Sustaining Mutual and Market Interests in the Auditor and Corporate Client Relationship

This paper reviews the accounting literature on the audit function, the auditor-client manager relationship, and the possible influence of these relationships on auditor independence. The negotiation interactions between client managers and auditors and the distribution of power reveal the superior position of client management. The interactions also reveal that auditors participate in potential joint ventures. Auditor independence may be subject to compromise to sustain effective relationships with corporate client management even with the presence of a monitoring mechanism such as a board of directors. To ensure favorable opinions from their current auditors, managers may utilize any available possible means. A thorough audit that displeases client management comes at a cost for auditors who can be viewed as economic agents serving their own interests. To sustain confidence in attesting and assurance services, auditors must appear independent to external parties to provide assurance that auditors provide valuable services that support a ‘functional’ market. Trust placed in auditors and, thus, the capital market is possible as long as auditors appear independent