Research Summary 7: The Effect of Independence on Additional Audit Work: A European Perspective

Culture shapes independence attitudes and affects liability exposure.

his study examined the judgments of a sample of 198 managers and partners from four of the former Big 6, in seven Western European countries on two case scenarios that dealt with auditor independence:

In the first case, the client wanted to release earnings information before all the audit work was complete.

The second case addressed the potential influence of a former audit manager who had subsequently become the client’s controller. The study also incorporated time budget pressures; the audit was behind schedule and there was a history of running over time budgets.

The results showed a link between the reason for failing to do additional audit work and both selected cultural characteristics and an index indicating the level of litigation within each of the seven countries. The findings also demonstrated that prior time-budget problems significantly influenced the independence of the audit senior (the former audit manager) in the second case. Finally, the data showed that relying on personal relationships and not on auditing rules might lead to a higher litigation risk.

The research had three major implications for audit practice. The first dealt with the attempt to standardize auditing practices throughout the European Community. While the final version of the 8th Directive of the European Communities on company law allowed member states to address independence separately, this research showed that, even if the states adopted identical wordings, the application of independence standards would vary because of cultural differences. Perhaps one solution would be to develop a series of regional conferences where managers or partners could openly discuss the problem of implementing the concept of independence in the international arena.

The second implication related to the influence of a former member of the firm. One response to the independence issue might be to transfer members of the audit staff who reported to the former colleague to another audit engagement to minimize the potential risk (for example, in general, to assign audit staff according to the facts and circumstances of individual audits). Finally, the data provided an initial link between auditors’ actions and litigation exposure in various countries.

For the full text of the research paper, see Auditing: A Journal of Practice & Theory, vol. 18, Supplement, 1999.

Donald F. Arnold Sr., PhD, is professor of accounting and Director of the Graduate Accounting Program, Graduate Management Institute at Union College, Schenectady, New York. His e-mail address is . Richard A. Bernardi, CPA, PhD, is professor of accounting, Gabelli School of Business at Roger Williams University, Bristol, Rhode Island. Presha E. Neidermeyer, CPA, PhD, is assistant professor of accounting, Graduate Management Institute at Union College.  

This series is based on work published in Auditing: A Journal of Practice & Theory. The intent is to bridge the gap between researchers and practitioners by offering concise practice summaries of cutting-edge research in the field of auditing.


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