Non-Audit Service Fees and Audit Quality: The Impact of Auditor Specialization

Lim, Chee Yeow; Tan, Hun‐Tong

doi:10.2139/ssrn.1003331

Cited by 100 publications

(142 citation statements)

References 25 publications

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“…Findings are mostly consistent with no significant evidence of adverse effect of non-audit service on propensity to issue going concern opinion (DeFond, Raghunandan, and Subramanyam, 2002;Geiger and Rama, 2003). On the other hand, Lim and Tan (2008) find that issuance of going-concern audit report is actually more likely when the level of non-audit services acquired from industry specialists increase.…”

Section: Auditors' Incentives/benefits Perception and Behaviormentioning

confidence: 53%

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Auditor Independence and Audit Quality

Tepalagul

Ling

2014

Journal of Accounting, Auditing & Finance

262

192

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This paper reviews literatures related to auditor independence and audit quality. The review is structured based on the four main threats to auditor independence, namely client importance, nonaudit services, auditor tenure, and client's affiliation with CPA firms. For each of the threats, we discuss findings related to the incentives, perception, and behavior of the auditor and the client, the effects of each threat on actual and perceived quality of audit and financial reports. We conclude that inconclusive evidence together with recent changes in auditing profession provides opportunities for further studies on auditor independence and audit quality issues.2

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Section: Auditors' Incentives/benefits Perception and Behaviormentioning

confidence: 53%

“…Higgs and Skantz (2006) find limited evidence of negative relation between abnormal non-audit fees and earnings response coefficients. However, Lim and Tan (2008) indicate that earnings response coefficient increases with the level of non-audit services acquired from industry specialists.…”

Section: Users' Perception and Behaviormentioning

confidence: 91%

Auditor Independence and Audit Quality

Tepalagul

Ling

2014

Journal of Accounting, Auditing & Finance

262

192

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“…Firms that do not undertake audits for their financial statements can still employ professional accountants for review, compilation, tax return preparation, management advisory and other services. The provision of non-audit services by external accountants may increase the sophistication of firm's internal accounting systems or create economic bonds that weaken auditor independence and diminish audit quality, reducing the benefit of formal auditing services (Lim and Tan 2008). Alternatively, non-audit services may allow auditors to use their firm specific knowledge to further improve the firm's accounting systems and audit quality.…”

Section: What Does Firm Size Capture?mentioning

confidence: 99%

Discussion of the Value of Financial Statement Verification in Debt Financing: Evidence from Private U.S. Firms

Cassar

2011

SSRN Journal

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I discuss Minnis [2010] in the context of the broader literature on private firm financing. In particular, I focus on the unique features of the private firm setting and how it affects research design and inference. I detail the alternative information sources available to debt financiers of private firms that may limit the role of auditors and firm financial statements. I review research in the private firm setting that documents the heightened importance of many omitted correlated variables such as the loan characteristics, contractual terms, and the characteristics of the entrepreneur that affect cost of debt. In evaluating the validity of Minnis's [2010] hypotheses and econometric methods, I report findings from a representative sample of private firms provided by the Federal Reserve Board's Survey of Small Business Finances. ABSTRACT:I discuss Minnis [2010] in the context of the broader literature on private firm financing. In particular, I focus on the unique features of the private firm setting and how it affects research design and inference.

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“…The common explanation for this is that firms systematically manage earnings to meet expectations (e.g., Degeorge et al 1999), and subsequent research frequently categorizes firms as suspected of managing earnings when their earnings meet or just beat analyst expectations (e.g., Cheng and Warfield 2005;Lim and Tan 2008;Fang et al 2015).…”

Section: Introductionmentioning

confidence: 99%

“…Such strategically biased forecasts may arise from analysts' attempts to win trading commissions for the brokerages they work for (e.g., Cowen et al 2006), from efforts to acquire 5 Variables based on the incidence of zero and small positive earnings surprises are commonly used to empirically proxy for constructs such as earnings management (e.g., Cheng and Warfield 2005;Brochet et al 2015;Fang et al 2015) and audit quality (e.g., Lim and Tan 2008;Reichelt and Wang 2010). Zero and small positive earnings surprises are also used to select samples of ''suspect'' firms (Balsam et al 2002;Cohen et al 2008).…”

Section: Introductionmentioning

confidence: 99%

Analyst information precision and small earnings surprises

Bissessur

Veenman

2016

Rev Account Stud

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This study proposes and tests an alternative to the extant earnings management explanation for zero and small positive earnings surprises (i.e., analyst forecast errors). We argue that analysts' ability to strategically induce slight pessimism in earnings forecasts varies with the precision of their information. Accordingly, we predict that the probability that a firm reports a small positive instead of a small negative earnings surprise is negatively related to earnings forecast uncertainty, and we present evidence consistent with this prediction. Our findings have important implications for the earnings management interpretation of the asymmetry around zero in the frequency distribution of earnings surprises. We demonstrate how empirically controlling for earnings forecast uncertainty can materially change inferences in studies that employ the incidence of zero and small positive earnings surprises to categorize firms as suspected of managing earnings.

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Non-Audit Service Fees and Audit Quality: The Impact of Auditor Specialization

Cited by 100 publications

References 25 publications

Auditor Independence and Audit Quality

Auditor Independence and Audit Quality

Discussion of the Value of Financial Statement Verification in Debt Financing: Evidence from Private U.S. Firms

Analyst information precision and small earnings surprises

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