Non-audit Services and Audit Quality: Evidence from Private Firms

References

• Abdel-Khalik , A. R. 1990 . The jointness of audit fees and demand for MAS: a self-selection analysis . Contemporary Accounting Research , 6 ( 2 ) : 295 – 322 . (doi:10.1111/j.1911-3846.1990.tb00760.x)
   Google Scholar
• Abdel-Khalik , A. R. 1993 . Why do private companies demand auditing? A case for organizational loss of control . Journal of Accounting, Auditing and Finance , 8 ( 1 ) : 31 – 52 .
   Google Scholar
• Antle , R. , Gordon , E. , Narayanamoorthy , G. and Ling , Z. 2006 . The joint determination of audit fees, non-audit fees, and abnormal accruals . Review of Quantitative Finance & Accounting , 27 ( 3 ) : 235 – 266 . (doi:10.1007/s11156-006-9430-y)
   Google Scholar
• Arruñada , B. 1999 . The provision of non-audit services by auditors: let the market evolve and decide . International Review of Law and Economics , 19 ( 4 ) : 513 – 531 . (doi:10.1016/S0144-8188(99)00022-8)
   Web of Science ®Google Scholar
• Ashbaugh , H. , LaFond , R. and Mayhew , B. W. 2003 . Do non-audit services compromise auditor independence? Further evidence . Accounting Review , 78 ( 3 ) : 611 – 639 . (doi:10.2308/accr.2003.78.3.611)
   Web of Science ®Google Scholar
• Barkess , L. and Simnett , R. 1994 . The provision of other services by auditors: independence and pricing issues . Accounting and Business Research , 24 ( 94 ) : 99 – 108 . (doi:10.1080/00014788.1994.9729469)
   Google Scholar
• Basioudis , I. G. , Papakonstantinou , E. and Geiger , M. A. 2008 . Audit fees, non-audit fees and auditor going-concern reporting decisions in the United Kingdom . Abacus , 44 ( 3 ) : 284 – 309 . (doi:10.1111/j.1467-6281.2008.00263.x)
   Web of Science ®Google Scholar
• Becker , C. L. , DeFond , M. L. , Jiambalvo , J. and Subramanyam , K. R. 1998 . The effect of audit quality on earnings management . Contemporary Accounting Research , 15 ( 1 ) : 1 – 24 . (doi:10.1111/j.1911-3846.1998.tb00547.x)
   Google Scholar
• Bennett , R. J. and Robson , P. J. A. 2005 . The adviser–SMF relationship: impact, satisfaction and commitment . Small Business Economics , 25 ( 3 ) : 255 – 271 . (doi:10.1007/s11187-003-6459-3)
   Web of Science ®Google Scholar
• Blackwell , D. W. , Noland , T. R. and Winters , D. B. 1998 . The value of auditor assurance: evidence from loan pricing . Journal of Accounting Research , 36 ( 1 ) : 57 – 70 . (doi:10.2307/2491320)
   Web of Science ®Google Scholar
• Burgstahler , D. , Hail , L. and Leuz , C. 2006 . The importance of reporting incentives: earnings management in European private and public firms . The Accounting Review , 81 ( 5 ) : 983 – 1016 . (doi:10.2308/accr.2006.81.5.983)
   Web of Science ®Google Scholar
• Cameran , M. 2005 . Audit fees and the large auditor premium in the Italian market . International Journal of Auditing , 9 ( 2 ) : 129 – 146 . (doi:10.1111/j.1099-1123.2005.00205.x)
   Google Scholar
• Carcello , J. V. and Nagy , A. L. 2004 . Audit firm tenure and fraudulent financial reporting . Auditing: A Journal of Practice & Theory , 23 ( 2 ) : 55 – 69 . (doi:10.2308/aud.2004.23.2.55)
   Web of Science ®Google Scholar
• Carey , P. , Simnett , R. and Tanewski , G. 2000 . Voluntary demand for internal and external auditing by family businesses . Auditing: A Journal of Practice & Theory , 19 ( Supplement ) : 37 – 51 . (doi:10.2308/aud.2000.19.supplement.37)
   Web of Science ®Google Scholar
• Chen , C. Y. , Lin , C. J. and Lin , Y. C. 2008 . Audit partner tenure, audit firm tenure and discretionary accruals: does long auditor tenure impair earnings quality? . Contemporary Accounting Research , 25 ( 2 ) : 415 – 445 . (doi:10.1506/car.25.2.5)
   Web of Science ®Google Scholar
• Choi , J.-H. , Kim , C. , Kim , J.-B. and Zhang , Y. 2010 . Audit office size, audit quality, and audit pricing . Auditing: A Journal of Practice and Theory , 29 ( 1 ) : 73 – 98 . (doi:10.2308/aud.2010.29.1.73)
   Web of Science ®Google Scholar
• Chow , C. W. 1982 . The demand for external auditing: size, debt and ownership influences . Accounting Review , 57 ( 2 ) : 272 – 291 .
