Auditor independence and accounting conservatism: Evidence from Australia following the corporate law economic reform program

Abstract

Purpose

The purpose of this paper is to examine the efficacy of the current legislative provisions that protect auditor independence in Australia. The collapses of several high-profile companies (Enron and WorldCom in the USA, HIH insurance and OneTel in Australia) in the early 2000s has raised questions about audit quality and independence. In response, regulators have introduced new regulations and guidance to improve audit quality. In Australia, the Corporations Act 2001 (2001) was amended via the Corporate Law Economic Reform Program Act 2004. This study poses the question: do non-audit service fees influence the level of accounting conservatism?

Design/methodology/approach

The sample used in this analysis consists of all available Australian listed companies from the years 2006 till 2010.

Findings

Using multiple measures of accounting conservatism and the auditor-client economic bond, our results suggest that the level of the economic bond between the auditor and the client does not significantly influence the level of accounting conservatism.

Originality/value

Our results demonstrate that the combination of intrinsic market mechanisms and regulation in Australia sufficiently protect auditor independence.

Citation

Crockett, M. and Ali, M.J. (2015), "Auditor independence and accounting conservatism: Evidence from Australia following the corporate law economic reform program", International Journal of Accounting & Information Management, Vol. 23 No. 1, pp. 80-104. https://doi.org/10.1108/IJAIM-02-2014-0008

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