Client Relationship-Building and Audit Quality
51 Pages Posted: 18 Aug 2017 Last revised: 22 Feb 2019
Date Written: Feburary 20, 2019
This paper presents a model of auditor-client relationship-building. Existing literature suggests that quasi-rents rising from long auditor tenure have a negative effect on auditor independence. In contrast to this conventional wisdom, our paper shows a positive effect of quasi-rents resulting from relationship-building on auditor independence. Prohibiting relationship-building takes away this benefit, and increases the likelihood of an auditor accepting an inaccurate, higher report. This is the first study analyzing the impact of client relationship-building initiated by auditors on audit quality.
Keywords: auditor independence; client relationship building; audit evidence precision; audit quality
JEL Classification: M42; M48
Suggested Citation: Suggested Citation