Audit Fees Non Audit Services And Auditor Client Economic Bonding
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Audit Fees Non Audit Services And Auditor Client Economic Bonding
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Author : Jeffrey Coulton
language : en
Publisher:
Release Date : 2007
Audit Fees Non Audit Services And Auditor Client Economic Bonding written by Jeffrey Coulton and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.
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.
The Provision Of Non Audit Services By Accounting Firms To Their Audit Clients
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Author : Michael Firth
language : en
Publisher:
Release Date : 2000
The Provision Of Non Audit Services By Accounting Firms To Their Audit Clients written by Michael Firth and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2000 with categories.
There has been a strong growth in accounting firms' provisions of non-audit services to their audit clients. To date, however, there have been few studies into the determinants of this joint provision of audit and non-audit services. One reason for the paucity of research is the lack of publicly available data with which to empirically examine relationships and test theories. However, recent legislation in the United Kingdom requires disclosure of non-audit fees paid to a company's auditor and this provides data with which to investigate the joint provision of consultancy and audit services. A model is developed that seeks to explain a company's decision to hire non-audit services from the auditor. The model argues that companies that face potentially high agency costs purchase relatively smaller amounts of non-audit services from their auditor. High agency cost companies require independent audits in order to reassure investors and creditors; the provision of joint services, which increases the economic bonding of the auditor to the client, may jeopardize independence or the appearance of independence. The model is tested using data observations from 500 companies and the results indicate that companies that have higher agency costs proxies are associated with smaller purchases of non-audit services from their auditors.
Perceived Auditor Independence And Audit Firm Fees
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Author : Kevin Holland
language : en
Publisher:
Release Date : 2016
Perceived Auditor Independence And Audit Firm Fees written by Kevin Holland and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
Regulations requiring the disclosure of fees paid to an auditor for audit and non-audit services (NAS) respond to concerns that such payments are potentially detrimental to auditors' actual or perceived independence. Although empirical studies have failed to produce unequivocal evidence of detrimental effects on auditor independence, the actions of regulators, audit firms and companies are consistent with the belief that economic bonding generated by fees can impair perceived levels of auditor independence.Using a sample of UK companies over a six year period to March 2006, we study perceived impairment of auditor independence by examining the relationship between levels of total relative fees (combined audit and NAS fees payable by a company to its auditor as a proportion of the audit firm's UK income) and market value. The paper's methodological innovation is its use of a valuation framework in this setting. A further contribution lies in dropping the assumption of linearity found in most prior empirical studies. We provide evidence that shareholders perceive a threat to auditor independence only at high total relative fee levels. At lower levels, total relative fees are positively related to company value. These results suggest that disclosure of NAS and audit fees are of relevance to investors, as is information about auditor income. Our results support the view that regulation by reference to the threshold at which total relative fees are perceived negatively is more consistent with investor preferences than prohibition of the supply of NAS by auditors to their audit clients.
Auditor Fees Abnormal Fees And Audit Quality Before And After The Sarbanes Oxley Act
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Author : Ariel J. Markelevich
language : en
Publisher:
Release Date : 2010
Auditor Fees Abnormal Fees And Audit Quality Before And After The Sarbanes Oxley Act written by Ariel J. Markelevich and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with categories.
Our study examines fees paid to auditors for audit and non-audit services during the period 2000 to 2003. We document a statistically significant positive association between audit fees and the absolute value of performance-adjusted discretionary accruals over all years. We also identify a significant positive association between non-audit fees and discretionary accruals in years 2000 and 2001, but no such association in later years (after passage of the Sarbanes-Oxley Act). This lack of association in 2002 and 2003 may be a result of legislation that limits the types of non-auditing services that auditors can provide to audit clients. To address the potential impact of fee composition and client importance on auditor independence, we extend our empirical analysis by incorporating predictions of abnormal audit and non-audit fees. We derive abnormal fees using a fee estimation model drawn from prior literature. We find evidence consistent with the view that clients with higher abnormal fees are more apt to exert influence on their auditors, which in turn may lead to a breach in auditor independence. Overall, our results are most consistent with economic bonding being the primary determinant of auditor behavior.
Auditor Independence
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Author : Ismail Adelopo
language : en
Publisher: Routledge
Release Date : 2016-04-08
Auditor Independence written by Ismail Adelopo and has been published by Routledge this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-04-08 with Business & Economics categories.
