The Mediating Role of Perceptions of Auditor Independence on the Relationship between an ICFR Opinion and Loaners' Judgments and Decisions

• In Event: Break and Research & Education Poster Forum

Abstract

To enhance public users’ understanding of the auditor independence obligations, Public Company Accounting Oversight Board (PCAOB) issued a new standard in 2017 to require that an auditor clarify auditor independence in an integrated auditor’s report. In support of the importance of the auditor independence clarification, this study establishes a model to seek to explain how this “understanding”, or perception of auditor independence, affects the public’s decisions. Using sophisticated loan officers as participants, this study experimentally examines the effect of loan officers’ perceptions of auditor independence on the relationship between an opinion on internal control over financial reporting (ICFR) and loan officers’ judgments and decisions. The results indicate that an ICFR opinion affects the loan officers’ decisions via the mediating effect of their perceptions of auditor independence as well as perceptions of financial reporting reliability and lending risk assessments. Amongst the mediators, perception of auditor independence and perception of financial reporting reliability are serial mediators, which are paralleled with lending risk assessment. Also, this study finds that loan officers’ perceptions of auditor independence mediate the relationship between an ICFR opinion and their perceptions of financial reporting reliability. The findings provide evidence to support the new standard about auditor independence clarification.

Authors

• Botao Chen, University of Maryland Eastern Shore

• Bobbie Daniels, Jackson State University