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Non-Audit services, auditor independence and earnings management

Singh, A and Gore, J P O and Pope, P F (2001) Non-Audit services, auditor independence and earnings management. Working Paper. The Department of Accounting and Finance, Lancaster University.

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    Abstract

    We predict that the provision of non-audit services by auditors to their audit clients will impair independence more severely for smaller auditors than for large auditors. We report evidence that client earnings management activity to avoid losses and earnings decreases is positively associated with the ratio of non-audit fees to total fees for non-Big 5 auditors but not for Big 5 auditors. Earnings management to meet analysts' forecasts varies positively with the non-audit fee ratio for both Big 5 and non-Big 5 auditors. Further, the difference in the effectiveness of Big 5 and non-Big 5 auditors in constraining earnings management widens as the non-audit free ratio increases. These results suggest that, when the provision of non-audit services is relatively high, smaller auditors are less able to resist aggressive accounting by their clients.

    Item Type: Monograph (Working Paper)
    Uncontrolled Keywords: Non-audit services ; Auditor independence ; Audit quality ; Earnings management ; Discretionary accurals.
    Subjects: UNSPECIFIED
    Departments: Lancaster University Management School > Accounting & Finance
    ID Code: 48611
    Deposited By: ep_importer_pure
    Deposited On: 11 Jul 2011 22:01
    Refereed?: No
    Published?: Published
    Last Modified: 27 Jul 2012 01:11
    Identification Number:
    URI: http://eprints.lancs.ac.uk/id/eprint/48611

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