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The Relation Between Auditors Fees For Non Audit Services And Earnings Quality Classic Reprint
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Book Synopsis The Relation Between Auditors' Fees for Non-Audit Services and Earnings Quality (Classic Reprint) by : Richard M. Frankel
Download or read book The Relation Between Auditors' Fees for Non-Audit Services and Earnings Quality (Classic Reprint) written by Richard M. Frankel and published by Forgotten Books. This book was released on 2018-03-03 with total page 94 pages. Available in PDF, EPUB and Kindle. Book excerpt: Excerpt from The Relation Between Auditors' Fees for Non-Audit Services and Earnings Quality This paper provides empirical evidence on the relation between non-audit services and earnings quality. We test hypotheses concerning: (1) the association between a firm's purchase of non-audit services from its auditor and earnings management, and (2) the stock price reaction to the disclosure of non-audit fees. In the past decade there has been a dramatic increase in the proportion of fee revenue auditors derive from non-audit services, yet we know little about how non-audit services are related to earnings quality.1 Concern about the effect of non-audit services on the financial reporting process was a primary motivation for the Securities and Exchange Commission (sec) to issue revised auditor independence rules on November 15, 2000. The rules require firms to disclose the amount of all audit and non-audit fees paid to its auditor. About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.
Book Synopsis The Relation Between Auditors' Fees for Non-audit Services and Earnings Quality by : Frankel Richard M
Download or read book The Relation Between Auditors' Fees for Non-audit Services and Earnings Quality written by Frankel Richard M and published by . This book was released on 2023-07-18 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Relation Between Auditors' Fees for Non-audit Services and Earnings Quality by : Richard M. Frankel
Download or read book The Relation Between Auditors' Fees for Non-audit Services and Earnings Quality written by Richard M. Frankel and published by . This book was released on 2002 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the association between the provision of non-audit services and earnings quality. Because of concerns regarding the effect of non-audit services on financial reporting credibility, the Securities and Exchange Commission recently issued revised auditor independence rules requiring firms to disclose in their annual proxy statement the amount of fees paid to auditors for audit and non-audit services. Using data collected from proxy statements filed between February 5, 2001 and June 15, 2001, we present evidence that firms purchasing more non-audit services from their auditor are more likely to just meet or beat analysts' forecasts and to report larger absolute discretionary accruals. However, the purchase of non-audit services is not associated with meeting other earnings benchmarks. We also find that the unexpected component of the non-audit to total fee ratio is negatively associated with stock returns on the filing date. These results are consistent with arguments that the provision of non-audit services strengthens an auditor's economic bond with the client and that investors price this effect. Keywords: Auditor independence; Auditor fees; Earnings management; Discretionary accruals. JEL Classification: G12, M41, M43, M49, L84.
Book Synopsis The Relation Between Auditors' Fees for Non-Audit Services and Earnings Quality - Primary Source Edition by : Frankel M
Download or read book The Relation Between Auditors' Fees for Non-Audit Services and Earnings Quality - Primary Source Edition written by Frankel M and published by Nabu Press. This book was released on 2014-03 with total page 102 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is a reproduction of a book published before 1923. This book may have occasional imperfections such as missing or blurred pages, poor pictures, errant marks, etc. that were either part of the original artifact, or were introduced by the scanning process. We believe this work is culturally important, and despite the imperfections, have elected to bring it back into print as part of our continuing commitment to the preservation of printed works worldwide. We appreciate your understanding of the imperfections in the preservation process, and hope you enjoy this valuable book.
Book Synopsis The Relation between Auditors' Fees for Non-Audit Services and Earnings Management by : Richard M. Frankel
Download or read book The Relation between Auditors' Fees for Non-Audit Services and Earnings Management written by Richard M. Frankel and published by . This book was released on 2003 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines whether auditor fees are associated with earnings management and the market reaction to the disclosure of auditor fees. Using data collected from proxy statements, we present evidence that non-audit fees are positively associated with small positive earnings surprises, the magnitude of absolute discretionary accruals, and the magnitude of income-increasing and income-decreasing discretionary accruals. In contrast, audit fees are negatively associated with these earnings management indicators. These results are robust to a variety of alternative variable definitions and model specifications. Specifically, contrary to the claims of Ashbaugh et al. (2002), the results are robust to the use of performance-matched discretionary accruals. Moreover, contrary to the claims of Francis and Ke (2002), the results for small positive earnings surprises are robust regardless of whether the comparison group is all other earnings surprises or small negative earnings surprises. Our final set of results provide evidence of a significant negative association between non-audit fees and share values on the date the fees were disclosed, although the effect is small in economic terms.
