The Auditor’s Dilemma: An economic perspective on an old problem

Abstract

This paper analysis the pressures that come to bear on the financial auditor of corporate accounts. It is argued that the integrity and independence of the auditor is a portion of the service quality which they bring to the exercise of providing an audit opinion. An economic model is then brought into play in order to illustrate how meeting public expectations, meeting the competitive environment, pleasing the client-company and fulfilling the appearance of independence with practice create pressures on the auditor to produce an ‘opinion’ that is less than independently-informed. The paper concludes with recommendations that may provide greater incentives for the auditor to conduct an ethical audit.