   Web of Science ®Google Scholar
• Chung , H. and Kallapur , S. 2003 . Client importance, non-audit services, and abnormal accruals . Accounting Review , 78 ( 3 ) : 611 – 640 . (doi:10.2308/accr.2003.78.3.611)
   Google Scholar
• Coffee , J. C. Jr . 2005 . A theory of corporate scandals: why USA and Europe differ . Oxford Review of Economic Policy , 21 ( 2 ) : 198 – 211 . (doi:10.1093/oxrep/gri012)
   Web of Science ®Google Scholar
• Collis , J. , Jarvis , R. and Skerratt , L. 2004 . The demand for the audit in small companies in the UK . Accounting and Business Research , 34 ( 2 ) : 87 – 100 . (doi:10.1080/00014788.2004.9729955)
   Google Scholar
• Craswell , A. , Stokes , D. J. and Laughton , J. 2002 . Auditor independence and fee dependence . Journal of Accounting and Economics , 33 ( 2 ) : 253 – 275 . (doi:10.1016/S0165-4101(02)00044-7)
   Web of Science ®Google Scholar
• Cronin , J. J. Jr and Taylor , S. A. 1992 . Measuring service quality: a re-examination and extension . Journal of Marketing , 56 ( 3 ) : 55 – 68 . (doi:10.2307/1252296)
   Web of Science ®Google Scholar
• Davis , L. R. , Ricchiute , D. N. and Trompeter , G. 1993 . Audit effort, audit fees, and the provision of nonaudit services to audit clients . Accounting Review , 68 ( 1 ) : 135 – 150 .
   Web of Science ®Google Scholar
• DeAngelo , L. E. 1981a . Auditor independence, ‘low balling’, and disclosure regulation . Journal of Accounting and Economics , 3 ( 2 ) : 113 – 127 . (doi:10.1016/0165-4101(81)90009-4)
   Google Scholar
• DeAngelo , L. E. 1981b . Auditor size and audit quality . Journal of Accounting and Economics , 3 ( 3 ) : 183 – 199 . (doi:10.1016/0165-4101(81)90002-1)
   Google Scholar
• DeFond , M. L. and Jiambalvo , J. 1994 . Debt covenant violation and manipulation of accruals . Journal of Accounting and Economics , 17 ( 1–2 ) : 145 – 176 . (doi:10.1016/0165-4101(94)90008-6)
   Web of Science ®Google Scholar
• DeFond , M. L. and Park , C. W. 1997 . Smoothing income in anticipation of future earnings . Journal of Accounting and Economics , 23 ( 2 ) : 115 – 139 . (doi:10.1016/S0165-4101(97)00004-9)
   Web of Science ®Google Scholar
• DeFond , M. L. and Subramanyam , K. 1998 . Auditor changes and discretionary accruals . Journal of Accounting and Economics , 25 ( 1 ) : 35 – 67 . (doi:10.1016/S0165-4101(98)00018-4)
   Web of Science ®Google Scholar
• DeFond , M. L. , Raghunadan , K. and Subramanyam , K. 2002 . Do non-audit services fees impair auditor independence? Evidence from some going concern audit opinions . Journal of Accounting Research , 40 ( 4 ) : 1247 – 1275 . (doi:10.1111/1475-679X.00088)
   Web of Science ®Google Scholar
• Durtschi , C. and Easton , P. 2005 . Earnings management? The shapes of the frequency distributions of earnings metrics are not evidence ipso facto . Journal of Accounting Research , 43 ( 3 ) : 557 – 592 . (doi:10.1111/j.1475-679X.2005.00182.x)
   Web of Science ®Google Scholar
• European Commission (2002/590/EC) Commission Recommendation of 16 May on Statutory Auditors’ Independence in the EU: A Set of Fundamental Principles, Official Journal of the European Communities, L 191/22.
