Download or read book The Economics of Audit Quality written by Benito Arrunada and published by Springer Science & Business Media. This book was released on 2013-11-11 with total page 203 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book focuses on market mechanisms which protect quality in the provision of audit services. The role of public regulation is thus situated in the context defmed by the presence of these safeguard mechanisms. The book aims to contribute to a better understanding of these market mechanisms, which helps in defining the con tent of rules and the function of regulatory bodies in facilitating and strengthening the protective operation of the market. An analysis at a more general level is provided in the three chapters making up Part 1. In the four chapters of Part 2, on the other hand, this analysis is applied to a particular problem to determine how those non-audit services often provided by auditors to their audit clients should be regulated. Finally, Chapter 8 contains a summary of the analysis and conclusions of the work. The conclusion with regard to non-audit services is that their provision generates beneficial effects in terms of costs, technical competence, professional judgment and competition and, moreover, need not prejudice auditor independence or the quality of these services. This as sessment leads, in the normative sphere, to recommending a legislative policy aimed at facilitating the development and use of safeguards provided by the free action of market forces. Regulation should thus aim to enable the parties-audit firms, self-regulatory bodies and audit clients-to discover through competitive market interaction both the most efficient mix of services and the corresponding quality safeguards, adjusting for the costs and benefits of each possibility.

Download or read book The Distraction Effect of Non Audit Services on Audit Quality written by Erik Beardsley and published by . This book was released on 2020 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: Regulators have expressed concerns that an emphasis on non-audit services (NAS) could distract from the audit function, even for clients with minimal NAS purchases. Motivated by this concern, we examine whether a greater emphasis on providing NAS to audit clients generally (i.e., not to a specific client) can distract from the audit function, thus reducing audit quality. We find evidence of an NAS distraction effect, where a greater emphasis on NAS at the audit office-level results in more client financial statement restatements, even after controlling for client-specific NAS. Further, the association exists among clients that purchase minimal NAS, suggesting that this association relates to distraction effects in addition to independence issues examined in prior research. This study should be of interest to audit firms, audit committees, and regulators because it provides new evidence regarding issues related to a business model that includes both audit and non-audit services.

Download or read book The Effect of Non audit Services on Audit Quality written by Osasumwen Frances Arigbe and published by . This book was released on 2012 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: In recent times, there has been disturbing news of how stock market prices crash and investors run at losses. Investors usually fall prey to situations like this because they made poorly informed decisions. Most times, they rely on an organization's published financial statements with utmost trust yet they still lose. Auditors ought to spot material misstatements in the course of their audit exercises and give an opinion in their reports. The problem is, in their audit exercises, they are sometimes faced with situations that cause conflict of interests. This conflict of interests may lead them to going out of the scope of their duites to perform other services, which are called Non-Audit Services. The purpose of this study was to discover the effect of non-audit services on audit quality and how this affects the users of financial information. The primary focus is on audit firms. A survey instrument was applied in gathering data needed for this study and these data were analyzed using descriptive statistics and correlations on a software called Statistical Package for Social Sciences (SPSS) which aided in deriving information relevant to this study.

Download or read book Non Audit Service Fees and Audit Quality written by Chee Yeow Lim and published by . This book was released on 2013 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent studies on whether the provision of non-audit services impairs audit quality document mixed results, depending on the proxy for auditor quality used. We posit that the effect of non-audit fees on audit quality is conditional on auditor industry specialization in that audit quality is less likely to be impaired in the case of industry specialist auditors providing non-audit services. Our premise is that industry specialist auditors are more likely to be concerned about reputation losses and litigation exposure, and to benefit from knowledge spillovers from the provision of non-audit services. We find some evidence that audit quality (as measured by increased propensity to issue going-concern opinion, increased propensity to miss analysts' forecasts, as well as higher earnings-response coefficients) is less likely to be reduced for firms that acquire non-audit services from industry specialist auditors compared to non-specialist auditors. Implications are discussed.

Download or read book The Relation Between Auditors Fees for Non Audit Services and Earnings Quality Classic Reprint written by Richard M. Frankel and published by Forgotten Books. This book was released on 2018-03-03 with total page 94 pages. Available in PDF, EPUB and Kindle. Book excerpt: Excerpt from The Relation Between Auditors' Fees for Non-Audit Services and Earnings Quality This paper provides empirical evidence on the relation between non-audit services and earnings quality. We test hypotheses concerning: (1) the association between a firm's purchase of non-audit services from its auditor and earnings management, and (2) the stock price reaction to the disclosure of non-audit fees. In the past decade there has been a dramatic increase in the proportion of fee revenue auditors derive from non-audit services, yet we know little about how non-audit services are related to earnings quality.1 Concern about the effect of non-audit services on the financial reporting process was a primary motivation for the Securities and Exchange Commission (sec) to issue revised auditor independence rules on November 15, 2000. The rules require firms to disclose the amount of all audit and non-audit fees paid to its auditor. About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.

