CHOICE OF AUDIT FIRM

There may be situations in which the engagement of an audit firm by a client

company is not an independent decision. That is, there may be directors that

are members of the board of a number of companies that are able to influence

the decision through their ‘personal attachment’ to appoint an auditor. In their

review of prior research, Courtney and Jubb  report findings of a

positive association between companies with interlocking directorates and the

choice of audit firm. Courtney and Jubb investigate whether companies with

interlocking directorates will be associated with audit firm tenure, and find that

auditor-director links are positively associated with audit firm tenure. Such a

finding lends support to the view that longer audit firm tenure may be associated

with attenuated auditor independence.