Does Selling Non-Audit Services Impair Auditor Independence? New Research Says, 'Yes' PDF Download

Author: Monika Causholli
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ISBN:
Category :
Languages : en
Pages : 12

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Book Description
A recently published academic study by Causholli, Chambers, and Payne (2014) brings new evidence to a long-standing debate about whether the provision of non-audit services (NAS) can impair auditor independence. Prior research on this question has largely found no evidence of lower financial reporting quality when auditors provide high levels of NAS. By considering the potential that future NAS, rather than current NAS levels, could impair auditor independence, Causholli et al. bring a fresh perspective on the question. They argue that it is the potential for new NAS revenue that would most likely cause auditors to have impaired independence. They find strong evidence that audit quality suffers when clients are willing to purchase future NAS from their auditor.

Author: Mark L. DeFond
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ISBN:
Category :
Languages : en
Pages : 0

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We find no evidence that non-audit service fees impair auditor independence, where independence is surrogated by auditors' propensity to issue going concern audit opinions. We do find, however, that auditors are more likely to issue going concern opinions to clients paying higher audit fees, suggesting that auditors behave with relatively greater independence towards these clients. Our findings are consistent with Reynolds and Francis (2001) and suggest that market-based incentives, such as loss of reputation and litigation costs, dominate the benefits auditors are likely to receive from compromising their independence to retain clients that pay larger fees. Overall, our findings indicate that recent SEC regulations based on concerns that non-audit services impair auditor independence, are unfounded.

Author: Thomas Lau
Publisher:
ISBN:
Category :
Languages : en
Pages : 38

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This study examines whether the provision of non-audit services by a firm's own auditors provides value to the firm. We examine the future return on assets and sales growth as a function of the expenditures by the client firms on non-audit services, reasoning that if such payments are intended primarily to impair auditor independence, no association with future firm performance should be detected. Our findings show that, in fact, the payments to auditors for non-audit services are positively related to the one-period ahead sales growth. We interpret these findings as suggesting that firms do obtain value for their expenditures on non-audit services provided by their auditors. Thus, even if auditor independence is compromised by such hiring, the value obtained by the client firms for their non-audit services may justify their hiring.

Author: Allen T. Craswell
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ISBN:
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Languages : en
Pages : 0

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Book Description
The provision of management advisory and other services by auditors to their audit clients has long been regarded, by regulators in Australia and overseas, as a threat to auditor independence. Evidence of the impact of non?audit services on auditors' independence has been derived using case studies and questionnaires and has focused on perceptions of independence. The aim of this paper is to investigate whether the provision of non?audit services impairs auditor independence by testing for an association between the provision of non?audit services and auditors' reporting opinions. Based on publicly available information for Australian listed companies for several years, the evidence suggests that auditors' decisions to qualify their opinions are not affected by the provision of non?audit services.

Author: Olga Tsobkalo
Publisher:
ISBN:
Category :
Languages : en
Pages : 126

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Author: Jayanthi Krishnan
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ISBN:
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Languages : en
Pages : 0

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A number of recent studies examine whether the joint provision of audit and non-audit services (NAS) impairs auditor independence, and yield mixed results. We examine whether investors perceive auditor independence as being impaired when auditors supply non-audit services, by investigating the association between fee-based measures of non-audit service purchases and the earnings response coefficient (ERC). We find that the non-audit fee-ratio and the level of non-audit fees were negatively associated with ERCs in 2001. When we use unexpected fees (a measure of over- or under-payment of nonaudit fees), we find a negative association between NAS purchases and ERC, but this occurs mainly in the second and third quarters following the release of the proxy. Further investigation reveals that the quarterly differences may be driven by the increasing flow of information (i.e., the first-time disclosures of fees and media analyses of these disclosures) that became available to investors during our sample period. We speculate that, during the course of the year 2001, the increase in information allowed investors to engage in better comparative analyses of the fee disclosures. We interpret our results as indicating that investors did perceive NAS as impairing auditor independence.

Author: Nasrollah Ahadiat
Publisher:
ISBN:
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Languages : en
Pages :

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Book Description
Purpose - While a few US studies on the impact of the provision of non-audit services on auditor judgment have found potential harm to independence, it is the purpose of this study to investigate whether the British and Australian auditors' involvement with both audit and non-audit services for the same clients may also produce similar results.Design/Methodology/Approach - The parametric t-tests and the nonparametric Mann-Whitney tests are used in this study on the empirical data from the British and Australian companies to examine the potential for loss of independence when high levels of non-audit services are provided to audit clients.Findings - The results corroborated the US Securities and Exchange Commission's contention that the provision of non-audit services may indeed impair independence.Research Limitations/Implications - No attempts were made to isolate the effects of other factors that could result in the issuance of qualified opinions. In addition, the sample used in this investigation is comprised of firms that had voluntarily disclosed non-audit fees in the early years of the study. This could potentially introduce a self-selection bias. Nevertheless, this study is one of a kind in the international arena.Originality/Value - This paper extends the line of research examining the impact of non-audit services on the auditor's independence.

Author: Domenico Campa
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
This paper investigates whether the provision of non-audit services (NAS) to audit clients impairs auditor independence of mind and independence in appearance. The main contributions of this paper are in terms of its timeliness with respect to regulatory changes, the simultaneous examination of both forms of auditor independence and the methodological innovation whereby it uses a variable derived from the level of abnormal audit fees as a moderating variable in order to capture the direct impact of the NAS fee level on auditor independence as well as how its influence is moderated by the level of unexpected audit fees. Our results indicate that auditor independence of mind is compromised by the size of NAS fees, particularly for clients who pay below the level of expected audit fee. The stock market perceives that auditor independence is compromised by NAS fees but, at the same time, additional tests indicate that there are benefits that accrue from NAS and, in particular, the relation between return and non-discretionary net income is increasing in NAS fees. The balance of evidence suggests that the EU is correct in undertaking some reform of the auditing market.

Author: David Gwilliam
Publisher:
ISBN: 9781783631568
Category :
Languages : en
Pages :

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Author: Paul A. Griffin
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Book Description
This paper reexamines the long-standing issue of whether the consulting fees earned by auditors affect their independence. The evidence in the United States is far from settled in this regard and continues to vex academics, professionals, and policy makers alike. Our model predicts a negative relation between auditor supplied non-audit fees and auditor independence. We test this model by examining auditors' propensity to issue a going concern opinion for a sample of U.S. companies experiencing financial stress. Using a grouping approach to reduce potential measurement error in the variables, we document a reliable negative relation between non-audit fees and our proxy for auditor independence, which is consistent with our theory. This new evidence, based on an alternative procedure, may explain why some previous studies on U.S. companies have failed to find a negative relation. We also find that SOX and associated influences on auditor independence, but not auditor tenure, may have moderated this negative relation.