An Investigation of the Impact of Economic and Organizational Factors on Auditor Independence.

Abstract This study examines auditor independence from the viewpoint of practicing auditors and investigates the effect of competitive pressure on audit judgments. The research was conducted to test the hypothesis that non-accounting variables such as the potential of litigation and the loss of a client may influence audit judgments differently as auditors become more acculturated to the norms of the CPA firm. Seventy-five practicing auditors in Big Eight public accounting firms were asked to complete an instrument to assess their perceptions of attributes of audit independence. They were also asked to make audit judgments concerning accounting principles in experimental cases wherein only non-accounting variables were manipulated. Subject responses to the independence questionnaire were generally found to be more similar for subject groups at adjacent levels in the firm than for nonadjacent groups. It was also found that non-accounting variables can have an impact on audit judgments concerning accounting principles. Additional issues are raised regarding the effect of economic factors on audit independence.