Non-audit fees, auditor tenure, and auditor independence

Accounting

Speaker:Ilias Basioudis, Aston Business School
Date: Friday 11 February 2011
Time: 2.00-3.30pm
Location: MBA Lecture Theatre

Further details

We examine whether high non-audit fees affect auditor independence, proxied by
auditors’ propensity to issue going concern modified audit opinions. Using U.S. data
from 2000 to 2007, we find a non-linear negative relationship between non-audit fees and
auditors’ propensity to issue going concern audit opinions but this relationship only holds
when audit tenure is long. Further analysis shows that the link between non-audit fees,
long tenure and the going concern audit opinion is, however, stronger for low quality
auditors (proxied by non-Big 4 and industry non-specialist auditors). Our findings are
robust when controlling for unexpected fees and endogeneity among variables. We
conclude that high non-audit fees are likely to affect auditor independence only when the
auditor has a long tenure with the same client or when auditor quality is poor.
Keywords: Auditor independence, non-audit fees, going concern modified audit opinion,
auditor tenure, audit quality