AUDITING: A JOURNAL OF PRACTICE & THEORY

Vol. 26, No. 2

November 2007
pp. 1–24

Auditors’ Identification with Their Clients

and Its Effect on Auditors’ Objectivity
E. Michael Bamber and Venkataraman M. Iyer
SUMMARY: This study empirically models auditors’ relationships with their clients. The
Independence Standards Board (ISB 2000) identified auditors’ familiarity with the client
as one of five threats to auditor independence. Yet familiarity with the client is neces-
sary for auditors to understand the client well enough to plan and perform an effective
and efficient audit. We introduce a theory-based measure of the extent to which au-
ditors identify with a client, which we then use to directly measure auditors’ attachment
to the client and the threat of this attachment to auditors’ objectivity. The responses
of 252 practicing auditors support our theoretical predictions. Specifically, we find that
auditors do identify with their clients and that auditors who identify more with a client
are more likely to acquiesce to the client-preferred position. On the other hand, more
experienced auditors and auditors who exhibit higher levels of professional identifica-
tion are less likely to acquiesce to the client’s position.

Keywords: auditor objectivity; client identification; professional identification; Social

Identity Theory.
In the old days, you used to think it would be great to be so experienced, knowing the
client’s business. It used to be terrific to have a good relationship with your client, so they
would talk to you and tell you a lot of things. The world has changed. Perceptions have
changed.
—Susan Frieden, Vice Chairman for Quality, Ernst & Young
(as quoted in The Washington Post, 2003)

INTRODUCTION

T
he recent debate on regulating auditors centers on auditor independence and the
nature of the relation between auditors and their clients. The Independence Standards
Board identifies auditors’ familiarity with the client as one of five threats to auditor
independence (ISB 2000). To foster auditor independence and objectivity, the Sarbanes-
Oxley Act of 2002 bans auditors from various consulting activities, tightens partner rotation
requirements, and raises the issue of accounting firm rotation. The untested assump-
tion behind these new regulations is that the close ties between auditor and client are

E. Michael Bamber is a Professor at the University of Georgia and Venkataraman M. Iyer

is an Associate Professor at the University of North Carolina at Greensboro.
The comments of Ken Trotman (Associate Editor), two anonymous reviewers, Linda Bamber, Denny Beresford,
Tina Carpenter, Christine Earley, Jackie Hammersley, Bob Ramsay, participants at the 2004 AAA Meeting in
Orlando, and our anonymous reviewer for that meeting are greatly appreciated.

Submitted: February 2006

Accepted: November 2006

1
2 Bamber and Iyer

inappropriate because they impair auditors’ objectivity in performing the audit, which in
turn contributes to perceived audit failures such as Waste Management, Global Crossing,
and Enron. Yet auditors must be familiar with their client and its management to understand
the client well enough to plan and perform an effective and efficient audit (AICPA 2005a).
This conflict between: (1) auditors’ need to be familiar with the client in order to perform
the audit, versus (2) the threat to objectivity from this familiarity, has led critics to argue
that it is not possible to expect auditors to exercise objective, unbiased judgment (e.g.,
Bazerman et al. 2002).
The purpose of our study is to empirically model auditors’ relationships with their
clients. We have three objectives. First, we rely on Social Identity Theory (Tajfel and Turner
1985; Turner 1987) to develop and test a theory-based measure of the extent to which
auditors identify with their clients. We use this measure to test whether auditors identify
with their clients, and if so, whether this identification differs across auditors. Second, we
examine outcomes of auditors’ identification with their clients. For example, we test whether
auditors who identify more with a client are more likely to acquiesce to pressure from
client management to allow the client to take aggressive accounting positions. Third, we
examine antecedents to client identification. In particular, we search for factors that increase
client identification, and examine whether auditor rotation might reduce auditors’ client
identification and increase their objectivity.
Evidence on auditors’ identification with their clients is important for two reasons. First,
auditor independence and audit quality are central to the SEC’s and PCAOB’s efforts to
protect investors (PCAOB 2005, 2006). The ISB (2000) explicitly recognizes client iden-
tification as a potential threat to auditors’ independence and objectivity. The ISB’s concern
is supported by a large body of research in social psychology and organizational behavior
finding that social identities significantly affect individuals’ attitudes and behaviors (for
reviews, see Hogg and Terry 2000; Ellemers et al. 2002; Riketta 2005). Prior accounting
research does not address the effect of social forces or incentives on auditors’ objectivity,
but instead focuses on the threat to independence from auditors’ financial incentives.1 Other
research (i.e., King 2002) examines the influence of audit team affiliations on auditors’
objectivity. However, we are unaware of any evidence on auditors’ cognitive-based personal
relations with their clients. Our study addresses this void in the literature. Similar to the
prior research probing the threat to auditor objectivity from financial incentives, we examine
the threat to auditor objectivity from auditors’ cognitive-based personal relations with clients
arising before passage of the Sarbanes-Oxley Act. We explicitly test the ISB’s (2000)
concern about the threat of client identification that, in turn, provides evidence about
whether regulators need to be concerned with auditors’ social incentives as well as with
their economic incentives. In addition, to the extent that client identification has an adverse
effect on auditor objectivity, our results provide a benchmark for testing the effects of
subsequent PCAOB interventions.
The second reason why the distinction between cognitive-based vis-à-vis financially
based threats to objectivity is important is because corrective interventions to minimize

1
For example, experimental research finds that auditors are more likely to favor a client-preferred treatment when
there is a salient financial incentive to do so and GAAP is ambiguous (e.g., Hackenbrack and Nelson 1996;
Salterio 1996; Salterio and Koonce 1997; Haynes et al. 1998; Mayhew et al. 2001; Kadous et al. 2003). Recent
archival research using audit fee data provides little support for concern that the provision of nonaudit services
compromises auditor objectivity (e.g., DeFond et al. 2002; Frankel et al. 2002; Chung and Kallapur 2003;
Ashbaugh et al. 2003; Reynolds et al. 2004). However, an important limitation of this research is that the
measures of audit firm dependence on the client solely reflect financial dependence. Chung and Kallapur (2003,
951) recognize that these studies ‘‘investigate auditor incentives to compromise independence based on financial
interest, not other factors such as personal relationships.’’

