Independence, impartiality, and advocacy in client conflicts

Prior research indicates auditors’ financial reporting judgments are conservative when client preference is unknown, but auditors are less conservative (though not client-supportive) when clients’ preferred accounting methods for favorable financial reporting are explicitly communicated. This paper reports, for the first time, a situation in which experienced auditors exhibit client-supportive behavior. Professional judgments in an audit setting in which there is an explicit client preference for a material, income-increasing reporting classification and the relevant GAAP standard is principle-based are compared to a similar judgment in a tax setting. This research design contrasts the auditor’s ethical duty to exercise “judicial impartiality” toward the client with Certified Public Accountants’ ethical duty to be a client advocate in tax contexts. The results suggest experienced CPAs’ are as client-supportive in audit settings as they are in tax settings when exercising their professional judgment, and ethical standards mandating impartiality in auditing are not uniformly being followed.