A Review of Experimental and Archival Conflicts-of-Interest Research in Auditing

Abstract

I review empirical (archival and experimental) accounting research that has addressed the issue of conflicts of interest, focusing on the audit setting that has received so much recent attention. I start with a brief discussion of the audit function and auditors' incentives, viewing auditors as weighing incentives that favor acceding to client demands against incentives that favor resisting client demands, and as also influenced by psychological and social aspects of audit settings. Then I discuss various different research approaches to investigating conflicts of interest in this setting. The review is not intended to be exhaustive. Rather, I highlight key strengths and weaknesses of each approach and illustrate each approach with a representative study. I also discuss the main insights provided by each approach. I finish by relating the insights provided by different approaches and suggesting some directions for future research.

Keywords: auditing, conflicts of interest, earnings management, experiment, incentives

JEL Classification: M41, M44, M49, G14