Auditing: A Journal of Practice & Theory, November 2007

Auditors’ Identification with Their Clients and Its Effect on Auditors’ Objectivity 3

negative effects of cognitive-based personal relations (and more generally social incentives)
differ from corrective interventions to minimize the threats from financial incentives. For
example, reducing partner compensation for selling additional services may ameliorate fi-
nancial disincentives to objectivity, but it is unlikely to affect any loss of objectivity arising
from auditors’ cognitive-based identification with the client.2 In sum, evidence on the nature
of auditors’ client identification and determinants of this identification is necessary to de-
velop interventions that will minimize potential threats from client identification.
A field-based analysis (Gibbins and Newton 1994; Gibbins and Trotman 2002) involv-
ing the responses of 252 practicing auditors supports the construct validity of our measure
of auditors’ client identification. We find that auditors do identify with their clients. How-
ever, we also find significant variability across auditors in the level of client identification,
and on average, client identification is lower than professional identification. The likelihood
that auditors will acquiesce to the client-preferred treatment of certain unrecorded liabilities
increases as they identify more closely with the client, and decreases as they identify more
closely with their profession. Our results further suggest that client image, the perceived
importance of the client, and the number of years the individual auditor has been on the
engagement are all associated with greater identification with the client. While auditors’
client identification impairs their objectivity, we find that neither client size (a proxy for
economic dependence) nor audit firm tenure adversely affect auditor objectivity—similar
to recent archival research findings (e.g., Reynolds and Francis 2000; Johnson et al. 2002;
Myers et al. 2003; Ghosh and Moon 2005).
Our evidence on the existence of client identification and its impairment of auditor
objectivity supports the ISB’s (2000) and others’ concerns that auditors who are too close
to their clients may lose independence. Our evidence supporting Social Identity Theory’s
predicted determinants of auditor client identification suggests that Social Identity Theory
provides a relevant lens for understanding auditors’ client identification. However, the
study’s results suggest that there are no simple solutions to ensuring auditor objectivity.
For example, although professional identification is associated with greater auditor objec-
tivity, professional identification alone is not enough to mitigate the negative effect of client
identification on auditor objectivity. Social Identity Theory suggests that multiple identities
can exist relatively independently of each other. Having established the existence of audi-
tors’ client identification, future research can investigate interventions to minimize client
identification’s negative outcomes. Finally, our evidence that client identification increases
with the length of time the auditor has audited the client provides some support for auditor
rotation. But consistent with recent archival research, our evidence on audit firm tenure
does not support audit firm rotation.
The paper proceeds as follows. The next section considers Social Identity Theory and
the justification for the client identity construct, and then presents the study’s hypotheses.
The third section describes the research method and the fourth section presents the results.
The final section discusses the study’s limitations, conclusions, and implications for regu-
lation of the profession and for future research.

THEORY AND HYPOTHESIS DEVELOPMENT

Social Identity Theory holds that individuals’ social identity results from a self-
categorization process, through which individuals cognitively group themselves with others.

2
Moreover, client identification and social incentives potentially impact all audit team members, while financial
incentives directly affect only a small proportion of the audit team.

Auditing: A Journal of Practice & Theory, November 2007

4 Bamber and Iyer

As such, Social Identity Theory potentially provides a cognitive-based explanation, in con-

trast to an economic-dependency explanation, for why clients may have too much influence
over their auditors. According to the theory, individuals classify themselves into multiple
social groups such as occupation, organization, division, gender, nationality, ethnicity, and
age (Turner 1987; Ashforth and Mael 1989). These multiple identities are distinct, and may
be compatible or competing with one another (Wallace 1995; Scott 1997). Researchers
find organizational identification in a variety of settings, including work groups (e.g.,
Wan-Huggins et al. 1998), soldiers (Mael and Ashforth 1995), college alumni (Mael and
Ashforth 1992), accounting firm alumni (Iyer et al. 1997), journalists (Russo 1998), co-
operative extension agents (Scott 1977), and auditors (Bamber and Iyer 2002).
These self-categorizations act as a point of departure for thinking and relating, thus
social identity increases the likelihood that the individual internalizes the group’s norms
and values. Adoption of a particular identity affects the way individuals interpret infor-
mation and make decisions (Lembke and Wilson 1998). Individuals tend to identify with
groups whose values appeal to the individual (Alvesson 2000). Moreover, these self-
categorizations may be viewed as separate and distinct identities so that, for example,
identification with one’s employing organization does not necessarily preclude identification
with one’s profession (Lachman and Aranya 1986; Wallace 1995; Bamber and Iyer 2002).
Nevertheless, individuals who see themselves primarily as professionals are likely to iden-
tify less with their employing firm, since the firm is secondary for their identity (Alvesson
2000).
Identification affects outcomes. For example, Deetz (1995) reports that professionals
who identify with a client are more likely to underreport the actual hours worked on a
project because they did not want the client to pay for work performed somewhat ineffi-
ciently. Iyer (1998) finds that accounting firm alumni are more likely to steer business to
their former accounting firm. King (2002) reports experimental evidence that a sense of
social identity among auditors partially counters the self-serving biases suggested to com-
promise auditors’ objectivity, and Towry (2003) finds that team identity affects an incentive
system’s effectiveness. In sum, there is widespread support for the cognitive-based identi-
fication construct and that professionals, including auditors, can have multiple identities.
Client Identification
Social Identity Theory predicts that service organization employees whose direct inter-
action with clients is a major part of their work will begin to identify with their clients.
For example, Alvesson (2000, 1109) finds that computer consultants who work at the cli-
ent’s location on a daily basis for many months report that ‘‘they sometimes knew the client
company better than their own employing company and that they experienced identity and
loyalty problems.’’ Auditors may work at the same client on a daily basis for long periods
and on a recurrent yearly basis. To perform an effective and efficient audit, auditors must
understand the client’s business, accounting, and information systems, and know its key
personnel (AICPA 2005a). Auditors may also view a client as a potential future employer.
For all these reasons, auditors are likely to identify with their clients. Figure 1 presents our
model of auditors’ identification with their clients.3 We now turn to a discussion of the
hypothesized relations.

3
A significant body of research (for a review, see Louwers et al. 1997) uses an ethical framework for examining
auditors’ objectivity and independence. Recently, this research (e.g., Shafer et al. 1999) examines the role of
consequences in detailing how moral judgment translates into auditor behavior. In contrast, Social Identity
Theory focuses on identification as a cognitively based cause for auditors to substitute a ‘‘client mindset’’ for
an ‘‘independent mindset.’’

Auditing: A Journal of Practice & Theory, November 2007

 Auditors’ Identification with Their Clients and Its Effect on Auditors’ Objectivity
FIGURE 1
Hypothesized Model of Auditors’ Client Identification and Client Acquiescence

Firm Tenure with

Auditor Tenure with Client Size (H5a)
the Client (H4) a
the Client (H1a)

+
+
Client Importance + Client Identification
(H1b) (H2)
+
Auditing: A Journal of Practice & Theory, November 2007

+
Auditor’s Client
Acquiescence
Client Image (H1c)

_ _

Professional Auditor Experience

Identification (H3) (H5b)

a
Since H4 is a null hypothesis, it will be tested using a two-tail test. We use one-tail tests for other hypotheses.

