Audit independence and customer relationship marketing: an ethical conflict or an ethical mutual effect?
Abstract
Independence in financial auditing is a topic with extensive research, due to the ethical values expected from accountants and the conflicts with agency pressures and commercial interests. However, there is a lack of research on the benefits of ethical behaviors in the dynamic interactions between auditors and clients. This study aims to achieve through a qualitative approach an in-depth understanding of the self-perceived auditor independence and how it intervenes in the relationship with clients. Ten semi-structured interviews with auditors from the five major audit offices in the city of Porto were conducted. The results explore conflicts of interest between auditor independence and customer relationships. However, the findings highlight that improving auditor’s independence allows at the same time the development of a better professional relationship with the client, mitigating the conflicts of interests identified in previous literature. This paper presents a formula in which audit firms can leverage the concept of independence when they promote communication, transparency, and an open market. Regulation and supervision should work in favour for the same goal.
Keyword : auditor independence, costumer relationship marketing, business performance, ethical conflicts, big auditing companies, business ethics
How to Cite
Martins, G. G., & Casais, B. (2024). Audit independence and customer relationship marketing: an ethical conflict or an ethical mutual effect?. Journal of Business Economics and Management, 25(6), 1220–1237. https://doi.org/10.3846/jbem.2024.22830
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Cao, Q., Hu, N., & Hao, L. (2020). Does client industry importance affect auditor independence?. Managerial Auditing Journal, 35(4), 575–595. https://doi.org/10.1108/MAJ-02-2019-2179
Chow, C. W. (1982). The demand for external auditing size, debt and ownership influences. Accounting Review, 57(2), 272–291. http://www.jstor.org/stable/247014
Craswell, A., Stokes, D. J., & Laughton, J. (2002). Auditor independence and fee dependence. Journal of Accounting and Economics, 33(2), 253–275. https://doi.org/10.1016/S0165-4101(02)00044-7
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Messier, W., Glover, S., & Prawitt, D. (2011). Auditing and assurance services: A systematic approach (8 ed.). Boston: McGraw-Hill/Irwin.
Morales-Sánchez, R., Orta-Pérez, M., & Rodríguez-Serrano, M. Á. (2020). The benefits of auditors’ sustained ethical behavior: Increased trust and reduced costs. Journal of Business Ethics, 166(2), 441–459. https://doi.org/10.1007/s10551-019-04298-2
Pimentel, E., Lesage, C., & Ali, S. B. H. (2023). Auditor independence in Kinship economies: A MacIntyrian perspective. Journal of Business Ethics, 183(2), 365–381. https://doi.org/10.1007/s10551-022-05073-6
Porter, B. (1993). An empirical study of the audit expectation-performance gap. Accounting and Business Research, 24(93), 49–68. https://doi.org/10.1080/00014788.1993.9729463
Qi, B., Li, B., & Tian, G. (2015). What do we know about the variance of audit quality? An empirical study from the perspective of individual auditor. Journal of Applied Business Research, 31(1), 71–88. https://doi.org/10.19030/jabr.v31i1.8991
Quick, R., & Warming-Rasmussen, B. (2009). Auditor independence and the provision of non-audit services: Perceptions by German investors. International Journal of Auditing, 13(2), 141–162. https://doi.org/10.1111/j.1099-1123.2009.00397.x
Raimo, N., Vitolla, F., Marrone, A., & Rubino, M. (2021). Do audit committee attributes influence integrated reporting quality? An agency theory viewpoint. Business Strategy and the Environment, 30(1), 522–534. https://doi.org/10.1002/bse.2635
Reichelt, K. J., & Wang, D. (2010). National and office-specific measures of auditor industry expertise and effects on audit quality. Journal of Accounting Research, 48(3), 647–686. https://doi.org/10.1111/j.1475-679X.2009.00363.x
Rijal, S., Bakri, A., & Arjang. (2023). Effect of auditor specialization, auditor characteristics, board independence on audit quality through intellectual capital: Study on service companies. The ES Accounting and Finance, 1(2), 95–103. https://doi.org/10.58812/esaf.v1i02.66
Solarino, A. M., & Aguinis, H. (2021). Challenges and best‐practice recommendations for designing and conducting interviews with elite informants. Journal of Management Studies, 58(3), 649–672. https://doi.org/10.1111/joms.12620
Soltani, B. (2007). Auditing – An international approach. Pearson Education Limited.
