How Do Audit Offices Respond to Audit Fee Pressure? Evidence of Increased Focus on Nonaudit Services and Their Impact on Audit Quality

50 Pages Posted: 7 May 2014 Last revised: 6 Feb 2018

Erik Beardsley

University of Notre Dame - Mendoza College of Business

Dennis R. Lassila

Texas A&M University - Department of Accounting

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy

Date Written: December 1, 2017

Abstract

We investigate whether audit offices respond to audit fee pressure by increasing their focus on nonaudit services (NAS), as well as the combined effect of audit fee pressure and an increased focus on NAS on audit quality. We find a positive association between audit fee pressure and changes in NAS at the audit office level. We also find increased rates of client misstatement among audit offices that increase focus on NAS in the presence of audit fee pressure compared to audit offices that do not, suggesting a joint effect on audit quality. We find that the reduction in audit quality occurs in large audit offices. Overall, we provide evidence that audit offices’ provision of additional NAS in the presence of fee pressure is an important dimension to consider when examining the effects of declining audit fees on audit quality.

Keywords: audit fee pressure; nonaudit services; audit quality; misstatements

JEL Classification: M40, M41, M42, M48, M49, H83

Suggested Citation

Beardsley, Erik and Lassila, Dennis R. and Omer, Thomas C., How Do Audit Offices Respond to Audit Fee Pressure? Evidence of Increased Focus on Nonaudit Services and Their Impact on Audit Quality (December 1, 2017). Contemporary Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2433048 or http://dx.doi.org/10.2139/ssrn.2433048

Erik Beardsley (Contact Author)

University of Notre Dame - Mendoza College of Business ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Dennis R. Lassila

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
United States
979-845- 4584 (Phone)

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
724
rank
31,242
Abstract Views
3,491
PlumX