Can auditors be independent? : Experimental evidence

Koch, Christopher ; Weber, Martin ; Wüstemann, Jens

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URL:	https://ub-madoc.bib.uni-mannheim.de/2509
URN:	urn:nbn:de:bsz:180-madoc-25099
Document Type:	Working paper
Year of publication:	2007
The title of a journal, publication series:	Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung
Volume:	07-59
Place of publication:	Mannheim
Publication language:	English
Institution:	School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series:	Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject:	330 Economics
Classification:	JEL: M42 K22 C90 ,
Subject headings (SWD):	Wirtschaftsprüfung , Corporate Governance , Internes Kontrollsystem , Test
Keywords (English):	Accountability , Audit Committee , Auditor Independence , Client Retention Incentives , Experience , Professional Skepticism
Abstract:	The Sarbanes-Oxley Act of 2002 has transformed the institutional environment in the US by making the audit committee responsible for the appointment, compensation and oversight of the auditor. We examine whether this institutional change successfully resolves the alleged problem of an unconscious favoring of the management (Bazerman et al. 1997, 2002, 2006) by changing the effects of auditors’ economic incentives and psychological pressure. In our experimental design, we make use of the particular features of the German institutional setting as it enables us to manipulate the client of the auditor in a realistic and clear-cut way. 72 German auditors with at least two years of job experience participated in our experiment. Following Turner (2001), we distinguish in our analyses between belief tasks (e.g. evidence evaluation) and action tasks (e.g. audit opinion). Our findings imply that certain institutional features seem to be helpful in ensuring auditor independence. First, we find that auditors demonstrate professional scepticism in belief tasks. This seems to counteract any potentially negative effect of the acceptability heuristic in actions tasks. Second, experience helped auditors in coping with psychological pressure. Third, making the auditor accountable to a supervisory board was helpful in reducing the risk that financial considerations would impair auditor independence.
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