Non-Audit Fees, Auditor Tenure, and Auditor Independence
Posted: 22 Apr 2012
Date Written: March 20, 2012
We examine whether high non-audit fees and auditor tenure jointly affect auditors’ propensity to issue going concern (GC) modified audit opinions, after controlling for auditor tenure. Using U.S. data from 2000 to 2009, we find that the relationship between non-audit fees and auditors’ propensity to issue GC modified audit opinions is negative and this relationship only holds for auditors with long tenure (longer than or equal to four years). Such relationship is also applicable to Big 4/5 and industry specialized auditors. Our findings are robust to a number of sensitivity tests. We conclude that auditors’ unwillingness to report client going concern problems as a result of long tenure and high non-audit fees arises from auditors acquiescing to client demands which, in turn, poses threats to auditor’s independence.
Keywords: Auditor independence, non-audit fees, going concern modified audit opinion, auditor tenure
JEL Classification: M41, M42, M48
Suggested Citation: Suggested Citation