Book Synopsis Audit Fees, Non-Audit Services and Auditor-Client Economic Bonding by : Jeffrey Coulton
Download or read book Audit Fees, Non-Audit Services and Auditor-Client Economic Bonding written by Jeffrey Coulton and published by . This book was released on 2007 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate whether auditor independence is compromised by either the mix of audit and non audit services (NAS), or simply unusually large NAS or audit fees. The results help reconcile apparently conflicting evidence in prior studies linking NAS and indicators of earnings management, as well as providing new insights on the relation between the incentive structures faced by auditors and variation in audit quality. Using the unexpected accrual component of earnings as a proxy for the effect of impaired auditor independence, we initially find that client firms purchasing an unexpectedly large NAS fee mix (i.e., relative to audit fees) display some evidence of aggressive accounting. However, when we explicitly allow for the possibly endogenous nature of unexpected accruals and unexpected NAS, this result no longer holds. In contrast, similar evidence of a positive relation between the magnitude of unexpectedly large audit fees and positive unexpected accruals still occurs (albeit more weakly) after explicitly allowing for possible endogeneity. A significant positive association between unexpected total fees (audit plus NAS) and the magnitude of positive unexpected accruals is even more robust. However, further tests shows that these quot;resultquot; are confined to clients of Non-Big 6 auditors. We therefore conclude that for large audit firms, the incentive to protect larger than expected fees is outweighed by the importance of their reputation for providing high quality audits relative to smaller audit firms. The results also highlight how sensitive conclusions about possible quot;NAS effectsquot; are to the choice of proxy for economic bond as well as the precise experimental design.
Book Synopsis The Economics of Audit Quality by : Benito Arrunada
Download or read book The Economics of Audit Quality written by Benito Arrunada and published by Springer Science & Business Media. This book was released on 2013-11-11 with total page 203 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book focuses on market mechanisms which protect quality in the provision of audit services. The role of public regulation is thus situated in the context defmed by the presence of these safeguard mechanisms. The book aims to contribute to a better understanding of these market mechanisms, which helps in defining the con tent of rules and the function of regulatory bodies in facilitating and strengthening the protective operation of the market. An analysis at a more general level is provided in the three chapters making up Part 1. In the four chapters of Part 2, on the other hand, this analysis is applied to a particular problem to determine how those non-audit services often provided by auditors to their audit clients should be regulated. Finally, Chapter 8 contains a summary of the analysis and conclusions of the work. The conclusion with regard to non-audit services is that their provision generates beneficial effects in terms of costs, technical competence, professional judgment and competition and, moreover, need not prejudice auditor independence or the quality of these services. This as sessment leads, in the normative sphere, to recommending a legislative policy aimed at facilitating the development and use of safeguards provided by the free action of market forces. Regulation should thus aim to enable the parties-audit firms, self-regulatory bodies and audit clients-to discover through competitive market interaction both the most efficient mix of services and the corresponding quality safeguards, adjusting for the costs and benefits of each possibility.
Book Synopsis Non-Audit Service Fees and Audit Quality by : Chee Yeow Lim
Download or read book Non-Audit Service Fees and Audit Quality written by Chee Yeow Lim and published by . This book was released on 2013 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent studies on whether the provision of non-audit services impairs audit quality document mixed results, depending on the proxy for auditor quality used. We posit that the effect of non-audit fees on audit quality is conditional on auditor industry specialization in that audit quality is less likely to be impaired in the case of industry specialist auditors providing non-audit services. Our premise is that industry specialist auditors are more likely to be concerned about reputation losses and litigation exposure, and to benefit from knowledge spillovers from the provision of non-audit services. We find some evidence that audit quality (as measured by increased propensity to issue going-concern opinion, increased propensity to miss analysts' forecasts, as well as higher earnings-response coefficients) is less likely to be reduced for firms that acquire non-audit services from industry specialist auditors compared to non-specialist auditors. Implications are discussed.
Book Synopsis Modelling Issues in the Relationship Between Audit and Non-Audit Fees by : Ismail A. Adelopo
Download or read book Modelling Issues in the Relationship Between Audit and Non-Audit Fees written by Ismail A. Adelopo and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Current waves of corporate collapses have brought the discussions about auditor independence into spotlight. In this context, the debate about the propriety of auditors' joint provision of audit and non-audit services to their audit clients has featured considerably. One approach to this debate has been an economic modeling of interactions between audit and non-audit fees. While there are shades of opinions that the relationship can be captured using a single equation model, others are of the opinion that the relationships are better represented in a Simultaneous Equation Model (SEM). Also, there are concerns about the nature of data used in analyzing audit fees. Cross sectional data have been predominant; however, there are calls for more robust analyzes involving multi-period investigations and, precisely, the use of panel data approach. It has been argued that this affords more observations and enhances causal inferences. In this paper, using very recent data, we compared the result of a single equation model with a SEM of the relationship between audit and non-audit fee for listed companies in the UK and also highlighted the benefits of using panel data approach to the study of this relationships in the context of auditors' independence and improved audit and reporting quality. The issues addressed in this paper are very pertinent to better understanding of the role of the auditor in the corporate environment. The requirement for firms to disclose their audit and non-audit fees, the outright ban on the provision of certain non-audit services by the auditors to their audit clients, and the enhancements of the roles of the audit committees in determining the level of non-audit services that can be purchased from the incumbent and other auditors all underscore the seriousness of the issues relating to audit and non-audit services.
