Earnings Quality and Auditor Independence: An Examination Using Non-Audit Fee Data

39 Pages Posted: 22 Mar 2002

See all articles by Carol Callaway Dee

Carol Callaway Dee

University of Colorado Denver

Ayalew A. Lulseged

Florida State University - Department of Accounting

Tanya S. Nowlin

Independent

Date Written: January 28, 2002

Abstract

The SEC and capital market participants are concerned that the increasing amounts of fees companies pay to their auditors for non-audit services may give auditors economic incentives to compromise their independence, resulting in lower quality audits and, thus, lower quality earnings.

Using recent proxy statement disclosures of audit and non-audit fees, and controlling for variables known to be related to earnings management, we find that client firms paying high proportions of non-audit fees have income-increasing discretionary and total accruals. This suggests that auditors may be less diligent in curbing income-increasing earnings management for client firms from which they receive high proportions of non-audit fees.Our results are robust to alternative specifications of accrual models, surrogate measures of high non-audit fees, and the inclusion of additional explanatory variables.

Keywords: earnings quality, audit fees, non-audit fees, discretionary accruals, earnings management, auditor independence

JEL Classification: M41, M43, M49

Suggested Citation

Dee, Carol Callaway and Lulseged, Ayalew A. and Nowlin, Tanya S., Earnings Quality and Auditor Independence: An Examination Using Non-Audit Fee Data (January 28, 2002). Available at SSRN: https://ssrn.com/abstract=304185 or http://dx.doi.org/10.2139/ssrn.304185

Carol Callaway Dee

University of Colorado Denver ( email )

1475 Lawrence St.
Campus Box 165, PO Box 173364
Denver, CO 80217-3364
United States

Ayalew A. Lulseged

Florida State University - Department of Accounting ( email )

Rovetta Business Bldg. (RBA)
College of Business
Tallahassee, FL 32306-1110
United States

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