This article investigates the reasons for supply of nonaudit services by the incumbent auditor. The audit and nonaudit fee data for listed companies in New Zealand and Australia is used in the study. The results suggest that the simultaneous provision of audit and nonaudit services are for efficiency reasons rather than to maximize revenue for the auditors. Hence the regulations in place to restrict the amount of nonaudit services that an auditor can provide its client may result in inefficiencies or incurrence of unnecessary costs for the client and auditor.

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We investigate the extent to which the overvaluation hypothesis provides incentives for managers to beat earnings benchmarks, and whether this benchmark beating can be reliably interpreted as evidence of earnings management. We carefully identify firms immediately above earnings benchmarks that have a priori, overvaluation-based incentives to achieve the benchmark. We therefore focus on benchmark-beating observations where manipulation is most likely, providing a more powerful test of the existence of opportunistic financial reporting. Consistent with overvaluation-related incentives encouraging earnings management, we find that overvalued firms that just exceed levels-related earnings benchmarks have higher unexpected accruals than firms with less extreme valuations.

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