The quality of other assurance services supplied by accounting firms: Evidence from independent expert reports

Abstract

Recent concern has been expressed regarding accounting firms reducing the quality of their assurance services (statutory audit and other assurance services) to gain cross‐selling opportunities. While prior studies have focused on the quality of statutory audits, our study examines the quality of other assurance services, in the form of independent expert opinions provided to target firms in Australian takeovers. Specifically, this setting allows us to observe any dissent or consensus in opinions between the accounting firms and their clients regarding the fairness of a takeover offer price, the quality of the independent expert report (valuation range), and fees charged for their services. Our results are inconsistent with accounting firms providing lower quality independent expert reports. However, non–Big 4 accounting firms charge lower fees for their independent expert reports compared to other providers, consistent with potential incentives to cross‐sell future services.

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“…Murphy & Sandino (2009) found that compensation consultants recommended higher CEO salaries when those consultants offered additional services to those executives [112]. Another study, however, concluded that while cross-selling opportunities could lead to lower quality statutory audits, they did not have an impact on the quality of independent expert reports provided to takeover targets-though the incentive to cross-sell could have an impact on lowering fees [16].…”