Auditor Economic Dependence and Accounting Conservatism: Evidence from a Low Litigation Risk Setting

21 Pages Posted: 10 May 2013

See all articles by Yihsing Liao

Yihsing Liao

Chung Yuan Christian University

Wuchun Chi

National Chengchi University (NCCU) - Department of Accounting

Yunshan Chen

National Taiwan University

Date Written: July 2013

Abstract

This study finds a negative relationship between an auditor's high degree of economic dependence on a client and the degree of accounting conservatism of the audited client in an environment with a low risk of litigation. We measure the economic dependence of auditors on their clients primarily through fees for non‐audit services. Our evidence suggests, however, that the negative effect on conservatism can be mitigated in firms that have higher board independence. The evidence from this study is highly relevant to the circumstances of East Asian economies, as well as to those of emerging countries in general.

Keywords: Economic dependence, accounting conservatism, non‐audit services, board independence

Suggested Citation

Liao, Yihsing and Chi, Wuchun and Chen, Yunshan, Auditor Economic Dependence and Accounting Conservatism: Evidence from a Low Litigation Risk Setting (July 2013). International Journal of Auditing, Vol. 17, Issue 2, pp. 117-137, 2013. Available at SSRN: https://ssrn.com/abstract=2263106 or http://dx.doi.org/10.1111/j.1099-1123.2012.00460.x

Yihsing Liao (Contact Author)

Chung Yuan Christian University

22 Pu-Jen, Pu-chung Li
Chung-Li, 32023
Taiwan

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/

Yunshan Chen

National Taiwan University

1 Sec. 4, Roosevelt Road
Taipei 106, 106
Taiwan

Register to save articles to
your library

Register

Paper statistics

Downloads
0
Abstract Views
907
PlumX Metrics