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

Scott Duellman
SUNY Binghamton

Anwer S. Ahmed
Texas A&M University

Ahmed M. Abdel - Meguid
Syracuse University

Abstract: We predict that the more important a client is to an auditor’s office, the greater the likelihood that auditor independence is compromised and the more aggressive is the client’s accounting. We document a significant positive relation between an office-level measure of client importance (based on relative magnitude of client fees) and abnormal accruals over 2000-2001. Moreover, we find that this relation is extenuated by strong governance. Furthermore, we find that after passing of the Sarbanes-Oxley Act, while this relation is not significant for the overall sample, it continues to be significant for weak governance firms.

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