Perceptions of auditor independence: U.K. evidence

Abstract

The reality and perception of auditor independence is fundamental to public confidence in financial reporting. A new Independence Standards Board was set up in the U.S. in 1997 and the European Union (EU) is currently seeking to establish a common core of independence principles (EC Green Paper 1996). This paper explores, using a questionnaire instrument, U.K. interested parties' perceptions of the influence on auditor independence of a large set of 58 economic and regulatory factors. Forty-six factors have a significant impact on independence perceptions for all groups (finance directors, audit partners, and financial journalists). The principal threat factors relate to economic dependence and non-audit service provision, while the principal enhancement factor is the existence of an audit committee. Exploratory factor analysis reduces the factor set to a smaller number of uncorrelated underlying dimensions. Perceptions regarding many independence factors are found to be contingent upon characteristics of the respondents' ongoing audit relationships (in particular, audit firm type and company size).

Audit Services Fee, Non-Audit Services and the Reliability of Earnings

“…High fee paid to auditors is viewed as impairing the auditor's independence in discharging their responsibilities. Result is consistent with earlier findings by [4] and [23] and [24] whom also found negative perceptions on high fees.…”

“…Meanwhile, [23] and [4] had found that the size of audit fees is the most significant perceived factor affecting impairment of auditor independence among loan officers and is supported by [24] using public and non-public accountants as respondents. Meanwhile, eventhough general beliefs view that non-audit services impair auditor's independence, past studies have shown weak evidence to conclude the beliefs.…”

“…Survey approach requires researchers to conduct surveys on auditors and financial statement users regarding their perception on an auditor's independence [4], [5], [23], [24]. However, there has been evidence on the existence of expectation gaps between the subjects.…”

A Grounded Theory Model of Auditor‐Client Negotiations

“…Many empirical academic studies have investigated the factors that influence (or are perceived to influence) an auditor's ability to resist management pressure (e.g., Knapp, 1985;Gul, 1989;Beattie et al, 1999) and auditors' response to ethical dilemmas (e.g., Lord & DeZoort, 2001;Shafer et al, 1999Shafer et al, , 2001; Thorne & Hartwick, 2001). These studies use large-scale survey or experimental methods.…”

In the Name of Independence: with Regard to Practicing Non-Audit Service by External Auditors

“…Beattie et al (1999) conducted a questionnaire survey examined 45 economic and regulatory factors that could impair audit independence. A high level of non-audit fees was ranked as a top threat factor by users (financial journalists) and prepares (financial directors).…”