5
6 Bamber and Iyer

Antecedents
We first examine three factors Social Identity Theory suggests will affect auditors’ client
identification. The first factor is auditor tenure, that is, the length of time the auditor has
worked on the particular audit engagement. Dutton et al. (1994) argue that the longer one
remains with an organization, the more salient the organizational membership becomes for
self-categorization. A number of studies find that time employed increases organizational
identification (e.g., O’Reilly and Chatman 1986; Mael and Ashforth 1992). Similarly, we
expect the extent to which auditors identify with the client increases with the length of
time the auditor has been assigned to that client:4

H1a: Auditors’ identification with the client increases with their tenure with the
client.

Second, we hypothesize that the importance of the client to the auditor’s office will
increase the auditor’s identification with the client. Key clients are often the largest clients
(Reynolds and Francis 2000; Chung and Kallapur 2003), and auditors spend long periods
of continuous time (if not exclusively) working on these clients. These are often also
desirable clients because of the visibility and work experiences they provide. Social Identity
Theory suggests that the positive effects on auditors’ self-image from being assigned to
such clients, combined with the significant periods of time on the engagement, will increase
client identification. Accordingly:

H1b: Auditors’ identification with the client increases with the client’s
importance.

The third factor we expect to affect auditors’ client identification is client image, which
Social Identity Theory suggests is an important determinant of social identity. Individuals
tend to identify with groups that have an appealing image so that the association with the
group increases the individual’s own image and self-esteem. Wan-Huggins et al. (1988)
find that construed external image (i.e., employees’ beliefs that customers and others in the
industry perceive their company as a good place to work) is an important determinant of
employees’ own identification with their company. Iyer et al. (1997) find that an accounting
firm’s perceived prestige is positively related to the alumni’s continued identification with
their former firm. Within an auditing firm’s portfolio of clients, certain clients have more
prestige, both among the professionals within the firm and in the community outside the
firm. Auditors may also view such clients as offering desirable future employment oppor-
tunities. Accordingly, we expect auditors’ perceptions of the client’s construed external
image to increase their client identification:

H1c: Auditors’ identification with the client increases with the client’s image.

Client Identification and Objectivity

If auditors do exhibit significant levels of client identification, it is necessary to deter-
mine when this affiliation compromises auditor objectivity. Objectivity requires the auditor
to make unbiased audit judgments instead of simply acquiescing to the client’s wishes (ISB

4
Evidence on this hypothesis is important because the Sarbanes-Oxley Act’s reduction of the time between partner
rotations responds to the concern that auditors become too close to their clients.

Auditing: A Journal of Practice & Theory, November 2007

Auditors’ Identification with Their Clients and Its Effect on Auditors’ Objectivity 7

2000). Rule 102, Integrity and Objectivity, of the AICPA Code of Professional Conduct
(AICPA 2005b) requires that a member ‘‘shall be free of conflicts of interest, and shall not
knowingly misrepresent facts or subordinate his or her judgment to others.’’5 Objectivity is
at the heart of the auditor’s value to society: to provide an unbiased opinion on the fairness
of financial statements (Johnstone et al. 2001). Given their professional training, auditors
may be able to control the extent of their identification with the client so that it does not
impair their professionalism and objectivity. Alternatively, identification with the client may
interfere with auditors’ objectivity by inducing judgment bias. In a study of lawyers in a
large city, Wallace (1995) finds that professionals can be highly committed to both their
organization and their profession, and that identification with one does not necessarily affect
their identification with the other. Similarly, Bamber and Iyer (2002) find that auditors
exhibit relatively low levels of conflict between identification with their employing firm and
identification with their profession, suggesting that auditors can manage competing demands
from their firm and profession. If auditors can manage these competing demands, perhaps
they can also maintain their objectivity despite identifying with the client.
While prior research has not directly examined how client identification affects auditors’
judgments, there is reason to believe that it impairs auditors’ objectivity. For example, Mautz
and Sharaf (1961, 208) warned auditors that ‘‘the greatest threat to his independence is a
slow, gradual, almost casual erosion of his ‘honest disinterestedness.’’’ More recently, the
Independence Standards Board’s A Conceptual Framework for Auditor Independence
(2000) lists familiarity, ‘‘threats that arise from auditors being influenced by a close rela-
tionship with an auditee,’’ as one of five threats to auditor independence.6 Johnstone et al.
(2001) also identify interpersonal relationships between the auditor and client as an incen-
tive that creates a risk to independence. Accordingly, we hypothesize that auditors’ iden-
tification with their clients impairs their objectivity so that the likelihood auditors acquiesce
to the client-preferred treatment increases with the extent to which they identify with the
client.

H2: Auditors’ acquiescence to the client-preferred treatment increases with the

extent to which they identify with the client.

Professional Identification
While client identification may pose a threat to auditor objectivity, other features of
the audit may offset this threat. One factor is auditors’ professional identification. Aranya
et al. (1981) argue that a professional affiliation is both separate from and precedes the
development of an affiliation to a particular organization. Even when CPAs leave public
practice, they often keep their certification and AICPA affiliation. Auditors who identify
with their profession are more likely to internalize the profession’s norms and values. As
a result, professional identification should promote professional behavior and auditors’ ob-
jectivity (Johnstone et al. 2001). Just as we hypothesize that auditors’ acquiescence to the
client-preferred treatment increases with their identification with the client, we expect au-
ditors’ professional identification to reduce their willingness to acquiesce to the client-
preferred treatment.

5
Arens et al. (2003, 90) illustrate the meaning of objectivity as follows: ‘‘assume that an auditor believes that
accounts receivable may not be collectible, but accepts management’s opinion without an independent evaluation
of collectibility. The auditor has subordinated his or her judgment and thereby lacks objectivity.’’
6
This concern is also evidenced in the Sarbanes-Oxley Act’s requirement that both the engagement partner and
the concurring partner rotate off the engagement after five years.

Auditing: A Journal of Practice & Theory, November 2007

8 Bamber and Iyer

H3: Auditors’ acquiescence to the client-preferred treatment decreases with the

extent to which they identify with their profession.

