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

Koch, Christopher ; Weber, Martin ; Wüstemann, Jens

Document Type: Article
Year of publication: 2012
The title of a journal, publication series: European Accounting Review
Volume: 21
Issue number: 4
Page range: 797-823
Place of publication: London
Publishing house: Routledge
ISSN: 0963-8180 , 1468-4497
Publication language: English
Institution: Business School > ABWL u. Finanzwirtschaft, insbes. Bankbetriebslehre (Weber -2017)
Subject: 330 Economics
Classification: JEL: M42,
Keywords (English): auditor independence , accountability pressure , client retention incentives , oversight board , behavioural experiment
Abstract: Recent regulatory initiatives stress that an independent oversight board, rather than the management board, should be the client of the auditor. In an experiment, we test whether the type of client affects auditors’ independence. Unique features of the German institutional setting enable us to realistically vary the type of auditors’ client as our treatment variable: we portray the client either as the management preferring aggressive accounting or the oversight board preferring conservative accounting. We measure auditors’ perceived client retention incentives and accountability pressure in a post-experiment questionnaire to capture potential threats to independence. We find that the type of auditors’ client affects auditors’ behaviour contingent on the degree of the perceived threats to independence. Our findings imply that both client retention incentives and accountability pressure represent distinctive threats to auditors’ independence and that the effectiveness of an oversight board in enhancing auditors’ independence depends on the underlying threat.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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