Competition, Nonaudit Services and Auditor Independence

• In Event: Continental Breakfast and Research & Education Forum
  In Paper Session: Table 8: Audit Quality II

Abstract

This paper investigates how audit market competition impacts the effects of nonaudit services (NAS) on auditor independence, and provides evidence on whether the findings of Ashbaugh et al. (2003) (ALM) are sensitive to the overall audit environment, audit market competition. In contrast to ALM, we find a positive and significant association between NAS fee ratio and income-increasing discretionary accruals, and audit market competition positively moderates such relation. Furthermore, we find such positive moderation effect of audit market competition significantly exists in firms audited by Big N auditors. Overall, our study indicates that the degree of audit market competition impacts the effects of NAS on auditor independence, providing evidence supporting that ALM’s results are sensitive to overall audit environment, audit market competition. This study also adds to our understanding of audit market competition strengthen the link between NAS and auditor independence.

Authors

• Fujiao Xie, University of Hawaii-Manoa

• Jian Zhou, University of Hawaii-Manoa

• Shirley J Daniel, University of Hawaii-Manoa