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Client employment of previous auditors: Shareholders views on auditor independence

Dart, Eleanor; Chandler, Roy

Authors

Eleanor Dart eleanor.dart@uwe.ac.uk

Roy Chandler



Abstract

The role of auditors is to add credibility to financial information and to reduce the risk of management manipulation or concealment. It is vital that auditors be independent of company management. In practice, however, various circumstances may pose a potential threat to auditor independence. One of these threats is the employment of an ex-auditor by a client company. Relatively little research has so far been carried out in this area. We investigated whether investors (both private and institutional) perceived the employment of a former auditor by an audit client as a threat to the independence of the audit firm and whether they would invest in a company which had poached a member of the audit team. We found little evidence of concern on the part of institutional investors about the risks posed by auditors joining former client companies. However, private investors demonstrated significantly greater levels of concern about issues related to auditor independence. Although there were differences in the views of institutional and private investors, there did not appear to be a strong demand from respondents to our survey for more stringent restrictions on the movement of auditors from audit firms to audit clients. © 2013 Taylor and Francis Group, LLC.

Journal Article Type Article
Publication Date Jun 1, 2013
Journal Accounting and Business Research
Print ISSN 0001-4788
Electronic ISSN 2159-4260
Publisher Taylor & Francis (Routledge)
Peer Reviewed Peer Reviewed
Volume 43
Issue 3
Pages 205-224
APA6 Citation Dart, E., & Chandler, R. (2013). Client employment of previous auditors: Shareholders views on auditor independence. Accounting and Business Research, 43(3), 205-224. https://doi.org/10.1080/00014788.2012.707968
DOI https://doi.org/10.1080/00014788.2012.707968
Keywords employment, auditor independence
Publisher URL http://dx.doi.org/10.1080/00014788.2012.707968




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