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research summary

    Is mandated independence necessary for audit quality?
    research summary posted October 22, 2013 by Jennifer M Mueller-Phillips, tagged 04.0 Independence and Ethics, 04.03 Non-Audit Services, 11.0 Audit Quality and Quality Control 
    Is mandated independence necessary for audit quality?
    Practical Implications:

    In the unregulated baseball card market, only offering grading services does not appear to increase market share or market value.  This may have implications in the market for assurance services.  The authors note that offering non-audit services does not appear to negatively affect auditor independence.  Additionally, it may be argued that auditors increase value by realizing economies of scope through the supply of audit as well as non-audit services to their clients.

    For more information on this study, please contact Karim Jamal.


    Jamal, K. and S. Sunder. 2011 Is mandated independence necessary for audit quality? Accounting, Organizations and Society 36 (4-5): 284-292.

    Purpose of the Study:

    This study seeks to address audit independence and audit quality by drawing a parallel with the unregulated market for graded baseball cards sold in online auctions.  The baseball cards used in this study had either been graded by a professional grading service company or had not been professionally graded.  The authors note that some of the grading agencies only offer grading services, while others offer grading services in addition to other non-grading products sold in the trading card market.  This field experiment examines whether providing additional services such as publishing price guides or otherwise participating in the market of cards reduces the market’s perceived quality of the grading.  The authors draw a parallel from this research to the market for assurance services, noting that some auditors provide only auditing services to their clients while others provide non-audit services as well.  This research explores the idea that providing multiple services to a market impacts perceived independence and quality of the assurance service.

    Design/Method/ Approach:

    The authors collected market data from the online auction site eBay for 1,000 rookie baseball cards and created matched pairs of both graded and ungraded cards.  Graded cards had been graded by one of six different grading agencies.  Some of the grading agencies provided other, non-grading, services to the market while some only offered grading services.

    • The market for graded baseball cards rewards stricter graders, regardless of whether those graders provide other, non-grading, products to the market as well.
    • The majority of the market share for graders is controlled by the grading agencies who offer numerous products to the market, not just grading services.
    • Graders who only offer grading services appear to engage in grade inflation which is discounted by the market. 
    Audit Quality & Quality Control, Independence & Ethics
    Non-audit Services