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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: Richard M. Frankel
Publisher: Forgotten Books
ISBN: 9780666794659
Category : Business & Economics
Languages : en
Pages : 94
Get Book Here
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: 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.
Author: Richard M. Frankel
Publisher:
ISBN:
Category : Auditing
Languages : en
Pages : 44
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Book Description
We examine the association between the provision of non-audit services and earnings quality. Because of concerns regarding the effect of non-audit services on financial reporting credibility, the Securities and Exchange Commission recently issued revised auditor independence rules requiring firms to disclose in their annual proxy statement the amount of fees paid to auditors for audit and non-audit services. Using data collected from proxy statements filed between February 5, 2001 and June 15, 2001, we present evidence that firms purchasing more non-audit services from their auditor are more likely to just meet or beat analysts' forecasts and to report larger absolute discretionary accruals. However, the purchase of non-audit services is not associated with meeting other earnings benchmarks. We also find that the unexpected component of the non-audit to total fee ratio is negatively associated with stock returns on the filing date. These results are consistent with arguments that the provision of non-audit services strengthens an auditor's economic bond with the client and that investors price this effect. Keywords: Auditor independence; Auditor fees; Earnings management; Discretionary accruals. JEL Classification: G12, M41, M43, M49, L84.
Author: Benito Arrunada
Publisher: Springer Science & Business Media
ISBN: 1475767285
Category : Business & Economics
Languages : en
Pages : 203
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Book Description
This book focuses on market mechanisms which protect quality in the provision of audit services. The role of public regulation is thus situated in the context defmed by the presence of these safeguard mechanisms. The book aims to contribute to a better understanding of these market mechanisms, which helps in defining the con tent of rules and the function of regulatory bodies in facilitating and strengthening the protective operation of the market. An analysis at a more general level is provided in the three chapters making up Part 1. In the four chapters of Part 2, on the other hand, this analysis is applied to a particular problem to determine how those non-audit services often provided by auditors to their audit clients should be regulated. Finally, Chapter 8 contains a summary of the analysis and conclusions of the work. The conclusion with regard to non-audit services is that their provision generates beneficial effects in terms of costs, technical competence, professional judgment and competition and, moreover, need not prejudice auditor independence or the quality of these services. This as sessment leads, in the normative sphere, to recommending a legislative policy aimed at facilitating the development and use of safeguards provided by the free action of market forces. Regulation should thus aim to enable the parties-audit firms, self-regulatory bodies and audit clients-to discover through competitive market interaction both the most efficient mix of services and the corresponding quality safeguards, adjusting for the costs and benefits of each possibility.
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: Jeffrey Coulton
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
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Book Description
We investigate whether auditor independence is compromised by either the mix of audit and non audit services (NAS), or simply unusually large NAS or audit fees. The results help reconcile apparently conflicting evidence in prior studies linking NAS and indicators of earnings management, as well as providing new insights on the relation between the incentive structures faced by auditors and variation in audit quality. Using the unexpected accrual component of earnings as a proxy for the effect of impaired auditor independence, we initially find that client firms purchasing an unexpectedly large NAS fee mix (i.e., relative to audit fees) display some evidence of aggressive accounting. However, when we explicitly allow for the possibly endogenous nature of unexpected accruals and unexpected NAS, this result no longer holds. In contrast, similar evidence of a positive relation between the magnitude of unexpectedly large audit fees and positive unexpected accruals still occurs (albeit more weakly) after explicitly allowing for possible endogeneity. A significant positive association between unexpected total fees (audit plus NAS) and the magnitude of positive unexpected accruals is even more robust. However, further tests shows that these quot;resultquot; are confined to clients of Non-Big 6 auditors. We therefore conclude that for large audit firms, the incentive to protect larger than expected fees is outweighed by the importance of their reputation for providing high quality audits relative to smaller audit firms. The results also highlight how sensitive conclusions about possible quot;NAS effectsquot; are to the choice of proxy for economic bond as well as the precise experimental design.
Author: Aloke Ghosh
Publisher:
ISBN:
Category :
Languages : en
Pages : 28
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Book Description
This study investigates investor perceptions, proxied by earnings response coefficients (ERCs), of auditor independence-in-appearance as a function of audit and non-audit fees. For a sample of 8,940 firm-years over the 2000-2002 period, we find in separate regressions that ERCs are negatively associated with the ratio of non-audit to total fees (non-audit fee ratio) and with client importance (auditors' fees from a given client divided by auditor's total revenues). When we include both in the same regression, however, only client importance remains significantly associated with ERCs. Thus our results contradict the commonly-held belief (SEC 1978, 1979, Earnscliffe Research and Communications, 1999) that perceived auditor independence is a function of the non-audit fee ratio. We also fail to find a statistically significant change in ERCs when non-audit fees increase or decrease by at least 30 percent between successive years; this result fails to support the conjecture (Coffee 2004) that investors interpret non-audit fee changes as quot;bribes or punishmentsquot; by clients.
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: Joseph V. Carcello
Publisher:
ISBN:
Category :
Languages : en
Pages : 54
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Book Description
Inadequate testing of fair value accounting estimates, including goodwill, is often cited as an audit deficiency in PCAOB inspection reports, and, in some cases, these deficiencies have led to enforcement actions against the auditor. As a result of these issues, the PCAOB recently proposed a new auditing standard for fair value accounting. While these regulatory actions suggest that auditors are challenged by the fair value regime of accounting for goodwill, they also highlight an area where the auditor could be influenced by their financial ties to a client. In this study, we test whether non-audit fees are associated with goodwill impairment decision outcomes. Our results indicate that the non-audit fees a client pays are inversely related to the likelihood of impairment in settings where goodwill is likely to be impaired. Additional examinations suggest that the negative relation between non-audit fees and auditor independence is driven by clients who are most incentivized to exert their influence over the auditor.
