Perceptions of Auditor Independence : U

The reality and perception of auditor independence is fundamental to public confidence in financial reporting. A new Independence Standards Board was set up in the U.S. in 1997 and the European Union (EU) is currently seeking to establish a common core of independence principles (EC Green Paper 1996). This paper explores, using a questionnaire instrument, U.K. interested parties' perceptions of the influence on auditor independence of a large set of 58 economic and regulatory factors. Forty-six factors have a significant impact on independence perceptions for all groups (finance directors, audit partners, and financial journalists). The principal threat factors relate to economic dependence and non-audit service provision, while the principal enhancement factor is the existence of an audit committee. Exploratory factor analysis reduces the factor set to a smaller number of uncorrelated underlying dimensions. Perceptions regarding many independence factors are found to be contingent upon characteristics of the respondents' ongoing audit relationships (in particular, audit firm type and company size).