IDEAS home Printed from https://ideas.repec.org/a/sae/vikjou/v41y2016i1p28-50.html
   My bibliography  Save this article

Statutory Auditors’ Independence in India: An Empirical Analysis from the Stakeholders’ Interest Perspective

Author

Listed:
  • Mitrendu Narayan Roy
  • Siddhartha Sankar Saha

Abstract

Executive Summary A business projects its financial performance through its financial statements. An audited financial statement is considered to be genuine and dependable by the stakeholders of the business. Therefore, statutory auditors should be self-regulating so that they can perform their professional role without being influenced by the management. The current regulatory framework for statutory auditors defines independence requirement for a statutory auditor in a professional engagement, points out circumstances that may create threats to independence and also proposes some measures to safeguard the same. However, in recent corporate accounting scandals, company’s failure led to devastating cost to the stakeholders, and audit failure was identified to be one of the causes behind them. Following investigations also sensed possible impairment of statutory auditors’ independence in those scams. In this backdrop, based on the existing literature on this subject, this article identifies variables influencing positively or negatively statutory auditors’ independence in their professional engagement. Opinions of statutory auditors and select other groups of respondents were collected. Most of the respondent groups believe that statutory auditors fail to detect irregularities in financial books due to their lack of independence and professional scepticism as was observed in this study. Several legal case decisions also support this finding. A long association between a statutory auditor and a client is one of the major reasons behind statutory auditors’ lack of independence. Opinions of respondents supported by applicable legal case decisions also proved that lax disciplinary measures and inadequate inspection framework caused audit failures in many recent cases. This study also analyses a significant difference of opinion among respondent groups and identifies the groups having a similar line of thought for each variable. One-way analysis of variance (ANOVA) and Tukey’s honestly significant difference (HSD) test were conducted, respectively, for these purposes. The result shows that significant differences exist among the respondent groups for most of the variables. Moreover, corporate executives have shown a significant difference of opinion from professional accountants, especially on the issue of statutory auditors’ negligence. While corporate executives believe statutory auditors are negligent in their duty, professional accountants oppose their views. Applicable legal case decisions also support such findings. Investors have shown similar views in line with academicians and students.

Suggested Citation

  • Mitrendu Narayan Roy & Siddhartha Sankar Saha, 2016. "Statutory Auditors’ Independence in India: An Empirical Analysis from the Stakeholders’ Interest Perspective," Vikalpa: The Journal for Decision Makers, , vol. 41(1), pages 28-50, March.
    • Handle: RePEc:sae:vikjou:v:41:y:2016:i:1:p:28-50
    DOI: 10.1177/0256090915626791
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0256090915626791
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0256090915626791?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Rossouw, Deon & Prozesky, Martin & du Plessis, Charl & Prinsloo, Frans, 2010. "Ethics for Accountants & Auditors," OUP Catalogue, Oxford University Press, edition 2, number 9780195990461.
    2. Claire E. Crutchley & Marlin R. H. Jensen & Beverly B. Marshall, 2007. "Climate for Scandal: Corporate Environments that Contribute to Accounting Fraud," The Financial Review, Eastern Finance Association, vol. 42(1), pages 53-73, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abdul‐Rahman Khokhar & Hesam Shahriari, 2022. "Is the SEC captured? Evidence from political connectedness and SEC enforcement actions," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(2), pages 2725-2756, June.
    2. Laura Baselga-Pascual & Antonio Trujillo-Ponce & Emilia Vähämaa & Sami Vähämaa, 2018. "Ethical Reputation of Financial Institutions: Do Board Characteristics Matter?," Journal of Business Ethics, Springer, vol. 148(3), pages 489-510, March.
    3. Wang, Tracy Yue & Winton, Andrew, 2021. "Industry informational interactions and corporate fraud," Journal of Corporate Finance, Elsevier, vol. 69(C).
    4. Jian Zhang, 2018. "Public Governance and Corporate Fraud: Evidence from the Recent Anti-corruption Campaign in China," Journal of Business Ethics, Springer, vol. 148(2), pages 375-396, March.
    5. Pulina, Manuela & Paba, Antonello, 2010. "A discrete choice approach to model credit card fraud," MPRA Paper 20019, University Library of Munich, Germany.
    6. Dongmin Kong & Junyi Xiang & Jian Zhang & Yiyang Lu, 2019. "Politically connected independent directors and corporate fraud in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(5), pages 1347-1383, March.
    7. Zhang, Jian & Wang, Jialong & Kong, Dongmin, 2020. "Employee treatment and corporate fraud," Economic Modelling, Elsevier, vol. 85(C), pages 325-334.
    8. Shantaram Hegde & Tingyu Zhou, 2019. "Predicting Accounting Misconduct: The Role of Firm-Level Investor Optimism," Journal of Business Ethics, Springer, vol. 160(2), pages 535-562, December.
    9. Aigbe Akhigbe & Anna D. Martin & Melinda L. Newman, 2010. "Information Asymmetry Determinants of Sarbanes‐Oxley Wealth Effects," Financial Management, Financial Management Association International, vol. 39(3), pages 1253-1272, September.
    10. Madan Lal Bhasin, 2016. "Creative Accounting Practices at Satyam Computers Limited: A Case Study of India’s Enron," International Journal of Business and Social Research, LAR Center Press, vol. 6(6), pages 24-48, June.
    11. Zou, Na, 2020. "Anticorruption efforts and corporate fraud," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224619, Verein für Socialpolitik / German Economic Association.
    12. Jean J. Chen & Haitao Zhang, 2014. "The Impact of the Corporate Governance Code on Earnings Management – Evidence from Chinese Listed Companies," European Financial Management, European Financial Management Association, vol. 20(3), pages 596-632, June.
    13. Ikhlas Hentati-Klila & Saida Dammak-Barkallah & Habib Affes, 2017. "Do auditors’ perceptions actually help fight against fraudulent practices? Evidence from Tunisia," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 21(3), pages 715-735, September.
    14. Nancy Harp & Mark Myring & Rebecca Shortridge, 2014. "Do Variations in the Strength of Corporate Governance Still Matter? A Comparison of the Pre- and Post-Regulation Environment," Journal of Business Ethics, Springer, vol. 122(3), pages 361-373, July.
    15. Yoke Yue Kan, 2018. "Capital market offenses in Malaysia," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 10(2), pages 171-188, May.
    16. Madan Lal Bhasin, 2016. "Creative Accounting Practices at Satyam Computers Limited: A Case Study of India’s Enron," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 6(6), pages 24-48, June.
    17. Irena Hutton & Danling Jiang & Alok Kumar, 2015. "Political Values, Culture, and Corporate Litigation," Management Science, INFORMS, vol. 61(12), pages 2905-2925, December.
    18. Yao, Shouyu & Zhao, Weijia & Sensoy, Ahmet & Cheng, Feiyang & Goodell, John W., 2021. "The dark side of marital leadership: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 77(C).
    19. Abdul Ghafoor & Rozaimah Zainudin & Nurul Shahnaz Mahdzan, 2019. "Factors Eliciting Corporate Fraud in Emerging Markets: Case of Firms Subject to Enforcement Actions in Malaysia," Journal of Business Ethics, Springer, vol. 160(2), pages 587-608, December.
    20. Hee Sub Byun & Woojin Kim & Eun Jung Lee & Kyung Suh Park, 2019. "When and Why Do Takeovers Lead to Fraud?," Financial Management, Financial Management Association International, vol. 48(1), pages 45-76, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:vikjou:v:41:y:2016:i:1:p:28-50. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.