Book Synopsis Audit and Non-audit Service Provision by : Sylvia Chai
Download or read book Audit and Non-audit Service Provision written by Sylvia Chai and published by . This book was released on 2000 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates whether auditors compromise their independence when they provide audit and non-audit services jointly to their clients. The relationship between the level of non-audit services fees and two independence-related measures: (i) the level of earnings management and (ii) the type of audit opinion issued, is examined. The results indicate that for Big 6 audited companies purchasing higher levels of non-audit services engage in higher levels of earnings management compared to companies purchasing a lower level of non-audit services from their incumbent auditor. However, the study finds that high level purchasers of non-audit services are not more likely to receive a clean opinion compared to low level purchasers of non-audit services. In order to explain the conflicting results, further tests are conducted to determine whether companies that purchase concurrently a high level of non-audit services and indulge in high levels of earnings management are more likely to receive a clean audit opinion. This is important since auditors will only be perceived as compromising their independence if they fail to issue qualifications when the level of earnings management is high. The findings indicate that no relationship exists between the type of audit opinion issued and the interaction between the level of non-audit service fees and the level of earnings management. Hence, it is concluded that auditors do not impair their independence in terms of willingness to issue deserved qualifications when providing joint services.00000 g.
Book Synopsis Auditor Fees, Abnormal Fees and Audit Quality Before and after the Sarbanes-Oxley Act by : Ariel J. Markelevich
Download or read book Auditor Fees, Abnormal Fees and Audit Quality Before and after the Sarbanes-Oxley Act written by Ariel J. Markelevich and published by . This book was released on 2010 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: Our study examines fees paid to auditors for audit and non-audit services during the period 2000 to 2003. We document a statistically significant positive association between audit fees and the absolute value of performance-adjusted discretionary accruals over all years. We also identify a significant positive association between non-audit fees and discretionary accruals in years 2000 and 2001, but no such association in later years (after passage of the Sarbanes-Oxley Act). This lack of association in 2002 and 2003 may be a result of legislation that limits the types of non-auditing services that auditors can provide to audit clients. To address the potential impact of fee composition and client importance on auditor independence, we extend our empirical analysis by incorporating predictions of abnormal audit and non-audit fees. We derive abnormal fees using a fee estimation model drawn from prior literature. We find evidence consistent with the view that clients with higher abnormal fees are more apt to exert influence on their auditors, which in turn may lead to a breach in auditor independence. Overall, our results are most consistent with economic bonding being the primary determinant of auditor behavior.
Book Synopsis Disclosure of Fees Paid to Auditors and the Market Valuation of Earnings Surprises by : Jere R. Francis
Download or read book Disclosure of Fees Paid to Auditors and the Market Valuation of Earnings Surprises written by Jere R. Francis and published by . This book was released on 2006 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate if the SEC's mandated disclosure of fees for audit and nonaudit services affected the market's perception of auditor independence and earnings quality. Following the initial fee disclosures, we find that the market valuation of quarterly earnings surprises (earnings response coefficient) is significantly lower for firms with high levels of nonaudit fees than for firms with low levels of nonaudit fees. In contrast, in the year prior to the new fee disclosures, there was no reduction in earnings response coefficients for firms that subsequently reported high nonaudit fees. Our evidence suggests that mandated fee disclosures provided new information and was viewed by the market as lowering the perception of auditor independence and earnings quality.
