The Influence of Auditor Independence on Audit Quality and Investor Confidence in Capital Markets

Posted: Jan 03, 2023

• Nathan Reed
• Georgia Adams
• Declan Greene

Abstract

The concept of auditor independence has long been recognized as a cornerstone of financial reporting quality and capital market integrity. Traditional approaches to studying auditor independence have predominantly focused on financial relationships and regulatory compliance, often overlooking the complex web of social, cognitive, and institutional factors that shape independence in practice. This research breaks new ground by developing an integrated theoretical framework that conceptualizes auditor independence as a multi-dimensional construct influenced by both tangible financial arrangements and intangible behavioral dynamics. Our investigation addresses several critical gaps in the existing literature. First, we move beyond the conventional binary classification of independence violations to develop a continuous, multi-faceted independence metric. Second, we examine how different types of independence impairments—financial, social, cognitive, and institutional—interact to influence audit quality. Third, we explore the mechanisms through which independence concerns transmit to investor confidence.