Non-audit services and the demand for voluntary audits

Finance & Accounting

Speaker:Elisabeth Dedman, University of Bath
Date: Friday 28 May 2010
Time: 14:00-15:30
Location: Xfi Lecture Theatre

Further details

The joint provision of audit and non-audit services (NAS) may provide cost savings due to economies of scope but may also compromise audit quality. We examine whether companies assess the combined effect of such cost and quality spillovers as positive or negative. We find that a company’s purchase of NAS is associated with an increased likelihood of voluntary audit, consistent with a positive spillover effect overall. However, the association eventually becomes negative when companies pay very high NAS fees, consistent with an impairment of audit quality when the threat to auditor independence is greatest. These findings are further supported by tests of quality spillovers, where we find that NAS purchasers are associated with more [less] timely recognition of losses [gains], but that this asymmetry reverses at high levels of NAS.