Audit Firm Tenure

One proposal to reduce threats to auditor objectivity is requiring rotation of audit firms
in order to limit audit firm tenure. This rotation is aimed at preventing the audit firm from
becoming too dependent on a client over time. The Metcalf Committee (U.S. Senate 1976,
21) first proposed that ‘‘mandatory auditor rotation is a way to bolster auditor indepen-
dence’’ and, most recently, the Sarbanes-Oxley Act charged the Comptroller General with
studying this issue. However, the subsequent study by the General Accounting Office (2003)
questioned whether potential benefits from mandatory audit firm rotation would outweigh
the resulting financial costs and loss of institutional knowledge. Indeed, archival research
finds that audit firm tenure is associated with higher audit quality. Alleged audit failures
(AICPA 1992) and litigation risk (Palmrose 1986, 1991) are higher in the early years of an
engagement. Myers et al. (2003) find that for a sample of auditor-client relationships that
last for more than four years (mean 10.5 years), the length of time the firm has audited the
client is positively associated with earnings quality (as proxied by measures of accounting
accruals). Similarly, Ghosh and Moon (2005) conclude that investors and information in-
termediaries perceive audit firm tenure as improving audit quality.
We extend this archival research by directly examining whether audit firm tenure affects
the objectivity of auditors’ judgments. If company-specific knowledge is gained by the audit
firm through years of experience auditing the client, this institutional knowledge may help
the individual auditor make better and more objective judgments. For example, this knowl-
edge may allow the auditor to rely less on management estimates and in doing so become
more objective (Solomon et al. 1999). Given that regulators think that firm rotation may
improve auditor objectivity while existing firm-level research suggests the opposite, we
propose the null hypothesis:

H4: Auditors’ acquiescence to the client-preferred treatment is not influenced by

audit firm tenure.

Contextual Factors
We include a client-specific variable and an auditor-specific variable to control for other
factors (beyond client identification, professional identification, and audit firm tenure) that
may affect the objectivity of auditors’ judgments. First, we control for client size. This
controls for auditors’ financial incentives to acquiesce to the client’s position because of
the audit firm’s economic dependence on the client (Reynolds and Francis 2000).7 Second,
we control for auditor experience because experience is associated with better performance
in many audit tasks (Bonner and Pennington 1991). More experienced auditors are better
able to withstand, for example, time pressure (McDaniel 1990) and client pressure
(Hackenbrack and Nelson 1996), and more experienced auditors have greater tacit mana-
gerial skills to better balance the competing demands faced in the audit (Tan and Libby
1997; Moreno and Bhattacharjee 2003).
In sum, we propose that auditors’ objectivity is impaired by client size, but increases
with auditor experience:

7
Moreover, research generally uses client size as a proxy for audit fees in the time period before the SEC required
companies to disclose audit fees (Reynolds et al. 2004).

Auditing: A Journal of Practice & Theory, November 2007

Auditors’ Identification with Their Clients and Its Effect on Auditors’ Objectivity 9

H5a: Auditors’ acquiescence to the client-preferred treatment increases with the

size of the client.
H5b: Auditors’ acquiescence to the client-preferred treatment decreases with
their experience level.8

METHOD
Sample
To examine client identification in a natural setting, we developed a research question-
naire to collect data for the study. Using the AICPA’s list, we selected a random sample of
1,250 CPAs employed as auditors in Big 5 firms, and mailed them the two-page instrument.
They were asked to return the completed instrument directly to us in an enclosed stamped
self-addressed envelope. Out of the 1,250 mailings, 123 were returned as undeliverable.
We received 204 responses to our first request. We mailed a second request to a random
sample of 500 nonrespondents and received 53 responses. The total of 257 responses rep-
resents a 22.8 percent response rate.9

Measures
Most of the study’s measures are adapted from scales validated in prior research. We
pilot tested the instrument with nine practicing auditors and made minor changes based on
their input. Participants responded to five-point Likert scales ranging from strongly disagree
(1) to strongly agree (5).
The measures for client identification and professional identification are based on the
Organizational Identification Scale (Mael and Ashforth 1992; Wan-Higgins et al. 1998). We
rephrased the five items in the Organizational Identification Scale to a professional orien-
tation in order to measure professional identification. Russo (1998) used a similar technique
to measure journalists’ professional identification. We constructed the client identification
measure in a similar manner. Specifically, participants thought of their largest client and
answered a set of questions related to identification, image, and importance of that client.
Prior auditing research (e.g., Gibbins and Newton 1994; Gibbins and Trotman 2002;
Gibbins et al. 2005; Fargher et al. 2005) has successfully used this recall method to elicit
responses from practicing auditors.10 Asking participants to focus on their largest client
should facilitate their responses and increase the power of our analyses.11 We adapted the

8
This hypothesis concerns participants’ experience as an auditor while H1a considers their auditor tenure or
experience with a specific client. In addition to auditor tenure positively influencing acquiescence through
increased client identification (H1a and H2), auditor tenure is likely associated with and contributes to auditors’
experience that operates to reduce acquiescence (H5b). In fact, subsequent data analysis finds a significant (p
⬍ 0.05) correlation of 0.41 between auditor tenure and experience level.
9
Multivariate analysis of differences between early and late respondents revealed no evidence of response bias
(Wilk’s Lambda ⫽ 0.94; F ⫽ 1.3, p ⫽ 0.22). We did delete five respondents who indicated they were no longer
in audit.
10
This approach is especially effective in examining the complex personal relations that exist in practice, but which
are difficult to capture experimentally (Gibbins and Trotman 2002). However, a potential bias is that respondents
answer in a way that they believe favors the profession. Such a bias operates against finding client identification
and its hypothesized effect on client acquiescence.
11
We were not overly concerned that this restriction would severely reduce the variability in the data, given
participants could be expected to work in different sized offices and some participants might work exclusively
on one client while others would have a portfolio of clients. The descriptive statistics reported later show
considerable variability in participants’ responses on client size, as well as the other variables. However, the
instruction to recall the largest client limits the generalizability of the study’s results.

Auditing: A Journal of Practice & Theory, November 2007

10 Bamber and Iyer

three-item organizational image scale (Mael and Ashforth 1992; Iyer et al. 1997) to measure
client image. We measured client importance using the question ‘‘Please assess the impor-
tance of this client to your office using the scale 1 ⫽ not at all important and 5 ⫽ very
important.’’ Participants indicated their tenure and their firm’s tenure with the client in years.
In addition to the above measures, we included a short case adapted from earlier re-
search about auditors’ behavior in an audit conflict situation (Knapp 1985; Iyer and Rama
2004). Participants’ responses to this case provide a measure of their objectivity for as-
sessing the potential consequences of their client identification. Again, we asked participants
to assume that the case involved their largest client. The case briefly describes a dispute
between the auditor and the client over the materiality of unrecorded liabilities. The client’s
management strongly disagrees with the auditor’s conclusion that the amount is material.
At issue is whether the auditor will acquiesce to the client’s wishes and effectively subor-
dinate his or her judgment to others. Participants indicated the likelihood that they would
accept the client-preferred treatment and not require the liabilities to be recorded in the
financial statements, by placing a mark on a probability line between 0 (very low likelihood)
and 100 (very high likelihood). The response captures the likelihood that the auditor will
resolve the conflict in favor of the client. That is, a higher score reflects a greater likelihood
that the auditor will acquiesce to management’s wishes, and not make an objective judg-
ment. The Appendix presents the measures and the judgment case used in the study.12

Analysis
We use the two-step structural equation procedure advocated by Anderson and Gerbing
(1988) to test the model presented in Figure 1.13 Using LISREL 8.3 (Jöreskog and Sörbom
1999), we first evaluate the measurement model to correct for measurement error, and we
then simultaneously estimate the revised measurement model and the structural equations
model with maximum likelihood estimation. The input data for this analysis is the polyserial
correlation matrix, which Jöreskog and Sörbom (1996) recommend when the data include
both ordinal and continuous variables. The structural equation analysis provides a simul-
taneous test of the study’s hypotheses.