In Auditor Independence, Ismail Adelopo argues that the importance of auditors' independence cannot be over-emphasised. Not only do auditors provide certification of the truth and fairness of the information prepared by managers, they also have a duty to express opinions on the degree of compliance with laws and regulations guiding a firm's operations. Theirs is a socially important responsibility. In all that has been proposed to mitigate the governance crisis and restore confidence in the market system, relatively little attention has been paid to auditor independence. Examining the historical role of auditing in corporate governance and the regulatory context, this book sets the function within a theoretical framework and then provides empirical analysis of the problem issues such as the relationship between audit committees and external auditors and the probity of providing non-auditing services to audit clients. The focus on matters that are damaging to market confidence and threatening to the reputation of the auditing profession, means the conclusions and recommendations in this book are important for key stakeholders, including policy makers, regulators, those running companies, and their investors and customers. This is also a book for those responsible for training in the auditing profession and for others with a research or academic interest in the matters addressed.
The Relation Between Auditors Fees For Non Audit Services And Earnings Quality
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Author : Frankel Richard M
language : en
Publisher:
Release Date : 2023-07-18
The Relation Between Auditors Fees For Non Audit Services And Earnings Quality written by Frankel Richard M and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023-07-18 with Business & Economics categories.
The Impact Of Corporate Governance On Auditor Independence
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Author : Ismail Adelopo
language : en
Publisher:
Release Date : 2010
The Impact Of Corporate Governance On Auditor Independence written by Ismail Adelopo and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with categories.
The thesis explores the relationship between Audit Committees and External Auditors? fees of a sample of FTSE 350 companies in the UK for the period of 2005-2006. This is achieved by providing answers to three main research questions. First, what are the determinants of Audit Committee activity? Second, what is the relationship between Audit Committee activity and external auditors? fees? Third, what is the relationship between audit and non-audit fees and how does the Audit Committee affect these? Starting out with an Agency Theoretical background, the study found evidence consistent with the views that a higher proportion of Independent Non-Executive Directors on the board enhances Audit Committees? activity, but the presence of financial expertise on the committee was not found to be statistically significant in explaining its activity. The thesis also documented evidence that shows that Audit Committee activity is inversely related to managerial ownership of shares in companies. In line with the economic theory of auditing, the researcher used fees paid to the external auditor to proxy for the level of economic bonding between auditors and their clients. Higher fees are interpreted to indicate compromised independence. Five alternative measures of economic bonding were used. The researcher found a stable and statistically significant positive relationship between measures of economic bonding and Audit Committee activity. This finding is consistent with the view that Audit Committees buy more services from the auditors in order to enhance auditing and reporting quality. Strong positive relationships between audit and non-audit services and vice versa were found using a single equation fees model but these relationships were not consistent when the researcher controlled for endogeneity between audit and non audit fees using Simultaneous Equation Models (SEM). Audit Committee activity was not statistically important in these relationships. This evidence taken together supports the proposition that economies of scope exist in the joint provision of both audit and non-auditing services to the same client. Finally the thesis also documents evidence that suggests that knowledge spill-over flows from non-audit services to auditing services and that auditor do not use audit as a loss leader.
Smoothing Income Numbers
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Author : Joshua Ronen
language : en
Publisher: Addison Wesley Publishing Company
Release Date : 1981-01-01
Smoothing Income Numbers written by Joshua Ronen and has been published by Addison Wesley Publishing Company this book supported file pdf, txt, epub, kindle and other format this book has been release on 1981-01-01 with Income accounting categories.
The Auditor Client Contractual Relationship
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Author : Linda DeAngelo
language : en
Publisher:
Release Date : 1981
The Auditor Client Contractual Relationship written by Linda DeAngelo and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1981 with Business & Economics categories.
Evidence Of A Nonlinear Association Between Auditor Provided Non Audit Services And Audit Quality
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Author : Erik Beardsley
language : en
Publisher:
Release Date : 2018
Evidence Of A Nonlinear Association Between Auditor Provided Non Audit Services And Audit Quality written by Erik Beardsley and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with categories.
This study examines the possibility of a nonlinear association between auditor-provided non-audit services (NAS) and audit quality. The effect of NAS on audit quality has been a long-standing debate among academics and regulators. One view is that NAS can potentially create economic bonding between the auditor and client, lowering audit quality. Another view is that NAS creates knowledge spillover, improving audit quality. Our unique approach provides evidence of a nonlinear association between NAS and audit quality, where client misstatement rates are higher for audit offices with both high and low levels of NAS. We also find a nonlinear association between NAS provision and both missed material weaknesses and meeting or beating analysts' consensus forecast by a small amount. This study should be of interest to audit firms, audit committees, and regulators because it advances our understanding of the effects of NAS on audit quality.