Non-Audit Services and Auditor Independence: Norwegian Evidence

43 Pages Posted: 12 Apr 2013 Last revised: 21 Jun 2015

See all articles by Yu (Elli) Zhang

Yu (Elli) Zhang

University of Auckland - Department of Accounting and Finance

David Hay

University of Auckland - Business School

Claus Holm

Aarhus University - Department of Economics and Business

Date Written: June 17, 2015

Abstract

We examine the effect on auditor independence of auditors providing non-audit services in the Norwegian audit market. We report the results of three tests of independence of mind and one test of independence in appearance. These tests find that there is a positive relationship between audit fees and non-audit fees, which does not suggest loss of independence. Further analysis using two-stage least squares shows that audit and non-audit fees are jointly determined, and the results are still not consistent with loss of independence. There is no relationship between the provision of non-audit services and the frequency with which auditors issue modified audit opinions. There is no association between non-audit services and audit tenure. Finally, we examine the relationship between unexpected or excess non-audit fees and cost of capital. There is no relationship. Our findings fail to find any evidence for loss of independence of mind or loss of independence of appearance as a result of providing non-audit services.

Keywords: auditing, non-audit fees, auditor independence, audit opinion, audit tenure, Norway

JEL Classification: M41, L84, G18

Suggested Citation

Zhang, Yu (Elli) and Hay, David and Holm, Claus, Non-Audit Services and Auditor Independence: Norwegian Evidence (June 17, 2015). Available at SSRN: https://ssrn.com/abstract=2248064 or http://dx.doi.org/10.2139/ssrn.2248064

Yu (Elli) Zhang

University of Auckland - Department of Accounting and Finance ( email )

Private Bag 92019
Auckland 1001
New Zealand

David Hay (Contact Author)

University of Auckland - Business School ( email )

12 Grafton Rd
Auckland, 1010
New Zealand

Claus Holm

Aarhus University - Department of Economics and Business ( email )

Fuglesangs Alle 4
Aarhus University
Aarhus C, Danmark DK-8210
Denmark
40422778 (Phone)
40422778 (Fax)

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