The Impact of the Prohibition of Non–Audit Services on the Profitability of Big-4-affiliated Audit Firms in Bangladesh

Abstract

The purpose of this paper is to study the impact of the prohibition of certain non-audit services by the Securities and Exchange Commission (SEC) of Bangladesh on the profitability of the audit firms which are affiliated with Big-4 international audit firms. This paper is based on personal in-depth interviews with the Big-4-affiliated audit firms. A qualitative approach, in a way which is descriptive and illustrative, is adopted in this research. This research provides evidence for the fact that audit services are the most significant and stable source of income for an audit firm. Although respondents generally admit that non-audit services might be more profitable, they all agree that audit services are indeed the core operations of an audit firm. Findings in this paper reveal a contemporary picture of the auditing profession in Bangladesh and elucidate the impact that the implementation of Corporate Governance Order 2006 has on an audit firm's profitability. This research is the first in-depth study of the impact of the prohibition of non-audit services on the profitability of the Big-4-affiliated audit firms in Bangladesh. Financial reporting regulatory authorities in Bangladesh or other developing countries may find the findings in this paper useful.

Auditor industry expertise and external audit prices: empirical evidence from Amman Stock Exchange-listed companies

“…The conclusion agrees with the triangulation of the agency, signaling and stakeholder theories, meaning that expert auditors are more likely to offer cheaper fees in the shared efficiency scenario (PS) than nonspecialists (Griffith et al, 2015). On the other hand, expert auditors provide better audit quality that satisfies stakeholders' need for reliable financial documentation (Gul et al, 2013;Rahman et al, 2016). This might help managers communicate the reliability of financial data to interested parties.…”

“…On the other hand, expert auditors provide better audit quality that satisfies stakeholders' need for reliable financial documentation (Gul et al. , 2013; Rahman et al. , 2016).…”

The Relationship Between Audit Services and Non-Audit Actuarial Services in the Auditor’s Report

“…According to the study, auditing companies provide lower-quality auditing to their customers when they audit the company's records and provide actuarial services to the company through reserve actuarial services, and that involving two companies in providing services rather than one provides multiple benefits for the joint audit process. The study of (Rahman, 2017) intends to investigate the impact of inventorying non-audit services that local audit companies in Bangladesh compete for, as well as the four major audit companies. The study concluded that the four main audit firms believe that the companies listed on the Bangladesh Stock Exchange do not appoint small local consulting firms or small-sized audit firms for the purpose of providing non-audit services, rather, they believe that the companies that provide non-audit services are large consulting companies or major audit companies.…”