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Auditor Independence and Auditor Bargaining Power: Some S panish Evidence Concerning Audit Error in the Going Concern Decision

Auditor Independence and Auditor Bargaining Power: Some S panish Evidence Concerning Audit Error... 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Auditing Wiley

Auditor Independence and Auditor Bargaining Power: Some S panish Evidence Concerning Audit Error in the Going Concern Decision

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References (67)

Publisher
Wiley
Copyright
Copyright © 2013 John Wiley & Sons
ISSN
1090-6738
eISSN
1099-1123
DOI
10.1111/ijau.12003
Publisher site
See Article on Publisher Site

Abstract

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.

Journal

International Journal of AuditingWiley

Published: Nov 1, 2013

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