Antecedents and consequences of independence risk: Framework for analysis

This paper presents a framework that explains how certain incentives affecting independence risk interact with situational factors to affect actual or perceived audit quality. The combined effects of direct incentives, indirect incentives, and judgment-based decisions involving difficult accounting issues, materiality, and audit conduct are articulated. A variety of factors are then identified that may mitigate independence risk, including corporate governance mechanisms, regulatory oversight, auditing firm policies, auditing firm culture, and individual auditor characteristics. Finally, the effects of independence risk on various stakeholders are discussed, and actions that should be taken by the auditing profession, auditing firms, regulators, and researchers are discussed.