   Google Scholar
• European Commission (2006/46/EC) Council Directive 2006/46/EC of 14 June 2006, Official Journal of the European Union, L 224/1.
   Google Scholar
• European Commission (2010/561/EC) Green Paper. Audit Policy: Lessons from the Crisis, COM (2010) 561 Final. Brussels 13.10.2010.
   Google Scholar
• Ezzamel , M. , Gwilliam , D. R. and Holland , K. M. 2002 . The relationship between categories of non-audit services and audit fees: evidence from UK companies . International Journal of Auditing , 6 ( 1 ) : 13 – 36 . (doi:10.1111/j.1099-1123.2002.tb00003.x)
   Google Scholar
• Ferguson , M. J. , Seow , G. S. and Young , D. 2004 . Non-audit services and earnings management: UK evidence . Contemporary Accounting Research , 21 ( 4 ) : 813 – 841 . (doi:10.1506/MFV5-9T3Q-H5RK-VC20)
   Web of Science ®Google Scholar
• Francis , J. R. and Ke , B. 2006 . Disclosure of fees paid to auditors and the market valuation of earnings surprises . Review of Accounting Studies , 11 ( 4 ) : 495 – 523 . (doi:10.1007/s11142-006-9014-z)
   Web of Science ®Google Scholar
• Francis , J. R. , Maydew , I. L. and Sparks , H. C. 1999 . The role of Big 6 auditors in credible reporting of accruals . Auditing: A Journal of Practice & Theory , 18 ( 2 ) : 17 – 34 . (doi:10.2308/aud.1999.18.2.17)
   Web of Science ®Google Scholar
• Frankel , R. M. , Johnson , M. F. and Nelson , K. K. 2002 . The relation between auditors’ fees for non-audit services and earnings quality . The Accounting Review , 77 ( supplement ) : 71 – 105 . (doi:10.2308/accr.2002.77.s-1.71)
   Web of Science ®Google Scholar
• Geiger , M. A. and Raghunadan , K. 2002 . Auditor tenure and audit reporting failures . Auditing: A Journal of Practice & Theory , 21 ( 1 ) : 67 – 78 . (doi:10.2308/aud.2002.21.1.67)
   Web of Science ®Google Scholar
• Ghosh , A. and Moon , D. 2005 . Auditor tenure and perception of audit quality . Accounting Review , 80 ( 2 ) : 585 – 612 . (doi:10.2308/accr.2005.80.2.585)
   Web of Science ®Google Scholar
• Gleason, C. A. and Mills, L. A. (2011) Do auditor-provided tax services improve the estimate of tax reserves? Contemporary Accounting Research, 28(5), pp. 1484–1509.