Somerville, M. (2004). A question of ethics. Association of Chartered Certified Accountants, 171(11), 1324–1325. https://doi.org/10.1503/cmaj.1041112
Tepalagul, N., & Lin, L. (2015). Auditor independence and audit quality: A literature review. Journal of Accounting, Auditing & Finance, 30(1), 101–121. https://doi.org/10.1177/0148558X14544505
Tormo-Carbó, G., Mardawi, Z., & Seguí-Mas, E. (2024). Should I stay or should I go? Auditor ethical conflict and turnover intention. Journal of Business Ethics, 194, 335–350. https://doi.org/10.1007/s10551-023-05583-x
Velte, P., & Stiglbauer, M. (2012). Audit market concentration in Europe and its influence on audit quality. International Business Research, 5(11), 146–161. https://doi.org/10.5539/ibr.v5n11p146
Weatherford, D., & Ruppert, M. P. (2015). Auditing and monitoring – Revisiting definitions. Journal of Health Care Compliance, 21–24.
Amerongen, N. vN., Coskun, E., van Buuren, J., & Duits, H. B. (2022). The coherence of the auditor-client relationship quality and auditor tenure with client’s perceptions on added-value in SME audits: a sociological perspective. Managerial Auditing Journal, 37(3), 358–379. https://doi.org/10.1108/MAJ-02-2021-3039
Amis, J., Barney, J., Mahoney, J. T., & Wang, H. (2020). From the editors – Why we need a theory of stakeholder governance – And why this is a hard problem. Academy of Management Review, 45(3), 499–503. https://doi.org/10.5465/amr.2020.0181
Ariail, D. L., Smith, K. T., Smith, L. M., & Khayati, A. (2024). An examination of ethical values of management accountants. Journal of Business Ethics, 195, 407–423. https://doi.org/10.1007/s10551-024-05640-z
Bazerman, M. H., Morgan, K. P., & Loewenstein, G. F. (1997). The impossibility of auditor independence. Sloan Management Review/Summer, 38(4), 89–95.
Callen, J. L., & Fang, X. (2017). Crash risk and the auditor–client relationship. Contemporary Accounting Research, 34(3), 1715–1750. https://doi.org/10.1111/1911-3846.12311
Cao, Q., Hu, N., & Hao, L. (2020). Does client industry importance affect auditor independence?. Managerial Auditing Journal, 35(4), 575–595. https://doi.org/10.1108/MAJ-02-2019-2179
Chow, C. W. (1982). The demand for external auditing size, debt and ownership influences. Accounting Review, 57(2), 272–291. http://www.jstor.org/stable/247014
Craswell, A., Stokes, D. J., & Laughton, J. (2002). Auditor independence and fee dependence. Journal of Accounting and Economics, 33(2), 253–275. https://doi.org/10.1016/S0165-4101(02)00044-7
Dillard, J. F., & Jensen, D. L. (2008). The auditor’s report: An analysis of opinion. American Accounting Association, 58(4), 787–798. https://www.jstor.org/stable/247069
Francis, J. R. (2011). A framework for understanding and researching audit quality. Auditing: A Journal of Practice and Theory, 30(2), 125–152. https://doi.org/10.2308/ajpt-50006
Frankel, R. M., Johnson, M. F., & Nelson, K. K. (2002). The relation between auditor’s services and for non-audit earnings management. The Accounting Review, 77, 107–114. https://doi.org/10.2308/accr.2002.77.s-1.71
Garcia-Blandon, J., Castillo-Merino, D., Argilés-Bosch, J. M., & Ravenda, D. (2021). Mandatory joint audit and audit quality in the context of the European blue chips. Journal of Business Economics and Management, 22(5), 1378–1395. https://doi.org/10.3846/jbem.2021.14959
Gaver, J. J., & Paterson, J. S. (2007). The influence of large clients on office-level auditor oversight: Evidence from the property-casualty insurance industry. Journal of Accounting and Economics, 43(2–3), 299–320. https://doi.org/10.1016/j.jacceco.2007.02.003
Gendron, Y., Suddaby, R., & Lam, H. (2006). An examination of the ethical commitment of professional accountants to auditor independence. Journal of Business Ethics, 64, 169–193. https://doi.org/10.1007/s10551-005-3095-7
Gerakos, J., & Syverson, C. (2015). Competition in the audit market: Policy implications. Journal of Accounting Research, 53(4), 725–775. https://doi.org/10.1111/1475-679X.12087
Kaszak, S. E., Johnson, E. N., Reckers, P. M., & Reinstein, A. (2024). Narcissism dynamics and auditor skepticism. Journal of Business Ethics. https://doi.org/10.1007/s10551-024-05668-1
Kim, J. B., Choi, J. H., & Zang, Y. (2010). Do abnormally high audit fees impair audit quality? Auditing: A Journal of Practice &Theory, 29(2), 115–140. https://doi.org/10.2308/aud.2010.29.2.115
Lam, B. M., Mo, P. L. L., & Rahman, M. J. (2024). Secrecy culture, client importance, and auditor reporting behavior: An international study. Managerial Auditing Journal, 39(2), 113–137. https://doi.org/10.1108/MAJ-11-2022-3763
Manap, A., Sasmiyati, R. Y., Edy, N., Buana, L. S. A., & Rachmad, Y. E. (2023). The role of auditor ethics as moderating variable in relationship between auditor accountability and quality of the audit. Jurnal EMT KITA, 7(2), 382–388. https://doi.org/10.35870/emt.v7i2.1040
Mansor, T. M. T., Ariff, A. M., & Hashim, H. A. (2020). Whistleblowing by auditors: The role of professional commitment and independence commitment. Managerial Auditing Journal, 35(8), 1033–1055. https://doi.org/10.1108/MAJ-11-2019-2484
Messier, W., Glover, S., & Prawitt, D. (2011). Auditing and assurance services: A systematic approach (8 ed.). Boston: McGraw-Hill/Irwin.
