Professional Service Fees and Auditor Objectivity

Reynolds, J. Kenneth; Deis, Donald R.; Francis, Jere R.

doi:10.2308/aud.2004.23.1.29

Cited by 251 publications

(163 citation statements)

References 35 publications

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“…For example, prior studies document no association between the likelihood of auditor qualifications and NAS (Barkess and Simnett, 1994;Craswell, 1999;Craswell, Stokes and Laughton, 2002;DeFond, Raghunandan andSubramanyam 2002 andHay, Knechel andLi, 2006) 2 and audit tenure and NAS (DeBerg, Kaplan and Pany, 1991;Barkess andSimnett, 1994 andHay, Knechel andLi, 2006). 3 Further, although Frankel, Johnson and Nelson (2002) document an association between NAS and both the frequency of reporting a small earnings surprise and discretionary accruals, the results of the study have been found to be sensitive to research design in later studies (Ashbaugh, LaFond, and Mayhew, 2003;Chung and Kallapur, 2003;Larcker andRichardson, 2004 andReynolds, Deis andFrancis, 2004). Cahan, Emanuel, Hay and Wong (2008) find no association in New Zealand between discretionary accruals and either NAS growth rates or the length of time a client has purchased NAS.…”

Section: Takeover Premiums and The Role Of The Target Firm Auditormentioning

confidence: 99%

Takeover Premiums and the Perception of Auditor Independence and Reputation

Bugeja¹

2009

SSRN Journal

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This study investigates if there is a positive association between takeover premiums and the bidder's perception of target firm auditor reputation and independence. Using auditor size as a proxy for auditor reputation, the results indicate that target shareholders receive a higher takeover premium when a Big 4 auditor audits the target firm in the year prior to the takeover announcement. This result is only significant however in the period prior to the highly publicised audit failures. The impact of perceived auditor independence on takeover premiums is studied using the levels and size of non-audit service (NAS) fees provided by the target firm auditor. Using three proxies for auditor independence, the results do not show an association between perceived auditor independence and takeover premiums. This finding is robust to partitioning the sample by auditor size, takeover hostility and splitting the sample into takeovers pre-and post-the corporate scandals that occurred in 2002.

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Section: Takeover Premiums and The Role Of The Target Firm Auditormentioning

confidence: 99%

Takeover Premiums and the Perception of Auditor Independence and Reputation

Bugeja¹

2009

SSRN Journal

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“…Arruanda adds that it does not necessarily damage auditor independence or the quality of NAS. Reynolds et al (2004) provide evidence that there is no association between NAS and discretionary accruals and conclude that little evidence exists supporting the negative effects of NAS on auditor's independence and objectivity. Lennox (1999) finds that NAS increases auditors' knowledge on clients as well as the probability of discovering problems and mistakes.…”

Section: Provision Of Non-audit Services (Nas)mentioning

confidence: 99%

Overview of Surrogates to Measure Audit Quality

Hussein¹,

Hanefah²

2013

IJBM

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After the collapse of Arthur Andersen in 2002, the auditing profession has faced increasing pressure from external parties to enhance and improve audit quality. These pressures led to a continued need to study the factors that affect audit quality. Until present, there is no agreement among researchers about the definition and factors of audit quality. To date, the issue of how audit quality is measured remains a matter of controversy and disagreement. Previous studies used alternatives to measure audit quality. This paper reviews both the arguments for and against for these studies. Although, the importance of these alternatives and its potential contribution on audit quality have been emphasized, they are not a justification to ignore audit characteristics that could have significant impact on audit quality. This paper contributes to audit literature and represents a brief overview of reviews both the arguments for and against of using audit quality alternatives in previous studies over the past 30 years. Thus it provides a basis for discussing several potentially rich factors for future research on audit quality.

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“…For instance, Reynolds et al, (2004) state that FY 2000 "was characterized by an infatuation with e-commerce, a merger boom, and IPOs tied to the new economy". Finally, this was a period of intense scrutiny of audit firms by the SEC which would check any normal impulses to lower audit quality (Antle et al, 2006;Ruddock et al, 2006).…”

Section: Discussionmentioning

confidence: 99%

“…Frankel et al, (2002) (2003), Francis and Ke (2003), and Reynolds et al (2004) find no consistent evidence when the value of NAS or total fees is the independent variable instead of the ratio measure.…”

Section: Prior Researchmentioning

confidence: 99%

Non-Audit Services and Financial Reporting Quality: Evidence from 1978-1980

Koh

Rajgopal²,

Srinivasan³

2011

SSRN Journal

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Abstract:We provide evidence on the long standing concern on auditor conflicts of interest from providing non-audit services (NAS) to audit clients by using rarely explored NAS fee data from 1978-80. Using this earlier setting, we find cross-sectional evidence of improved earnings quality when auditors provide NAS, especially those related to information services. This is consistent with better audit quality from knowledge spillovers due to the joint offering of audit and consulting services. Events related to the repeal of these NAS disclosures in 1982 are associated with a small positive stock price reaction suggesting no adverse economic consequences of withdrawing NAS disclosures. Further, following the repeal of disclosure requirements we find no change in the earnings quality of client firms. In sum, data drawn from an earlier time period suggest that auditors' reputational incentives, possible synergies and knowledge transfers imply that NAS offered by audit firms can be associated with improved audit and reporting quality in client firms.We thank our respective schools for financial support. We thank Ray Ball, Phil Berger, Mark DeFond, Aiyesha Dey, Bill Kinney, Doug Skinner, Hun-Tong Tan and workshop participants at Nanyang Technological University, the International Symposium on Audit Research conference at the University of Southern California, 2008 American Accounting Association annual meeting, and 2009 European Accounting Association Annual Congress for helpful comments. We are grateful to the staff at the University of Chicago Regenstein Library, Northwestern University Library and the Chicago Public Library (Main Branch) for assisting in the use of their microfiche collection of proxy statements. We thank Mark Maffet for his excellent research assistance. All errors are ours.1 Non-Audit Services and Financial Reporting Quality:Evidence from 1978-1980 IntroductionIn this paper, we examine if non-audit services (NAS) fees paid to one's auditor are associated with lower quality financial reporting using data from 1978-80. This time period provides a substantially different auditing and business regime than recent years when most research is based. Thus, we provide an early history analysis of a long standing regulatory concern that NAS fees create an economic dependence that causes the auditor to acquiesce to the client's wishes in financial reporting thus reducing audit quality (Metcalf Committee Staff Study, 1977; SEC 1978, SEC 2000, POB 2000. A related concern is that NAS fees may impair investor perceptions of auditor independence (Levitt 1998). This presumption has led to banning some NAS by statute and regulation, regulation mandating disclosure of fees from such services and Information systems related fees (ISFEE) represent the largest component of NAS in our sample and are of particular concern to regulators because they create a situation where "auditors are functioning as management, or may result in an auditor auditing his or her own work" (SEC 2000). However, this is also the area with...

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Professional Service Fees and Auditor Objectivity

Cited by 251 publications

References 35 publications

Takeover Premiums and the Perception of Auditor Independence and Reputation

Takeover Premiums and the Perception of Auditor Independence and Reputation

Overview of Surrogates to Measure Audit Quality

Non-Audit Services and Financial Reporting Quality: Evidence from 1978-1980

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