A Review of Experimental and Archival Conflicts-of-Interest Research in Auditing

Abstract

I review empirical (archival and experimental) accounting research that has addressed the issue of conflicts of interest, focusing on the audit setting that has received so much recent attention. I start with a brief discussion of the audit function and auditors' incentives, viewing auditors as weighing incentives that favor acceding to client demands against incentives that favor resisting client demands, and also as influenced by psychological and social aspects of audit settings. Then, I discuss various different research approaches to investigating conflicts of interest in this setting. The review is not intended to be exhaustive. Rather, I highlight key strengths and weaknesses of each approach and illustrate each approach with a representative study. I also discuss the main insights provided by each approach. I finish by relating the insights provided by different approaches and suggesting some directions for future research. The general topic of conflicts of interest has been of particular recent concern in accounting and auditing. Large financial failures and accounting scandals suggest potential conflicts that have reduced the effectiveness of corporate governance, the reliability of financial statements, and ultimately investor confidence. Policy makers have responded with unusual speed by passing numerous new regulations, culminating in passage of the Sarbanes-Oxley Act in July 2002. Yet, many of these regulatory changes have occurred without much consideration of evidence provided by the extant experimental and archival empirical research literatures.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 46 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.