   Google Scholar
• Guay , W. R. , Kothari , S. P. and Watts , R. L. 1996 . A market based evaluation of discretionary accruals models . Journal of Accounting Research , 34 ( Supplement ) : 83 – 105 . (doi:10.2307/2491427)
   Web of Science ®Google Scholar
• Gul , F. , Chen , C. J. P. and Tsui , J. S. L. 2003 . Discretionary accounting accruals managers’ incentives and audit fees . Contemporary Accounting Research , 20 ( 3 ) : 441 – 464 . (doi:10.1506/686E-NF2J-73X6-G540)
   Web of Science ®Google Scholar
• Gulati , R. 1995 . Does familiarity breed trust? The implications of repeated ties for contractual choices in alliances . Academy of Management Journal , 38 ( 1 ) : 85 – 112 . (doi:10.2307/256729)
   Web of Science ®Google Scholar
• Hay , D. and Davis , D. 2004 . The voluntary choice of an auditor of any level of quality . Auditing: A Journal of Practice & Theory , 23 ( 2 ) : 37 – 53 . (doi:10.2308/aud.2004.23.2.37)
   Web of Science ®Google Scholar
• Hay , D. , Knechel , W. R. and Li , V. 2006a . Non-audit services and auditor independence: New Zealand evidence . Journal of Business Finance & Accounting , 33 ( 5–6 ) : 715 – 734 . (doi:10.1111/j.1468-5957.2006.00602.x)
   Web of Science ®Google Scholar
• Hay , D. C. , Knechel , W. R. and Wong , N. 2006b . Audit fees: a meta-analysis of the effect of supply and demand attributes . Contemporary Accounting Research , 23 ( 1 ) : 141 – 191 . (doi:10.1506/4XR4-KT5V-E8CN-91GX)
   Web of Science ®Google Scholar
• Healy , P. M. 1985 . The effect of bonus schemes on accounting decisions . Journal of Accounting and Economics , 7 ( 1–3 ) : 85 – 107 . (doi:10.1016/0165-4101(85)90029-1)
   Web of Science ®Google Scholar
• Hope , O. K. and Langli , J. C. 2010 . Auditor independence in a private firm and low litigation risk setting . Accounting Review , 85 ( 2 ) : 573 – 605 . (doi:10.2308/accr.2010.85.2.573)
   Web of Science ®Google Scholar
• Huang , H. W. , Mishra , S. and Raghunadan , K. 2007 . Types of non-audit fees and financial reporting quality . Auditing: A Journal of Practice and Theory , 26 ( 1 ) : 133 – 145 . (doi:10.2308/aud.2007.26.1.133)
   Web of Science ®Google Scholar
• IFAC (International Federation of Accountants). (2005) Code of Ethics for Professional Accountants, Section 290 – ‘Independence - Assurance Engagements’. Issued by the International Ethics Standards Boards for Accountants (IESBA). Revised July 2006.
   Google Scholar
• Jenkins , D. S. and Velury , U. 2008 . Does auditor tenure influence the reporting of conservative earnings . Journal of Accounting and Public Policy , 27 ( 2 ) : 115 – 132 . (doi:10.1016/j.jaccpubpol.2008.01.005)
   Web of Science ®Google Scholar
• Johnson , V. E. , Khurana , I. K. and Reynolds , J. K. 2002 . Audit-firm tenure and the quality of financial reports . Contemporary Accounting Research , 19 ( 4 ) : 637 – 660 . (doi:10.1506/LLTH-JXQV-8CEW-8MXD)
   Web of Science ®Google Scholar
• Jones , J. 1991 . Earnings management during import relief investigations . Journal of Accounting Research , 29 ( 2 ) : 193 – 228 . (doi:10.2307/2491047)
   Web of Science ®Google Scholar
• Kent , P. 1994 . Management advisory services and the financial performance of clients . International Small Business Journal , 12 ( 4 ) : 45 – 58 . (doi:10.1177/0266242694124003)
   Google Scholar
• Kinney , W. R. Jr , Palmrose , Z. V. and Scholz , S. 2004 . Auditor independence, non-audit services and restatements: was the US government right? . Journal of Accounting Research , 42 ( 3 ) : 561 – 588 . (doi:10.1111/j.1475-679X.2004.t01-1-00141.x)
   Web of Science ®Google Scholar
• Knapp , M. 1991 . Factors that audit committees use as surrogates for audit quality . Auditing: A Journal of Practice and Theory , 10 ( 1 ) : 35 – 52 .
