Non-Audit Fees, Auditor Tenure, and Auditor Independence

Posted: 22 Apr 2012

See all articles by Ilias G. Basioudis

Ilias G. Basioudis

Aston University - Aston Business School

Ferdinand A. Gul

Deakin University - Department of Accounting

Anthony C. Ng

Deakin University

Date Written: March 20, 2012

Abstract

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

Basioudis, Ilias G. and Gul, Ferdinand A. and Ng, Anthony C., Non-Audit Fees, Auditor Tenure, and Auditor Independence (March 20, 2012). Available at SSRN: https://ssrn.com/abstract=2043311

Ilias G. Basioudis (Contact Author)

Aston University - Aston Business School ( email )

Aston Triangle
Birmingham, B47ET
United Kingdom

Ferdinand A. Gul

Deakin University - Department of Accounting ( email )

Melbourne
Australia

Anthony C. Ng

Deakin University ( email )

Australia
+61392446171 (Phone)

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