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The Provision on Non-audit Services by Auditors: Let the Market Evolve and Decide

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Author Info
Benito Arruñada ()

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Abstract

The provision of non-audit services by auditors to their audit clients reduces total costs, increases technical competence and motivates more intense competition. Furthermore, these services do not necessarily damage auditor independence nor the quality of non-audit services. This assessment leads to recommending that legislative policy should aim at facilitating the development and use of the safeguards provided by the free action of market forces. Regulation should thus aim to enable the parties-audit firms, self- regulatory bodies and audit clients-to discover through competitive market interaction both the most efficient mix of services and the corresponding quality safeguards, adjusting for the costs and benefits of each possibility. Particular emphasis is placed on the role played by fee income diversification and the enhancement, through disclosure rules, of market incentives to diversify.

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File URL: http://www.econ.upf.edu/docs/papers/downloads/423.pdf
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Publisher Info
Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 423.

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Date of creation: Jun 1999
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Handle: RePEc:upf:upfgen:423

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Web page: http://www.econ.upf.edu/

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Related research
Keywords: Auditing; professional services; non-audit services; multidisciplinary firms;

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Find related papers by JEL classification:
K22 - Law and Economics - - Regulation and Business Law - - - Corporation and Securities Law
K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
M40 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Gaver, Jennifer J & Gaver, Kenneth M, 1995. " Simultaneous Estimation of the Demand and Supply of Differentiated Audits," Review of Quantitative Finance and Accounting, Springer, vol. 5(1), pages 55-70, March.
  2. Dye, Ronald A, 1986. "Proprietary and Nonproprietary Disclosures," Journal of Business, University of Chicago Press, vol. 59(2), pages 331-66, April. [Downloadable!] (restricted)
  3. Verrecchia, Robert E., 1983. "Discretionary disclosure," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 179-194, April. [Downloadable!] (restricted)
  4. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law & Economics, University of Chicago Press, vol. 24(3), pages 461-83, December.
  5. Grossman, S J & Hart, O D, 1980. " Disclosure Laws and Takeover Bids," Journal of Finance, American Finance Association, vol. 35(2), pages 323-34, May. [Downloadable!] (restricted)
  6. Fishman, Michael J & Hagerty, Kathleen M, 1990. "The Optimal Amount of Discretion to Allow in Disclosure," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 427-44, May. [Downloadable!] (restricted)
  7. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law & Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  8. Boyan Jovanovic, 1982. "Truthful Disclosure of Information," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 36-44, Spring. [Downloadable!] (restricted)
  9. Sanford Grossman & Oliver Hart, . "Disclosure Laws and Takeover Bids," Rodney L. White Center for Financial Research Working Papers 23-79, Wharton School Rodney L. White Center for Financial Research.
  10. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August. [Downloadable!] (restricted)
  11. DeAngelo, Linda Elizabeth, 1981. "Auditor independence, `low balling', and disclosure regulation," Journal of Accounting and Economics, Elsevier, vol. 3(2), pages 113-127, August. [Downloadable!] (restricted)
  12. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn. [Downloadable!] (restricted)
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  1. Juan Monterrey Mayoral & Amparo Sánchez-Segura, 2007. "Rotación y dependencia económica de los auditores: sus efectos sobre la calidad del resultado en las compañías cotizadas españolas," Investigaciones Economicas, Fundación SEPI, vol. 31(1), pages 119-159, January. [Downloadable!]
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