ANALYSIS AND RESULTS

Descriptive Statistics
Table 1 presents the study’s descriptive statistics. Participants’ professional identifica-
tion score (mean ⫽ 3.71) is significantly higher (p ⬍ 0.001) than their client identification
(mean ⫽ 3.16), but both are significantly above the scale midpoint of 3.0 (p ⬍ 0.001).
Client importance (mean ⫽ 4.12) and client image (mean ⫽ 3.87) are also significantly
higher (p ⬍ 0.001) than the scale midpoint. Participants have audited their client for an
average of 4.6 years, and their firm has audited the client for an average of 20.4 years.
Participants’ mean experience with their firm is 10.3 years. The mean size of the audit
client chosen is $23.2 billion in total assets.14 The mean score of 39.18 for auditors’ client
acquiescence is significantly less than the scale midpoint (p ⬍ 0.001), and indicates that

12
These items were part of a larger questionnaire participants answered.
13
This procedure has been employed in a number of accounting studies (e.g., Dalton et al. 1997; de Ruyter and
Wetzels 1999; Fogarty et al. 2000).
14
Subsequent analyses use the log of client size because of its skewness.

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Auditors’ Identification with Their Clients and Its Effect on Auditors’ Objectivity 11

TABLE 1
Descriptive Statistics

Variable n Mean Median St. Dev. Min. Max.

a
Client Identification 252 3.16 3.2 0.675 1.40 4.80
Professional Identificationa 252 3.71 3.8 0.65 1.00 5.00
Client Importancea 247 4.12 4.0 0.93 1.00 5.00
Client Imagea 252 3.87 4.0 0.74 1.67 5.00
Number of Years the Auditor 247 4.6 4.0 3.3 1 30
Has Audited the Client
Number of Years the Firm 246 20.4 15 20.5 1 100
Has Audited the Client
Auditor’s Experience with 252 10.25 6.585 8.67 1.5 38
the Firm (Years)
Client Size (total assets in 233 23,249 1,500 91,442 1 802,000
millions $)
Auditor’s Client 247 39.18 35 26.6 0 100
Acquiescenceb
a
Scores are on five-point scales, with higher scores indicating higher client identification, professional
identification, etc.
b
Scores indicate the likelihood that the auditor will acquiesce to the client-preferred treatment and not require
the liabilities to be recorded.

participants, on average, are not inclined to resolve the conflict in favor of the client by
acquiescing to the client-preferred treatment of the unrecorded liabilities.15
Table 2 presents the Pearson product-moment correlation coefficients for the variables.
As expected, an analysis of these correlations reveals that potentially significant relation-
ships exist between key variables. In particular, correlations between client acquiescence
scores and the number of years the participant has audited the client, their experience, and
their professional identification are significant at p ⫽ 0.05 or less. Client identification is
significantly correlated with client image, client importance, number of years the participant
has audited the client, and professional identification (p ⬍ 0.01). Client image and client
importance are both significantly correlated with client size (p ⬍ 0.05). However, none of
the correlations is sufficiently large to suggest that the variables represent the same under-
lying construct.16

Measurement Model Analysis

We first performed a confirmatory factor analysis on the three latent variables (client
identification, professional identification, and client image) to verify the factor structure of
our items. The purpose of this analysis is to assess whether all items in a given scale
represent the same latent factor (Anderson and Gerbing 1988). Based on item loadings and
modification indices, we deleted one item from the client identification scale. When an

15
Among the clients chosen by participants, 170 are public companies and 75 are private companies. Seven either
did not indicate if the chosen client is public or private or did not provide the client acquiescence score. Client
acquiescence scores do not differ significantly (t ⫽ ⫺0.4, p ⬎ 0.7) between public companies (mean ⫽ 39.65)
and private companies (mean ⫽ 38.2).
16
We more formally confirm this suggestion in the following analyses.

Auditing: A Journal of Practice & Theory, November 2007

Auditing: A Journal of Practice & Theory, November 2007

12
TABLE 2
Correlation Matrix

Client Professional Auditor Client Client Firm Auditor Client

Identification Identification Tenure Importance Image Tenure Experience Size
Client Acquiescence .043 ⫺.136* ⫺.127* .023 .025 ⫺.044 ⫺.288** .064
Client Identification .211** .190** .252** .252** .099 ⫺.042 .010
Professional Identification .074 .106 .161* ⫺.054 .223** ⫺.120
Auditor Tenure .068 .066 .167** .416** .026
Client Importance .331** .215** ⫺.050 .168*
Client Image .134* .085 .133*
Firm Tenure .026 .031
Auditor Experience ⫺.004

*, ** correlations significant at the 0.05 and 0.01 levels, respectively, two-tailed.

Bamber and Iyer

Auditors’ Identification with Their Clients and Its Effect on Auditors’ Objectivity 13

individual item exhibits poor fit with the latent factor, the preferred solution is to delete the
item (Anderson and Gerbing 1988; Aquino et al. 1997; de Ruyter and Wetzels 1999).
Table 3 provides the results of the confirmatory factor analysis. The Root Mean Square
Error of Approximation (RMSEA) is considered one of the most informative criteria in
covariance structure modeling and RMSEA values as high as 0.08 represent reasonable
errors of approximation (Rigdon 1996). Comparative Fit Index (CFI), Incremental Fit Index
(IFI), Goodness-of-Fit Index (GFI), and the Adjusted Goodness-of-Fit Index (AGFI) also
evaluate the fit of the resulting measurement model. Values can range from 0 to 1.0 and
values greater than 0.90 indicate good fit (Byrne 1998). In a well-fitting model, the value
of standardized RMR will be small (ideally 0.05 or less). Table 3 shows that the measure-
ment model has an acceptable fit based on all of the indices except AGFI.
In addition to overall fit, we also evaluated the measurement model’s adequacy in terms
of the validity and reliability of the measures constructed from indices: client identification,
professional identification, and client image. Supporting the measures’ convergent validity,

