The Effects Of Client Employment On Auditor Independence

Abstract

The objective of this study is to evaluate managers' perception of auditor independence when an auditor accepts employment with a client firm. Four independent variables are considered in the study: past position held by the ex-auditor in the public accounting firm, time lapse between auditing the client and joining the client's workforce, current position held by the ex-auditor in client firm, and the type of audit opinion issued by the auditor prior to accepting the employment. Managers' perception of the independence of the last audit conducted by the ex-auditor prior to joining the client as well as the independence of the subsequent audit is evaluated. Analysis of variance is used to analyse the data from 392 middle-level managers. The ANOVA results reveal that the time variable significantly affects the perception of auditor independence in the last audit. The shorter the time lapse, the more independence is questioned. To a lesser extent, the interaction effect between the type of audit opinion and the current position also affects the perception of auditor independence in the last audit. Independence is questioned more when the ex-auditor accepts position as a preparer after issuing a clean opinion as opposed to a qualified opinion. Further, past position and current position significantly influence the perception of the independence of the subsequent audit. A supervisory position held in the past and a preparer position held at present are both viewed as impairing independence more than a non-supervisory position held in the past and a non-preparer position held at present.