Auditors' Willingness to Advocate Client-Preferred Accounting Principles

Shafer, William E.; Ketchand, Alice A.; Morris, Roselyn E.

doi:10.1023/b:busi.0000037530.25174.30

Cited by 15 publications

(20 citation statements)

References 9 publications

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“…Although auditors often support ambiguous reporting decisions (Shafer et al, 2004), they must be willing to confront their clients to improve the honesty and reliability of disclosure in the MD&A. For example, suggest that to improve the quality and honesty of the disclosure of the MD&A, the Public Company Accounting Oversight Board (PCAOB) should mandate that auditors and the audit committee discuss and evaluate each of the elements of the MD&A for its consistency with verifiable outside sources.…”

Section: Discussionmentioning

confidence: 99%

The Association between Disclosure, Distress, and Failure

Holder‐Webb

Cohen

2007

J Bus Ethics

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Section: Discussionmentioning

confidence: 99%

The Association between Disclosure, Distress, and Failure

Holder‐Webb

Cohen

2007

J Bus Ethics

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“…The central question in the debate regarding auditor tenure is whether long-term relationships between clients and their auditors reduce audit quality. Long-term auditor-client relationships have been blamed for causing auditors to acquiesce to client demands, resulting from reduced auditor independence (Shafer et al 2004). Acquiescence to client requests may result from auditors not wanting to lose the client before recuperating costs invested in the audit process (i.e., start-up costs) (DeAngelo 1981), or wanting to please the customer (Shafer et al 2004).…”

Section: Literature Reviewmentioning

confidence: 99%

Clients' Preferred Relationship Approach with their Financial Statement Auditor

Fontaine¹,

Pilote²

2011

Current Issues in Auditing

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SUMMARY Our published study, “An Empirical Study of Canadian Companies to Determine Clients' Preferred Relationship Approach with Their Financial Auditor” (Fontaine and Pilote 2011), examines the type of relationship that clients prefer to have with their financial auditors. We surveyed 306 Canadian financial executives (clients); in general, clients prefer more of a relational approach (i.e., an ongoing process based on cooperation, communication, and trust) than a transactional approach (i.e., competition and self-interest, resulting in an arm's-length relationship). Further, clients seek information and advice beyond core audit services. However, despite clients' desire for close relationships, they also want to remain at arm's length from their auditor, as required by the auditor's code of ethics. Our study contributes to audit practice by providing direct evidence of client relationship preferences, which could help auditors to enhance client relationships. In addition, evidence of the client's desire to remain at arm's length (i.e., respecting auditor independence) could be of interest to audit practitioners and audit standard setters.

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“…Owing to various economic circumstances surrounding corporations, accounting standards provide for more than one acceptable accounting treatment for a range of operations. Nevertheless, it seems that auditors are susceptible to subordinating their professional judgment by accepting the client-preferred accounting treatment (Kadous et al , 2003; Shafer et al , 2004; Ng and Shankar, 2010) [2]. This situation appears to be a concern for standard setters, who accordingly require that auditors notify those charged with governance when the practices management has used are not wholly appropriate for the audited entity even though they may be acceptable under the standards (IFAC, 2009, ISA 260.16a; CPA Canada, 2019, CAS 260.16a).…”

Section: Introductionmentioning

confidence: 99%

Auditors’ judgment subordination and the theory of planned behavior

Cyr

Héroux

Fontaine

2020

MAJ

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Purpose The purpose of this paper is to examine circumstances under which auditors subordinate their judgment. More specifically, the authors investigate factors associated with auditors’ propensity to accept client-preferred accounting methods that conform to accounting standards but do not faithfully represent the entity’s financial position, financial performance and cash flows. Design/methodology/approach Based on the theory of planned behavior (TPB), the authors developed a survey that was sent to auditors at a non-Big 4 audit firm. Findings Main results suggest that auditors tend to agree with a client’s preferred accounting method when they anticipate little fallout from this decision, they believe they can easily justify the method, and they perceive that colleagues, shareholders and creditors would also agree with the decision. Practical implications Results benefit auditing standard setters and regulators and are relevant for accounting institutes and audit firms because practitioners can learn about circumstances under which auditors subordinate their judgment. Originality/value This study contributes to the audit literature by using the TPB to identify factors associated with auditors’ judgment subordination. In addition, it applies the TPB in a context where a client-preferred accounting method is considered acceptable but is not the most appropriate in light of the audited entity’s specific circumstances.

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Auditors' Willingness to Advocate Client-Preferred Accounting Principles

Cited by 15 publications

References 9 publications

The Association between Disclosure, Distress, and Failure

The Association between Disclosure, Distress, and Failure

Clients' Preferred Relationship Approach with their Financial Statement Auditor

Auditors’ judgment subordination and the theory of planned behavior

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