Auditor Independence Impairment: Bonding Between Clients and Individual Engagement Partners

In this study, we investigate whether the economic bond between an individual engagement partner and a client threatens auditor independence (and thus audit quality). Using a sample of 12,556 private Belgian companies, we examine whether auditors are less likely to issue modified opinions to clients that represent a material portion of their client portfolio. Despite the private firm and low litigation risk setting, our empirical results provide no evidence that client economic importance negatively affects auditor independence. Our results suggest that auditors appear to be willing to issue modified opinions irrespective of the economic importance of the client to the auditor, and irrespective of whether client
importance is measured at the level of the audit firm or the individual engagement partner.