The Distraction Effect of Non-Audit Services on Audit Quality

44 Pages Posted: 7 Apr 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: February 2020

Abstract

Regulators have expressed concerns that a broad emphasis on providing non-audit services (NAS) to audit clients could distract from the audit function, even for individual clients not purchasing substantial NAS. Motivated by this concern, we examine whether a greater emphasis on providing NAS to audit clients generally (i.e., not just to a specific client) can distract from the audit function, thus reducing audit quality to the client portfolio. We find evidence of a distraction effect of NAS, where a greater emphasis on NAS at the audit office-level results in lower audit quality, even after controlling for other factors including client-specific NAS. Further, we find the association concentrated among clients that purchase lower proportions of NAS, which provides evidence that the observed association relates to distraction effects rather than 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 the 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 (February 2020). 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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