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Non‐audit Services and Auditor Independence Depending on Client Performance

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  • Sun Min Kang
  • In Tae Hwang
  • Kang Sung Hur

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.

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  • Sun Min Kang & In Tae Hwang & Kang Sung Hur, 2019. "Non‐audit Services and Auditor Independence Depending on Client Performance," Australian Accounting Review, CPA Australia, vol. 29(3), pages 485-501, September.
    • Handle: RePEc:bla:ausact:v:29:y:2019:i:3:p:485-501
    DOI: 10.1111/auar.12243
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    Cited by:

    1. Nofan Hamed Al-Olimat & Mohannad Obeid Al Shbail, 2021. "The Mediating Effect of External Audit Quality on the Relationship Between Corporate Governance and Creative Accounting," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 12(1), pages 149-157, January.
    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.

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