7. Conclusion
Auditor independence has drawn a lot of attention from scholars, regulators and the public. However, the issue about whether auditors’ acceptance of hospitality from clients impairs actual auditor independence has been under inadequate research until now, although ethical standards and several extant studies have addressed hospitality’s influence on perceived auditor independence. Using hand-collected data on hospitality from the Chinese stock market, this study examines the effect of hospitality on actual auditor independence. First, my findings suggest that firms that provide hospitality to auditors report significantly greater discretionary accrued earnings. Second, hospitality firms are less likely to receive modified audit opinions. My findings imply that some firms establish bonding relations with their auditors via hospitality, and thus compromise auditor independence.
This study contributes to existing literature on auditor independence. First, my study focuses on the influence of hospitality on actual auditor independence, rather than on perceived auditor independence. Specifically, my study documents systematic evidence to show that hospitality does impair actual auditor independence, which can be used for reference regarding the controversy on the influence of hospitality on auditor independence in Rules of Professional Conduct, Ethical Standard and Code of Ethics for Professional Accountants.
