ABSTRACT: 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 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.
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1 March 2010
Research Article|
March 01 2010
Auditor Independence in a Private Firm and Low Litigation Risk Setting
Ole‐Kristian Hope;
Ole‐Kristian Hope
University of Toronto.
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John Christian Langli
John Christian Langli
Norwegian School of Management (BI).
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Online ISSN: 1558-7967
Print ISSN: 0001-4826
American Accounting Association
2010
The Accounting Review (2010) 85 (2): 573–605.
Citation
Ole‐Kristian Hope, John Christian Langli; Auditor Independence in a Private Firm and Low Litigation Risk Setting. The Accounting Review 1 March 2010; 85 (2): 573–605. https://doi.org/10.2308/accr.2010.85.2.573
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