Factors Impacting Auditor Independence in Auditing Profession

This report, authored by Ehsanul Quayoum from Angila Ruskin University, investigates the factors affecting auditor independence within the auditing profession. The study begins with an introduction that establishes the importance of auditor independence, the problem statement, and the aim of the study, which is to identify factors influencing external auditor independence. The literature review explores auditor independence, relevant theories like social identity, audit quality, and agency theories, and empirical studies. The research methodology section details the research philosophy, approach, design, strategy, sampling techniques, data collection, and analysis methods. The analysis and findings chapter presents the results, followed by a conclusion and recommendations section that summarizes the research, links findings to objectives, and suggests improvements. The report also includes a survey questionnaire and a comprehensive reference list. The study's significance lies in its contribution to understanding factors that influence the auditor's ability to provide unbiased financial reports. It investigates various factors such as competitive levels, the size of audit fees, and audit agency capabilities, and concludes with recommendations for enhancing audit processes and ensuring auditor independence.

Running head: AUDITOR’S INDEPENDENCE
Factors Affecting Auditor Independence
Name of Student: Ehsanul Quayoum
Student ID:1642610
Name of University: Angila Ruskin University
Author Note

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AUDITOR’S INDEPENDENCE
Acknowledgement
I would also like to take this opportunity to thank my professor without whose, constant support
and guidance, the research would not have been possible.
Firstly, I would like to thank God the Almighty in giving me the strength and courage without
which I could not have completed the entire study. Secondly, I would like to thank my family
and relatives who gave me constant support mentally and physically so that I can complete the
study on time. Lastly, I would like to give thanks to my peers and the friends who have helped
me in providing the appropriate information throughout the project and helped me in doing the
in-depth analysis of the research. Without their proper guidance, it is impossible for me to
complete the project.
Thanks and Regards,
Yours Sincerely,

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Abstract
The main aim of this research process was to study the factors that will help in creating an
impact on the independence of the auditors within the profession of auditing. It is considered to
be one of the main factors in this profession, as it has helped in diagnosing the objective factors
and the personal ones that can affect the independent factors of the auditors. The literature
review has helped in analyzing the various literature and theories that are present with the
auditing profession. The identification of the factors has helped in gaining better insights
regarding the factors that help in influencing the factors of independence.
The researcher has collected the data from the respondents in a true and honest manner that has
helped in carrying out the research process in a better manner and the manipulation that was not
done helped the researcher in carrying out the research in a professional manner. the analysis and
the findings have been done according to the statistical manner with the help of graphs and charts
so that it can result in presenting the figures in an efficient manner. Lastly, the researcher was
able to provide better recommendations regarding the factors so that it can help the auditors in
understanding the important factors, which will help them in doing the business in a better way.

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Table of Contents
Chapter 1: Introduction:...................................................................................................................6
1.1 Introduction:..........................................................................................................................6
1.2 Problem Statement:................................................................................................................7
1.3 Aim of Study:........................................................................................................................8
1.4: Research Objectives.............................................................................................................8
1.5 Research Questions................................................................................................................8
1.6: Research Hypothesis.............................................................................................................9
1.7 Significance of the Study:......................................................................................................9
1.8 Structure of Dissertation:.....................................................................................................10
Chapter 2: Literature Review.........................................................................................................11
2.1 Conceptual Framework:.......................................................................................................11
2.1.1 Auditor’s Independence: General Overview................................................................12
2.1.2 Terms and Definitions:.................................................................................................13
2.2 Factors Affecting Auditor’s Independence:.........................................................................14
2.2.1 Personality:...................................................................................................................14
2.2.2 Rules and Regulations:.................................................................................................15
2.2.3 Familiarity:...................................................................................................................15
2.3 Social Identity Theory:........................................................................................................16
2.4 Audit Quality Theory:..........................................................................................................17

