Non-audit fees and auditor independence: Nigerian evidence

Abstract

Purpose This study aims to investigate the extent to which the provision of non-audit services (NAS) by external auditors to audit clients affects auditors’ independence and the audit expectation gap in Nigeria. Design/methodology/approach The study adopts an interpretivist approach. In total, 30 semi-structured, face-to-face interviews were conducted to explore the views expressed by audit partners and pension fund managers in Nigeria; group responses were evaluated and presented separately. After transcribing the interview audio recordings, a thematic data analysis of the two groups’ responses was performed. Findings Interpretation of the interview responses indicates that the provision of NAS by audit firms to their audit clients is regarded by auditors as a matter of economic necessity. Nevertheless, it is also perceived as impeding auditors’ independence and increasing the gap between the auditor and public expectations. Practical implications This study contributes to the debate surrounding the need for an independent body to oversee auditing standard setting distinct from the current practice to enhance transparency. Originality/value A qualitative analysis of the nuanced responses obtained from the semi-structured interviews reveals starkly the perceived economic pressures on auditors to accept non-audit work. Moreover, it endorses the regulation to restrict non-audit work in support of a sustainable fee level for an independent audit.

The Determinants of External Auditors’ Independence for Politically Connected Firms in Malaysia

“…Hence, there is an urgency to standardize the restrictions on non-audit services globally (PricewaterhouseCoopers, 2016). Onulaka (2019) in his study found a negative significant relationship between non-audit fees and auditors" independence. He indicated that since auditors are allowed to offer non-audit services, this may lead to lower fees for non-audit work, and to reduce below the market price in order to engage more in non-audit services.…”

Joint Provision of Non-audit Services to Audit Clients: Empirical Evidences from India

“…The rudimentary motivation for the study comes from the concern that auditor independence becomes questionable due to the provision of NAS to audit clients. NAS to audit clients is often positively associated with loss of public confidence (Onulaka et al, 2019). Management's control over the appointment and remuneration of auditors has also been questioned (Tang et al, 2017).…”

“…The extant researches reveal that beginning with the pivotal work by Simunic (1984), the studies on the issue of NAS and auditor independence include (a) reviews (Francis, 2006;Francis et al, 2004;Hay, 2017;Tepalagul & Lin, 2015), including meta-analysis (Habib, 2012); (b) archival research (Abdul et al, 2020;Ashbaugh et al, 2003;Beardsley et al, 2021;Ezzamel et al, 1996;Frankel et al, 2002;Lim & Tan, 2008;Whisenant et al, 2003) including capital market reaction studies (Chaney & Philipich, 2002); (c) experimental studies (Aschauer & Quick, 2018;Causholli et al, 2014;Friedman & Mahieux, 2021;Meuwissen & Quick, 2019;Tang et al, 2017); and (d) survey research (Akinbowale & Babatunde, 2017;Harber & Maroun, 2020;Onulaka et al, 2019;Quick & Warming-Rasmussen, 2005 ). The majority of the studies are archival and experimental, limiting the ability to critique the existing regulations (Harber & Maroun, 2020).…”

“…This study is an attempt to fill the gap in empirical research by presenting the practitioners' perspectives. Further, most of the studies are concentrated in the US (Ashbaugh et al, 2003;Davis et al, 1993;Mishra et al, 2005;Whisenant et al, 2003), UK (Ezzamel et al, 1996;Ferguson et al, 2004), Australia (Butterworth & Houghton, 1995;Craswell, 1999;Lee et al, 2009), Malaysia (Abdul et al, 2020;Ahmad et al, 2006;, Nigeria (Onulaka et al, 2019), South Africa (Harber & Maroun, 2020), China (Tang et al, 2017) and some of the EU Nations (Aschauer & Quick, 2018;Meuwissen & Quick, 2019;Quick et al, 2013;Quick & Warming-Rasmussen, 2005), etc. Very few studies have been carried out to present the Indian perspective.…”

“…The majority of the respondents that is, 73 per cent, suggested that complete prohibition of NAS by an audit firm is not feasible. Extant literature also reveals that NAS is an economic necessity for the survival and growth of audit firms (Kang et al, 2019;Onulaka et al, 2019;. As audit services are periodic, the provision of NAS enables the audit firm to level out seasonal variation in demand and ensures a constant flow of revenue throughout the year (Quick & Warming-Rasmussen, 2005).…”