Work

Non‐audit Services and Auditor Independence Depending on Client Performance

Year: 2018

Type: article

Abstract: We posit that the effect of non‐audit fees on auditor independence in Korea is based on audit client performance. Further, we suggest that an audit client with low performance has an incentive to purchase non‐audit services (NAS) from an incumbent auditor to facilitate earnings management and steer accounting practices in a preferred direction. We find evidence that as non‐audit fees in Korea increase, auditor independence is reduced only for low‐performing audit clients. Thus, unconditional prohibition of NAS seems unnecessary. Regulators and policymakers should examine the motivation for purchasing NAS, particularly among audit clients with poor performance.

Source: Australian Accounting Review

DOI: 10.1111/auar.12243

Authors: Sun Min Kang, In Tae Hwang, Kang Sung Hur

Institution: Chung-Ang University

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: hybrid

Estimated APC paid: $2,920