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Research on Professional Responsibility and Ethics in Accounting
Type: Book
ISBN: 978-0-76231-393-8

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Article
Publication date: 11 February 2020

Wahab Effiezal Aswadi Abdul, Wan Zurina Nik Abdul Majid, Iman Harymawan and Dian Agustia

The purchase of non-audit services from incumbent auditors has generated considerable attention. This study aims to examine the relationship between characteristics of non…

Abstract

Purpose

The purchase of non-audit services from incumbent auditors has generated considerable attention. This study aims to examine the relationship between characteristics of non-audit services, namely, the recurrence and types of services, and accruals quality in Malaysia.

Design/methodology/approach

This study analyzed hand-collected audit and non-audit fees of 1,117 observations from Malaysian firms from 2009 to 2011. This study used descriptive analysis, univariate tests and multivariate regression to investigate the potential effect of non-audit services on accruals quality.

Findings

Non-audit services are associated with lower accruals quality. Recurring and non-recurring non-audit service fees are detrimental to the quality of accruals, as are all types of recurring non-audit services. Only non-recurring audit-related services decrease accruals quality. The results demonstrate that provisions of non-audit services create economic bonding, and thus a threat to auditor independence. Results remain robust with the inclusion of corporate governance and institutional variables.

Research limitations/implications

The sample period might represent a limitation as it only covers three years of data. This limitation is mainly because of the nature of data collection of the non-audit services fees.

Practical implications

The findings could suggest a refinement on the Malaysian Institute of Accountants (MIA) by-laws focusing on auditor independence, and it could assist other regulative bodies such as the Securities Commission, the stock exchange (Bursa Malaysia) in ensuring better governance on the provision of non-audit services.

Originality/value

This study is the first that provides evidence on the relationship between non-audit services, types, and recurring and non-recurring non-audit services and accruals quality in Malaysia.

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Pacific Accounting Review, vol. 32 no. 2
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 31 August 2012

Magdy S. Farag and Rafik Z. Elias

The purpose of this study is to examine the impact of public accounting firms' mix of service revenue on their average productivity measured by total revenue per partner.

Abstract

Purpose

The purpose of this study is to examine the impact of public accounting firms' mix of service revenue on their average productivity measured by total revenue per partner.

Design/methodology/approach

Using data from Public Accounting Report on top public accounting firms by revenue, an OLS regression model is applied by regressing revenue per partner on the percentage of revenue generated from auditing and attest, tax, management consulting, and other services independently.

Findings

Results show that the proportion of auditing and attest service revenue is negatively associated with public accounting firms' productivity. However, the proportion of other services revenue, other than tax and management consulting services, is positively associated with productivity. Additional investigation shows that if public accounting firms provide other services in their mix of services, then tax and management consulting services do not contribute to these public accounting firms' productivity.

Research limitations/implications

Results of this study cannot be generalized beyond the top 100 public accounting firms, and the measurement of revenue per partner ignores the exact number of partners within different service areas.

Practical implications

Although auditing and attest services are considered core services of public accounting firms, they do not increase the productivity of the firm.

Originality/value

This study helps in assessing whether average productivity of public accounting firms is affected by the proportion of a specific type of service in the post‐SOX era.

Details

Managerial Auditing Journal, vol. 27 no. 8
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 29 February 2016

Md Jahidur Rahman, Mo Lai Lan Phllis and Lam Mo

The purpose of this paper is to study the impact of the prohibition of certain non-audit services by the Securities and Exchange Commission (SEC) of Bangladesh on the…

Abstract

The purpose of this paper is to study the impact of the prohibition of certain non-audit services by the Securities and Exchange Commission (SEC) of Bangladesh on the profitability of the audit firms which are affiliated with Big-4 international audit firms. This paper is based on personal in-depth interviews with the Big-4-affiliated audit firms. A qualitative approach, in a way which is descriptive and illustrative, is adopted in this research. This research provides evidence for the fact that audit services are the most significant and stable source of income for an audit firm. Although respondents generally admit that non-audit services might be more profitable, they all agree that audit services are indeed the core operations of an audit firm. Findings in this paper reveal a contemporary picture of the auditing profession in Bangladesh and elucidate the impact that the implementation of Corporate Governance Order 2006 has on an audit firm's profitability. This research is the first in-depth study of the impact of the prohibition of non-audit services on the profitability of the Big-4-affiliated audit firms in Bangladesh. Financial reporting regulatory authorities in Bangladesh or other developing countries may find the findings in this paper useful.

