Auditor independence: An examination of the effect of self-interest threats and organizational safeguards on auditor judgment

Professional standards require auditors to be independent in the performance of attestation services. Recently, the SEC and some private sector groups have expressed concern that pressure to maintain and develop business may erode an individual auditor's objectivity and independence when making audit judgments. The profession contends that although the pressure to compromise independence may exist, the presence of safeguards such as peer-review, firm-level quality control practices, and auditor professionalism serve to mitigate this risk.; This dissertation examines whether a consultation review requirement, a firm-level safeguard to independence, will reduce auditor bias in the presence of economic self-interest incentives. In addition, the roles of perceived pressure and moral development on auditor judgment are examined using the General Model of Pressures in the Accounting Profession (DeZoort and Lord, 1997).; Experienced auditors from national and international accounting firms were given a case study where an audit client was proposing an aggressive accounting treatment. Client retention concerns and consultation review requirement were manipulated in the case. Results indicate that client retention concerns, consultation review requirement, and their interaction had a significant effect on the auditor's judgment as to whether an accounting treatment was appropriate in the circumstances. Results regarding the allowability of the treatment under GAAP and the likelihood of accepting the proposed accounting treatment were mixed.; Perceived pressure from the firm had a positive relationship to the likelihood of accepting the proposed accounting treatment, the assessment of the allowability of the accounting treatment under GAAP, and the assessment of the appropriateness of the treatment in the circumstances. Results do not support an interaction effect of moral development with perceived pressure.