Download or read book The Effect of Non audit Services on Investor Judgments about Auditor Independence Auditor Knowledge Audit Quality and Investment written by Linda Jeanne Flaming and published by . This book was released on 2002 with total page 176 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Effects of Joint Provision and Disclosure of Non Audit Services on Audit Committee Members Decisions and Investors Preferences written by Lisa Milici Gaynor and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent corporate governance reforms that require audit committees to pre-approve audit and non-audit services increase audit committees' accountability to third parties for actual auditor independence and audit quality. Other SEC reforms mandate the disclosure of fees for auditor-provided services and are aimed at influencing investors' perceptions of auditor independence. These fee disclosures also reveal audit committees' pre-approval decisions, enhancing public accountability. Thus, audit committees may be less willing to hire auditors for non-audit services to avoid fee disclosures even when joint provision improves audit quality. One hundred experienced corporate directors, responding as audit committee members or investors, participated in an experiment in which we manipulated the effect of the auditor's provision of non-audit services on audit quality and the fee disclosure requirement. We find that audit committee members are more likely to recommend joint provision if audit quality improves, consistent with investors' preferences. However, unlike investors, committee members are more reluctant to recommend joint provision when public disclosures are required, even at the expense of audit quality. These findings offer evidence about an indirect effect of recent reforms.

Download or read book The Relation Between Auditors Fees for Non audit Services and Earnings Quality written by Richard M. Frankel and published by . This book was released on 2002 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the association between the provision of non-audit services and earnings quality. Because of concerns regarding the effect of non-audit services on financial reporting credibility, the Securities and Exchange Commission recently issued revised auditor independence rules requiring firms to disclose in their annual proxy statement the amount of fees paid to auditors for audit and non-audit services. Using data collected from proxy statements filed between February 5, 2001 and June 15, 2001, we present evidence that firms purchasing more non-audit services from their auditor are more likely to just meet or beat analysts' forecasts and to report larger absolute discretionary accruals. However, the purchase of non-audit services is not associated with meeting other earnings benchmarks. We also find that the unexpected component of the non-audit to total fee ratio is negatively associated with stock returns on the filing date. These results are consistent with arguments that the provision of non-audit services strengthens an auditor's economic bond with the client and that investors price this effect. Keywords: Auditor independence; Auditor fees; Earnings management; Discretionary accruals. JEL Classification: G12, M41, M43, M49, L84.

Download or read book Non audit Services Incentives and Audit Quality written by Lucas Mahieux and published by . This book was released on 2019 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: I develop a framework that provides new insights into the consequences of the provision of non-audit services (NAS) by audit firms to audit clients. The investors of a client firm may optimally let the auditor provide NAS because of an incentive effect. Indeed, the possibility of providing NAS contingent on detecting financial misstatements increases the auditor's incentives to exert audit effort. However, the provision of NAS also reduces auditor independence, which may decrease audit quality and in turn render the provision of NAS by auditors undesirable. Thus, my analysis uncovers an interesting tradeoff for regulators between the positive incentive effect and the decrease in auditor independence. Removing the current restriction on contingent audit fees may offset the ex post decrease in audit quality while preserving the ex ante incentives. My analysis also generates a number of testable empirical predictions.

Download or read book How Does Joint Provision of Audit and Non audit Services Affect Audit Quality and Independence written by David Gwilliam and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book What Is the Relationship Between Audit Quality and Non Audit Services An Overview of the Existing Literature written by Jan Bouwens and published by . This book was released on 2018 with total page 8 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper takes stock of the literature that appeared on the relation between audit and non-audit services. Press, regulators and academics alike have raised concerns about how audit quality is impacted if audits are performed by firms that offer advisory and audit services. I examine the literature that has investigated impediments that regulators have imposed on audit firms to also provide advisory (non-audit services). The studies provide little support for this concern. In fact, the findings suggest that positive spill over effects occur when firms combine audit with advisory services. However unspecified levels of advisory services (not advice on tax or financial information systems) may have a negative impact on audit quality.

Download or read book Restricting Non Audit Services in Europe The Potential Lack Of Impact of a Blacklist and a Fee Cap On Auditor Independence and Audit Quality written by Nicole V.S. Ratzinger-Sakel and published by . This book was released on 2015 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: The European audit reform aims to stabilize financial markets by enhancing trust in the statutory audit. To strengthen auditor independence and to increase audit quality the provision of non-audit services to audit clients is further restricted. The supranational introduction of a blacklist, including prohibited non-audit services, and of a cap on the volume of non-audit fees is a novelty on the European level. The purpose of this paper is threefold. First, we analyze these measures in light of both current national restrictions of non-audit services and auditor fee disclosure requirements in France, Germany and the United Kingdom. Second, we assess the potential impact of the cap on the volume of non-audit services by providing descriptive evidence on current fee levels in these three countries. Third, we critically assess the impact of the audit reform regarding non-audit services in light of audit research by analyzing the state-of-the-art. On this basis, we doubt whether the European reform of auditor-provided non-audit services is effective and efficient. The main goal of enhancing perceived auditor independence and, thus, public trust in audited financial statements of public-interest entities may be hardly achieved and the blacklist might present a tradeoff between auditor independence and audit quality.

