Antecedents and Consequences of Independence Risk: Framework for Analysis

18 Pages Posted: 4 Oct 2006

See all articles by Karla M. Zehms

Karla M. Zehms

University of Wisconsin - Madison - Department of Accounting and Information Systems

Michael H. Sutton

AIG International, Inc.

Terry Warfield

University of Wisconsin - Wisconsin School of Business

Abstract

This paper presents a framework that explains how certain incentives affecting independence risk interact with situational factors to affect actual or perceived audit quality. The combined effects of direct incentives, indirect incentives, and judgment-based decisions involving difficult accounting issues, materiality, and audit conduct are articulated. A variety of factors are then identified that may mitigate independence risk, including corporate governance mechanisms, regulatory oversight, auditing firm policies, auditing firm culture, and individual auditor characteristics. Finally, the effects of independence risk on various stakeholders are discussed, and actions that should be taken by the auditing profession, auditing firms, regulators, and researchers are discussed.

Keywords: Auditor, Independence risk, Conceptual Framework

Suggested Citation

Zehms, Karla M. and Sutton, Michael H. and Warfield, Terry D., Antecedents and Consequences of Independence Risk: Framework for Analysis. Accounting Horizons, Vol. 15, No. 1, pp. 1-18, March 2001. Available at SSRN: https://ssrn.com/abstract=934189

Karla M. Zehms (Contact Author)

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-234-1052 (Phone)
608-265-5031 (Fax)

Michael H. Sutton

AIG International, Inc. ( email )

Greenwich, CT
United States

Terry D. Warfield

University of Wisconsin - Wisconsin School of Business ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

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