   Web of Science ®Google Scholar
• Knechel , W. R. , Niemi , L. and Sundgren , S. 2008 . Attributes affecting auditor choice . International Journal of Auditing , 12 ( 1 ) : 65 – 88 . (doi:10.1111/j.1099-1123.2008.00370.x)
   Google Scholar
• Kothari , S. P. , Leone , A. J. and Wasley , C. E. 2005 . Performance matched discretionary accruals measures . Journal of Accounting and Economics , 39 ( 1 ) : 163 – 197 . (doi:10.1016/j.jacceco.2004.11.002)
   Web of Science ®Google Scholar
• Krishnan , C. V. 2003 . Audit quality and pricing of discretionary accruals . Auditing: A Journal of Practice and Theory , 22 ( 1 ) : 109 – 126 . (doi:10.2308/aud.2003.22.1.109)
   Web of Science ®Google Scholar
• Larcker , D. F. and Richardson , S. A. 2004 . Fees paid to audit firms, accrual choices, and corporate governance . Journal of Accounting Research , 42 ( 3 ) : 625 – 658 . (doi:10.1111/j.1475-679X.2004.t01-1-00143.x)
   Web of Science ®Google Scholar
• Larcker , D. F. and Rusticus , T. O. 2010 . On the use of instrumental variables in accounting research . Journal of Accounting and Economics , 49 ( 3 ) : 186 – 205 . (doi:10.1016/j.jacceco.2009.11.004)
   Web of Science ®Google Scholar
• Lee , H.-Y. , Mande , V. and Son , M. 2009 . Do lengthy auditor tenure and the provision of non-audit services by the external auditor reduce the audit report lags? . International Journal of Auditing , 13 ( 2 ) : 87 – 104 . (doi:10.1111/j.1099-1123.2008.00406.x)
   Google Scholar
• Li , C. 2009 . Does client importance affect auditor independence at the office level? Empirical evidence from going. Concern opinions . Contemporary Accounting Research , 26 ( 1 ) : 201 – 230 . (doi:10.1506/car.26.1.7)
   Web of Science ®Google Scholar
• Lim , C.-Y. and Tan , H.-T. 2007 . Non-audit service fees and audit quality: the impact of auditor specialization . Journal of Accounting Research , 46 ( 1 ) : 199 – 246 . (doi:10.1111/j.1475-679X.2007.00266.x)
   Web of Science ®Google Scholar
• Maijoor , S. V. and Vanstraelen , A. 2006 . Earnings management within Europe: the effect of member states audit environment, audit firm quality and international capital markets . Accounting and Business Research , 36 ( 1 ) : 33 – 52 . (doi:10.1080/00014788.2006.9730005)
   Google Scholar
• Mautz , R. K. and Sharaf , H. A. 1961 . The Philosophy of Auditing , Sarasota , FL : American Accounting Association .
   Google Scholar
• Miller , C. J. M. , Packham , G. A. and Thomas , B. C. 2002 . Harmonization among main contractors and subcontractors . Journal of Construction Research , 3 ( 1 ) : 67 – 82 . (doi:10.1142/S1609945102000059)
   Google Scholar
• Myers , J. N. , Myers , L. A. and Omer , T. C. 2003 . Exploring the term of auditor–client relationship and the quality of earnings: a case for mandatory auditor rotation? . Accounting Review , 78 ( 3 ) : 779 – 799 . (doi:10.2308/accr.2003.78.3.779)
   Web of Science ®Google Scholar
• O'Keefe , T. B. , Simunic , D. A. and Stein , M. T. 1994 . The production of audit services: evidence from a major public accounting firm . Journal of Accounting Research , 32 ( 2 ) : 241 – 261 . (doi:10.2307/2491284)
   Web of Science ®Google Scholar
• Power , M. 1997 . The Audit Society Rituals of Verification , New York : Oxford University Press Inc .
