The Effect of Pure Audit Firms, Non-Provision of Non-Audit Services to Audit Clients, and a Statutory Fee Schedule on Audit Quality Perceptions
49 Pages Posted: 2 Aug 2021 Last revised: 9 Nov 2021
Date Written: November 8, 2021
An ongoing debate among accounting academics and regulators revolves around instruments for strengthening the audit quality perceptions of financial statements users. Despite constant regulatory change, the occurrence of accounting scandals (e.g., recently Carillion in the U.K. or Wirecard in Germany) has reignited public allegations that the existing regulation is insufficient. Therefore, this study investigates two measures that lack empirical evidence but could theoretically improve perceived audit quality. These are a full ban of NAS (either by requiring pure audit firms, or a voluntary decision not to provide NAS to audit clients) and a statutory fee schedule. We conduct an experiment with bankers and non-professional investors in Germany. The results indicate a positive main effect of pure audit firms and the non-provision of NAS to audit clients on perceived audit quality and auditor independence; but not on perceived auditor competence. Furthermore, we find a positive main effect of a statutory fee schedule on audit quality, auditor independence, and auditor competence perceptions.
Keywords: pure audit firms, audit services, non-audit services, audit fees, fee schedule, perceived audit quality, perceived auditor independence, perceived auditor competence
JEL Classification: M42, M48
Suggested Citation: Suggested Citation