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Non-audit Services (non-audit + services)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting100%

Selected Abstracts

The Relationship between Categories of Non-Audit Services and Audit Fees: Evidence from UK Companies

INTERNATIONAL JOURNAL OF AUDITING, Issue 1 2002
M. Ezzamel
Using survey data we examine the relationship between various categories of non-audit services and audit fees. Compared to previous research, we use a more refined classification of non-audit services both for incumbent and non-incumbent auditors, and control for the existence of an internal audit function and basis of disclosure. Our results suggest that the relationship between levels of audit fees and non-audit services varies by category of non-audit service. These results support explanations of the positive association between fees paid for non-audit services and audit fees in terms either of client specific differences, e.g. organisational complexity, or of events giving rise to the purchase of more audit and non-audit services rather than in terms of direct economic linkages between the cost functions for audit and non-audit services. We speculate that the presence of another auditing firm at the client in a consulting capacity may exert competitive pressure on the fee for external audit. [source]

Independence in Appearance and in Fact: An Experimental Investigation,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 1 2003
Nicholas Dopuch
Abstract In this study, we use experimental markets to assess the effect of the Security and Exchange Commission's (SEC's) new independence rule on investors' perceptions of independence, investors' payoff distributions, and market prices. The new rule requires client firms to disclose in their annual proxy statements the amount of nonaudit fees paid to their auditors. The new disclosure is intended to inform investors of auditors' incentives to compromise their independence. Our experimental design is a 2 3 between-subjects design, where we control the presence (unbiased reports) or absence of auditor independence in fact (biased reports). While independence in fact was not immediately observable to investors, we controlled for independence in appearance by varying the public disclosure of the extent of nonaudit services provided by the auditor to the client. In one market setting, investors were not given any information about whether the auditor provided such nonaudit services; in a second setting, investors were explicitly informed that the auditor did not provide any non-audit services; and in a third setting, investors were told that the auditor provided nonaudit services that could be perceived to have an adverse effect on independence in fact. We found that disclosures of nonaudit services reduced the accuracy of investors' beliefs of auditors' independence in fact when independence in appearance was inconsistent with independence in fact. This then caused prices of assets to deviate more from their economic predictions (lower market efficiency) in the inconsistent settings relative to the no-disclosure and consistent settings. Thus, disclosures of fees for nonaudit services could reduce the efficiency of capital markets if such disclosures result in investors forming inaccurate beliefs of auditor independence in fact - that is, auditors appear independent but they are not independent in fact, or vice versa. The latter is the maintained position of the American Institute of Certified Public Accountants (AICPA), which argued against the new rule. Further research is needed to assess the degree of correspondence between independence in fact and independence in appearance. [source]

Are non-audit services associated with firm value?

ACCOUNTING & FINANCE, Issue 3 2009
Evidence from financial information system-related services
M42 Abstract The purchase of non-audit services from incumbent auditors has generated considerable attention. Surprisingly, limited empirical evidence exists on the association of non-audit services with firm value. Focusing on services related to financial information system (FIS), we find that the market value of equity is greater for firms that purchase FIS-related services from their incumbent auditors relative to firms that do not. The levels of FIS fees are also positively related to firm value after controlling for total other fees, or total other non-audit fees. Hence, despite the negative perception associated with non-audit services, investors regard FIS-related services as value-adding activities. [source]

Non-audit fees, long-term auditor,client relationships and earnings management

ACCOUNTING & FINANCE, Issue 2 2008
Steven Cahan
M42 Abstract We examine whether auditor independence is affected by the amount spent on non-audit services. Faster growth in non-audit fees and longer time periods over which non-audit services are purchased might reduce the auditor's independence from that client. Our results do not provide any support for a relationship between non-audit fee growth rates or the length of time of the non-audit fee relationship with the client and discretionary accruals, our measure of earnings management. We do find some evidence that the interaction of the non-audit fee time-period measures and client importance is positive and significantly related to discretionary accruals. [source]

The Relationship between Categories of Non-Audit Services and Audit Fees: Evidence from UK Companies

INTERNATIONAL JOURNAL OF AUDITING, Issue 1 2002
M. Ezzamel
Using survey data we examine the relationship between various categories of non-audit services and audit fees. Compared to previous research, we use a more refined classification of non-audit services both for incumbent and non-incumbent auditors, and control for the existence of an internal audit function and basis of disclosure. Our results suggest that the relationship between levels of audit fees and non-audit services varies by category of non-audit service. These results support explanations of the positive association between fees paid for non-audit services and audit fees in terms either of client specific differences, e.g. organisational complexity, or of events giving rise to the purchase of more audit and non-audit services rather than in terms of direct economic linkages between the cost functions for audit and non-audit services. We speculate that the presence of another auditing firm at the client in a consulting capacity may exert competitive pressure on the fee for external audit. [source]

Does Opinion Shopping Impair Auditor Independence and Audit Quality?

JOURNAL OF ACCOUNTING RESEARCH, Issue 3 2006
TONG LU
ABSTRACT This study investigates how companies' threats to dismiss auditors and their engagement in opinion shopping influence auditor independence and audit quality, which in turn affect misstatements in financial statements. It also examines how outsiders' reactions to auditor switching influence opinion shopping. The results indicate that neither the predecessor auditor's nor the successor auditor's independence is compromised by dismissal threats and opinion shopping. Further, the successor auditor's audit quality exceeds the predecessor auditor's audit quality. In addition, auditor switching decreases potential understatements and increases potential overstatements in financial statements, and the capital market's and the successor auditor's reactions to auditor switching reduce the benefits of opinion shopping to companies. Additionally, the study sheds some light on the potential effects of both the Sarbanes-Oxley's restriction on non-audit services and mandatory auditor rotation or retention. The paper also derives a rich set of empirical implications. [source]