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Auditor Independence: An Examination Independence Risk Factors and Mitigating Factors on Auditor Judgment

Barbara M. Vinciguerra
Penn State Great Valley
School of Graduate Professional Studies

Auditor Independence: An Examination Independence Risk Factors and Mitigating Factors on Auditor Judgment

Abstract

Professional standards require auditors to be independent in the performance of attestation services. Critics of the accounting profession have expressed concern that pressure to maintain and develop business opportunities may erode an auditor’s objectivity and independence when making audit judgments. The profession contends that aspects of the auditing environment such as peer
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In general, independence helps to ensure that auditors are objective when evaluating audit evidence and are free from conflicts of interest in the performance of professional duties. The SEC and some private sector groups have expressed concern over the ability of auditors to maintain their independence in light of the increasing scope of non-audit services provided by audit firms and the highly competitive business environment in which audit firms operate (Schuetze, 1994; Wallman, 1996; Sutton, 1997; Diacont, 1996; Walker, 1998). Recently, the SEC has issued revised independence rules, which include consideration of “independence in fact,” a mental state related to the absence of bias; and “independence in appearance,” the notion that an auditor is not independent if a reasonable investor, with knowledge of all relevant facts and circumstances, would conclude that the auditor is not capable of exercising objective and impartial judgment. These new standards limit the non-audit services that auditors can provide for their audit clients, require disclosure of non-audit fees, and specify financial, employment, and business relationships that constitute an impairment of independence (SEC, 2001) Bazerman et al. (1997) assert that it is impossible for auditors to maintain independence due to information processing limitations referred to as the self-serving bias. Research on the self –serving bias indicates that when

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