A construction of auditor independence in the Czech Republic: local insights

Abstract

A notion of auditor independence, envisaged as crucial to the credibility of the audit function, resides in professional Codes of Ethics in much of the western world. Since the beginning of the 1990s, the auditor independence construct has been imported eastwards and incorporated into legislation and Code of Practices amongst central and eastern European economies (CEE), together with other requirements, as the countries prepare for their accession to the European Union. This study is aimed at ascertaining the meanings conveyed by the auditor independence construct and its state of realisation in one of the transition economies of the CEE region, the Czech Republic. Also, the study seeks to understand how local culture impacts upon a particular understanding of auditor independence. In order to examine the auditor independence in this part of the world, a framework for analysis incorporating structural conditions, local traditions and culture is proposed. The analysis is conducted first de jure, and is based upon a review of the Czech law and professional regulation. This is complemented with a de facto analysis based upon interviews with audit practitioners, regulators and financial statement users in the Czech Republic and on a review of Czech media coverage. What emerges from the study is a particular local understanding of the auditor independence construct, perceived primarily as an economic concept in the context of market instability and the immature legal framework. It appears that there is a tendency to follow the form of audit procedures without substantial rationalisation. We conclude that socio-economic and cultural pressures appear to far outweigh any formal safeguards implemented to maintain professional integrity and competence in the CEE region.

An examination of the Vietnamese emerging market economy: understanding how and why auditors have responded to the audit law reforms

“…Many of the emerging economy auditing studies have centred on the central and eastern European economies (CEE). One of these studies, by Sucher and Kosmala‐MacLullich (), focused on the Czech Republic and local understanding of the auditor independence construct. What emerges from their study is a local understanding of the auditor independence construct, perceived primarily as an economic concept in the context of market instability and an immature legal framework.…”

“…What emerges from their study is a local understanding of the auditor independence construct, perceived primarily as an economic concept in the context of market instability and an immature legal framework. Sucher and Kosmala‐MacLullich () conclude that socio‐economic and cultural pressures appear to far outweigh any formal safeguards implemented to maintain professional integrity and competence in the CEE region.…”

“…The transition from central planning to a more market economy produces dramatic changes at the institutional level, thus creating opportunities to explore how relevant stakeholders embrace or resist fundamentally new institutional pressures (Willmott, ; Peng, ). The notion of auditor independence has been imported eastwards and incorporated into legislation such as the Law on Independent Audit and is envisaged as crucial to adding credibility to any country's audit function (Sucher and Kosmala‐MacLullich, ); thus, any evidence of multiple logics or decoupling may imply a compromise with the formal safeguards implemented by the Vietnamese government. Such findings, in general, have implications for understanding how institutional pressures shape the behaviour of auditors within a profession.…”

Audit Independence and Expectation Gap: Empirical Evidences from Iran

“…The conscious inaccuracy may arise out of several factors like, a) Close to his client; b) Dependency on the client for his livelihood; c) Driven by a desire of economic and social success; d) Close relationship with the client's executive; e) Blood relationship or marriage relationship with his clients; f) Acceptances of goods or services from clients directly or through his employees at confessional basis or free basis; g) Beholden to the Board of Directors for his re-appointment; and h) Competitive in audit market (Sucher and Maclullich, 2004).…”

Exploration of Niche Market and Innovation in Organic Textile by a Developing Country

“…In short, the external system of audit, with its final product, the audit opinion, adds credibility to the financial statements so that users can rely on the information presented and, as a result, the entire system of financial reporting enhanced (Sucher et al 2004). Furthermore, independence is the core of this system.…”