Title: Auditor fee dependence, auditor tenure, and auditor independence: the case of Finland

Authors: Damai Nasution; Ralf Östermark

Addresses: School of Business and Economics, Åbo Akademi University, Henriksgatan 7, Åbo 20500, Finland; School of Business and Economics, Airlangga University, Airlangga 4, Surabaya 60286, Indonesia ' School of Business and Economics, Åbo Akademi University, Henriksgatan 7, Åbo 20500, Finland

Abstract: A Green Paper on Audit Policy published by the European Commission is questioning, among other issues, whether the maximum fee collected from one client should be regulated and whether continuous assignment should be limited. In this paper, we examine the association between fee dependence and auditor tenure on auditor independence in Finland. We utilise audit, non-audit, and total fees as proxies of auditor fee dependence and discretionary accruals as a proxy of auditor independence. We find that: 1) fee dependence is not associated with discretionary accruals; 2) short auditor tenure (i.e., one year, equal or less than two years, and equal to or less than three years) is positively associated with discretionary accruals, however, only the former is statistically significant; 3) long auditor tenure is negatively associated with discretionary accruals, though this result is not statistically significant. Taken together, these results do not support policies to regulate auditor fee and limit auditor tenure in Finland.

Keywords: fee dependence; auditor independence; auditing; auditor tenure limits; discretionary accruals; Finland; audit policy; short tenure; long tenure; auditor fees; auditor fee regulation.

DOI: 10.1504/IJAAPE.2013.055895

International Journal of Accounting, Auditing and Performance Evaluation, 2013 Vol.9 No.3, pp.224 - 246

Received: 17 Apr 2012
Accepted: 10 Sep 2012
Published online: 30 Jan 2014 *

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