TABLE 3
Results of Confirmatory Factor Analysis

Goodness of Fit
␹2 262.65 (p ⬍ 0.01)
df 101
Root Mean Square Error of Approximation (RMSEA) 0.07
Comparative Fit Index (CFI) 0.92
Incremental Fit Index (IFI) 0.92
Goodness-of-Fit Index (GFI) 0.90
Adjusted Goodness-of-Fit Index (AGFI) 0.84
Standardized Root Mean Square Residual (RMR) 0.05

Construct Composite Reliability Variance Extracted

Professional Identification 0.85 0.54
Client Identification 0.81 0.52
Client Image 0.85 0.67

Standardized
Items Loadings
Professional Identification
When someone criticizes my profession, it feels like a personal insult. 0.59
When I talk about my profession, I usually say ‘‘We’’ rather than ‘‘They.’’ 0.60
I am very interested in what others think about my profession. 0.71
My profession’s successes are my successes. 0.77
When someone praises my profession, it feels like a personal compliment. 0.93
Client Identification
When someone praises this client, it feels like a personal compliment. 0.65
When I talk about this client, I usually say ‘‘We’’ rather than ‘‘They.’’ 0.57
This client’s successes are my successes. 0.70
When someone criticizes this client, it feels like a personal insult. 0.88
Client Image
This client does not have a good reputation in the business community. 0.68
The public thinks highly of this client. 1.00
This client is considered one of the best companies to work for. 0.72

Auditing: A Journal of Practice & Theory, November 2007

14 Bamber and Iyer

all items are significantly related to their constructs (p ⬍ 0.01). Higher variance extracted
values occur when the items are truly representative of the latent construct, and guidelines
suggest that the variance extracted value should exceed 0.50 (Hair et al. 1998). Table 3
shows that all three constructs have variance-extracted measures exceeding the threshold.
Table 3 also shows that composite reliabilities exceed the recommended level of 0.70 (Hair
et al. 1998).
To determine if client identification, professional identification, and client image are
distinct constructs, we next performed a principal component analysis of the items that
make up these three constructs. The analysis yielded three factors, which accounted for
57.7 percent of the variance. All the items loaded above 0.50 on the intended factor, except
for one item in the client identification scale with a loading of 0.4317, and there were no
cross-loadings of 0.30 or higher. These results suggest that these measures assess three
different constructs, not simply one single construct. In sum, the factor loadings of the three
measures, the validity and reliability of the individual measures, and the results of the
confirmatory factor analysis show that the measurement model has an acceptable overall
fit.
Use of single sources of information can introduce spurious relationships among the
variables (i.e., common method bias). Common method bias is indicated if a single latent
factor accounts for all manifest variables. To ascertain whether this bias is a threat to our
inferences, as a final test of the measurement model we trimmed the original nine-factor
model (see Figure 1) to a six-factor model by collapsing professional identification, client
identification, client image, and client importance into a single factor. We compared the
revised six-factor model to the nine-factor model used in this study. The original model fits
the data much better than the revised model (␹2 ⫽ 262.65, df ⫽ 101 and ␹2 ⫽ 1068.58, df
⫽ 125, respectively), suggesting common method bias is not a significant problem.
Once we were satisfied that the measurement model showed acceptable fit, validity,
and reliability, we followed Anderson and Gerbing’s (1988) suggestion and simultaneously
estimated both the measurement and structural models.

Structural Model and Hypothesis Test Results

We used LISREL 8.3 (Jöreskog and Sörbom 1999) to test the hypothesized structural
model. Table 4 presents the structural model’s statistics. Although the chi-square statistic
is still significant (␹2 ⫽ 308.35, df ⫽ 109, p ⬍ 0.01), the other fit indices are above or
very close to the recommended cutoff values. CFI and IFI values of 0.90, GFI value of
0.89, an RMSEA value of 0.077, and the standardized RMR value of 0.07 show that our
model is acceptable.18 Moreover, the exogenous variables explain 11 percent and 16 percent
of the variance in client identification and client acquiescence scores, respectively.
We performed two additional tests of the role of client identification. First, in our
original model, client importance affects client identification, which in turn affects client
acquiescence. We performed a sensitivity test to ascertain whether client importance di-
rectly affects client acquiescence, as might be the case if client importance simply captured
the audit firm’s economic dependence on the client. The direct path from client importance
to client acquiescence is not significant (t ⫽ 0.30). Thus, client importance affects client

17
As indicated earlier, this item was dropped from further analysis.
18
The RMSEA is the measure of fit commonly emphasized in statistical literature (e.g., Rigdon 1996; Fan et al.
1999; Curran et al. 2003) and its value of 0.077 is below the measure’s 0.08 cutoff value. In particular, Fan et
al. (1999) show that RMSEA and CFI are less sensitive to sample size than other measures of fit.

Auditing: A Journal of Practice & Theory, November 2007

Auditors’ Identification with Their Clients and Its Effect on Auditors’ Objectivity 15

TABLE 4
Overall Fit Summary and Explained Variances for the Structural Model

Statistical Tests Result

␹2
308.35
df 109
p-value ⬍0.001

Fit Indices
CFI (Comparative Fit Index) 0.90
IFI (Incremental Fit Index) 0.90
GFI (Goodness of Fit Index) 0.89
AGFI (Adjusted Goodness of Fit Index) 0.83

Residual Analysis
Standardized RMR (Root Mean Square Residual) 0.07
RMSEA (Root Mean Square Error of Approximation) 0.077

Explained Variance (R2) of Dependent Variables

Client Identification 0.11
Client Acquiescence 0.16

acquiescence through client importance’s impact on the cognitive client identification factor.
Moreover, client identification remains significantly associated with client acquiescence
even when the effect of client importance on client identification is removed. Second, we
compared our hypothesized model (Figure 1) with a model in which all exogenous variables
directly affect client acquiescence. Specifically, this competing model removes the medi-
ating effect of client identification. The competing model’s fit is inferior to that of the
hypothesized model (Chi-square value of 364.54 (df ⫽ 105); CFI ⫽ 0.87; GFI ⫽ 0.87; and
RMSEA ⫽ 0.094). In addition, only three variables (professional identification, client iden-
tification, and auditor experience) are significantly related to client acquiescence. Hence,
our hypothesized model in which client identification mediates between exogenous variables
(auditor tenure, client importance, and client image) and client acquiescence is superior to
the competing model. Moreover, Table 5 shows that the standardized parameter estimates
for all but one of the hypothesized relationships are significant and in the predicted direc-
tions. Figure 2 presents the significant paths of the structural model.19
The study’s first hypothesis examines antecedents of client identification. Consistent
with the earlier results that find evidence of the existence of auditors’ identification with
their clients, Figure 2 (and Table 5) shows that three factors that Social Identity Theory
suggests contribute to identification increase auditors’ client identification. The number of
years the auditor has audited the client (H1a: t ⫽ 2.55, p ⬍ 0.01), the client’s importance
to the auditor’s office (H1b: t ⫽ 2.10, p ⬍ 0.05), and client image (H1c: t ⫽ 1.93,
p ⬍ 0.05) are all significantly associated with higher auditor identification with the client.
These results support H1a, H1b, and H1c.

