An Analysis of Factors Affecting Auditor Independence in Small and Medium Accounting Firms

Posted: Mar 31, 2020

• Chase Harper
• Derek Ross
• Mira Bennett

Abstract

The preservation of auditor independence represents a cornerstone of financial reporting integrity and capital market confidence. While extensive research has examined independence issues in large audit firms, the distinctive dynamics within small and medium accounting practices remain comparatively underexplored through computational and systems-oriented approaches. Small and medium accounting firms operate within unique environmental constraints characterized by limited client portfolios, resource constraints, and personalized professional relationships that create independence challenges qualitatively different from those faced by their larger counterparts. Traditional research paradigms have typically approached auditor independence as a compliance issue analyzable through survey methods or archival studies of regulatory violations. This paper introduces an innovative methodology that reconceptualizes auditor independence as an emergent property of complex adaptive systems, where multiple factors interact in non-linear ways to produce outcomes that cannot be fully understood through reductionist analysis of individual variables. Our research addresses several critical gaps in the existing literature. First, we move beyond the predominant focus on economic dependencies to examine how cognitive, social, and organizational factors collectively shape independence judgments. Second, we employ computational simulation techniques that capture the dynamic evolution of independence.