Date of Award

Summer 1997

Document Type


Degree Name

Doctor of Business Administration (DBA)


School of Accountancy

First Advisor

John Shaver


The purpose of this dissertation is threefold: (i) to establish hypotheses relating financial liability to certain auditor behaviors discussed in the independence literature, (ii) to empirically validate that the presence of these behaviors will increase auditor financial liability over the normal audit situation, and (iii) attempt to explain the differences in subjects' perceptions for each of the behavioral scenarios studied.

A survey instrument was developed and administered to three groups of subjects: an impaneled jury, bankers, and CPAs. The instrument contained a vignette describing an annual audit situation where the company filed for bankruptcy subsequent to the issuance of the audited financial statements. The subjects were asked to respond to seven independent situations. The first was a normal audit in which only annual audit services were provided. The other scenarios involved behaviors that are perceived to impair auditor independence.

Using a single-factor repeated measures design the results indicated that for each subject group there were statistically significant differences in the expected direction between the normal audit and some of the behavioral scenarios. At least one group identified each behavioral scenario as increasing the auditor's financial liability as a result of that auditor-auditee relationship.

A multiple regression analysis was performed for each of the audit situations to explain the differences in financial liability perceptions as a result of subject group membership and demographic and socioeconomic variables. It was found that in the normal audit and five of the six behavioral scenarios, bankers attributed greater auditor financial liability than did jurors and CPAs. The banker parameter estimate was positive and statistically significant. Only in the audit fees scenario did both bankers and jurors attribute greater auditor financial liability than did CPAs. Additional variables such as ethnic background, educational level, and the number of auditing and accounting courses completed were also found to be significant in some of the scenarios.

In contrast to prior research, the results of this study indicate that jurors and CPAs have similar perceptions with respect to the financial liability of auditors. The expectation-performance gap appears to be between bankers and others, including the general public and financial statement preparers.

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