IDEAS home Printed from https://ideas.repec.org/a/taf/oabmxx/v3y2016i1p1215223.html
   My bibliography  Save this article

Non-audit services and auditor independence: Norwegian evidence

Author

Listed:
  • Yu (Elli) Zhang
  • David Hay
  • Claus Holm

Abstract

We examine the effect on auditor independence of auditors providing non-audit services in the Norwegian audit market. We report the results of three tests of independence of mind and one test of independence in appearance. These tests find that there is a positive relationship between audit fees and non-audit fees, which does not suggest loss of independence. Further analysis using two-stage least squares shows that audit and non-audit fees are jointly determined, and the results are still not consistent with loss of independence. There is no relationship between the provision of non-audit services and the frequency with which auditors issue modified audit opinions. There is no association between non-audit services and audit tenure. Finally, we examine the relationship between unexpected or excess non-audit fees and cost of capital. There is no relationship. Our findings fail to find any evidence for loss of independence of mind or loss of independence of appearance as a result of providing non-audit services.

Suggested Citation

  • Yu (Elli) Zhang & David Hay & Claus Holm, 2016. "Non-audit services and auditor independence: Norwegian evidence," Cogent Business & Management, Taylor & Francis Journals, vol. 3(1), pages 1215223-121, December.
    • Handle: RePEc:taf:oabmxx:v:3:y:2016:i:1:p:1215223
    DOI: 10.1080/23311975.2016.1215223
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/23311975.2016.1215223
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/23311975.2016.1215223?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Palmrose, Zv, 1986. "The Effect Of Nonaudit Services On The Pricing Of Audit Services - Further Evidence," Journal of Accounting Research, Wiley Blackwell, vol. 24(2), pages 405-411.
    2. Scott Whisenant & Srinivasan Sankaraguruswamy & K. Raghunandan, 2003. "Evidence on the Joint Determination of Audit and Non‐Audit Fees," Journal of Accounting Research, Wiley Blackwell, vol. 41(4), pages 721-744, September.
    3. Berkowitz, Daniel & Pistor, Katharina & Richard, Jean-Francois, 2003. "Economic development, legality, and the transplant effect," European Economic Review, Elsevier, vol. 47(1), pages 165-195, February.
    4. Philip Gray & Ping-Sheng Koh & Yen H Tong, 2009. "Accruals Quality, Information Risk and Cost of Capital: Evidence from Australia," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(1-2), pages 51-72.
    5. M. Gietzmann & J. Ireland, 2005. "Cost of Capital, Strategic Disclosures and Accounting Choice," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(3‐4), pages 599-634, April.
    6. Michael Firth, 2002. "Auditor-Provided Consultancy Services and their Associations with Audit Fees and Audit Opinions," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(5&6), pages 661-693.
    7. Deborah Alexander & David Hay, 2013. "The effects of recurring and non-recurring non-audit services on auditor independence," Managerial Auditing Journal, Emerald Group Publishing, vol. 28(5), pages 407-425, May.
    8. David Hay & Robert Knechel & Vivian Li, 2006. "Non‐audit Services and Auditor Independence: New Zealand Evidence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(5‐6), pages 715-734, June.
    9. Craswell, Allen & Stokes, Donald J. & Laughton, Janet, 2002. "Auditor independence and fee dependence," Journal of Accounting and Economics, Elsevier, vol. 33(2), pages 253-275, June.
    10. Michael Firth, 2002. "Auditor–Provided Consultancy Services and their Associations with Audit Fees and Audit Opinions," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(5‐6), pages 661-693.
    11. Jere R. Francis, 2006. "Are Auditors Compromised by Nonaudit Services? Assessing the Evidence," Contemporary Accounting Research, John Wiley & Sons, vol. 23(3), pages 747-760, September.
    12. Steven Cahan & David Emanuel & David Hay & Norman Wong, 2008. "Non‐audit fees, long‐term auditor–client relationships and earnings management," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(2), pages 181-207, June.
