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Book part
Publication date: 15 September 2014

Morina D. Rennie, Lori S. Kopp and W. Morley Lemon

Independence is the cornerstone of the auditing profession. Even so, it is often assumed that acquiescing to the audit client when a disagreement occurs is more beneficial…

Abstract

Independence is the cornerstone of the auditing profession. Even so, it is often assumed that acquiescing to the audit client when a disagreement occurs is more beneficial to the auditor-client relationship than asserting one’s independence (e.g., see Wang & Tuttle, 2009). We look more closely at the issue in the context of auditor-client management disagreements as recalled by experienced auditors.

We find that for most disagreements in which the auditor did not make any concession at all, the auditor-client relationship was either unaffected or strengthened. We find that a client’s use of pressure tactics did not appear to influence whether or not the auditor made a concession, but that a client’s use of pressure tactics, was associated with damage to the auditor-client relationship. The importance of the issue causing a disagreement was positively associated with the likelihood of the auditor staying with his/her initial position.

Details

Research on Professional Responsibility and Ethics in Accounting
Type: Book
ISBN: 978-1-78441-163-3

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Article
Publication date: 22 November 2019

Daniela Maresch, Ewald Aschauer and Matthias Fink

The purpose of this paper is to investigate how competence trust (i.e. trust regarding the ability of the counterpart) and goodwill trust (i.e. trust regarding the…

Abstract

Purpose

The purpose of this paper is to investigate how competence trust (i.e. trust regarding the ability of the counterpart) and goodwill trust (i.e. trust regarding the benevolence and integrity of the counterpart) affect the probability that the auditor or the client stand up to the respective negotiation partner’s position in situations of disagreement in the auditing relationship.

Design/methodology/approach

Two experiments were conducted, one with 149 auditors and one with 116 chief financial officers (CFOs). Both auditors and CFOs had to indicate the likelihood that they stand up to the other party’s preferred position in a disagreement on the materiality of unrecorded liabilities. The data derived from these experiments were analyzed using hierarchical OLS.

Findings

The results indicate that both auditors and CFOs who take their respective negotiation partner in the audit for highly competent are less likely to stand up to them in situations of disagreement. Interestingly, goodwill trust appears to be irrelevant for the negotiation outcome.

Practical implications

The findings are highly relevant for regulators, because they inform about the crucial importance of competence trust for the auditing negotiation outcome and thus put the so-called “trust-threat” into perspective.

Originality/value

The study adds to the literature on the role of the context for auditor-client negotiations by exploring the role of two distinct forms of trust on the outcome of these negotiations.

Details

Accounting, Auditing & Accountability Journal, vol. 33 no. 2
Type: Research Article
ISSN: 0951-3574

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Article
Publication date: 1 January 2007

Michael J. Meyer, John T. Rigsby and Jeff Boone

To examine whether auditor‐client relationships have an effect on the decision by an auditor to remove an audit qualification.

Abstract

Purpose

To examine whether auditor‐client relationships have an effect on the decision by an auditor to remove an audit qualification.

Design/methodology/approach

The paper tracks the event history of a sample of firms from the issuance of a first time audit qualification for going concern and non‐going concern contingencies (initial qualification issued between 1983 and 1987, all pre Statement of Auditing Standard (SAS) 58) to the issuance of a clean opinion (up through 1995 when SAS 79 was issued). Attachment theory provides a theoretical framework for the variables analyzed and discrete time survival analysis is used as the statistical method in the analysis so as to evaluate each company year from the initial unclean opinion to the year a clean opinion is issued.

Findings

It is found that interpersonal and interorganizational attachment has a significant impact on those opinion decisions that require more auditor judgment (i.e. going concern).

Originality/value

This study examines the linkage between auditor tenure and audit quality in a broader context than has been examined to date. Using attachment theory for the foundation, auditor tenure can be viewed as but one measure of the attachment between auditors and clients. In this study, a number of measures of both interpersonal and interorganizational attachment between auditors and clients are included. Further, auditor opinion judgments are examined as a determinant of auditor quality. Finally, discrete‐time survival analysis is employed which allows the tracking of the entire event history from initial qualification to removal of the qualification, something not possible with most standard statistical techniques.