Download or read book Non Auditing Services and Audit Quality in Nigeria Perspectives and Issues written by Okaro Sunday Chukwunedu and published by . This book was released on 2017 with total page 13 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the perception of stakeholders on the effect of the provision of non -auditing services by an auditor to his audit client on audit quality. A survey research design was deemed appropriate for the study. 400 respondents were sampled, however only 350 usable responses were available for the study. A five point Likert scale questionnaire was used to elicit information from the stakeholders. Descriptive statistics and the t-test statistic were employed for the analysis of the responses and testing the hypothesis for statistical significance. Descriptive statistics were used to determine the most common reasons for the responses of the financial statement users as to whether provision of non-auditing services to audit clients by auditors impair audit quality. The findings show that provision of non-auditing services to audit clients like doing book-keeping work for a client or internal audit services, is viewed by respondents as impairing audit quality. The results also indicate the respondents' perception or view point of the likely non-auditing services that should not be combined by auditors when extending audit services to their clients. The results of this study have implication for regulatory action both at the Financial Reporting Council of Nigeria (FRCN) level and at the self- regulatory level of the accounting profession in Nigeria.

Download or read book Audit Fees Non Audit Services and Auditor Client Economic Bonding written by Jeffrey Coulton and published by . This book was released on 2007 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate whether auditor independence is compromised by either the mix of audit and non audit services (NAS), or simply unusually large NAS or audit fees. The results help reconcile apparently conflicting evidence in prior studies linking NAS and indicators of earnings management, as well as providing new insights on the relation between the incentive structures faced by auditors and variation in audit quality. Using the unexpected accrual component of earnings as a proxy for the effect of impaired auditor independence, we initially find that client firms purchasing an unexpectedly large NAS fee mix (i.e., relative to audit fees) display some evidence of aggressive accounting. However, when we explicitly allow for the possibly endogenous nature of unexpected accruals and unexpected NAS, this result no longer holds. In contrast, similar evidence of a positive relation between the magnitude of unexpectedly large audit fees and positive unexpected accruals still occurs (albeit more weakly) after explicitly allowing for possible endogeneity. A significant positive association between unexpected total fees (audit plus NAS) and the magnitude of positive unexpected accruals is even more robust. However, further tests shows that these quot;resultquot; are confined to clients of Non-Big 6 auditors. We therefore conclude that for large audit firms, the incentive to protect larger than expected fees is outweighed by the importance of their reputation for providing high quality audits relative to smaller audit firms. The results also highlight how sensitive conclusions about possible quot;NAS effectsquot; are to the choice of proxy for economic bond as well as the precise experimental design.

Download or read book Evidence of a Nonlinear Association Between Auditor Provided Non Audit Services and Audit Quality written by Erik Beardsley and published by . This book was released on 2018 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the possibility of a nonlinear association between auditor-provided non-audit services (NAS) and audit quality. The effect of NAS on audit quality has been a long-standing debate among academics and regulators. One view is that NAS can potentially create economic bonding between the auditor and client, lowering audit quality. Another view is that NAS creates knowledge spillover, improving audit quality. Our unique approach provides evidence of a nonlinear association between NAS and audit quality, where client misstatement rates are higher for audit offices with both high and low levels of NAS. We also find a nonlinear association between NAS provision and both missed material weaknesses and meeting or beating analysts' consensus forecast by a small amount. This study should be of interest to audit firms, audit committees, and regulators because it advances our understanding of the effects of NAS on audit quality.

Download or read book An Analysis of Auditor s Learning Costs and Non Audit Services on Audit Quality written by Ling Chu and published by . This book was released on 2016 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study uses a very simple but intuitive model to examine how audit quality is determined. It concludes that audit quality is higher if two forces have opposite effects on an auditor's conservatism are balanced and significant. A force that makes an auditor less conservative is the benefit from future engagements with a client, while the force that makes the auditor more conservative is the expected liabilities from overstated accounting values. Given that the expected auditor's liabilities from overstated accounting values are usually significant, we find that significant rents from future engagements with a client improve audit quality through inducing greater audit efforts and less biased reports. Our analysis suggests that learning costs and non-audit services would be sources for these future rents, and auditors should be allowed to provide non-audit services to their clients and these revenues should be higher as auditor tenure lengthens. Furthermore, our analysis shows that mandatory auditor rotation is detrimental to audit quality since it reduces the future rents to auditors which lead to lower audit effort and more biased report. Finally, well-developed auditing standards need to be properly enforced by the regulator/profession for auditors to render appropriate audit quality when the costs associated with over and under reporting are low and/or not balanced.

Download or read book An Analysis of the Impact of Non audit Services on Financial Reporting Quality written by Denise Dickins and published by . This book was released on 2006 with total page 158 pages. Available in PDF, EPUB and Kindle. Book excerpt: