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Two competing theories of initial engagement audit pricing are examined empirically. DeAngelo's (1981a) model predicts initial engagement discounts in all settings, while Dye's (1991) model specifically predicts discounting will not occur in settings where audit fees are publicly disclosed. Unlike the United States and most countries, audit fees are publicly disclosed in Australia. Our study examines initial engagement pricing in Australia during a time period when comparable U.S. studies report discounts of 25 percent (Ettredge and Greenberg 1990; Simon and Francis 1988). The Australian evidence finds initial engagement discounting only for upgrades from non-Big 8 to Big 8 auditors. Discounting for upgrades to Big 8 auditors is consistent with economic theories of discount pricing by sellers of higher-priced, higher-quality experience goods as an inducement to purchase when uncertainty about product quality is resolved through buying (experiencing) the goods. The evidence in our study is generally consistent with Dye's (1991) conclusion that public disclosure of audit fees precludes initial engagement discounting and the potential independence problems arising from such discounting.

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The provision of management advisory and other services by auditors to their audit clients has long been regarded, by regulators in Australia and overseas, as a threat to auditor independence. Evidence of the impact of non-audit services on auditors' independence has been derived using case studies and questionnaires and has focused on perceptions of independence. The aim of this paper is to investigate whether the provision of non-audit services impairs auditor independence by testing for an association between the provision of non-audit services and auditors' reporting opinions. Based on publicly available information for Australian listed companies for several years, the evidence suggests that auditors' decisions to qualify their opinions are not affected by the provision of non-audit services. SUMMARYThe provision of management advisory and other services by auditors to their audit clients has long been regarded, by regulators in the UK, the US, Australia and various other countries, as a threat to auditor independence. Considerable research effort has been directed to assessing the nature of this threat and the extent to which it poses a problem for auditors and users of financial statements. Evidence has been obtained from case studies and questionnaires and the focus of this research has been on perceptions of independence rather than actual loss of independence. In this paper, the aim has been to investigate whether the provision of non-audit services affects auditors' reporting decisions. Specifically, tests are undertaken to identify any association between the provision of non-audit services and auditors' reporting opinions. That is, does the provision of non-audit services result in auditors issuing modified opinions less frequently? This proposition is tested using publicly available information for Australian listed companies. The tests are carried out over several years and the evidence is consistent with auditors' decisions to qualify their opinions being unaffected by the provision of non-audit services. Various tests are carried out to ensure the results are not influenced by the sample of observations, by the model of audit opinions and the characteristics of the companies. Notwithstanding the many different tests, the results are inconsistent with non-audit services affecting auditors' independent reporting decisions.

The provision of management advisory and other services by auditors to their audit clients has long been regarded, by regulators in Australia and overseas, as a threat to auditor independence. Evidence of the impact of non-audit services on auditors' independence has been derived using case studies and questionnaires and has focused on perceptions of independence. The aim of this paper is to investigate whether the provision of non-audit services impairs auditor independence by testing for an association between the provision of non-audit services and auditors' reporting opinions. Based on publicly available information for Australian listed companies for several years, the evidence suggests that auditors' decisions to qualify their opinions are not affected by the provision of non-audit services.