The Effect of Corporate Governance and Audit Market Privatization on the Auditor Independence

Abstract

Establishment of the Iranian Association of Certified Public Accountants and audit market privatization as the new phenomenon in Iranian audit market is taken into consideration by many researchers. The purpose of this paper is to investigate the effect of audit market privatization on auditor independence and accruals quality, and to study whether corporate governance mechanisms (duality of CEO and chairman of board of directors, the number of changes in board of directors and the change of CEO) can affect above relations. We test research hypothesis in listed firms on Tehran Stock Exchange (TSE) for the period of 2001 to 2011. Using multiple regression analysis, we have found that audit market privatization is negatively associated with auditor independence and accruals quality. Also, corporate governance mechanisms don’t decrease the negative relation between audit market privatization, auditor independence and accruals quality. This paper extends the audit market literature by examining how increased competition in the audit market affects auditor independence and accruals quality in emerging markets.