An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Christiane Strohm
University of Southern California and University of Muenster (Germany)

Theodore J Mock
University of Southern California and University Maastricht

Christoph Watrin
University of Muenster (Germany)

Abstract: This paper presents an experimental study of the effect of two auditor independence regulations; the US Sarbanes-Oxley Act and the European Union revised 8th Directive on decisions concerning the provision of non-audit services. Whether the application of the two regulation approaches differs is studied in an audit-firm client engagement situation where the decision maker has to decide about the performance of non-audit service.

Findings indicate that if the audit firm’s risk of litigation is high, the application of principles-based regulation is more likely to be compromised. That might be because the perceived costs in terms of loosing an important client are higher than the monetary incentives to earn the additional fees. Furthermore, education related knowledge levels had a significant effect on how regulation is applied, that is graduate students achieved a higher le

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