External Auditors, Client Ethics, and the Continuance Decision

Abstract

Currently, there is no formal recommended structure, particularly regarding the client’s ethics, for determining whether an external auditor should continue the business relationship with an audit client. This statement is not meant as a criticism, but rather as the backdrop for proposing that (1) a structure is needed that will assist auditors in evaluating client ethics and (2) such a structure should be institutionalized as an integral part of the continuance decision. Auditors will never be able to guarantee that a client is ethical – even those clients with detailed codes of ethics – but auditors could benefit from a more comprehensive and established process to assess a client’s commitment to ethical behavior. This paper begins by discussing some of the psychological aspects of the audit client continuance decision. Then, reviews existing, professional guidance related to evaluating client ethics. This is followed by the authors’ baseline model and client ethics evaluation checklist designed to assist external auditors in institutionalizing the evaluation of client ethics as part of the continuance decision.

Citation

Conn, C., Campbell, L. and Raiborn, C. (2019), "External Auditors, Client Ethics, and the Continuance Decision", Baker, C.R. (Ed.) Research on Professional Responsibility and Ethics in Accounting (Research on Professional Responsibility and Ethics in Accounting, Vol. 22), Emerald Publishing Limited, Leeds, pp. 133-149. https://doi.org/10.1108/S1574-076520190000022008