   Google Scholar
• Reynolds , J. K. , Deis , D. R. Jr and Francis , J. R. 2004 . Professional services fee and auditor objectivity . Auditing: A Journal of Practice & Theory , 23 ( 1 ) : 29 – 52 . (doi:10.2308/aud.2004.23.1.29)
   Web of Science ®Google Scholar
• Robinson , D. 2008 . Auditor independence and auditor-provided tax service: evidence form going-concern audit opinions prior to bankruptcy filings . Auditing: A Journal of Practice & Theory , 27 ( 2 ) : 31 – 54 . (doi:10.2308/aud.2008.27.2.31)
   Web of Science ®Google Scholar
• Ruddock , C. , Taylor , S. J. and Taylor , S. L. 2006 . Nonaudit services and earnings conservatism: is auditor independence impaired? . Contemporary Accounting Research , 23 ( 3 ) : 701 – 746 . (doi:10.1506/6AE8-75YW-8NVW-V8GK)
   Web of Science ®Google Scholar
• Senkow , D. W. , Rennie , M. D. , Rennie , R. D. and Wong , J. W. 2001 . The audit retention decision in the face of deregulation: evidence from large private Canadian corporations . Auditing: A Journal of Practice & Theory , 20 ( 2 ) : 101 – 113 . (doi:10.2308/aud.2001.20.2.101)
   Web of Science ®Google Scholar
• Simunic , D. A. 1984 . Auditing, consulting, and auditor independence . Journal of Accounting Research , 22 ( 2 ) : 679 – 702 . (doi:10.2307/2490671)
   Web of Science ®Google Scholar
• Sundgren, S. and Svanström, T. (2010) Auditor-in-Charge Characteristics and Going Concern Reporting Behavior: Do the Auditor's Number of Assignments, His or Her Age and Client Fee Dependency Matter? Working paper, Umeå School of Business. Available at SSRN: http://ssrn.com/abstract=1717943 or http://dx.doi.org/10.2139/ssrn.1717943
   Google Scholar
• Tafara , E. 2006 . A race to the top . International Financial Law Review , 25 ( 9 ) : 12 – 18 .
   Google Scholar
• Tauringana , V. and Clarke , S. 2000 . The demand for external auditing: managerial share ownership, size, gearing, and liquidity influences . Managerial Auditing Journal , 15 ( 4 ) : 160 – 168 . (doi:10.1108/02686900010322353)
   Google Scholar
• Van Tendeloo , B. and Vanstraelen , A. 2008 . Earnings management and audit quality in Europe: evidence from the private client segment market . European Accounting Review , 17 ( 3 ) : 447 – 469 . (doi:10.1080/09638180802016684)
   Web of Science ®Google Scholar
• Vander Bauwhede , H. and Willekens , M. 2004 . Evidence on (the lack of) audit-quality differentiation in the private client segment of the Belgian audit market . European Accounting Review , 13 ( 3 ) : 501 – 522 . (doi:10.1080/0963818042000237106)
   Google Scholar
• Vander Bauwhede , H. , Willekens , M. and Gaeremynck , A. 2003 . Audit firm size, public ownership, and firms’ discretionary accruals management . International Journal of Accounting , 38 ( 1 ) : 1 – 22 . (doi:10.1016/S0020-7063(03)00004-9)
   Google Scholar
• Venkatamaran , R. , Weber , J. P. and Willenborg , M. 2008 . Litigation risk, audit quality, and audit fees: evidence from initial public offerings . Accounting Review , 83 ( 5 ) : 1315 – 1345 . (doi:10.2308/accr.2008.83.5.1315)
   Web of Science ®Google Scholar
• Whisenant , S. , Sankaraguruswamy , S. and Raghunandan , K. 2003 . Evidence on the joint determination of audit and non-audit fees . Journal of Accounting Research , 41 ( 1 ) : 721 – 744 . (doi:10.1111/1475-679X.00121)
   Google Scholar
• Zeithaml , V. A. , Berry , L. L. and Parasuraman , A. 1996 . The behavioral consequences of service quality . Journal of Marketing , 60 ( 2 ) : 31 – 46 . (doi:10.2307/1251929)
   Web of Science ®Google Scholar