19
An examination of modification indices suggested no additional relation or path should be added to the structural
model (Byrne 1998).

Auditing: A Journal of Practice & Theory, November 2007

Auditing: A Journal of Practice & Theory, November 2007

16
TABLE 5
Structural Equations Results and Estimated Coefficients for the Hypothesized Model

Dependent Standardized
Hypothesis Independent Variable Variable Coefficients t-value Conclusiona
H1a Years the auditor has audited the client Client Identification 0.17 2.55 Significant at
p ⬍ 0.01
H1b Client Importance Client Identification 0.16 2.10 Significant at
p ⬍ 0.05
H1c Client Image Client Identification 0.15 1.93 Significant at
p ⬍ 0.05
H2 Client Identification Client Acquiescence 0.20 3.07 Significant at
p ⬍ 0.01
H3 Professional Identification Client Acquiescence ⫺0.12 ⫺1.95 Significant at
p ⬍ 0.05
H4 Years the firm has audited the client Client Acquiescence ⫺0.09 ⫺1.54 Marginally significant
at p ⫽ 0.12
H5a Client Size Client Acquiescence ⫺0.05 ⫺0.94 Not Significant
H5b Auditor’s experience with the firm Client Acquiescence ⫺0.31 ⫺5.21 Significant at
p ⬍ 0.001
a
p values are calculated using a one-tailed test, except for H4.
A positive relationship between client acquiescence and client identification means that the more auditors identify with their client the more likely they are to acquiesce
to the client-preferred treatment.

Bamber and Iyer

 FIGURE 2

Auditors’ Identification with Their Clients and Its Effect on Auditors’ Objectivity
Results of Structural Equation Modeling

Firm Tenure with

Auditor Tenure with Client Size (H5a)
the Client (H4)
the Client (H1a)
0.1
7**
a
– 0.09
Client Importance 0.16* Client Identification
0.05
(H1b) (H2) 0.20
**
5*
Auditing: A Journal of Practice & Theory, November 2007

0.1 Auditor’s Client

Acquiescence
Client Image (H1c)

–0.12* – 0.31***

Professional Auditor Experience

Identification (H3) (H5b)

*, **, *** significant at p ⬍ .05, p ⬍ .01, p ⬍ .001, respectively, one-tailed.

a
Significance level of p ⫽ .12 (two-tailed test).
Numbers are the standardized path coefficients.

17
18 Bamber and Iyer

Given evidence that auditors do identify with their clients, it is important to ascertain
whether client identification compromises auditors’ objectivity, as predicted by Social Iden-
tity Theory. We hypothesize in H2 that client identification impairs auditors’ objectivity.
That is, auditors’ acquiescence to the client-preferred treatment increases with the extent to
which they identify with the client. The results reported in Figure 2 support this hypothesis.
Client identification has a significantly positive influence on the likelihood auditors will
resolve the conflict in favor of the client (H2: t ⫽ 3.07, p ⬍ 0.01).
While client identification may pose a threat to auditors’ objectivity, other features of
the audit may operate to reduce this threat. We examine two such factors. The first is
professional identification. We hypothesize in H3 that auditors’ identification with their
profession will increase their objectivity. That is, auditors with relatively higher levels of
professional identification are less likely to acquiesce to the client-preferred treatment, and
more likely to require the liabilities in question to be recorded in the financial statements.
Figure 2 shows that, as hypothesized, professional identification has a significantly negative
influence on the likelihood auditors will resolve the conflict in favor of the client (H3:
t ⫽ ⫺1.95, p ⬍ 0.05).
The second factor we suggest may affect auditors’ objectivity is audit firm tenure (i.e.,
the number of years the firm has audited the client). Figure 2 shows that H4 is marginally
statistically significant (t ⫽ ⫺1.54, p ⫽ 0.12, two-sided). Consistent with existing archival
research, but contrary to the calls for audit firm rotation, we find some evidence that audit
firm tenure is associated with greater auditor objectivity.
The final hypothesis examines two contextual factors likely to affect auditors’ objectiv-
ity: (1) client size and (2) auditors’ tenure with their current firm. We find no significant
association between client size and auditors’ client acquiescence (H5a: t ⫽ ⫺0.94, p
⫽ 0.34). Once clients are somewhat important (recall that participants were instructed to
select their largest client and that the mean client importance is 4.11), there appears to be
little differential effect of size. Consistent with the earlier analysis of auditors’ rank, auditors
who have been with their firm longer are less likely to acquiesce to the client-preferred
treatment and more likely to require the recording of the liabilities (H5b: t ⫽ ⫺5.21, p
⬍ 0.001).

CONCLUSIONS AND IMPLICATIONS

This study examines the threat to auditor independence from social incentives and, by
doing so, extends the prior literature which has focused on auditors’ financial incentives.
We use Social Identity Theory to develop a comprehensive model of auditors’ identification
with their clients and hypothesized antecedents and consequences of this identification. The
results suggest that auditors’ social incentives play a role in audit judgment. This finding
has implications for practitioners, regulators, and researchers.
We find that auditors do identify with their clients, although there is significant varia-
bility across auditors’ level of client identification and that, on average, client identification
is lower than professional identification. However, the significant relationships found in-
volving client identification are a potential concern. In particular, our results suggest that
client identification can impair auditor objectivity, in that auditors who identify more with
their client are more likely to acquiesce to the client-preferred treatment of a materiality
issue and not require a liability to be recorded in the financial statements. On the other
hand, more experienced auditors and auditors who exhibit higher levels of professional
identification are less likely to acquiesce to the client’s position. These results support the
recent efforts by regulators and accounting firms to emphasize the tone at the top and to
push professional values down the firm hierarchy. Interestingly, client size is not associated