Morales-Sánchez, R., Orta-Pérez, M., & Rodríguez-Serrano, M. Á. (2020). The benefits of auditors’ sustained ethical behavior: Increased trust and reduced costs. Journal of Business Ethics, 166(2), 441–459. https://doi.org/10.1007/s10551-019-04298-2
Pimentel, E., Lesage, C., & Ali, S. B. H. (2023). Auditor independence in Kinship economies: A MacIntyrian perspective. Journal of Business Ethics, 183(2), 365–381. https://doi.org/10.1007/s10551-022-05073-6
Porter, B. (1993). An empirical study of the audit expectation-performance gap. Accounting and Business Research, 24(93), 49–68. https://doi.org/10.1080/00014788.1993.9729463
Qi, B., Li, B., & Tian, G. (2015). What do we know about the variance of audit quality? An empirical study from the perspective of individual auditor. Journal of Applied Business Research, 31(1), 71–88. https://doi.org/10.19030/jabr.v31i1.8991
Quick, R., & Warming-Rasmussen, B. (2009). Auditor independence and the provision of non-audit services: Perceptions by German investors. International Journal of Auditing, 13(2), 141–162. https://doi.org/10.1111/j.1099-1123.2009.00397.x
Raimo, N., Vitolla, F., Marrone, A., & Rubino, M. (2021). Do audit committee attributes influence integrated reporting quality? An agency theory viewpoint. Business Strategy and the Environment, 30(1), 522–534. https://doi.org/10.1002/bse.2635
Reichelt, K. J., & Wang, D. (2010). National and office-specific measures of auditor industry expertise and effects on audit quality. Journal of Accounting Research, 48(3), 647–686. https://doi.org/10.1111/j.1475-679X.2009.00363.x
Rijal, S., Bakri, A., & Arjang. (2023). Effect of auditor specialization, auditor characteristics, board independence on audit quality through intellectual capital: Study on service companies. The ES Accounting and Finance, 1(2), 95–103. https://doi.org/10.58812/esaf.v1i02.66
Solarino, A. M., & Aguinis, H. (2021). Challenges and best‐practice recommendations for designing and conducting interviews with elite informants. Journal of Management Studies, 58(3), 649–672. https://doi.org/10.1111/joms.12620
Soltani, B. (2007). Auditing – An international approach. Pearson Education Limited.
Somerville, M. (2004). A question of ethics. Association of Chartered Certified Accountants, 171(11), 1324–1325. https://doi.org/10.1503/cmaj.1041112
Tepalagul, N., & Lin, L. (2015). Auditor independence and audit quality: A literature review. Journal of Accounting, Auditing & Finance, 30(1), 101–121. https://doi.org/10.1177/0148558X14544505
Tormo-Carbó, G., Mardawi, Z., & Seguí-Mas, E. (2024). Should I stay or should I go? Auditor ethical conflict and turnover intention. Journal of Business Ethics, 194, 335–350. https://doi.org/10.1007/s10551-023-05583-x
Velte, P., & Stiglbauer, M. (2012). Audit market concentration in Europe and its influence on audit quality. International Business Research, 5(11), 146–161. https://doi.org/10.5539/ibr.v5n11p146
Weatherford, D., & Ruppert, M. P. (2015). Auditing and monitoring – Revisiting definitions. Journal of Health Care Compliance, 21–24.