Evidence of a Nonlinear Association between Auditor-Provided Non-Audit Services and Audit Quality

49 Pages Posted: 9 Feb 2018

See all articles by Erik Beardsley

Erik Beardsley

University of Notre Dame - Mendoza College of Business

Andy Imdieke

University of Notre Dame - Mendoza College of Business

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy

Date Written: January 31, 2018

Abstract

This study examines the possibility of a nonlinear association between auditor-provided non-audit services (NAS) and audit quality. The effect of NAS on audit quality has been a long-standing debate among academics and regulators. One view is that NAS can potentially create economic bonding between the auditor and client, lowering audit quality. Another view is that NAS creates knowledge spillover, improving audit quality. Our unique approach provides evidence of a nonlinear association between NAS and audit quality, where client misstatement rates are higher for audit offices with both high and low levels of NAS. We also find a nonlinear association between NAS provision and both missed material weaknesses and meeting or beating analysts’ consensus forecast by a small amount. This study should be of interest to audit firms, audit committees, and regulators because it advances our understanding of the effects of NAS on audit quality.

Keywords: auditor independence, auditor fees, audit quality, non-audit services

Suggested Citation

Beardsley, Erik and Imdieke, Andy and Omer, Thomas C., Evidence of a Nonlinear Association between Auditor-Provided Non-Audit Services and Audit Quality (January 31, 2018). Available at SSRN: https://ssrn.com/abstract=3114395 or http://dx.doi.org/10.2139/ssrn.3114395

Erik Beardsley (Contact Author)

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

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

Andy Imdieke

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

Notre Dame, IN 46556-5646
United States

Thomas C. Omer

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

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

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