Client Importance and Audit Partner Independence
44 Pages Posted: 9 Aug 2010 Last revised: 18 Feb 2014
Date Written: July 1, 2011
We use data from Taiwan where audit partners are required to sign audit reports to examine whether audit partners compromise their independence for economically important clients. Uniquely, we include both listed and unlisted clients in audit partners’ client portfolios and separately study these clients for Big N and non-Big N auditors. We employ multiple proxies for auditor independence, including various abnormal accruals measures, the propensity of audit partners to issue modified audit opinions, and the probability that clients meet or just beat earnings targets. We fail to find evidence that Big N audit partners compromise their independence for economically important clients; however, we find such evidence for non-Big N auditors. Our results are robust to a battery of sensitivity analyses. While our inferences are limited to the Taiwanese capital market, our study may be of interest to market participants and regulators in other well developed capital markets.
Keywords: client importance, audit partner, auditor independence, listed, Big N
JEL Classification: M41, M42
Suggested Citation: Suggested Citation