Multiple Supervisors in Audit: Fairness and the Many-to-One Performance Appraisal Environment (2016)

INTRODUCTION Recent accounting research has noted that when organizations create and foster an impression of fairness within organizations, as it leads to enhanced employee job satisfaction and performance (Lau & Martin-Sardesai, 2012). While research has investigated the impact of procedural justice, or the fairness of procedures, in the accounting environment (Lau, 2015; Seifert et al., 2014; Lau & Martin-Sardesai, 2012; Seifert et al., 2010; Burney et al., 2009, Lau et al., 2008, Lau & Moser, 2008; Rae & Subrimaniam, 2008; Lau & Tan, 2006; Staley et al., 2003; Wentzel, 2002; Lau & Lim, 2002) relatively fewer studies have investigated procedural justice in public accounting firms (Herda & Lavelle, 2012; Johnson et al., 2011; Miller et al., 2011; Johnson et al., 2008; Parker & Kohlmeyer, 2005; Siegel et al., 2001). To our knowledge, no study to date has investigated the unique impact of multiple supervisors on employee procedural justice perceptions in public accounting. Previous research in management and accounting assumes that the employee and supervisor are in a one-to-one relationship, i.e., that there is one employee receiving one supervisor rating (e.g. Lau & Moser, 2008; Lau et al., 2008; Korsgaard R Greenberg, 1986). However, in public accounting employees, especially auditors at the associate level, are often rated by several supervisors (Herda & Lavelle, 2012; Kaplan & Reckers, 1993). Associate auditors are lower-level auditors, usually in their first two years at an accounting firm. These auditors are normally rotated to many different types of audit clients (e.g. financial services, not-for-profits, and consumer markets). Different in-charge auditors, managers, and partners are assigned to each audit client. This diverse exposure is often designed to familiarize these lower-level auditors with all types of industries and accounting issues, as the young associates will eventually choose an industry group to focus on when they become an in-charge (Thibodeau, 2003). Associates are usually reviewed by their immediate supervisor on each audit after the completion of an audit engagement. In the current paper, the associate's reviewer is assumed to be the in-charge auditor, as the in-charge auditor is normally present every day at the client's location throughout the engagement. Once or twice a year, these evaluations are compiled and reviewed as part of the decision-making process for compensation and promotion (Kaplan & Reckers 1993). Recent research regarding audit firms has found that perceived fairness of the audit firm is directly related to lower levels of auditor burnout and turnover intentions (Herda & Lavelle, 2012). However, to our knowledge, no research has specifically studied the effects of the multiple reviewers on employee perceptions of fairness. Multiple reviewers in audit firms are an inherent part of the firm incentive structure, and prior literature has noted that in fact, overall, limited research exists on incentive structures of audit firms (Jenkins et al., 2008). As accounting firms rely on these performance appraisals as mechanisms of organizational control and determinants of compensation, research which analyzes employee perceptions of the fairness of these processes is crucial. As noted by Lau and Moser (2008), research on the determinants of procedural fairness identifies how procedural fairness can be enhanced, and investigation of the outcomes of procedural justice demonstrates the importance of fairness in the performance appraisal process. This paper presents evidence regarding antecedents and consequences of employee perceptions of procedural justice in the many-to-one audit performance appraisal environment. Our theoretical model is presented in Figure 1. It proposes that consistent standards and internal locus of control directly related to procedural justice perceptions, which in turn relate to organizational commitment and perceived learning. …