Prominent Audit Clients and the Relation between Discretionary Accruals and Non-Audit Service Fees

Dee, Carol Callaway; Lulseged, Ayalew; Nowlin, Tanya S.

doi:10.1016/s0882-6110(06)22006-6

Cited by 24 publications

(11 citation statements)

References 16 publications

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“…In an early study, Frankel et al (2002) report that NAS fees are positively related to the magnitude of discretionary accruals and the propensity to meet or just beat earnings benchmarks. Similarly, Dee et al (2006) find that clients paying high proportions of nonaudit fees have higher income-increasing accruals. In contrast, Ashbaugh et al (2003) find no association of NAS with accruals or meeting earnings benchmarks.…”

Section: Auditor-provided Nonaudit Servicesmentioning

confidence: 88%

Risk Monitoring and Control in Audit Firms: A Research Synthesis

Bedard

Deis

Curtis

et al. 2008

AUDITING: A Journal of Practice &Amp; Theory

171

108

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This paper summarizes the research literature related to audit firm quality control, with a dual purpose: (1) to provide information on the current state of knowledge with regard to the ways in which audit firms monitor and control firm-level risk; and (2) to identify specific areas in which there is currently insufficient research. We review literature on a number of specific topics under the overall heading of firm-level risk monitoring and control, including: client acceptance / continuance procedures, auditor independence (partner and firm rotation, employing former auditors, nonaudit services, partner compensation), electronic decision aids, consultation units, procedures for communicating weaknesses and taking corrective action, and review of engagement activities (including engagement quality reviews, peer reviews, and regulatory inspections). We conclude with a discussion of research relevant to the issue of whether smaller audit firms should be subject to the same level of quality control regulation as larger firms.

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Section: Auditor-provided Nonaudit Servicesmentioning

confidence: 88%

Risk Monitoring and Control in Audit Firms: A Research Synthesis

Bedard

Deis

Curtis

et al. 2008

AUDITING: A Journal of Practice &Amp; Theory

171

108

View full text Add to dashboard Cite

show abstract

“…Craswell et al ., 2002; DeFond et al ., 2002; Geiger & Rama, 2003), the degree of earnings management (e.g. Frankel et al ., 2002; Ashbaugh et al ., 2003; Chung & Kallapur, 2003; Larcker & Richardson, 2004; Ferguson et al ., 2004; Dee et al ., 2005; Huang et al ., 2007), restatements (e.g. Raghunandan et al ., 2003; Kinney et al ., 2004) and litigation (e.g.…”

Section: Prior Research and Hypotheses Developmentmentioning

confidence: 99%

Auditor Independence and the Provision of Non‐Audit Services: Perceptions by German Investors

Quick

Warming-Rasmussen

2009

Int J Auditing

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An economic model by DeAngelo shows that the existence of client-specific quasi-rents impairs auditor independence. The provision of non-audit advisory services (NAS) increases quasi-rents, and thus it is a threat to independence. Recently, a number of changes have been made not only to the relevant international and US regulations, but also to the German regulations related to NAS. A large number of empirical studies have investigated the influence of NAS on the perceived auditor independence. Most of these studies were performed in Anglo-Saxon countries, particularly in the US, and a majority found a negative impact. Six studies are based on data from Germany. Most of them failed to find a significant negative impact on auditor's independence. German investors have not been surveyed so far. Thus an empirical investigation of the impact of NAS on investors'perceptions of auditor independence in Germany seemed promising. It was found that shareholders generally perceive a negative effect on auditor's independence if NAS are provided. The effects of 19 different services have been analysed. For most of them a negative effect was found, even if these services are not explicitly prohibited in Germany. Furthermore, it was shown that the type of NAS influences the degree to which auditor independence is perceived to be impaired. Thus, independence rules related to NAS could be differentiated. Additionally, the study ascertained that perceived auditor independence does increase if NAS are provided by a separate department of the audit firm.

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“…The same applies to Larcker and Richardson (2004) in cases where TF or NAF were marked as a variable based on the total sales per branch. Likewise, Reynolds, Deis, and Francis (2004) and Dee, Lulseged, and Nowlin (2006) are not able to find an impact where the extent of counseling services was involved instead of NAF. According to Ruddock, Taylor, and Taylor (2006), the same applies to 3,746 Australian companies during the business years of 1993-2000, for absolute and relative NAF as well as for NAF/AF.…”

Section: Earning Management: Findings For Increasing Accounting Qualimentioning

confidence: 87%

“…In small and medium size growing companies in certain industries,Reynolds, Deis, and Francis (2004) detect a positive effect of NAF on earnings management in 2,507 U.S. companies in 2001. According toFarag (2005), in 1,500 U.S. corporations between 2000 and 2002, there is a positive connection between the accountant's counseling allotment, mainly in companies with consistent annual surplus, and earnings management Dee, Lulseged, and Nowlin (2006). confirm this for 274 US companies in 2001 regarding the NAF, Coulton, Ruddock, and Taylor (2007) for 4,021 Australian companies between 1993 and 2000 regarding the relationship between NAF and AF, AF/TF and positive accruals.…”

mentioning

confidence: 99%

EC Proposal of Audit-Only Firms: Discussing the Potential Effects of Breaking the Audit Oligopoly’ on Accounting and Audit Quality

2013

CUBR

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The European Commission (EC) discusses, in its regulation draft of November 30, 2011, the interdiction of combining audit and non-audit services by the external auditor to ensure appropriate accounting and audit quality.Based on the agency-theoretical definition of the auditor's function within corporate governance, results of empirical audit research on the effects of combining audit and non-audit services on accounting and audit quality are laid out in a state-of-the-art analysis to give a policy advice. The study at hand analyzes, whether the interdiction of combining audit and non-audit services has a negative impact on the quality of financial accounting and external audit as the EC assumes. The accounting and audit quality is measured by the variables earnings management, restatements, market reactions, and going concern opinions. So far, audit research provides an inconsistent picture, mainly in the U.S. capital market. A negative impact of an auditor offering audit and non-audit services on the quality of financial accounting and external audit can mainly only be concluded by a few variables (earnings management, market reactions). Those studies which use restatements and going concern opinions as a proxy for accounting and audit quality come to inconsistent results. Consequently, the benefit of the reform measures presently discussed by the EC is arguable. Moreover, so far, there are only a few empirical studies for the EU member states analyzing the impact of combined audit and non-audit services, thus, providing evidence for the necessity of this course of action.

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Prominent Audit Clients and the Relation between Discretionary Accruals and Non-Audit Service Fees

Cited by 24 publications

References 16 publications

Risk Monitoring and Control in Audit Firms: A Research Synthesis

Risk Monitoring and Control in Audit Firms: A Research Synthesis

Auditor Independence and the Provision of Non‐Audit Services: Perceptions by German Investors

EC Proposal of Audit-Only Firms: Discussing the Potential Effects of Breaking the Audit Oligopoly’ on Accounting and Audit Quality

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