Article2015

Auditor independence and accounting conservatism

19 citations0/0 files storedInternational Journal of Accounting and Information Management

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Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

Purpose – The purpose of this paper is to examine the efficacy of the current legislative provisions that protect auditor independence in Australia. The collapses of several high-profile companies (Enron and WorldCom in the USA, HIH insurance and OneTel in Australia) in the early 2000s has raised questions about audit quality and independence. In response, regulators have introduced new regulations and guidance to improve audit quality. In Australia, the Corporations Act 2001 (2001) was amended via the Corporate Law Economic Reform Program Act 2004. This study poses the question: do non-audit service fees influence the level of accounting conservatism? Design/methodology/approach – The sample used in this analysis consists of all available Australian listed companies from the years 2006 till 2010. Findings – Using multiple measures of accounting conservatism and the auditor-client economic bond, our results suggest that the level of the economic bond between the auditor and the client does not significantly influence the level of accounting conservatism. Originality/value – Our results demonstrate that the combination of intrinsic market mechanisms and regulation in Australia sufficiently protect auditor independence.

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References

1981Auditor size and audit quality 1997The conservatism principle and the asymmetric timeliness of earnings1 2002The Relation between Auditors' Fees for Nonaudit Services and Earnings Management 2003Do Nonaudit Services Compromise Auditor Independence? Further Evidence 2000The changing time-series properties of earnings, cash flows and accruals: Has financial reporting become more conservative?2002Do Non–Audit Service Fees Impair Auditor Independence? Evidence from Going Concern Audit Opinions 1984Auditing, Consulting, and Auditor Independence 2002The Role of Accounting Conservatism in Mitigating Bondholder-Shareholder Conflicts over Dividend Policy and in Reducing Debt Costs

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2017Reforms to the Market for Audit and Assurance Services in the Period after the Global Financial Crisis: Evidence from the UK 2016Determining Factors Affecting Audit Opinion: Evidence from Turkey 2022Non-audit services and auditor independence in stable and unstable economic conditions

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