and
likelihood of auditees to engage in corruption by providing misleading or false evidence.

Similarly, Chinese researchers have conducted a study which outlines practices that Chinese
auditing firms have undertaken which both positively and negatively affect the quality of
remote audits. They found through using surveys and archival data that although there have
been positive outcomes such as reduced costs and time spent on audits, the audit quality of
remote auditors is comparatively lower to the audit quality of onsite auditors (Jin et al.,
2022). This study was effective in showing a wholistic view of the remote auditing process,
outlining both the positives and the negatives, however it also fails to detail what effects the
change has on the accuracy of the data presented by auditees. The researchers have largely
assumed that the change in quality is ultimately due to the auditors’ actions, however this
study has also failed to acknowledge how the shift to remote auditing has allowed more room
for misconduct of the auditees in what evidence they provide throughout the audit. For this
reason, the research conducted throughout this study will aim to investigate the effects that
auditees have on audit quality throughout remote auditing, due to its prevalence with the
increased distance between parties as supported through social presence theory.

Therefore, as most existing research has focussed on unethical behaviour of auditors due to
the increased physical distance and perceived lack of immediacy as explained through social
presence theory, without addressing any unethical behaviour auditees engage in, research will
be conducted throughout this study to analyse the increased opportunity and likelihood for
both auditees and auditors to engage in corruption.
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Research Design
This study will use qualitative measures to evaluate the effect of remote auditing on auditing
quality as well as detailing what impacts not only the auditor has on affecting the quality, but
also how auditees affect the audit quality, such as providing fabricated or falsified evidence.
Such research is crucial given the extent to which such information is lacking in current
research. The study will be designed in a way that incorporates surveying auditors as well as
auditees.
Surveys will be designed to be completed in under 5 minutes so people are more likely to
engage. Submissions will also be anonymous, as research suggests that anonymous surveys
promote greater and more honest disclosure (Murdoch et al., 2014). Two versions of
anonymous surveys will be provided to the firms participating, one for the auditors and one
for auditees. The surveys provided to the auditors will help examine the overall audit quality
of remote audits, as the responses will provide details regarding how reasonable assurance is
obtained and how material misstatement is actively avoided (Australian Securities and
Investments Commission, 2017). The surveys provided to audit clients will address the other
gap in information, being how auditees can engage in behaviour that leads to lower quality
audits.
Each survey provided to the auditors will request information on what regulations are in place
to ensure audit quality is maintained throughout remote audits; including the scope of
evidence required to complete the audit, what substantiation is required, what measures are in
place to ensure the validity of data provided, and how much time gets spent on each audit.
The survey will request such information regarding both on-site and remote auditing so
comparisons can be made between on-site audit quality and remote audit quality.
The auditee surveys will be offered to all participating audit firms’ clients, and will request
information regarding the legitimacy of documents provided, how they provide the
information both virtually and physically, whether they’ve wilfully omitted evidence, or
whether they have tampered with their evidence. These will all reveal the impact of social
presence theory as comparisons will be made between the honesty of auditees’ actions while
in physical proximity to auditors and the honesty of their actions while not in the physical
proximity of their auditors. This will help provide an overview of the overall impact of
auditees on the audit quality of remote audit, which as discussed earlier has not been
evaluated in existing research. Therefore, both the auditor and auditee specific surveys will
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assist in determining how overall audit quality has been impacted throughout the shift to
remote auditing, by focussing both on the firms’ regulations for conducting the audits and the
auditees’ participation in providing accurate evidence for the audit.
The surveys will be provided online at no expense to all accounting firms in NSW willing to
take part, and each firm can then decide how each survey will be administered to their
employees and clients. Considering there are 4,334 accounting firms in New South Wales
(Australian Accountants Directory, 2022), approximately 35% (1,517 firms) are expected to
take part in the survey. The surveys will be offered through these firms for 6 months to
collect research at the end of the 2023 financial year, from May through October – auditors’
busiest season (Briggs, 2022). Both surveys will disclose before completion that they will be
submitted anonymously which will encourage more honest disclosure regarding their
procedures and what potential corrupt behaviours have been engaged in whilst on site and
remote auditing.
While auditors and auditees’ answers will be submitted anonymously and are therefore more
likely to be accurate (Ong et al., 2000), it is not definite that all answers provided will be
completely truthful or relay all relevant information which is one downfall to this approach.
The main assumptions that are made throughout this research are that auditing firms are
willing to assist with the research by completing the surveys and offering them to their
clients. The assumption will also be made that the answers provided are entirely accurate and
that all information regarding their actions is wilfully provided.
There are two main limitations to utilising this survey method. The first is that there is no
definitive way to find whether the answers provided are truthful. The second is that there is a
chance that the only people who engage with these surveys are those that have committed no
wrong-doing, and those that have engaged in wrong-doing may decide not to engage with the
survey. This means that the findings of this research may all be based around the results of
the honest participants, and not those who do engage in corrupt behaviour which would
ultimately lead to the perception and outcome of the report leading towards increased audit
quality throughout remote auditing.

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