Characteristics of auditors’ non-audit services and accruals quality in Malaysia

Abstract

Purpose The purchase of non-audit services from incumbent auditors has generated considerable attention. This study aims to examine the relationship between characteristics of non-audit services, namely, the recurrence and types of services, and accruals quality in Malaysia. Design/methodology/approach This study analyzed hand-collected audit and non-audit fees of 1,117 observations from Malaysian firms from 2009 to 2011. This study used descriptive analysis, univariate tests and multivariate regression to investigate the potential effect of non-audit services on accruals quality. Findings Non-audit services are associated with lower accruals quality. Recurring and non-recurring non-audit service fees are detrimental to the quality of accruals, as are all types of recurring non-audit services. Only non-recurring audit-related services decrease accruals quality. The results demonstrate that provisions of non-audit services create economic bonding, and thus a threat to auditor independence. Results remain robust with the inclusion of corporate governance and institutional variables. Research limitations/implications The sample period might represent a limitation as it only covers three years of data. This limitation is mainly because of the nature of data collection of the non-audit services fees. Practical implications The findings could suggest a refinement on the Malaysian Institute of Accountants (MIA) by-laws focusing on auditor independence, and it could assist other regulative bodies such as the Securities Commission, the stock exchange (Bursa Malaysia) in ensuring better governance on the provision of non-audit services. Originality/value This study is the first that provides evidence on the relationship between non-audit services, types, and recurring and non-recurring non-audit services and accruals quality in Malaysia.

Joint Provision of Non-audit Services to Audit Clients: Empirical Evidences from India

“…The extant researches reveal that beginning with the pivotal work by Simunic (1984), the studies on the issue of NAS and auditor independence include (a) reviews (Francis, 2006;Francis et al, 2004;Hay, 2017;Tepalagul & Lin, 2015), including meta-analysis (Habib, 2012); (b) archival research (Abdul et al, 2020;Ashbaugh et al, 2003;Beardsley et al, 2021;Ezzamel et al, 1996;Frankel et al, 2002;Lim & Tan, 2008;Whisenant et al, 2003) including capital market reaction studies (Chaney & Philipich, 2002); (c) experimental studies (Aschauer & Quick, 2018;Causholli et al, 2014;Friedman & Mahieux, 2021;Meuwissen & Quick, 2019;Tang et al, 2017); and (d) survey research (Akinbowale & Babatunde, 2017;Harber & Maroun, 2020;Onulaka et al, 2019;Quick & Warming-Rasmussen, 2005 ). The majority of the studies are archival and experimental, limiting the ability to critique the existing regulations (Harber & Maroun, 2020).…”

“…This study is an attempt to fill the gap in empirical research by presenting the practitioners' perspectives. Further, most of the studies are concentrated in the US (Ashbaugh et al, 2003;Davis et al, 1993;Mishra et al, 2005;Whisenant et al, 2003), UK (Ezzamel et al, 1996;Ferguson et al, 2004), Australia (Butterworth & Houghton, 1995;Craswell, 1999;Lee et al, 2009), Malaysia (Abdul et al, 2020;Ahmad et al, 2006;, Nigeria (Onulaka et al, 2019), South Africa (Harber & Maroun, 2020), China (Tang et al, 2017) and some of the EU Nations (Aschauer & Quick, 2018;Meuwissen & Quick, 2019;Quick et al, 2013;Quick & Warming-Rasmussen, 2005), etc. Very few studies have been carried out to present the Indian perspective.…”

Determinants and consequences of auditor‐provided tax services: A systematic review of the international literature

“…A possible explanation is that the provision of APTS reduces the analysts' forecast accuracy(Francis et al, 2019) and, in turn, decreases the statistical power of using the meet or beat analyst forecasts as a proxy for earnings management.Moreover,Carcello et al (2020) do not (do) find a detrimental effect of APTS (audit-related services) on the likelihood of goodwill impairment.The findings of APTS and earnings quality research in other countries are mixed as well. AbdulWahab et al (2020) document a positive association between discretionary accruals and APTS in Malaysia. On the other hand,Choi et al (2009) find a negative relationship between APTS fees and earnings management in South Korea.…”

“…divided by total fees AbdulWahab et al (2014Wahab et al ( , 2020 Natural log of recurring APTS feesPaterson and Valencia (2011) APTS dummy An indicator coded one if clients purchased tax services from incumbent auditors, and zero otherwise.Ahn et al (2021); Finley and Stekelberg (2016); Garcia-Blandon et al (2017, 2021); Gleason and Mills (2011); Huang and Chang (2016); Liu et al (2021); Luo (2019); Seetharaman et al (2011); Svanström (2013) An indicator coded one if tax services fees exceed a certain amount or ratio, and zero otherwise. Abernathy et al (2021); Christensen et al (2015); Donohoe and Knechel (2014); Gleason et al (2018) APTS purchase, retention and switch decisions Firms' decision to hire, retain or dismiss auditors as tax service providers.…”

Directors' Monitoring Role, Ownership Concentration and Audit fees

“…2018). In this paper, we examine the determinants of the recurring yearly audit fees rather than total auditors' remuneration that may include audit and non-audit fees which have a negative impact on audit fees (Abdul et al, 2020 andShao, 2006), as a specific and measurable agency cost (Leventis et al, 2011). The sample is made up of companies listed at the FTSE 350 excluding financial institutions to retain homogenous sample.…”