Realizing Auditor Independence in China: Insights from the Local Context

• Published in: Contemporary Management Research Vol. 12; no. 2; pp. 245 - 272
• Main Authors: Huiying Wu, Sammy Xiaoyan Ying
• Format: Journal Article
• Language: Chinese
• Published: 台灣 Academy of Taiwan Information Systems Research 01.06.2016
• Subjects: Auditing; Auditor Independence; China, Local Context
• ISSN: 1813-5498; 1813-5498

This study contributes to context-based auditing research by providing insights into the realization of auditor independence in China’s politico-economic and cultural context. Given the increasing legitimizing power and wide diffusion of Western corporate governance and accountability, it is crucial to examine the practice of imported concepts in countries such as China, where the development of accounting profession has taken a different path and been shaped by contextual influences different from those of Anglo-American countries. Twenty-one semi-structured interviews were used to obtain insights into auditor independence. The findings suggest a discrepancy between the imported construct of auditor independence and China’s institutional context. China’s politico-economic and social contexts have narrowed construction of auditor independence to its economic dimension. Given the pervasiveness of guanxi, low legal risk, and intense competition in the audit services market, Chinese auditors are under pressure to lower audit fees, avoid issuing qualified opinions, and provide additional advice and assistance on financial reporting. We argue that when auditor independence, as developed in Western economies, is implemented in transitional economies, there is a need to take into account its ability to adapt.