    13. Divesh S. Sharma & Jagdish Sidhu, 2001. "Professionalism vs Commercialism: The Association Between Non-Audit Services (NAS) and Audit Independence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(5-6), pages 595-630.
    14. M. Gietzmann & J. Ireland, 2005. "Cost of Capital, Strategic Disclosures and Accounting Choice," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(3-4), pages 599-634.
    15. Simunic, Da, 1984. "Auditing, Consulting, And Auditor Independence," Journal of Accounting Research, Wiley Blackwell, vol. 22(2), pages 679-702.
    16. Mikko Zerni, 2012. "Do client firms manage the perception of auditor independence?: Evidence from the Swedish non-audit service market," Managerial Auditing Journal, Emerald Group Publishing, vol. 27(9), pages 821-845, October.
    17. Gopal V. Krishnan & Wei Yu, 2011. "Further evidence on knowledge spillover and the joint determination of audit and non-audit fees," Managerial Auditing Journal, Emerald Group Publishing, vol. 26(3), pages 230-247, March.
    18. Rick Antle & Elizabeth Gordon & Ganapathi Narayanamoorthy & Ling Zhou, 2006. "The joint determination of audit fees, non-audit fees, and abnormal accruals," Review of Quantitative Finance and Accounting, Springer, vol. 27(3), pages 235-266, November.
    19. Mark L. DeFond & K. Raghunandan & K.R. Subramanyam, 2002. "Do Non–Audit Service Fees Impair Auditor Independence? Evidence from Going Concern Audit Opinions," Journal of Accounting Research, Wiley Blackwell, vol. 40(4), pages 1247-1274, September.
    20. Claus Holm, 2014. "Civil and common law influences on the Danish auditor's responsibilities in relation to fraud," Accounting History Review, Taylor & Francis Journals, vol. 24(1), pages 7-26, March.
    21. Francis, Jere R., 2004. "What do we know about audit quality?," The British Accounting Review, Elsevier, vol. 36(4), pages 345-368.
    22. A. Eilifsen, 1998. "Auditing regulation and the statutory auditor's responsibilities in Norway," European Accounting Review, Taylor & Francis Journals, vol. 7(4), pages 709-722.
    23. Michael Firth, 1997. "The Provision of Non-audit Services and the Pricing of Audit Fees," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(3), pages 511-525.
    24. Chan Li, 2009. "Does Client Importance Affect Auditor Independence at the Office Level? Empirical Evidence from Going†Concern Opinions," Contemporary Accounting Research, John Wiley & Sons, vol. 26(1), pages 201-230, March.
    25. Ghosh, Aloke (Al) & Kallapur, Sanjay & Moon, Doocheol, 2009. "Audit and non-audit fees and capital market perceptions of auditor independence," Journal of Accounting and Public Policy, Elsevier, vol. 28(5), pages 369-385, September.
    26. Eli Amir & Yanling Guan & Gilad Livne, 2010. "Auditor Independence and the Cost of Capital Before and After Sarbanes-Oxley: The Case of Newly Issued Public Debt," European Accounting Review, Taylor & Francis Journals, vol. 19(4), pages 633-664.
    27. Rick Antle & Elizabeth Gordon & Ganapathi Narayanamoorthy & Ling Zhou, 2002. "The Joint Determination of Audit Fees, Non-Audit Fees, and Abnormal Accruals," Yale School of Management Working Papers amz2502, Yale School of Management, revised 02 May 2006.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hussein Khasharmeh & Abdelmohsen M. Desoky, 2018. "Does the Provision of Non-audit Services Affect Auditor Independence and Audit Quality? Evidence from Bahrain," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 14(1), pages 25-55.
    2. Ayesha Hameed & Mazhar Ali Alyani & Muhammad Sijawal Alyani & Ghulam Hussain & Abdul Manan Channa, 2024. "Various Factor Affecting External and Internal Auditor Performance: Analytical Perspectives of Employees Working in Karachi Audit Firm and Companies," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(2), pages 848-856.
    3. Mohammad K. Shbeilat, 2018. "The Need for Audit Trinity Report to Reinforce Financial Reporting Integrity," Accounting and Finance Research, Sciedu Press, vol. 7(4), pages 184-184, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bugeja, Martin, 2011. "Takeover premiums and the perception of auditor independence and reputation," The British Accounting Review, Elsevier, vol. 43(4), pages 278-293.
