Auditor Independence and Fee Dependence

Posted: 21 Jan 2002

See all articles by Allen T. Craswell

Allen T. Craswell

University of Queensland - Business School

Donald J. Stokes

Monash University

Janet Laughton

University of Southern Queensland - Faculty of Business

Abstract

This study investigates whether fee dependence within the audit firms' offices jeopardises auditor independence. Fee dependence is examined at both the national audit firm level as well as the local office level and in a setting where public disclosure of fees is mandatory. We focus our tests on audit fee dependence and at the same time we control for the effects of non-audit service fee dependence post the 1989 mergers. We operationalize the exercise of independent judgement in auditing by the propensity to issue qualified audit opinions. If fee dependence affects auditors' independent judgement, then auditors are less likely to qualify the accounts. The study's results show that the level of auditor fee dependence does not affect auditor propensity to issue unqualified audit opinions. The findings remain robust to a number of sensitivity tests including the analyses controlling for the effects of non-audit service fee dependence and other settings in which there is heightened pressure on auditors to confront the effects of fee dependence on exercising independent audit judgment.

Keywords: Audit independence; Audit reporting; Audit fees; Non-audit fees; Local and national audit markets

JEL Classification: G38, L15, M49

Suggested Citation

Craswell, Allen T. and Stokes, Donald and Laughton, Janet, Auditor Independence and Fee Dependence. Journal of Accounting & Economics, Vol. 33, No. 3, June 2002. Available at SSRN: https://ssrn.com/abstract=294239

Allen T. Craswell

University of Queensland - Business School ( email )

Donald Stokes (Contact Author)

Monash University ( email )

Department of Accounting and Finance
P O Box 197
Caulfield East, Victoria 3145
Australia

Janet Laughton

University of Southern Queensland - Faculty of Business

Toowoomba 4350, Queensland
Australia

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