Client Importance and Audit Partner Independence

44 Pages Posted: 9 Aug 2010 Last revised: 18 Feb 2014

See all articles by Wuchun Chi

Wuchun Chi

National Chengchi University (NCCU) - Department of Accounting

Edward B. Douthett

George Mason University - School of Business

Ling Lei Lisic

Virginia Polytechnic Institute & State University - Pamplin College of Business

Date Written: July 1, 2011

Abstract

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

Chi, Wuchun and Douthett, Edward B. and Lisic, Ling Lei, Client Importance and Audit Partner Independence (July 1, 2011). Journal of Accounting and Public Policy, Vol. 31, Issue 3, pp. 320–336, 2012. Available at SSRN: https://ssrn.com/abstract=1655982

Wuchun Chi

National Chengchi University (NCCU) - Department of Accounting ( email )

No. 64, Sec 2
Chih-Nan Road
Wenshan 116, Taipei
Taiwan
886-2-29393091-81031 (Phone)
886-2-29387113 (Fax)

HOME PAGE: http://www3.nccu.edu.tw/~wchi/

Edward B. Douthett

George Mason University - School of Business ( email )

Ling Lei Lisic (Contact Author)

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States

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