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Independence, impartiality, and advocacy in client conflicts

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  • Roberts, Michael L.

Abstract

Prior research indicates auditors’ financial reporting judgments are conservative when client preference is unknown, but auditors are less conservative (though not client-supportive) when clients’ preferred accounting methods for favorable financial reporting are explicitly communicated. This paper reports, for the first time, a situation in which experienced auditors exhibit client-supportive behavior. Professional judgments in an audit setting in which there is an explicit client preference for a material, income-increasing reporting classification and the relevant GAAP standard is principle-based are compared to a similar judgment in a tax setting. This research design contrasts the auditor’s ethical duty to exercise “judicial impartiality” toward the client with Certified Public Accountants’ ethical duty to be a client advocate in tax contexts. The results suggest experienced CPAs’ are as client-supportive in audit settings as they are in tax settings when exercising their professional judgment, and ethical standards mandating impartiality in auditing are not uniformly being followed.

Suggested Citation

  • Roberts, Michael L., 2010. "Independence, impartiality, and advocacy in client conflicts," Research in Accounting Regulation, Elsevier, vol. 22(1), pages 29-39.
  • Handle: RePEc:eee:reacre:v:22:y:2010:i:1:p:29-39
    DOI: 10.1016/j.racreg.2009.11.001
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    References listed on IDEAS

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    Cited by:

    1. Fatemi, Darius & Hasseldine, John & Hite, Peggy, 2014. "The impact of professional standards on accounting judgments: The role of availability and comparative information," Research in Accounting Regulation, Elsevier, vol. 26(1), pages 26-39.
    2. Li, Chan & Raman, K.K. & Sun, Lili & Wu, Da, 2017. "The effect of ambiguity in an auditing standard on auditor independence: Evidence from nonaudit fees and SOX 404 opinions," Journal of Contemporary Accounting and Economics, Elsevier, vol. 13(1), pages 37-51.
    3. Thompson, Dave & Booker, Quinton, 2015. "Bank loan officers' perceptions concerning independence, objectivity, and reliability when external auditors also perform tax compliance activities for nonpublic clients," Research in Accounting Regulation, Elsevier, vol. 27(1), pages 14-20.

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