Details

Managerial Auditing Journal, vol. 22 no. 1
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 19 June 2017

Jan Svanberg, Peter Öhman and Presha E. Neidermeyer

The purpose of this paper is to investigate whether transformational leadership affects auditor objectivity.

Abstract

Purpose

The purpose of this paper is to investigate whether transformational leadership affects auditor objectivity.

Design/methodology/approach

The investigation is based on a field survey of 198 practicing auditors employed by audit firms operating in Sweden.

Findings

This study finds that transformational client leadership negatively affects auditor objectivity and that the effect is only partially mediated by client identification. Given these results, suggesting that auditors are susceptible to influence by their clients’ perceived exercise of transformational leadership, leadership theory appears relevant to the discussion of auditor objectivity in the accounting literature.

Originality/value

Previous accounting research has applied the social identity theory framework and found that client identification impairs auditor objectivity. However, the effect of transformational client leadership on auditor objectivity, which reflects an intense auditor-client relationship, has been neglected before this study.

Details

Accounting, Auditing & Accountability Journal, vol. 30 no. 5
Type: Research Article
ISSN: 0951-3574

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Article
Publication date: 2 March 2015

Michael Crockett and Muhammad Jahangir Ali

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…

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.

Details

International Journal of Accounting & Information Management, vol. 23 no. 1
Type: Research Article
ISSN: 1834-7649

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Article
Publication date: 30 September 2014

David N. Herda, Michael J. Petersen and Richard Fontaine

– The purpose of this paper is to determine if self-serving bias affects audit client satisfaction level with their audit firm.

Abstract

Purpose

The purpose of this paper is to determine if self-serving bias affects audit client satisfaction level with their audit firm.

Design/methodology/approach

A 2×2 between-subjects design is used, where the authors experimentally manipulate the level of client involvement in the audit and the extent of value-added services the client received.

Findings

Using a sample of 115 financial managers (audit clients), the authors find no evidence that self-serving bias exists among clients in the experimental setting. Rather, they find that clients appear to be more satisfied with their auditor when they (clients) participate more in the service exchange.

Research limitations/implications

The research is limited to a specific context within the privately held company audit setting.

Practical implications

Audit firms may consider encouraging their privately held clients to participate more in the audit process by clearly communicating expectations and providing clients with audit preparedness materials, including templates and training where necessary.

Originality/value

Although the self-serving bias has been shown to exist in the marketing literature, the authors present a setting where the relationship between service provider (auditor) and customer (client) is such that the self-serving bias may not hold.

Details

Managerial Auditing Journal, vol. 29 no. 9
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 12 April 2013

Reiner Quick, Matthias Sattler and Daniela Wiemann

The aim of the present paper is to examine the impact of agency costs on the demand for non‐audit services (NAS) in Germany.

Abstract

Purpose

The aim of the present paper is to examine the impact of agency costs on the demand for non‐audit services (NAS) in Germany.

Design/methodology/approach

This study uses data from German listed companies to test whether audit clients vary their purchases of NAS according to agency costs over time. The paper used multiple regressions and included ownership composition, performance‐based management compensation, and leverage as proxies for agency conflicts.

Findings

Overall, the hypothesis that agency costs influence the demand for NAS was not confirmed. None of our proxies for agency conflicts were significantly associated with the purchase of NAS. These findings remain stable when alternative NAS fee measures were applied.

Research limitations/implications

Findings cannot be generalised for smaller, private companies. Particularities of the German setting might have caused the insignificance of agency costs, but this cannot be tested statistically. The contrast between these insignificant results and the significant impact of agency costs on the demand for non‐audit services revealed by many previous studies, in particular from the US and the UK, raises important questions for future research.

Practical implications

This paper concerns management's perceptions on how stakeholders perceive the effect of NAS provision on auditor independence. Thus, its findings should be of interest to German, European and international regulators when evaluating the impact of the provision of NAS on independence in appearance.

