Have Recent Reforms Improved Auditor Objectivity When Providing Non-Audit Services?

• In Event: Session C: Auditing

Abstract

This research explores whether recent audit reforms have improved auditor objectivity when performing non-audit services. In two separate experiments, we tested whether external and internal auditors’ inventory obsolescence judgments are influenced by their client’s (or company’s) role as the buyer or seller in an acquisition setting. Responses of seventy external auditors and sixty-nine internal auditors reveal that external auditors assessed the likelihood of inventory obsolescence objectively regardless of their consulting role in the acquisition setting. Internal auditors assessed the likelihood of inventory obsolescence as higher when consulting for the buyer than when consulting for the seller, consistent with the supposition that the buyer would prefer to write-down inventory and negotiate a lower purchase price whereas the seller would prefer the inventory not be written down. From a regulatory perspective, external auditors may be relying too much on the work of internal auditors if internal auditors’ lack of objectivity as consultants extends to their assurance role.

Authors

• Richard G. Brody, University of New Mexico

• Christine Haynes, University of West Georgia

• Craig G. White, University of New Mexico