An Investigation of the Impact of Audit Committee Characteristics on the Relative Magnitude of Non-Audit Service Purchases

33 Pages Posted: 25 Sep 2001

See all articles by Lawrence J. Abbott

Lawrence J. Abbott

University of Memphis

Susan Parker

Santa Clara University

Gary F. Peters

University of Arkansas at Fayetteville

Kannan Raghunandan

Florida International University (FIU) - School of Accounting

Abstract

This study examines the association between audit committee characteristics and the relative magnitude of non-audit service (NAS) and audit service fees, using data gathered under the recent SEC fee disclosure rules. Issues related to non-audit service fees have been of concern to practitioners, regulators and academics for a number of years. Evidence suggests that audit committees which possess certain characteristics are important participants in the process of managing the client/auditor relationship. We hypothesize that audit committee members who are independent and active financial monitors have incentives to limit NAS fees (relative to audit fees) paid to incumbent auditors, in an effort to enhance auditor independence in either appearance or fact. We examine a sample of 310 firms which filed both 10-K and proxy forms with the SEC in the period from 2/5/2001 to 3/23/2001. Audit committees comprised solely of independent directors that meet at least four times annually are significantly, negatively associated with the ratio of NAS and audit fees. This evidence is consistent with audit committee members perceiving a high level of NAS fees in a negative light and taking actions to decrease this occurrence.

JEL Classification: G34, M49

Suggested Citation

Abbott, Lawrence J. and Parker, Susan and Peters, Gary F. and Raghunandan, Kannan, An Investigation of the Impact of Audit Committee Characteristics on the Relative Magnitude of Non-Audit Service Purchases. Available at SSRN: https://ssrn.com/abstract=285151 or http://dx.doi.org/10.2139/ssrn.285151

Lawrence J. Abbott

University of Memphis ( email )

Department of Accounting
Memphis, TN 38152
United States
901-678-4576 (Phone)
901-678-2685 (Fax)

Susan Parker (Contact Author)

Santa Clara University ( email )

Leavey School of Business 500 El Camino Real
Santa Clara, CA 95053
United States
(408) 554-4899 (Phone)
(408) 554-5193 (Fax)

Gary F. Peters

University of Arkansas at Fayetteville ( email )

Sam M. Walton College of Business
Department of Accounting
Fayetteville, AR 72701

Kannan Raghunandan

Florida International University (FIU) - School of Accounting ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States
305-348-2582 (Phone)

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