Originality/value

This study is the first to provide evidence on the relationship between agency conflicts and the demand for non‐audit services from Germany and thus from a continental European country. Moreover, it provides evidence for periods after the introduction of stricter standards on the provision of non‐audit services. In addition, it applies a new proxy for agency costs (i.e. performance‐based management compensation).

Details

Managerial Auditing Journal, vol. 28 no. 4
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 1 November 2004

Karin A. Venetis and Pervez N. Ghauri

The study extends the existing knowledge by taking a relationship perspective to study the effect of service quality on customer retention. We integrate…

Abstract

The study extends the existing knowledge by taking a relationship perspective to study the effect of service quality on customer retention. We integrate business‐to‐business marketing literature with service quality literature to develop a model to capture relationship commitment and other influencing factors. The model is improved with help of semi‐structured interviews which is later tested through a survey of 241 companies in the advertising sector. Findings indicate that service quality indeed contributes to the long‐term relationships and customer retention.

Details

European Journal of Marketing, vol. 38 no. 11/12
Type: Research Article
ISSN: 0309-0566

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Article
Publication date: 16 August 2011

Trond Hammervoll

Cooperation in logistics and supply chain management has most often been studied as a characteristic of a focal firm, rather than as a relationship property, and…

Abstract

Purpose

Cooperation in logistics and supply chain management has most often been studied as a characteristic of a focal firm, rather than as a relationship property, and inter‐organisational aspects need to be better understood. The purpose of this paper is to draw on insights from theories on individuals and organisations to study recently formed supply chain relationships (SCRs).

Design/methodology/approach

Following a literature review, the study develops an alternative view to the dominant strand of research on relational capital in SCRs. Drawing on insights from other disciplines, not usually associated with supply chain management, refutable propositions are suggested. Appropriate measurement scales for the new variables are suggested.

Findings

The notion of relational capital in SCRs is extended to include financial capital and psychological commitment. New propositions that relate relational capital and length of the honeymoon period (the time period immediately after SCR formation, during which the threat of dissolution is non‐existent) are suggested.

Research limitations/implications

The ideas presented in this paper have the potential to enrich further study on behavioural phenomena in SCRs as the analysis makes explicit the financial, social, and psychological dimensions of relational capital.

Practical implications

This paper presents managers with a richer framework than previously existed to guide their formation and maintenance efforts in building SCRs.

Originality/value

The paper fulfils an identified need for more and better inter‐organisational theory in supply chain management research.

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Article
Publication date: 1 July 2019

Nathan Robert Berglund and John Daniel Eshleman

The purpose of this study is to examine the role of ethnic similarity in the audit partner–client manager relationship and its impact on auditor selection and retention decisions.

Abstract

Purpose

The purpose of this study is to examine the role of ethnic similarity in the audit partner–client manager relationship and its impact on auditor selection and retention decisions.

Design/methodology/approach

The authors use name matching analysis to infer ethnicity of audit partners and client managers in the US nonprofit reporting environment. The authors examine the degree of ethnic similarity (co-ethnicity) between the two parties and model auditor selection and retention decisions as a function of co-ethnicity. The authors also model reporting attributes as a function of co-ethnicity.

Findings

The authors find that the ethnic similarity between the client manager and their external audit partner is a significant determinant of auditor-client alignment. Specifically, the authors find that clients are more likely to select and retain an audit partner who is ethnically similar to the client manager. The authors find that co-ethnicity is associated with a lowered propensity to issue a going concern opinion to a financially distressed client and an increased occurrence of underreporting of fundraising and administrative expenses.

Research limitations/implications

Taken together, the evidence suggests that ethnic diversity (the opposite of co-ethnicity) in the auditor-client relationship is associated with higher audit quality. These findings are relevant to client managers, audit committees and public accounting firms as they make auditor selection and reporting decisions.

Originality/value

Prior studies have found that co-ethnicity influences the formation and future success of various business partnerships. The auditor-client relationship is a unique setting within the business environment where the two parties must balance their desire to maintain a close relationship with their need to maintain independence. The study is the first to examine the role of ethnicity in the auditor-client relationship.

Details

Managerial Auditing Journal, vol. 34 no. 7
Type: Research Article
ISSN: 0268-6902

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