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    The Effects of Client Identity Strength and Professional...
    research summary posted February 17, 2015 by Jennifer M Mueller-Phillips, tagged 04.0 Independence and Ethics, 04.07 Audit Firm Rotation, 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind 
    The Effects of Client Identity Strength and Professional Identity Salience on Auditor Judgments
    Practical Implications:

    The results of this study provide an improved understanding of the joint effects of identity strength and salience on auditor judgments. Even in a setting with no prior auditor-client history, auditors who more strongly identify with the clients (i.e., share common values) agree more with the client. This is informative to debates about auditor rotation and independence, as it highlights short-tenure independence threats that rotation is unlikely to mitigate. Fortunately, the results also suggest heightening professional identity salience is a cost-effective alternative to auditor rotation to maintain auditor independence, even when auditor tenure is short.

    For more information on this study, please contact Tim Bauer.


    Bauer, T. D. 2015. The effects of client identity strength and professional identity salience on auditor judgments. The Accounting Review 90 (1): 95-114.

    auditor independence; professional skepticism; professional identity; client identity; identity salience; identity strength.
    Purpose of the Study:

    Considerable accounting research, as well as recent proposed and mandated audit regulation has focused on auditor independence threats arising over long auditor tenure. Psychology research, however, suggests independence threats also likely arise when auditor tenure is short because auditors can quickly develop a strong client identity (i.e., overlap of norms and values), due to extensive auditor-client interaction. Rotation can even accelerate strong identity formation because it can increase bidding for clients and research has shown auditors try to strengthen social bonds with clients during the client acquisition process. This raises questions about the effectiveness of mandatory audit partner or firm rotation to address independence concerns.

    Relying on Social Identity Theory (SIT), this paper examines mechanisms for promoting auditor independence that can be implemented regardless of auditor tenure or rotation. Specifically, SIT suggests arousing an auditor’s identity as a professional (i.e., by increasing its salience) can promote auditor independence in mind, and mitigate threats to auditor judgment quality that stem from a stronger client identity. 

    Design/Method/ Approach:

    Two experiments are used to test hypotheses, in a setting with no prior auditor-client history.

    • Experiment One: going concern setting; conducted in 2010; participants are seniors, managers, and senior managers from several Big 4 accounting firms in Canada.
    • Experiment Two: inventory writedown setting; conducted in 2013; participants are seniors from a Big 4 firm in the U.S.
    • As predicted, auditors who identify more strongly with their clients, by sharing their values, agree more with the client’s preferred accounting treatment, unless the salience or arousal of their professional identity is heightened.
    • Further, as predicted, heightening professional identity salience increases professional skepticism. 
    Auditor Judgment, Independence & Ethics
    Audit Firm Rotation, Prior Dispositions/Biases/Auditor state of mind