Auditor independence - Research Paper Example

Without independence, Arya & Glover (2014, p. 188) believes that there is no need for external auditors attestation to the purported accuracy and the completeness of the company financial information. The adverse effects of auditors providing services to clients that pay them directly question the impairment of auditor independence. An association between fees received by the audit firms directly from the clients will possibly impair auditor independence with particular interest to the going concern reporting decision that continues to have considerable interest to the regulators and others.

This paper studies Arthur Andersen clients and investigates whether the decline in Andersens problems due to a criminal indictment can adversely affect the stock market perception of its audit quality. The reputations concerns are an issue on the impairment of the auditors independence. Arya & Glover (2014, p. 190) investigates the relationship between abnormal market returns for the Andersen clients and the fee-based measures of auditor independence. The empirical results support the ideology that auditor independence and reputation can significantly affect the perceived auditor quality and credibility in the audited financial statements as well as the market prices.

The paper will also provide empirical evidence on the efficacy of auditors and directors that apply aggressive financial reporting that have accruals. In that light, the paper will investigate a sample of United States firms to evaluate the auditors independence on the clients. According to (), aggressive financing reporting will only occur when multiple governance mechanism fails. The overreliance of SOX-type legislation cannot act as a substitute for strong governance mechanisms in the regulation.

Paterson & Valencia (2011, p. 1510) assert that Arthur Andersens perceives audit failure of Enron and other publicized accounting