ierarchical Difference In Auditors Perceptions Of Lowballing: A Study Of Current Attitudes

Abstract

Auditors are in the business of providing to their clients the value of their attestation services for financial reporting. Auditors (and other accountants) have a strict Code of Professional Conduct which is enforced by the American Institute of Certified Public Accountants (AICPA). According to this Code of Professional Conduct (AICPA 1988), the AICPA sets forth the requirement that all auditors comply with generally accepted auditing standards (GAAS) in all audit engagements. These rules are a necessary part of the audit process helping to ensure a quality result for the stakeholders of the organization. Lowballing, the practice of bidding under or at cost for an audit in order to attract new clients, may violate the independence in appearance clause of the Code of Professional Conduct. Researchers and regulatory authorities appear to differ on their treatment of this issue. Differences in option (AICPA 1978 compared to DeAngelo 1981) appear to center around the interpretation of independence in the Code of Professional Conduct. This study evaluates current attitudes towards lowballing for all levels of professional auditors within four public accounting firms and specifically addresses the question of whether lowballing is a violation of the impendence in appearance section of the Code. The study also questions auditors as to their beliefs about the Code of Professional Conducts potential for change to accommodate the practice of lowballing.