The Effects of Audit Committees on Bankers’ Perceptions of Auditor Independence

Abstract

Using 20 bankers as subjects, this exploratory study examined the effects of audit committees on bankers’ perceptions of auditor independence. Results reject the null hypothesis which suggest that bankers place more reliance on financial statements in considering loan applications given information on the presence of audit committees than given information on their absence. Those bankers given information on the presence of audit committees recommended a lower interest rate premium than those given information on the absence of audit committees. These findings suggest that bankers given information on the presence of audit committees perceived a lower loan risk as a result of a higher confidence in the auditor to maintain independence than those given information on the absence of audit committees. It can then be concluded that audit committees had a significant effect on bankers’ perceptions of auditor independence.