The Effect of Dismissal Threat on Auditor Independence

更換威脅對會計師獨立性之影響

10.6538/TAR.2005.0601.04

張文瀞(Wen-Ching Chang)；周玲臺(Lynette Ling-Tai Chou)；林修葳(William Hsiou-Wei Lin)

更換威脅 ； 更換會計師 ； 審計意見 ； 會計師獨立性 ； Dismissal threat ； Auditor switch ； Audit opinion ； Auditor independence

中華會計學刊

6卷1期（2005 / 10 / 01）

97 - 123

英文

This study investigates whether the dismissal threat posed by the client jeopardizes auditor independence, where auditor independence is surrogated by the auditor's propensity to issue a going concern opinion on a financially distressed client. We use an auditor switch model to predict the unobserved switches clients would have made had they received an opposite audit opinion, and then measure the unobserved switch probability as a proxy for the dismissal threat. This study identifies two types of strategic response that may result from dismissal threats. One type is the client's coercing the auditor to issue a clean instead of a going-concern opinion. The other type of dismissal threat is that posed by clients who request a shared opinion (involving other auditors) in lieu of a going concern opinion. We argue that whether auditors surrender their independence to these two dismissal threats depends heavily on the professional responsibility and potential future failure costs. The results show that the probability of a financially distressed company's receiving a going concern opinion increases with the likelihood of dismissal to coerce clean opinions. However, the probability of a financially distressed company's receiving a going concern opinion decreases with the likelihood of dismissal to coerce shared opinions. The difference between these two inappropriate audit opinions lies mainly in perceived disutility. Hence, market-based incentives, such as loss of reputation and litigation costs, including the perceived probability of being sued, are essential to preserve auditor independence.

This study investigates whether the dismissal threat posed by the client jeopardizes auditor independence, where auditor independence is surrogated by the auditor's propensity to issue a going concern opinion on a financially distressed client. We use an auditor switch model to predict the unobserved switches clients would have made had they received an opposite audit opinion, and then measure the unobserved switch probability as a proxy for the dismissal threat. This study identifies two types of strategic response that may result from dismissal threats. One type is the client's coercing the auditor to issue a clean instead of a going-concern opinion. The other type of dismissal threat is that posed by clients who request a shared opinion (involving other auditors) in lieu of a going concern opinion. We argue that whether auditors surrender their independence to these two dismissal threats depends heavily on the professional responsibility and potential future failure costs. The results show that the probability of a financially distressed company's receiving a going concern opinion increases with the likelihood of dismissal to coerce clean opinions. However, the probability of a financially distressed company's receiving a going concern opinion decreases with the likelihood of dismissal to coerce shared opinions. The difference between these two inappropriate audit opinions lies mainly in perceived disutility. Hence, market-based incentives, such as loss of reputation and litigation costs, including the perceived probability of being sued, are essential to preserve auditor independence.

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