Auditor Independence, Audit Quality and Auditor-Client Negotiation Outcomes: Some Evidence from Taiwan
Ken Y. Chen
National Taiwan University; National Taiwan University
Randal J. Elder
Overseas Chinese Institute of Technology - Department of Accounting
Journal of Contemporary Accounting and Economics, Vol. 1, No. 2, December 2005
This study investigates auditor independence in auditor-client negotiation over financial reporting issues using Taiwan data, and whether high quality auditors are more likely than low quality auditors to resist client management pressures over financial reporting issues. Non-audit fees and auditor tenure are used as proxies for auditor independence. We find a significant negative relation between non-audit services and the extent to which the client agreed with the auditor over the financial reporting issues, consistent with non-audit services reducing independence. We did not find a significant relation between auditor tenure and the degree to which the client agreed with the auditor over the financial reporting issues. However, we find a significant positive relation between the interaction of non-audit fees and the auditor tenure variable and the extent of client agreement, suggesting that non-audit fees do not affect the auditor's ability to resist client management pressure when auditor tenure is longer. The client is more likely to agree with the auditor when the client perceives the auditor to be an industry specialist. However, we do not find clients are more likely to agree with Big 5 audit firms. Our study provides initial empirical evidence that non-audit fees, auditor tenure, and auditor industry expertise are important factors that affect auditor-client negotiation over financial reporting issues.
Number of Pages in PDF File: 38
Keywords: Auditor-Client Negotiation, Auditor Independence, Auditor Expertise, Industry Specialist
JEL Classification: M41, M49, M47Accepted Paper Series
Date posted: August 1, 2005
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