Is NAS a Suitable Proxy for Auditor Independence in the Post-SOX Period?

Posted: 26 Nov 2013

See all articles by Gary Kleinman

Gary Kleinman

Montclair State University

Asokan Anandarajan

New Jersey Institute of Technology

Dan Palmon

Rutgers, The State University of New Jersey - Accounting & Information Systems

Date Written: November 25, 2013

Abstract

Before implementation of the Sarbanes Oxley Act (SOX) in 2002, researchers frequently used fees from non-audit services (NAS) as a surrogate for auditor independence. NAS is still used in this way, even though SOX has restricted the types of NAS that auditors may provide to their clients. Therefore, we pose the following question: What does the literature say about the continuing adequacy of NAS as a surrogate for auditor independence in the post-SOX era? This question is relevant to research in accounting regulation because, if NAS is no longer an adequate surrogate, then research on auditor independence may provide biased results.

Overall, we find that many post-SOX studies using NAS have insignificant or counterintuitive results, whereas pre-SOX studies using NAS predominantly have significant results suggesting that NAS impairs auditor independence. Is this shift in findings because NAS is no longer an adequate proxy for independence? We discuss this issue and provide our conclusions, citing relevant research where applicable.

Suggested Citation

Kleinman, Gary and Anandarajan, Asokan and Palmon, Dan, Is NAS a Suitable Proxy for Auditor Independence in the Post-SOX Period? (November 25, 2013). Research in Accounting Regulations, Vol. 2, No. 2, 2012, Available at SSRN: https://ssrn.com/abstract=2359790

Gary Kleinman (Contact Author)

Montclair State University ( email )

NJ 07043
United States

Asokan Anandarajan

New Jersey Institute of Technology ( email )

University Heights
School of Management
Newark, NJ 07102

Dan Palmon

Rutgers, The State University of New Jersey - Accounting & Information Systems ( email )

96 New England Avenue, #18
Summit, NJ 07901-1825
United States
201-648-5472 (Phone)
201-648-1283 (Fax)

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