The Provision of Non-Audit Services by Auditors: Let the Market Evolve and Decide

International Review of Law and Economics, 1999, 19(4), 513-31

27 Pages Posted: 19 Jun 2000 Last revised: 22 Jul 2018

See all articles by Benito Arruñada

Benito Arruñada

Pompeu Fabra University - Department of Economics and Business; Barcelona GSE

Date Written: January 1, 1999

Abstract

The provision of non-audit services by auditors to their audit clients reduces total costs, increases technical competence and motivates more intense competition. Furthermore, these services do not necessarily damage auditor independence nor the quality of non-audit services. This assessment leads to recommending that legislative policy should aim at facilitating the development and use of the safeguards provided by the free action of market forces. Regulation should thus aim to enable the parties-audit firms, self- regulatory bodies and audit clients-to discover through competitive market interaction both the most efficient mix of services and the corresponding quality safeguards, adjusting for the costs and benefits of each possibility. Particular emphasis is placed on the role played by fee income diversification and the enhancement, through disclosure rules, of market incentives to diversify.

Keywords: Auditing; Professional services; Non-audit services; Multidisciplinary firms

JEL Classification: K22, K23, M40, M49

Suggested Citation

Arruñada, Benito, The Provision of Non-Audit Services by Auditors: Let the Market Evolve and Decide (January 1, 1999). International Review of Law and Economics, 1999, 19(4), 513-31. Available at SSRN: https://ssrn.com/abstract=224744 or http://dx.doi.org/10.2139/ssrn.224744

Benito Arruñada (Contact Author)

Pompeu Fabra University - Department of Economics and Business ( email )

Ramon Trias Fargas 25-27
Department of Economics and Business
Barcelona, 08005
Spain
+34 93 542 25 72 (Phone)
+34 93 542 17 46 (Fax)

HOME PAGE: http://www.econ.upf.edu/~arrunada

Barcelona GSE ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

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