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It is well known that where an auditor's relative bargaining power is high, this may help its independence and prevent a Type II error (no qualification but corporate failure). It is less well known that this may also lead to a lack of independence in the form of over‐conservatism and an unjustified inclination by an auditor to qualify to protect its reputation leading to a Type I error (a qualification but no corporate failure). We therefore hypothesize that there is a positive relationship between the auditor's relative bargaining power and Type I errors (‘H’) and a negative relationship between it and Type II errors (‘H’). The empirical study supports H but rejects H. Taken together, these results suggest that Spanish auditors have a high propensity to qualify to protect their reputation, undeterred by pressure from client companies, in order to protect their reputation – ‘over‐conservatism’ as we have called it.
International Journal of Auditing – Wiley
Published: Nov 1, 2013
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