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2.5 Agency Theory:...................................................................................................................17
2.6 Auditing Pillars: Competence and Independence................................................................19
2.7 Testing Auditor’s Competence and Independence:.............................................................19
2.8 Empirical Studies on factors affecting Auditor’s Independence:........................................21
Factors affecting independence of external auditors.....................................................................23
Objective factors........................................................................................................................23
Size of audit firm...................................................................................................................23
Provision of non-audit services.............................................................................................24
Tenure with the client............................................................................................................24
Competition level in the audit service market.......................................................................25
Chapter 3: Research Methodology................................................................................................26
3.0: Introduction........................................................................................................................26
3.1: Research Outline.................................................................................................................26
3.2: Research Philosophy...........................................................................................................27
3.2.1: Justification of positivism philosophy.........................................................................28
3.3: Research Approach.............................................................................................................28
3.3.1: Justification for deductive approach............................................................................29
3.4: Research Design.................................................................................................................30
3.4.1: Justification for descriptive design..............................................................................30
3.5: Research strategy................................................................................................................31

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3.5.1: Justification for the survey strategy.............................................................................31
3.6: Sampling technique and sampling size...............................................................................32
3.6.1: Justifying the selection of probability sampling technique.........................................33
3.7: Data collection technique...................................................................................................33
3.7.1: Justifying the primary data collection technique.........................................................34
3.8: Data analysis technique......................................................................................................34
3.8.1: Justification for SPSS..................................................................................................34
3.9: Ethical Considerations........................................................................................................35
3.10: Summary...........................................................................................................................35
Chapter 4: Analysis and Findings..................................................................................................36
Chapter 5: Conclusion and Recommendations..............................................................................69
5.1: Conclusion..........................................................................................................................69
5.2: Linking with objectives......................................................................................................69
5.3: Recommendations..............................................................................................................70
5.4: Scope of the research..........................................................................................................71
Reference List................................................................................................................................72
Appendix........................................................................................................................................79
Survey Questionnaire.................................................................................................................79

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Chapter 1: Introduction:
1.1 Introduction:
The independence and neutrality of the auditor is the most significant principles that is
being recognized by the consecutive global conferences held during the previous year’s Supreme
Audit Institutions of the representatives of the nations on global basis. It has been one of the key
concerns for both the shareholders and became the relevance of this principle is predictable in
securing a main concern over the money of the public in efficient manner for managing of the
economy (Alzeban and Gwilliam 2014).
The independence of the external auditor is stated to be one of the most significant issues
received by the audit with substantial attention since the initiation of the concerto of the audit
profession is viewed as a fundamental player in suggesting the corporate management and
organizations in performing their roles and responsibilities in proper manner. It is important for
the auditor on executing their functions with apt responsibility and professional mode, the
significance of the autonomy of the external auditor cannot be exaggerated. It has been one of
the important factors in understanding the factors having the capability in influencing the
exercise of audit through jeopardizing the independence factor of external auditor (Tepalagul and
Lin 2015).
In this perspective, the aim of this paper is in studying the factors impacting the
independence of the external auditor in the profession of auditing, and the liberty of the external
auditor has got with bigger interest by the researchers in the auditing field. The reason for the
same is that independent auditors as the prime basis for the eminence of the process of audit and
then the investors’ confidence in the non-financial and financial information, this area have been

