Abstract

http://ssrn.com/abstract=297747
 
 

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Do Non-audit Service Fees Impair Auditor Independence? Evidence from Going-concern Audit Opinions


Mark L. DeFond


University of Southern California - Leventhal School of Accounting

Kannan Raghunandan


Florida International University (FIU) - School of Accounting

K.R. Subramanyam


University of Southern California - Leventhal School of Accounting

January 2002

USC Leventhal School of Accounting

Abstract:     
We find no evidence that non-audit service fees impair auditor independence, where independence is surrogated by auditors' propensity to issue going concern audit opinions. We do find, however, that auditors are more likely to issue going concern opinions to clients paying higher audit fees, suggesting that auditors behave with relatively greater independence towards these clients. Our findings are consistent with Reynolds and Francis (2001) and suggest that market-based incentives, such as loss of reputation and litigation costs, dominate the benefits auditors are likely to receive from compromising their independence to retain clients that pay larger fees. Overall, our findings indicate that recent SEC regulations based on concerns that non-audit services impair auditor independence, are unfounded.

Number of Pages in PDF File: 41

Keywords: Non-audit services; Audit fees; Audit markets

JEL Classification: M49

working papers series


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Date posted: January 22, 2002  

Suggested Citation

DeFond, Mark L. and Raghunandan, Kannan and Subramanyam, K.R., Do Non-audit Service Fees Impair Auditor Independence? Evidence from Going-concern Audit Opinions (January 2002). USC Leventhal School of Accounting. Available at SSRN: http://ssrn.com/abstract=297747 or http://dx.doi.org/10.2139/ssrn.297747

Contact Information

Mark DeFond (Contact Author)
University of Southern California - Leventhal School of Accounting ( email )
Accounting Building, Room 206
Los Angeles, CA 90089-0441
United States
213-740-5016 (Phone)
213-747-2815 (Fax)
Kannan Raghunandan
Florida International University (FIU) - School of Accounting ( email )
University Park
11200 SW 8th Street
Miami, FL 33199
United States
305-348-2582 (Phone)
K.R. Subramanyam
University of Southern California - Leventhal School of Accounting ( email )
Los Angeles, CA 90089-0441
United States
213-740-5017 (Phone)
213-747-2815 (Fax)
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