The Relation between Auditor-Provided Tax Service Fees and Audit Fees after the Sarbanes-Oxley Act: From the Perspective of Cross-Selling of Services

Posted: 13 Jan 2011 Last revised: 10 Sep 2014

See all articles by Robert Halperin

Robert Halperin

University of Illinois at Urbana-Champaign

Kam Wah Lai

Chu Hai College of Higher Education

Date Written: September 10, 2014

Abstract

The Sarbanes-Oxley Act of 2002 (SOX) permits the provision of tax services by auditors and restricts other major non-audit services previously provided by auditors for their audit clients. This paper examines the relation between auditor-provided tax fees and audit fees after SOX. The results, using a tax fee model and an audit fee model with a larger set of non-overlapping independent variables in both models, show a positive relationship between tax and audit fees, after controlling for factors that could drive both fees. An additional test shows that firms that employ (do not employ) their incumbent auditors also for tax service are likely to pay higher (lower) audit fees than in the case when they only (also) employ their auditors for audit service. The results of other tests are also consistent with the suggestion that auditors cross-sell their non-audit services to their audit clients.

Keywords: Tax service, audit fees, cross-selling of services, Sarbanes-Oxley Act

JEL Classification: M42

Suggested Citation

Halperin, Robert and Lai, Kam Wah, The Relation between Auditor-Provided Tax Service Fees and Audit Fees after the Sarbanes-Oxley Act: From the Perspective of Cross-Selling of Services (September 10, 2014). Journal of Accounting, Auditing and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1739562 or http://dx.doi.org/10.2139/ssrn.1739562

Robert Halperin

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States

Kam Wah Lai (Contact Author)

Chu Hai College of Higher Education ( email )

80 Castle Peak Road
Castle Peak Bay
Tuen Mun
Hong Kong

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