Client employment of previous auditors: shareholders’ views on auditor independence

The Impact of Ex-auditors’ Employment with Audit Clients on Perceptions of Auditor Independence

“…Subsequent to the issuance of the SOX 2002 in the US, research has placed most attention on the on-going debate regarding the provision of non-audit services to audit clients and the potential these services pose to compromising auditors' objectivity and independence. On the other hand, research on the practice of ex-auditors seeking employment with audit clients seemed to be lacking albeit it is not merely a theoretical issue (Dart and Chandler, 2012). Since there is very little recent perceptual research in this area, the current study contributes to the body of knowledge and understanding regarding whether ex-auditors' employment with audit clients affects perceptions of auditor independence from the perspectives of financial statement users namely; corporate loan officers and professional investors.…”

“…Based on a questionnaire survey conducted in 2005, Dart and Chandler (2012) examined whether the presence of ex-auditors working in a senior management role would have an influence on investors' perceptions of auditor independence in the UK. In contrast to previous findings, the results of the study indicated that the UK investors did not view the client's employment of a previous auditor as a threat to auditor independence.…”

The auditor‐to‐client revolving door: A structured literature review

“…As demonstrated in Table , the evidence suggests that the most common research theme is the employment of an ex‐auditor and independence (18 articles), which represents 38% (e.g., Ahmad, ; Dart & Chandler, ; Koh & Mahathevan, ), followed by the employment of an ex‐auditor and earnings quality (eight articles), which represents 17% (e.g., Baber et al, ; Geiger et al, ). Four articles looked at the employment of an ex‐auditor and audit quality (Bird, Ho, Li, & Ruchti, ; Lennox, ), while seven papers focused on the benefits of employing an ex‐auditor (e.g., Beasley, Carcello, & Hermanson, ; Iyer & Raghunandan, ).…”

“…Following that, Imhoff Jr. (, p. 870) conducted perhaps the earliest academic research investigating and documenting the ARD phenomenon, pointing out that it was “not uncommon for certified public accountants (CPAs) to be offered senior management positions with client firms.” However, following the high‐profile corporate failures in the early 21st century, this type of auditor–client relationship has been brought into the sharp focus of the media and regulatory bodies worldwide. For example, Dart and Chandler () remarked that the client employment of external auditors to senior corporate positions was one feature common to most companies involved in accounting scandals, such as Enron and Waste Management and Global Crossing in the USA, HIH Insurance in Australia, and Independent Insurance in the UK (Geiger, North, & O'Connell, ; Guy & Zeff, ). Indeed, this confirms what was noted by an American Institute of Certified Public Accountants (AICPA) representative (Wright & Booker, , p. 26), as the prospect of obtaining a corporate position is a key attraction point in entering the accounting profession, and thus any restriction on ARD would limit the career opportunities of accountants, making the profession less attractive.…”

“…ARD became an area of interest within the field of audit research when Imhoff Jr. () published his paper “Employment effects on auditor independence” in the Accounting Review . Since then, studies have mainly investigated the positive and negative consequences of ARD (e.g., Abbott et al, ; Basioudis, ; Dart & Chandler, ; Firth, ; Geiger et al, ; Iyer, Bamber, & Barefield, ; Koh & Mahathevan, ; Parlin & Bartlett, ). However, academic literature on this issue is very limited and most importantly is inconclusive, resulting in many research questions being unaddressed.…”