The Distraction Effect of Non-Audit Services on Audit Quality

54 Pages Posted: 7 Apr 2020 Last revised: 18 Nov 2020

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: November 16, 2020

Abstract

Regulators have expressed concerns that an emphasis on non-audit services (NAS) could distract from the audit function, even for clients with minimal NAS purchases. Motivated by this concern, we examine whether a greater emphasis on providing NAS to audit clients generally (i.e., not to a specific client) can distract from the audit function, thus reducing audit quality. We find evidence of an NAS distraction effect, where a greater emphasis on NAS at the audit office-level results in more client financial statement restatements, even after controlling for client-specific NAS. Further, the association exists among clients that purchase minimal NAS, suggesting that this association relates to distraction effects in addition to independence issues examined in prior research. This study should be of interest to audit firms, audit committees, and regulators because it provides new evidence regarding issues related to a business model that includes both audit and non-audit services.

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

Suggested Citation

Beardsley, Erik and Imdieke, Andy and Omer, Thomas C., The Distraction Effect of Non-Audit Services on Audit Quality (November 16, 2020). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3555786 or http://dx.doi.org/10.2139/ssrn.3555786

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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