Do Nonaudit Fees Affect Financial Reporting Quality: Evidence from Taiwan

• In Event: Breakfast with Research Roundtable Forum Session
  In Paper Session: Audit Quality Roundtable

Abstract

This paper follows Ashbaugh et al. (ALM) (2003) empirical test and uses Taiwan data from year 2004 to 2017 to examine the relationship between nonaudit fees and financial reporting quality, adapting discretionary accruals as proxy. We provide strong evidence showing that total nonaudit fee is significantly positive associated with discretionary accruals. We then observe that the Sarbanes–Oxley Act (SOX) could marginally enhance financial reporting quality. Finally, providing different categories of nonaudit services to audit clients has varying degrees of impact on discretionary accruals. Our empirical results indicate the effectiveness of implementing the SOX and lend support for the financial supervisors in Taiwan to amend relevant regulations accordingly.

Authors

• Stephanie Chen, National Cheng Kung University

• Yi Cheng Tsai, National Cheng Kung University

• Hua-Wei Huang, National Cheng Kung University