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Some Empirical Evidence from Publicly Quoted UK Companies on the Relationship Between the Pricing of Audit and Non-audit Services

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  • M. Ezzamel
  • D. Gwilliam
  • K. Holland

Abstract

Using data obtained from a sample of 314 UK quoted companies (excluding financial sector companies), this paper examines three aspects of the relationship between fees for audit and non-audit services: (a) the extent and nature of the provision of non-audit services to audit clients; (b) whether the positive association between the level of audit fees and non-audit services fees found in the majority of non-UK studies holds in the UK; and (c) whether it is possible to throw further light on the nature of the relationship between audit fees and non-audit services fees by exploring the interaction between non-audit services and other factors that appear to affect audit pricing. Our results suggest that: (i) income earned by audit firms from non-audit work for quoted clients averaged nearly 90% of the levels of audit fee earnings in 1992/93 (and more than a quarter of clients paid more for non-audit services than for the audit); (ii) the extent of voluntary disclosure of the breakdown of non-audit services was limited and the existing disclosure requirement allowed considerable variety in the manner in which non-audit services fees incurred or paid abroad were disclosed; (iii) there was a significant positive association between fees for audit and non-audit services similar to that reported in the majority of US and Australian studies; and (iv) four of the nine interaction terms introduced were significant, implying that non-audit services fees may moderate the association between other explanatory variables and audit fees.

Suggested Citation

  • M. Ezzamel & D. Gwilliam & K. Holland, 1996. "Some Empirical Evidence from Publicly Quoted UK Companies on the Relationship Between the Pricing of Audit and Non-audit Services," Accounting and Business Research, Taylor & Francis Journals, vol. 27(1), pages 3-16.
    • Handle: RePEc:taf:acctbr:v:27:y:1996:i:1:p:3-16
    DOI: 10.1080/00014788.1996.9729528
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    References listed on IDEAS

    as
    1. Palmrose, Zv, 1986. "Audit Fees And Auditor Size - Further Evidence," Journal of Accounting Research, Wiley Blackwell, vol. 24(1), pages 97-110.
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    6. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    7. Simunic, Da, 1984. "Auditing, Consulting, And Auditor Independence," Journal of Accounting Research, Wiley Blackwell, vol. 22(2), pages 679-702.
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