Auditee incentives for auditor independence: the case of nonaudit services

Article Abstract:

The effects of auditee incentives on auditor independence are examined in the context of nonaudit services. Nonaudit service purchases by auditee firms reflect knowledge spillovers and the nature of relationship between auditee and auditor. Such purchases are of two types: recurring services, from which the auditor earns what can be considered as an annuity; and nonrecurring services, wherein economic bonding and knowledge spillovers are minimized. Thus, purchases of latter type impair auditor independence to a lesser degree than recurring services. Multiple regressions of Fortune 500 data are used to test whether the potential costs of loss of auditor independence affect the frequency with which agencies buy recurring and nonrecurring nonaudit services. The results suggest that expected agency costs and the use of industry specialists affect demand for these services.

Accounting and auditing, Business enterprises

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Audit effort, audit fees, and the provision of nonaudit services to audit clients

Article Abstract:

The existence of knowledge spillovers and audit production efficiencies resulting from auditor provision of nonaudit services to clients is examined using audit-hour and billing-rate data. Providing nonaudit services may compromise auditor objectivity, but may also result in knowledge and production savings that can accrue not only to the auditee, but also to the auditor. Three specifications are used to analyze the impact of auditor provision of management advisory services: a replication of prior research, a model regressing audit effort on nonaudit service fees and another specification regressing audit fees on nonaudit service fees. The results suggest that contrary to the findings of previous studies, higher auditor fees reflect only increases in audit effort associated with the provision of nonaudit services, and not economic rents from knowledge spillovers.

Accounting, auditing, & bookkeeping, Evaluation, Accounting firms, Accounting services

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Working-paper order effects and auditors' going-concern decisions

Article Abstract:

The influence of the presentation order of audit evidence on the substantial doubt decisions of audit partners is examined. Using 100 audit partners from a public accounting firm, it is demonstrated that the presentation of audit evidence in causal order elicits greater substantial doubt than when the audit evidence is presented in the accounting firm's traditional working paper order. The order effects revealed have significant implications for the design of audit working papers, particularly in going-concern decision-making.

Research, Methods, Decision-making, Decision making

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