Do Non-Audit Service Fees Impair Auditor Independence? Evidence from Going-Concern Audit Opinions PDF Download
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Author: Mark L. DeFond
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
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: Mark L. DeFond
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
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: Jonathan Edward Shipman
Publisher:
ISBN:
Category : Auditors
Languages : en
Pages : 57
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Book Description
Prior literature’s inability to document an empirical relation between non-audit service fees and compromised auditor independence contradicts the significant and long-standing concerns expressed by regulators and the investing community. The purpose of this paper is to reconcile the lack of findings in prior research with regulators’ and investors’ concerns about non-audit services. Using a new measure – goodwill impairments – that alleviates many of the potential limitations that could have prevented prior research from documenting evidence to support the proposed relation between non-audit services and auditor independence, I find that the level of non-audit fees of a client is negatively associated with the likelihood of recording a goodwill impairment in settings where the market indicates goodwill may be impaired. Further examinations of these findings suggest that the lack of results in prior literature could be related to limitations in the settings being tested in those papers.
Author: Jayanthi Krishnan
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
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: Christiane Strohm
Publisher: Springer Science & Business Media
ISBN: 3835091158
Category : Business & Economics
Languages : en
Pages : 247
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Book Description
Christiane Strohm investigates the effects of the Sarbanes-Oxley-Act and the revised 8th EU-Directive on auditing. She shows that there is a difference in the communication and safeguarding effects of a regulation, depending on the precision of its wording and that safeguarding effects also depend on auditors' monetary incentives and on perceived costs of litigation.
Author: Richard M. Frankel
Publisher: Forgotten Books
ISBN: 9780666794659
Category : Business & Economics
Languages : en
Pages : 94
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Book Description
Excerpt from The Relation Between Auditors' Fees for Non-Audit Services and Earnings Quality This paper provides empirical evidence on the relation between non-audit services and earnings quality. We test hypotheses concerning: (1) the association between a firm's purchase of non-audit services from its auditor and earnings management, and (2) the stock price reaction to the disclosure of non-audit fees. In the past decade there has been a dramatic increase in the proportion of fee revenue auditors derive from non-audit services, yet we know little about how non-audit services are related to earnings quality.1 Concern about the effect of non-audit services on the financial reporting process was a primary motivation for the Securities and Exchange Commission (sec) to issue revised auditor independence rules on November 15, 2000. The rules require firms to disclose the amount of all audit and non-audit fees paid to its auditor. About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.
Author: Thomas Lau
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
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Book Description
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: Monika Causholli
Publisher:
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: Ferdinand A. Gul
Publisher:
ISBN:
Category :
Languages : en
Pages : 43
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Book Description
This study examines whether the impact of non-audit fees on auditor independence is contingent on auditor tenure. The results, based on a sample of 4,720 U.S. firms for the years 2000 and 2001, show that there is a positive association between non-audit fees and positive discretionary current accruals, a proxy for auditor independence, for firms with short auditor tenure of not more than three years. These findings suggest that non-audit fees may impair auditor independence when auditor tenure is short and not when auditor tenure is long. Furthermore, exploratory analyses show that the positive association between non-audit fees and earnings management for firms with short auditor tenure is significant for small clients but not for large clients. Taken together, these results suggest that the association between non-audit fees and auditor independence is contingent upon auditor tenure, and that high non-audit fees have a negative impact on auditor independence when audit tenure is short and client firm size is small.
Author: Olga Tsobkalo
Publisher:
ISBN:
Category :
Languages : en
Pages : 126
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Author: Kevin Holland
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Regulations requiring the disclosure of fees paid to an auditor for audit and non-audit services (NAS) respond to concerns that such payments are potentially detrimental to auditors' actual or perceived independence. Although empirical studies have failed to produce unequivocal evidence of detrimental effects on auditor independence, the actions of regulators, audit firms and companies are consistent with the belief that economic bonding generated by fees can impair perceived levels of auditor independence.Using a sample of UK companies over a six year period to March 2006, we study perceived impairment of auditor independence by examining the relationship between levels of total relative fees (combined audit and NAS fees payable by a company to its auditor as a proportion of the audit firm's UK income) and market value. The paper's methodological innovation is its use of a valuation framework in this setting. A further contribution lies in dropping the assumption of linearity found in most prior empirical studies. We provide evidence that shareholders perceive a threat to auditor independence only at high total relative fee levels. At lower levels, total relative fees are positively related to company value. These results suggest that disclosure of NAS and audit fees are of relevance to investors, as is information about auditor income. Our results support the view that regulation by reference to the threshold at which total relative fees are perceived negatively is more consistent with investor preferences than prohibition of the supply of NAS by auditors to their audit clients.
