Auditors' Identification with Their Clients and Its Effect on Auditors' Objectivity

Abstract

This study empirically models auditors' relationships with their clients. The Independence Standards Board (ISB 2000) identified auditors' familiarity with the client as one of five threats to auditor independence. Yet familiarity with the client is necessary for auditors to understand the client well enough to plan and perform an effective and efficient audit. We introduce a theory-based measure of the extent to which auditors identify with a client, which we then use to directly measure auditors' attachment to the client and the threat of this attachment to auditors' objectivity. The responses of 252 practicing auditors support our theoretical predictions. Specifically, we find that auditors do identify with their clients and that auditors who identify more with a client are more likely to acquiesce to the client-preferred position. On the other hand, more experienced auditors and auditors who exhibit higher levels of professional identification are less likely to acquiesce to the client's position.

Can Auditors be Independent? Experimental Evidence on the Effects of Client Type

“…For example, the importance of the client enhances both client retention incentives and accountability pressure (Lerner and Tetlock, 1999;Bamber and Iyer, 2007). But accountability pressure is distinct from client retention incentives, since it can also arise without the presence of monetary incentives, emerging purely from the desire to avoid conflict (Tetlock, 1985).…”

“…Accountability theory suggests that when management is the auditor's client, there is a risk that auditors will unconsciously adopt the preferences of the management (Bazerman et al, 1997), because the antecedents for the acceptability heuristic are fulfilled: management acting as the client represents an important other party for the auditor; auditors have to justify their audit judgments and decisions to management (Gibbins et al, 2001;Sanchez et al, 2007); and auditors know management's preferred accounting method from the preliminary financial statements. Bamber and Iyer (2007) study accountability in a field-based analysis, and find that auditors who identify more strongly with management are more likely to acquiesce to the client-preferred treatment norms. One of the very rare studies that directly tests the source of accountability pressure is Buchman et al (1996).…”

“…(Bazerman et al, 2002). Second, measures to ensure auditors' independence might differ in their effectiveness, depending on the underlying threat to be remedied (Bamber and Iyer, 2007).…”

The consideration of environmental matters in the audit of financial reports

“…According to Hatherly (1998) and Bazerman, Loewenstein and Moore (2002), the close relationship between auditors and management; auditors' undue reliance on management, and their ability to control the level of information disclosed, meant that auditors were unduly influenced by management's biases, and auditor independence could be threatened (Bamber & Iyer, 2007;Lemon et al, 2002). Besides, even though the application of the BRA meant that auditors were required to apply their experience and expertise to assess business risks (Curtis & Turley, 2007), the basis of the BRA is very much dependent on the kind of information management communicates to the auditor.…”

Determinant Independence and Objectivity of Internal Auditors in Indonesian Government Organizations

“…An audit must be carried out by a professional staff that has the necessary education, training, experience and professional qualifications to conduct the full range of audits Auditors who identify audit as their profession tend to internalize the norms and values of their profession [7]. Consequently, auditor's professional identification will encourage their professional behavior and objectivity [21].…”