Auditor Independence

The concept and notion of auditor independence has been of key importance to the audit profession, and to the variety of stakeholders who rely upon the work of auditors, for more than one hundred and fifty years. This contribution seeks to bring forward a number of the issues which underpin the concept together with a brief review both of recent regulatory developments and empirical evidence which seeks to consider whether auditors are in fact independent in practice.At one level the economic dependence of auditors on clients on whose financial statements they are providing an opinion suggests a prima facie lack of independence. Beyond this however there are perhaps wider and more subtle issues as to the manner in which auditors obtain, collate and evaluate the information which they rely upon to come to their opinion – sometimes termed epistemological independence – and, to an extent interlinked, the range and variety of behavioural, cultural and judgemental biases which may act to impact on that opinion.There are however a range of factors which act to constrain auditors from behaving in a non-independent manner. These include the professional training of auditors, the significant adverse economic out-turns which may result from the provision of an inappropriate audit opinion, and the range of regulatory review and indeed sanctions – including those relating to corporate governance – which seek to ensure that auditors do carry out their work and make their judgements in an independent manner.The nature of regulatory and governance change at both national and supra-national levels in recent years is reviewed briefly as is the quite extensive, albeit rather mixed, empirical evidence as to the nature of auditor independence. This empirical evidence focuses on both stakeholder perceptions and also attempts to link aspects of independence with both client reporting behaviour and actual auditor judgements. The reader is directed to references which allow this literature to be explored in greater depth