Auditing: A Journal of Practice & Theory, November 2007

Auditors’ Identification with Their Clients and Its Effect on Auditors’ Objectivity 19

with auditor objectivity, while audit firm tenure is marginally associated with greater auditor
objectivity. Although finding an insignificant effect for client size is unexpected, it is con-
sistent with Reynolds and Francis (2000).20 They attribute their results to auditors’ concern
about the higher litigation risk associated with larger clients. Our results for audit firm
tenure do not support calls for audit firm rotation and are consistent with recent firm-level
archival research (e.g., Johnson et al. 2002; Myers et al. 2003; Ghosh and Moon 2005) that
finds a positive relation between audit firm tenure and audit quality.
Our findings on the existence of client identification and its negative association with
auditor objectivity support the concerns raised by the ISB (2000) and others about the
threat to auditor independence from auditors being too close to their clients. To help un-
derstand the nature of auditors’ client identification, we examined three potential antece-
dents. Auditor tenure with the client, client image, and client importance are each signifi-
cantly related to the extent auditors identified with the client. Accounting firms should be
able to manage these to some degree. For example, the significant relation between the
number of years the auditor has been assigned to the engagement and client identification
supports auditor rotation. In addition to the existing partner rotation, firms should be sen-
sitive to the potential consequences of the length of time auditors at other ranks have worked
for a particular client. Similarly, firms should be sensitive to the pull of client image and
client importance in increasing auditors’ identification with clients. Ways to manage these
influences may include the consideration of an auditor’s client portfolio and the blocks of
time spent at a particular client. Our results support recommendations for firms to imple-
ment safeguards to protect auditor objectivity and independence, and promoting profes-
sional identification is one obvious safeguard.
However, the primary implication of our study is that the threats to auditor objectivity
are not simply the result of overt client actions or economic dependence. They also arise
from the need for auditors to be familiar with their clients. The threats from this cognitive-
based identification with the client may prove more difficult for the PCAOB to address than
the threats from economic incentives involving, for example, scope of services and partner
compensation. Moreover, auditor-specific safeguards such as managing the blocks of time
an auditor spends at a particular client are more amenable to audit firm control than PCAOB
regulation. Client identification may also interfere with other initiatives. For example, client
identification developed through daily interaction with the client could affect attempts to
define the audit committee as the ‘‘client’’ and the intended benefits of the auditor reporting
to the audit committee.
This study follows recent research (e.g., Iyer et al. 1997; Bamber and Iyer 2002; Towry
2003) in showing that Social Identity Theory can provide an insightful framework for
examining various accounting and auditing issues. In particular, our results together with
Bamber and Iyer (2002) show that auditors identify with their profession, their organization,
and their clients. Social Identity Theory predicts these multiple identities. However, a lim-
itation of our study is that our data were collected prior to the Sarbanes-Oxley Act and the
creation of the PCAOB, so that an important task for future research is to examine the
effects of these changes and the PCAOB’s ongoing efforts (e.g., CFO 2004) to promote
objectivity and audit quality. A first step is to determine current levels of auditors’ profes-
sional identification and client identification. Our results will provide a relevant benchmark
for research that, for example, examines auditors’ identification with management now that
the auditor is hired by the audit committee and formally reports to that committee. Of

20
Reynolds and Francis (2000, 396) report that ‘‘neither the office-level analysis nor national-level analysis find
evidence that economic dependence causes auditors to be lenient and report more favorably for larger clients.’’

Auditing: A Journal of Practice & Theory, November 2007

20 Bamber and Iyer

particular interest is the effect of the PCAOB’s review of firms’ quality controls including
tone at the top on partners’ identification and, if there is an effect at the partner level,
whether it flows down the accounting firm’s hierarchy. However, it should not be simply
assumed that client identification would have declined. Formalizing the relationship between
the auditor and audit committee may reduce managements’ financial leverage against the
auditor, but this does not necessarily affect auditors’ social incentives, especially client
identification. Auditors’ greater involvement with the client because of Section 404, for
example, may act to increase client identification.
Other limitations associated with the study, including the response rate and nonresponse
bias from administering the materials by mail, social desirability response bias, instructing
participants to respond in terms of their largest client, and measuring client acquiescence
with an abstract scenario, all require caution in the interpretation of the study’s results.
Nevertheless, the model provides a good fit to the auditors’ responses about an actual client.
Since this study establishes the existence of auditors’ identification with their clients, future
research can increase our understanding of (1) what are the important factors in auditing
leading to client identification and (2) when does client identification have significant neg-
ative effects. We find that client importance and image affect client identification, but the
role of client importance may be a function of audit firm and office size. Similarly, other
client characteristics, including the number of firm alumni working for the client, whether
the client’s CFO is a firm alumnus, and whether the firm also performs the client’s tax
work may all impact the auditor’s client identification. Consistent with Social Identity The-
ory’s argument that individuals have multiple affiliations, we find that auditors can identify
with both their profession and a client, even though each of these identifications predicts
different behaviors. Understanding more about how these identifications coexist and how
professional identity can be moved to the forefront could have important implications for
auditor objectivity.

APPENDIX
MEASURES USED IN THE STUDY

Client Identification
When someone praises this client, it feels like a personal compliment.
When I talk about this client, I usually say ‘‘We’’ rather than ‘‘They.’’
This client’s successes are my successes.
When someone criticizes this client, it feels like a personal insult.

Professional Identification
When someone criticizes my profession, it feels like a personal insult.
When I talk about my profession, I usually say ‘‘We’’ rather than ‘‘They.’’
I am very interested in what others think about my profession.
My profession’s successes are my successes.
When someone praises my profession, it feels like a personal compliment.

Client Image
This client does not have a good reputation in the business community.
The public thinks highly of this client.
This client is considered one of the best companies to work for.

Auditing: A Journal of Practice & Theory, November 2007

Auditors’ Identification with Their Clients and Its Effect on Auditors’ Objectivity 21

Client Acquiescence
Please respond to the following short audit case. We appreciate that normally you
would require more information. However, for the purpose of our study we ask that you
respond (1) based on the limited information provided and (2) assuming that the case
involves your largest client referred to above.
In the current year’s audit, a dispute has arisen between you and the management of
your largest client over the materiality of certain unrecorded liabilities discovered by you
during the audit. Professional and firm guidelines do not provide a definitive answer on the
materiality of the amount involved. In your opinion, the amount is material. However, the
client management strongly disagrees. The client’s CFO argues that the total amount of
unrecorded liabilities is immaterial and, therefore, it is unnecessary to make adjusting en-
tries in the financial statements. As the auditor, how likely is it that you will not require
these liabilities to be recorded? Please indicate your response by marking with an X on a
specific point on the following scale:

0 10 20 30 40 50 60 70 80 90 100
| | | | | | | | | | | | | | | | | | | | |
Very Low Likelihood Very High Likelihood

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