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tried by many of the articles undertaking the relationship between the external auditor’s
independence and audit process quality (Abbot et al. 2016). There exists difference in the views
among all the revelries interested within the audit concept about the auditor’s independence and
the audit quality indicating the crystallization of the thought of the auditor’s independence and
the significant factors influencing it in the profession of audit (Dhaliwal et al. 2015).
The researcher would be following both the historical method in keeping track of the
prior studies that have to make the study relevant, inductive approach along with descriptive
approach in determining the influence of the factors on the factor of independence of external
auditors. This would be increasing the efficacy and competence level of the process of audit
through the extrapolation of the studies and the research in describing the impact of external
auditor’s independence on the profession of audit (He et al. 2017).
1.2 Problem Statement:
Audit is fundamentally entrusted with the task of exposure in the statements financially
and this realism is what the users of the information of accounting expect. However, the auditors
might not ensure this reality and this reality might fall short of the expectation of the users. This
deficit within the effectiveness of audit is being broadly branded as the expectation gap of audit.
On most occasions the users of financial statement deem an auditor report to be the clean
statement for health (Cannon and Bedard 2016). Thus most of the expectations of the users
towards the auditor is actually more than what it should be. The expectation within the gap
occurs when there are dissimilarities between the expectations of the public from the auditor and
the actual offerings of the auditor (Knechel and Salterio 2016).
This generally put the auditor’s reporting and investigative independence in peril that
might defeat the principle of the audit of public and corrode the independence. It is therefore not

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much clear if the factor of independence of the auditor has any considerable impact on the
accountability of the private industry. Auditor’s independence is primary to the confidence of the
public in the factor of financial reporting along with the profession. This study focuses on
providing added understanding of the factors influencing the independence of the auditor
(DeFond and Zhang 2014).
1.3 Aim of Study:
The primary aim of this study is in identifying the factors that affects the independence of
the external auditor. The sub-aims are:
a. To identify the factors that is being classified into the intent factors and other personal
affecting the varying degrees on the factor of independence of the external auditor
b. To evade the negative effects of the factors on the independence
1.4: Research Objectives
a. To identify the competitive level among the auditors regarding the independent factors
b. To identify the factors that lead to independence of the auditors
1.5 Research Questions
The problem of this particular study is in answering the following questions, including:
a. What are the aspects influencing the independence of the external auditor in the profession of
auditing?
b. What is the precedence of the factors that affects the independence of the external auditor in
the profession of auditing?

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c. What is the consequence of the size of the fee of audit on the auditor’s independence factor?
d. How does the audit agency capability influence the independence of the auditor?
1.6: Research Hypothesis
The research will be based on the following hypothesis:
H0- The other services that are provided by the auditors will not help in gaining a competitive
advantage
H1- The other services that are provided by the auditors will help in gaining a competitive
advantage
1.7 Significance of the Study:
The key importance or significance of the study lies in the fact that it would be shedding
light to proclaim the factors that impact on the independence and impartiality the external auditor
in the profession of auditor. The present study recognized by the several factors influencing the
auditor’s independence among the organizations in depicting the most consistent financial
statements. Auditors have been facing several challenges in their endeavor of ensuring ethical
and accurate depiction of the financial reports of the organization for which they work. The fact
that auditor is generally been employed or tapered by the corporations for which they are
auditing signifying they have been at the mercy of the employers and the way they illustrate
information is critical. This present study would shed light on the aspects and the ways they can
be functional in making the process of auditing appropriate. The upshot of the study would
importantly advance the knowledge frontier adding to the existing academic literature on the
independence of auditor.

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1.8 Structure of Dissertation:
This dissertation would be consisting of 5 segments or chapters that would be taken into
consideration by the researcher. The 1st chapter introduced the topic to the reader along with the
research questions, its objectives and significance of the same. The second chapter dealt with the
literature review on the subject, focusing on what the previous researches had to say or discussed
on the matter. The third chapter is about research methodology taking in the sorts of research
types and the ways data would be collected or gathered from various sources for analysis. The 4th
chapter is about the analysis part where the researcher would be evaluating the data gathered
from various sources. The last chapter is the conclusion and recommendation part where the
researcher would provide a full summary of the research along with suggestions on the things
that could be done to better the situation. The limitations of the study and the scope for future
research would be taken into account to for this research study.

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Chapter 2: Literature Review
2.1 Conceptual Framework:
(Source: Created By Author)
Size of the audit
firms
Non-audit
services
Tenure of client
Level of
competition
Personality
Familiarity
Auditor
Independence
Hypothesis