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Non‐Audit Fees and Auditor Independence: New Evidence Based on Going Concern Opinions for U.S. Companies Under Stress

47 Pages Posted: 6 Jan 2010  

Paul A. Griffin

University of California, Davis - Graduate School of Management; University of California, Davis

David H. Lont

University of Otago - Department of Accountancy and Finance

Date Written: January 4, 2010

Abstract

This paper reexamines the long-standing issue of whether the consulting fees earned by auditors affect their independence. The evidence in the United States is far from settled in this regard and continues to vex academics, professionals, and policy makers alike. Our model predicts a negative relation between auditor supplied non-audit fees and auditor independence. We test this model by examining auditors’ propensity to issue a going concern opinion for a sample of U.S. companies experiencing financial stress.

Using a grouping approach to reduce potential measurement error in the variables, we document a reliable negative relation between non-audit fees and our proxy for auditor independence, which is consistent with our theory. This new evidence, based on an alternative procedure, may explain why some previous studies on U.S. companies have failed to find a negative relation. We also find that SOX and associated influences on auditor independence, but not auditor tenure, may have moderated this negative relation.

Keywords: Auditor independence, non-audit fees, fee ratio, going concern opinion, auditor

JEL Classification: C30, K22, L80, M41, M42

Suggested Citation

Griffin, Paul A. and Lont, David H., Non‐Audit Fees and Auditor Independence: New Evidence Based on Going Concern Opinions for U.S. Companies Under Stress (January 4, 2010). Available at SSRN: https://ssrn.com/abstract=1531523 or http://dx.doi.org/10.2139/ssrn.1531523

Paul A. Griffin

University of California, Davis - Graduate School of Management ( email )

3102 Gallahger Hall
Davis, CA 95616
United States
(530) 752-7372 (Phone)
(425) 799-4143 (Fax)

HOME PAGE: http://www.gsm.ucdavis.edu/griffin/

University of California, Davis ( email )

3102 Gallahger Hall
Davis, CA 95616
United States
(530) 752-7372 (Phone)
(425) 799-4143 (Fax)

HOME PAGE: http://www.gsm.ucdavis.edu/griffin/

David H. Lont (Contact Author)

University of Otago - Department of Accountancy and Finance ( email )

Box 56
Dunedin, Otago 9054
New Zealand
+64 3 479 8119 (Phone)
+64 3 479 8171 (Fax)

HOME PAGE: http://www.business.otago.ac.nz/acty/

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