Non-Audit Services and Knowledge Spillover: Evidence from Audit Hours and Billing Rates

• In Event: Accounting, Behavior, and Organizations

Abstract

This paper examines whether non-audit services (NAS) purchased from auditors generate knowledge spillover benefits using audit hour data of firms listed on the Korean Stock Exchange for 2003-2019. Our empirical results show that NAS purchases are negatively associated with audit hours, billing rates, and audit fees. Further analyses offer two important implications. First, we show that NAS purchases do not lead to lower audit quality. Second, NAS purchases are negatively associated with the chance of auditor change. Collectively, our results provide evidence that the joint provision of NAS and audit services generate knowledge spillover benefits as manifested in cost savings and better client-auditor relationships while not compromising auditor independence.

Authors

• Jaeyoon Yu, Erasmus University

• Yongsuk Yun, Hannam University