Earnings Quality and Auditor Independence: An Examination Using Non-audit Fee Data
Carol Callaway Dee
University of Colorado Denver
Ayalew A. Lulseged
Florida State University - Department of Accounting
Tanya S. Nowlin
affiliation not provided to SSRN
January 28, 2002
The SEC and capital market participants are concerned that the increasing amounts of fees companies pay to their auditors for non-audit services may give auditors economic incentives to compromise their independence, resulting in lower quality audits and, thus, lower quality earnings.
Using recent proxy statement disclosures of audit and non-audit fees, and controlling for variables known to be related to earnings management, we find that client firms paying high proportions of non-audit fees have income-increasing discretionary and total accruals. This suggests that auditors may be less diligent in curbing income-increasing earnings management for client firms from which they receive high proportions of non-audit fees.Our results are robust to alternative specifications of accrual models, surrogate measures of high non-audit fees, and the inclusion of additional explanatory variables.
Number of Pages in PDF File: 39
Keywords: earnings quality, audit fees, non-audit fees, discretionary accruals, earnings management, auditor independence
JEL Classification: M41, M43, M49working papers series
Date posted: March 22, 2002
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