The Impact of Auditor Independence on Fraud Detection in China

Abstract

In recent years, the issue of corporate fraud has gained increasing attention in both academic research and professional practice, and the role of auditors in fraud prevention and detection has become increasingly critical. This study investigates the impact of auditor independence (comprising independence in fact and independence in appearance) on fraud detection performance in China. Drawing on data from 366 practicing auditors and analyzed using SPSS statistical analysis, the findings reveal that both dimensions significantly enhance auditors’ fraud detection capability, with independence in fact exerting the stronger influence, followed by independence in appearance. These results suggest that independence in fact enables auditors to critically evaluate audit evidence, resist client pressures, and maintain vigilance when confronted with ambiguous or conflicting information. Independence in appearance ensures that external stakeholders perceive auditors as unbiased, reinforcing the deterrent effect of audits and promoting rigorous examination of financial statements. The study also highlights the unique institutional and relational dynamics within the Chinese auditing context, where factors such as ownership concentration, political ties, and regulatory enforcement may influence auditor behavior. Practical implications emphasize the importance of reinforcing professional skepticism, strengthening internal quality-control systems, implementing audit rotation policies, and enhancing transparency to bolster both actual and perceived independence. By linking auditor independence to measurable fraud detection outcomes, this research contributes to improving audit quality and reinforcing public confidence in financial reporting in China.