Evidence on the Joint Determination of Audit and Non-Audit Services

31 Pages Posted: 23 Apr 2002 Last revised: 3 Jun 2016

See all articles by Scott Whisenant

Scott Whisenant

University of Kansas

Srinivasan Sankaraguruswamy

National University of Singapore (NUS) - Department of Accounting

Kannan Raghunandan

Florida International University (FIU) - School of Accounting

Date Written: September 1, 2002

Abstract

In this study, we investigate whether the characteristics of clients, auditors, and the auditor-client relationship jointly determine audit and non-audit services. As done in prior studies, we maintain that fees proxy for the level of service provided and follow the physical flow of knowledge. Our results show that audit and non-audit fees are endogenous. More important, we find that inferences are different on the relation between audit and non-audit fees after we consider the simultaneity of audit and non-audit services compared with those inferences from single-equation estimations. Estimating the system of fee equations simultaneously, we find that provision of audit and non-audit services leads to no relation with audit fees, which suggests that single-equation estimations suffer from simultaneous-equations bias. Further, the finding suggests that there is either no knowledge spillover occur or equal knowledge spillover exist between audit and non-audit services.

Keywords: audit pricing, non-audit pricing, economies of scope, joint provision of services

JEL Classification: M41, M49, Ll5

Suggested Citation

Whisenant, Scott and Sankaraguruswamy, Srinivasan and Raghunandan, Kannan, Evidence on the Joint Determination of Audit and Non-Audit Services (September 1, 2002). Journal of Accounting Research, Vol. 41, No. 4, 2003. Available at SSRN: https://ssrn.com/abstract=306741 or http://dx.doi.org/10.2139/ssrn.306741

Scott Whisenant (Contact Author)

University of Kansas ( email )

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Srinivasan Sankaraguruswamy

National University of Singapore (NUS) - Department of Accounting ( email )

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Singapore
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Kannan Raghunandan

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

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Miami, FL 33199
United States
305-348-2582 (Phone)

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