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Asian Journal of Accounting Research, vol. 1 no. 1
Type: Research Article
ISSN: 2459-9700

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Article
Publication date: 12 July 2013

Angela Walker and David Hay

The accounting profession has argued strongly against claims that the provision of non‐audit services to audit clients leads to impaired auditor independence, instead…

Abstract

Purpose

The accounting profession has argued strongly against claims that the provision of non‐audit services to audit clients leads to impaired auditor independence, instead claiming that the joint provision of non‐audit services and audit services creates knowledge spillovers that lead to a more efficient audit. This paper seeks to provide evidence concerning knowledge spillovers by examining the association between the audit report lag and non‐audit services.

Design/methodology/approach

The authors obtained a sample of 260 firm‐year observations from the financial reports of New Zealand public companies over the period 2004‐2005 and tested for associations between non‐audit services and audit report lag, controlling for other variables.

Findings

The paper finds evidence that non‐audit services are associated with a shorter audit report lag, but that this occurs in a subsequent period, not in the year in which the services are provided.

Practical implications

The results suggest that firms purchasing non‐audit services from their incumbent auditors benefit from knowledge spillovers by achieving a shorter audit report lag, but not immediately.

Originality/value

Previous studies have examined whether there is a relationship between non‐audit services and audit report lag in the concurrent period. This paper extends tests to also examine the relationship between NAS in one year and the audit in a subsequent year. These results are more consistent with knowledge spillovers that allow a more efficient audit than they are with loss of independence by the auditor, because loss of independence would take effect immediately, while knowledge spillovers might take time.

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Meditari Accountancy Research, vol. 21 no. 1
Type: Research Article
ISSN: 2049-372X

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Article
Publication date: 1 October 1997

Theresa Joyce and Wendy Close

It is essential that the quality of residential services is monitored, both to identify service deterioration and to improve service quality. Current models of community…

Abstract

It is essential that the quality of residential services is monitored, both to identify service deterioration and to improve service quality. Current models of community services have produced fragmentation among service providers, and a separation of purchasers and providers. These different groups need to work together to share a vision and a model of good practice. Participation in the auditing of each other's services, and a focus from commissioners on being supportive rather than punitive, assist in this. Audit also enables a view of the strategic challenges which face services to be developed. These challenges include ensuring that staff are skilled in supporting clients to live as ordinary a life as possible, as well as meeting any additional complex needs they may have.

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Tizard Learning Disability Review, vol. 2 no. 4
Type: Research Article
ISSN: 1359-5474

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Article
Publication date: 1 January 2014

John M. Thornton and Michael K. Shaub

The purpose of this research is to determine whether the type of tax services provided by a public accounting firm to its audit client and the consequence severity of an…

Abstract

Purpose

The purpose of this research is to determine whether the type of tax services provided by a public accounting firm to its audit client and the consequence severity of an audit failure impact jurors' assessment of audit quality and auditor liability.

Design/methodology/approach

The authors administer a court case to 168 jurors manipulating three levels of tax services provided to an audit client (none, tax preparation, and aggressive tax planning services); two levels of consequence severity of the alleged audit failure, observing the impact on jurors' assessment of audit quality, auditor responsibility for audit failure; and damages awarded the plaintiff.

Findings

Consistent with recent US regulations, jurors perceive the quality of the audit to be lower when auditors provide aggressive tax planning services, but not for tax preparation services. Damages are greater when auditors provide aggressive tax planning services across both levels of consequence severity.

Research limitations/implications

The results indicate that the type of tax services provided may impact jurors' views of audit quality and damage assessments against auditors. The questionnaire uses previously validated measures, but the results may not be generalizable to jurors in all jurisdictions.

Practical implications

Though empirical evidence is mixed at best about the impact of auditors providing non-audit services on auditor independence in fact, auditor independence in appearance, and thus audit quality, such impacts may affect the way jurors perceive the situation.

Originality/value

The study directly tests the implications for auditor liability of new restrictions on tax services and more accurately measures the impact of consequence severity, using actual jurors.

Details

Managerial Auditing Journal, vol. 29 no. 1
Type: Research Article
ISSN: 0268-6902

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Book part
Publication date: 20 October 2015

Matthew A. Notbohm, Jeffrey S. Paterson and Adrian Valencia

Prior research finds evidence that audit quality is positively associated with the joint purchase of tax nonaudit services (NAS) and concludes that jointly provided tax…

