The Impact of MAS on Perceived Auditor Independence:some evidence from Denmark

Abstract

The Enron case has highlighted that the provision of management advisory services (MAS) can endanger auditor independence. Recently, a number of changes have not only been made to the relevant international and US regulations, but also to the Danish regulations in this area. Theoretical research explains the emergence of non-independence and demonstrates that the provision of MAS can decrease independence. According to the economic model of DeAngelo, the existence of client-specific quasi-rents impairs auditor independence. The provision of MAS increases quasi-rents and thus, is a threat to independence. Antle used an agency theoretical approach. Information asymmetries between auditor and client could lead to a moral hazard risk, i.e. the auditor could give up independence from client's management and accept payments for withholding detected errors and irregularities. The client's management could also use MAS to legally compensate the auditor for giving away independence.