Book Synopsis Audit Fees and Nonaudit Fees in the Governmental Sector by : Randal J. Elder
Download or read book Audit Fees and Nonaudit Fees in the Governmental Sector written by Randal J. Elder and published by . This book was released on 2004 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use a self-selection model to examine differences in audit fees between purchasers and non-purchasers of nonaudit services for a sample of 165 Michigan governmental units. Understanding the relationship between audit fees and nonaudit fees is important because nonaudit services potentially influence audit quality in the governmental sector. We find significant differences between purchasers and non-purchasers of additional services which influence audit fees. Purchasers of additional services have more audit adjustments and less experienced financial personnel than non-purchasers, suggesting that purchasers experience more accounting problems. Consistent with previous private sector research, we find a positive relationship between audit fees and nonaudit fees. Further analysis by auditor type suggests that the relationship between audit fees and nonaudit fees is negative for Big 6 auditors, but positive for other audit firms. This difference in the relationship between audit fees and nonaudit fees by auditor type may be due to differences in the nature of the consulting services demanded, or differences in the contractual arrangements for audit and nonaudit services.
Book Synopsis The Joint Determination of Audit Fees, Non-Audit Fees, And Abnormal Accruals by : Rick Antle
Download or read book The Joint Determination of Audit Fees, Non-Audit Fees, And Abnormal Accruals written by Rick Antle and published by . This book was released on 2014 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior research has estimated piece-meal the determinants of audit fees, non-audit fees and abnormal accruals. Intuition, informal analysis, and a variety of theories suggest that audit fees, non-audit fees, and abnormal accruals are jointly determined. We address this endogeneity issue by modeling the confluence of audit fees, fees for non-audit services and abnormal accruals in a system of simultaneous equations.Our joint estimation provides a starting point to look simultaneously at several competing theories. Using audit and non-audit fee data from the UK for 1994-2000, we find evidence consistent with knowledge spillovers (or economies of scope) from auditing to non-audit services and from non-audit services to auditing. While knowledge spillovers from non-audit services to auditing have been found in prior research [e.g. see Simunic 1984], the presence of knowledge spillovers from auditing to non-audit services is a new result. Contrary to recent results in Ferguson et al. (2001) and Frankel et al. (2002), we do not find support for the assertion that fees for non-audit services increase abnormal accruals. In fact, contrary to the results in Ashbaugh et al. (2003) and Chung and Kallapur (2003), we find that non-audit fees decrease abnormal accruals, which we attribute to the productive effects of non-audit services. We also find evidence that audit fees increase abnormal accruals, consistent with behavioral theories of unconscious influence or bias in the auditor-client relation. The findings are robust to tests with US data.
Book Synopsis Evidence on the Joint Determination of Audit and Non-Audit Fees by : Scott Whisenant
Download or read book Evidence on the Joint Determination of Audit and Non-Audit Fees written by Scott Whisenant and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, we investigate whether the characteristics of clients, auditors, and the auditor-client relationship simultaneously determine audit and non-audit fees. As done in prior studies, we maintain that fees proxy for the level of service provided and follow the physical flow of knowledge. Estimating single-equation models of audit and non-audit fee models, we confirm prior findings of an association between audit and non-audit fees. Studies have concluded such evidence is consistent with knowledge spillovers between the two services. However, we document empirically that audit and non-audit fees are simultaneously determined. Since the data indicate audit and non-audit fees are jointly determined, we then investigate whether previously documented associations between audit and non-audit fees are the result of biased estimation induced by using endogenous variables in single-equation models. In contrast to results from single-equation estimations, we find no association between audit and non-audit fees using a simultaneous specification of the fee system, suggesting that single-equation estimations suffer from simultaneous-equations bias. In sum, the findings are not consistent with the existence of economies of scope from the joint performance of audit and non-audit services after controlling for the joint behavior of audit and non-audit fees. Given the ongoing debate over the level of allowed non-audit services by auditors, the argument for the joint provision of audit and non-audit services is less justified than if joint-supply benefits had been documented.
Book Synopsis Non-Audit Services, Auditor Quality and the Value Relevance of Earnings by : Ferdinand A. Gul
Download or read book Non-Audit Services, Auditor Quality and the Value Relevance of Earnings written by Ferdinand A. Gul and published by . This book was released on 2006 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper tests the hypothesis that there is an inverse relation between non-audit services (NAS) provided by a firm auditor and the value relevance of earnings (measured as the earnings response coefficient) and that this relation is weaker for firms with Big 6 auditors. The hypothesis is based on anecdotal evidence and prior research which suggest that the provision of NAS by the external auditor is likely to adversely affect investors' perceptions of the credibility of financial reports and that Big 6 auditors due to reputational capital and litigation costs are likely to mitigate the adverse effects of NAS. Results using 840 firm-year observations of Australian companies document a statistically significant inverse relationship between NAS and the value relevance of earnings and that this inverse relationship is weaker for Big 6 auditors, thus supporting the hypothesis.
Book Synopsis Non-audit Fees of the External Auditor, Audit Committees and Earnings Quality by : Ina Treptow
Download or read book Non-audit Fees of the External Auditor, Audit Committees and Earnings Quality written by Ina Treptow and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
