Auditor independence in a private firm and low litigation risk setting
Working paper
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http://hdl.handle.net/11250/95386Utgivelsesdato
2007Metadata
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Sammendrag
We examine the issue of auditor independence in a unique setting. Specifically, we test
for auditor independence impairment among (1) private client firms for which the risk of
auditor reputation loss is lower than for publicly traded firms and (2) in a low litigation
environment (i.e., Norway) that further reduces the expected costs to the auditor
associated with independence impairment. We have thus chosen a setting that gives
independence impairment its best chance of being detected if it exists. Using a large
sample of private Norwegian firms, we analyze whether auditors who receive higher fees
are less likely to issue modified opinions. Despite the low litigation risk and the reduced
reputation risk, our empirical results provide no evidence that auditors compromise their
independence through fee dependence. These results are robust to including a large
number of control variables into the model, to controlling for the expected portion of fees,
to different sample specifications, to the use of both levels and changes specifications,
and to a number of sensitivity analyses.
Beskrivelse
The WP has been previously published on CCGR homepage: http://www.bi.no/ccgr
Serie
CCGR Working Paper1/2007