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Threats to auditor independence: The impact of relationship and economic bonds

journal contribution
posted on 2011-02-01, 00:00 authored by P Ye, E Carson, Roger SimnettRoger Simnett
SUMMARY: This study examines the association of a comprehensive set of auditor-client relationship bonds (audit firm tenure, audit engagement partner tenure, long duration director-auditor relationships, and alumni affiliation) with the level of economic bonds provided to an audit client (nonaudit services [NAS]). We further examine the effect of these economic and relationship bonds on auditor independence in the context of nonaudit services fees and the propensity to issue going-concern opinions. It is these economic and relationship bonds that have attracted the interest of regulators in their consideration of audit quality. This study was undertaken in Australia in 2002, which provided a context in which all these relationships could be examined before new regulations were introduced. Results show that audit firm tenure and alumni affiliation are associated with clients purchasing auditor-provided NAS, with stronger associations for clients with low agency costs. We further find that long audit engagement partner tenure and a joint effect of auditor-provided NAS and alumni affiliation have a negative effect on the auditor’s propensity to issue a going-concern opinion.

History

Journal

Auditing

Volume

30

Pagination

121-148

ISSN

0278-0380

eISSN

1558-7991

Language

English

Publication classification

C1.1 Refereed article in a scholarly journal

Issue

1

Publisher

AMER ACCOUNTING ASSOC