The Mediating Role of Perceptions of Auditor Independence

Public users expressed concerns about auditor independence after a series of accounting scandals.In response to their concerns, since 2002, the Sarbanes-Oxley Act of 2002 (SOX), U.S. Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB) have issued additional requirements designed to strengthen auditor independence.Because auditor independence in fact, is unobservable, the public's decisions only rely on auditor independence in appearance, i.e., their perceptions of auditor independence.This study aims to examine whether public users' perceptions of auditor independence impact their decisions, which are associated with their opinions on internal control over financial reporting (ICFR).This study also explores the effects of a new auditor independence clarification requirement on perceptions of auditor independence.The results indicate that an ICFR opinion affects the loan officers' decisions via the mediating effects of their perceptions of auditor independence as well as perceptions of financial reporting reliability and lending risk assessments.The findings provide empirical evidence to support the importance of the perceptions of auditor independence as well as an ICFR opinion.