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    Client Identification and Client Commitment in a Privately...
    research summary posted October 20, 2015 by Jennifer M Mueller-Phillips, tagged 04.0 Independence and Ethics, 04.09 Individual & Team Conduct - e.g., premature signoff, underreporting hours, 08.0 Auditing Procedures – Nature, Timing and Extent, 08.04 Auditors’ Professional Skepticism, 09.0 Auditor Judgment, 09.06 Adequacy of Disclosure 
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    Title:
    Client Identification and Client Commitment in a Privately Held Client Setting: Unique Constructs with Opposite Effects on Auditor Objectivity.
    Practical Implications:

    The results of this study suggest a course of action for enhancing professional skepticism, so they are important for audit firms specializing in privately held clients, which is an institutional setting where auditors may find it more difficult to maintain their objectivity. The authors suggest that audit firms can use their internal messaging to help individual auditors decrease the harmful effects of client identification. Specifically, audit firms can encourage auditors to (1) take the perspective of financial statement users (e.g., shareholders), (2) view themselves and clients as members of a group assigned the goal of providing accurate financial statements to shareholders, and/or (3) identify more strongly with the audit firm or the audit profession. Furthermore, the authors suggest that audit firms increase client commitment by encouraging auditors to be more attentive and available to clients (e.g., catching up with clients periodically and spending more time at the client site) and encouraging clients to feel free to reach out to auditors.

    Citation:

    Herda, D. N. and J. J. Lavelle. 2015. Client Identification and Client Commitment in a Privately Held Client Setting: Unique Constructs with Opposite Effects on Auditor Objectivity. Accounting Horizons 29 (3): 577-601.

    Keywords:
    organizational identification, organizational commitment, social identity theory, social exchange theory, auditor objectivity
    Purpose of the Study:

    Prior accounting scandals raised concerns that auditors’ relationships with their clients lower auditor independence, which in turn lowers professional skepticism, and ultimately decreases audit quality. Accounting research attempting to shed light on the social processes related to such concerns suggest that client identification can decrease auditor. However, the authors argue that client identification (i.e., “the extent to which an auditor’s self-concept and self-definition are derived from perceived oneness with the client”) differs from client commitment (i.e., “a responsibility for and a dedication to the client, but the auditor and client remain separate psychological entities”). The purpose of this study is to discover if (1) client identification and client commitment are two different ideas, (2) client identification detracts from auditor objectivity, and (3) client commitment enhances auditor objectivity.

    Design/Method/ Approach:

    The authors collected their evidence via research questionnaires emailed to auditors, ranging from staff auditors to partners, at a large regional public accounting firm during the summer of 2013. Survey participants were asked questions about client identification and client commitment, and then were asked to perform a case that dealt with auditors’ behavior in an audit conflict situation.

    Findings:
    • The authors find that client identification and client commitment really are two different ideas.
    • The authors find that client identification is associated with lower auditor objectivity.
    • The authors find that client commitment is associated with higher auditor objectivity.
    • The authors find that number of years of audit experience impacts auditor objectivity for auditors at lower levels in the audit firm’s hierarchy (i.e., staff auditors and seniors), but not those at higher levels in the hierarchy (i.e., manager and above). In other words, more junior staff exhibit greater audit objectivity if they have more years of audit experience.

    These results suggest that audit firms specializing in privately held clients may enhance audit quality by decreasing auditors’ client identification and increasing auditors’ client commitment.

    Category:
    Auditing Procedures - Nature - Timing and Extent, Auditor Judgment, Independence & Ethics
    Sub-category:
    Adequacy of Disclosure, Auditors’ Professional Skepticism, Individual & team conduct (e.g. premature signoff - underreporting hours)