هتلداری و استقلال حسابرس: آیا هدایا چشم را کور می کند؟ Hospitality and auditor independence: do gifts blind the eyes?

1. Introduction Conflicts of interest inherent in the audit market cause the erosion of auditor independence (Chu, Du, & Jiang, 2011). Prior studies validate that two major sources impair auditor independence: (1) audit fees dependence (Craswell, Stokes, & Laughton, 2002; DeAngelo, 1981; Ghosh, Kallapur, & Moon, 2009); and (2) the provision of non-audit services (NAS) (Antle, 1984; Antle, Gordon, Narayanamoorthy, & Zhou, 2006; Ashbaugh, LaFond, & Mayhew, 2003; Frankel, Johnson, & Nelson, 2002; Gunz, McCutcheon, & Reynolds, 2009; Weil & Tannenbaum, 2001). However, the impact of bonding relations between auditors and clients established by hospitality on auditor independence is rarely addressed in extant studies. In fact, some firms provide their auditors with free food and drink (referred to hereafter as ‘hospitality’), which impair auditor independence. Although a variety of ethical statements (CAJEC, 1996; IFAC, 2001; CICA, 2003; APB, 2004) address the effects of ‘hospitality’ on auditor independence, the extant literature rarely provides empirical evidence on this issue. As a result, the public know little about whether hospitality can impair auditor independence. Wang, Su, and Fang (2011) focus on the Chinese context and address whether hospitality (proxied by free food, drink and travel expenses) impairs audit quality. However, owing to the potential bias about the measure of hospitality, Wang et al. (2011) do not provide consistent evidence on the negative impacts of hospitality on audit quality. The study by Wang et al. (2011), showing no significant outcome, motivates this study to further address the ‘puzzle’ about: (1) whether hospitality includes ‘free food, drink, and travel expenses’ or only covers ‘free food and drink’; and (2) whether hospitality proxied by ‘free food and drink’ impairs audit quality. This study focuses on the Chinese setting to argue that ‘free food and drink’ is a more appropriate measure of hospitality than ‘travel expenses’ or ‘free food, drink, and travel expenses’, and then employs ‘free food and drink’ as the proxy for hospitality to examine its effects on audit quality.