Abstract

Prior research finds evidence that audit quality is positively associated with the joint purchase of tax nonaudit services (NAS) and concludes that jointly provided tax services result in audit-related knowledge spillovers that lead to improved audit quality. We extend this line of research. We examine the relation between auditor-provided tax services and restatements and determine whether this relation differs when the auditor is a small or large accounting firm. We also examine whether the Securities Exchange Commission’s restrictions on certain tax consulting practices (SEC, 2006) altered this relation. Specifically, we measure whether the probability of financial statement restatements varies with (1) variation in accounting firm size (measured as PCAOB annually inspected firms versus PCAOB triennially inspected firms), and (2) the joint provision of audit and tax services. We find a negative relation between auditor-provided tax services and restatements which is consistent with prior research. We also find that this relation is significantly more negative when the auditor is a small accounting firm. Finally, we find that the lower probability of a restatement associated with the joint provision of audit and tax services persists regardless of auditor size after the SEC-imposed restrictions on certain tax consulting services in 2006. Our study provides evidence that accounting firms, and particularly small accounting firms, benefit from knowledge spillovers when jointly providing audit and tax services and these benefits lead to improved audit quality. Prior research concludes that large auditors provide higher audit quality and that the provision of tax services improves audit quality. Our results provide evidence that audit quality improvements are greater for small auditors and their clients. This improvement narrows that audit quality gap between large and small auditors. We do not find evidence that the SEC’s restrictions on certain tax consulting services altered the relation between audit quality and tax services.

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Advances in Taxation
Type: Book
ISBN: 978-1-78560-277-1

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Article
Publication date: 17 May 2013

Deborah Alexander and David Hay

This study seeks to examine whether there are differences between companies that purchase either recurring or non‐recurring audit services and those that do not, and…

Abstract

Purpose

This study seeks to examine whether there are differences between companies that purchase either recurring or non‐recurring audit services and those that do not, and whether auditors discount their audit fees for either type of non‐audit service.

Design/methodology/approach

The study examines associations between audit and non‐audit fees in New Zealand, for the period 1995 to 2001. The advantage of this setting is that data on non‐audit services was disclosed in this period and that the period pre‐dates more recent controversies over whether non‐audit services are permissible.

Findings

Companies that purchase any type of non‐audit services from their auditors are larger and more complex than companies that purchase auditing only. Companies that obtain tax services from their auditors usually do so on a recurring basis. In contrast, consulting services do not tend to occur every year. Auditors do not discount their fees for either recurring or non‐recurring non‐audit services.

Research limitations/implications

While useful data is available about the type of non‐audit services provided, there are limitations to the extent to which this information provides a precise measure of whether the services were recurring or not.

Originality/value

The research contributes to understanding the issues regarding auditors providing non‐audit services by providing evidence that neither recurring nor non‐recurring services are associated with a reduction in audit fees. This finding is relevant when considering whether regulation of non‐audit services should permit certain types of services, or should prohibit all non‐audit services.

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Managerial Auditing Journal, vol. 28 no. 5
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 5 May 2014

Michael Dobler

– The aim of this paper is to provide evidence on the extent and the consequences of the provision of non-audit services (NAS) by statutory auditors to German family firms.

Abstract

Purpose

The aim of this paper is to provide evidence on the extent and the consequences of the provision of non-audit services (NAS) by statutory auditors to German family firms.

Design/methodology/approach

The study analyzes hand collected fee data of 368 listed and private family firms in Germany. It employs univariate tests, ordinary least squares and two-stage least squares regressions to investigate potential threats to perceived auditor independence and knowledge spillovers between jointly provided NAS and audit services.

Findings

Incumbent auditors are shown to be a significant source of various types of NAS to family firms. There is weak evidence on threats to perceived auditor independence and support for reciprocal knowledge spillovers between the services. While listed and private family firms do not differ in regard to the proportion of NAS fees, comparative findings suggest that key threats and benefits of jointly provided services are more prevalent among private than among listed family firms.

Research limitations/implications

The study suffers from limited data availability and is restricted to the initial year of mandatory audit fee disclosure of private firms in Germany. Particularities of family firms and the German setting, as well as differential results for listed and private family firms, suggest fruitful avenues for future research.

Practical implications

The study addresses the current issues in audit regulation. Regulatory bodies should consider that key threats and benefits of auditor-provided NAS decrease with stronger exogenous restrictions. Attempts to restrict jointly provided services in the EU suggest family firms to reconsider their reliance on auditors as a trusted source of NAS.

Originality/value

This study is the first to provide evidence on the extent and consequences of auditor-provided NAS in family firms based on fee disclosure. It is also among the few studies that investigate private firms in a code law country and complements prior evidence from Germany that is restricted to listed firms. More generally, it contributes to limited evidence at the intersection of audit and family business research.

Details

Managerial Auditing Journal, vol. 29 no. 5
Type: Research Article
ISSN: 0268-6902

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