Defense Date

Fall 8-14-2023

Degree Type





Business Administration

Chair or Co-Chair

John Abernathy

Committee Member or Co-Chair

Divesh Sharma


Dennis Chambers


The purpose of this study is to examine the effect of time budgeting accuracy on audit engagement profitability. I use hand-collected, proprietary, and confidential private company audit engagement data from a large regional accounting firm in the United States. I employ regression analysis to provide insight into profitability sensitivity as it relates to differences between the time allocated to and consumed by an engagement (i.e., the estimated and actual cost). The primary variables of interest are audit engagement profitability and time budget variance. Consistent with prior research, engagement realization rates are used as a proxy for engagement profitability (e.g., Chang et al., 2018; Dopuch et al., 2003; Hoang et al., 2019). Results show a significant and negative relationship between time budgeting variances and engagement profitability, suggesting firms realize lower (higher) profits when they underestimate (overestimate) the amount of time an audit engagement should take. Further analyses indicate this relationship is largely driven by time budget variances at the senior and partner levels. Additionally, I use supplemental regression analysis to aid in the discernment of which factors (i.e., engagement, firm, or client factors) are most impactful in the time budget estimation process. Results suggest the following factors are significant in determining budgeted hours: prior period budgeted hours, prior period budget variance, fee pressure, client size, and client risk. The use of a single firm as the data source means that these findings may not be generalizable to other accounting firms. Furthermore, the results are limited by the availability and accuracy of the data. Despite these limitations, the results of this study provide practitioners with knowledge for enhancement of firm operations and extends audit engagement profitability and time budgeting literature streams.

Available for download on Monday, August 21, 2028