    2. Reshma Kumari Tiwari & Jasojit Debnath, 2021. "Joint Provision of Non-audit Services to Audit Clients: Empirical Evidences from India," Vikalpa: The Journal for Decision Makers, , vol. 46(3), pages 153-165, September.
    3. .Reiner Quick & Matthias Sattler, 2011. "Beeinträchtigen Beratungsleistungen die Urteilsfreiheit des Abschlussprüfers? Zum Einfluss von Beratungshonoraren auf diskretionäre Periodenabgrenzungen," Schmalenbach Journal of Business Research, Springer, vol. 63(4), pages 310-343, June.
    4. Anastasia Kraft & Kerstin Lopatta, 2016. "Auditor fees, discretionary book-tax differences, and tax avoidance," International Journal of Economics and Accounting, Inderscience Enterprises Ltd, vol. 7(2), pages 127-155.
    5. Geiger, Marshall A. & Basioudis, Ilias G. & DeLange, Paul, 2022. "The effect of non-audit fees and industry specialization on the prevalence and accuracy of auditor’s going-concern reporting decisions," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 47(C).
    6. Vieru, Markku & Schadewitz, Hannu, 2010. "Impact of IFRS transition on audit and non-audit fees: evidence from small and medium-sized listed companies in Finland," MPRA Paper 44664, University Library of Munich, Germany.
    7. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
    8. David Hay & Robert Knechel & Vivian Li, 2006. "Non‐audit Services and Auditor Independence: New Zealand Evidence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(5‐6), pages 715-734, June.
    9. Daniela Hohenfels & Reiner Quick, 2020. "Non-audit services and audit quality: evidence from Germany," Review of Managerial Science, Springer, vol. 14(5), pages 959-1007, October.
    10. Yi-Hsing Liao & Pih-Shuw Chen & Teng-Sheng Sang & Chia-Hsuan Tseng, 2020. "Does Client Importance Matter to Book-Tax Differences?," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(5), pages 1-17.
    11. Domenico Campa & Ray Donnelly, 2016. "Non-audit services provided to audit clients, independence of mind and independence in appearance: latest evidence from large UK listed companies," Accounting and Business Research, Taylor & Francis Journals, vol. 46(4), pages 422-449, June.
    12. De Fuentes, Cristina & Porcuna, Rubén, 2016. "Main drivers of consultancy services: A meta-analytic approach," Journal of Business Research, Elsevier, vol. 69(11), pages 4775-4780.
    13. Mary Kehinde Salawu, 2017. "Factors Influencing Auditor Independence among Listed Companies in Nigeria: Generalized Method of Moments (GMM) Approach," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(8), pages 191-203, August.
    14. Tobias Svanstr�m, 2013. "Non-audit Services and Audit Quality: Evidence from Private Firms," European Accounting Review, Taylor & Francis Journals, vol. 22(2), pages 337-366, June.
    15. David C. Hay & W. Robert Knechel & Norman Wong, 2006. "Audit Fees: A Meta†analysis of the Effect of Supply and Demand Attributes," Contemporary Accounting Research, John Wiley & Sons, vol. 23(1), pages 141-191, March.
    16. Fleischer, Rouven & Goettsche, Max, 2012. "Size effects and audit pricing: Evidence from Germany," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 21(2), pages 156-168.
    17. Ho, Nam, 2023. "Local competition and auditors' provision of non-audit services," Advances in accounting, Elsevier, vol. 63(C).
    18. Steven Cahan & David Emanuel & David Hay & Norman Wong, 2008. "Non‐audit fees, long‐term auditor–client relationships and earnings management," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(2), pages 181-207, June.
    19. Martin Bugeja, 2005. "The 'Independence' of Expert Opinions in Corporate Takeovers: Agreeing With Directors' Recommendations," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(9-10), pages 1861-1885.
    20. Alhababsah, Salem & Alhaj-Ismail, Alaa, 2023. "Does shared tenure between audit committee chair and engagement partner affect audit outcomes? Evidence from the UK," The British Accounting Review, Elsevier, vol. 55(2).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:oabmxx:v:3:y:2016:i:1:p:1215223. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://cogentoa.tandfonline.com/OABM20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.