How Changes to the Mix of Auditor-Provided Services Impacts Current and Future Engagements

• In Event: Audit Fees, Non-audit Fees, and Audit Effort
  In Paper Session: Audit Fees, Non-Audit Fees, and Audit Effort

Abstract

This study examines how discontinuing or reducing auditor-provided tax services affects current and future audit as well as non-tax nonaudit engagements. Specifically, I investigate whether there is an effect on audit fees, audit quality, or non-tax nonaudit fees for the period from 2004 through 2010. I specify single-equation and two-stage ordinary least squares tests. I find that not correcting for the endogeneity in the decision to discontinue or reduce auditor-provided tax services leads to significantly different results. Using two-stage least squares, I document a positive association between the change in auditor-provided tax services and audit fees and a negative association between the change and non-tax nonaudit fees. Further, I find little evidence of any change in audit quality in the wake of the discontinuation or reduction in tax services. These results indicate that auditors exert more effort due to the loss of efficiencies from the change in tax services and that the provision of nonaudit services is likely bundled given that a decrease in tax fees is associated with a decrease in other non-tax nonaudit fees.

Author

• Will Ciconte, University of Florida