The influence of the types of NAS provisions and gifts hospitality on auditor independence

Abstract

Purpose

Auditor independence is regarded as the cornerstone in the auditing profession. But there is lack of research to examine the influence of the types of non‐audit services provisions and gift hospitality on auditor independence. This paper aims to fill this gap.

Design/methodology/approach

This Hong Kong study differs significantly from prior studies and is the first to examine the perceived independence by encompassing both qualitative and quantitative analysis. Binary logistic regression is used to capture data from Big 4 auditors and financial analysts' viewpoints.

Findings

Results indicate that auditor independence decreases as the auditors provide accounting services, internal audit or corporate finance services to the firms. Corporate finance services have the greatest negative impact. However, it contributes new knowledge to the literature that the provisions of taxation services to clients are value‐added service and confirms the result in the US study. Receiving gift or hospitality from client has no influence on perceived independence and revokes an early study by Pany and Reckers. There is no expectation gap found between the groups, narrowing the expectation gap theory in the post‐Enron and revokes the US and the UK studies.

Practical implications

The expectation gap theory seems to be narrowed in the post‐Enron environment. It is hoped that a longitudinal study could be conducted in future.

Originality/value

This paper adds new contributions to the auditing literature in the Asia Pacific Region and provides better understanding for devising auditing guidelines in Hong Kong and their international counterparts.

Citation

Law, P. (2010), "The influence of the types of NAS provisions and gifts hospitality on auditor independence", International Journal of Accounting & Information Management, Vol. 18 No. 2, pp. 105-117. https://doi.org/10.1108/18347641011048101