The Effect of Pure Audit Firms, Non-Provision of Non-Audit Services to Audit Clients, and a Fee Schedule on Audit Quality Perceptions

• In Event: 5.02. Audit Quality Indicators

Abstract

A central and ongoing debate among accounting academics and regulators revolves around instruments to strengthen financial statements users audit quality perceptions. Despite constant regulatory change, the occurrence of accounting scandals (e.g., recently Carillion in the U.K. or Wirecard in Germany) has reignited public discussion that existing regulation is insufficient. Therefore, this study investigates two measures that lack empirical evidence but could theoretically contribute to perceived audit quality: a full ban of NAS (either by requiring pure audit firms or a voluntary decision to not provide NAS to audit clients) and a fee schedule. We conduct an experiment with bankers and non-professional investors in Germany. The results indicate a positive main effect of pure audit firms and non-provision of NAS to audit clients on perceived audit quality and auditor independence; but not on perceived auditor competence. Furthermore, we find a positive main effect of a fee schedule on audit quality, auditor independence, and auditor competence perceptions.

Authors

• Nicolas Pappert, Technical University of Darmstadt

• Reiner Quick, Darmstadt University of Technology