Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Joint Determination of Audit Fees, Non-Audit Fees, and Abnormal Accruals

Contents:

Author Info

  • Rick Antle

    ()
    (Yale University, School of Management)

  • Elizabeth A. Gordon

    ()
    (Accounting)

  • Ganapathi Narayanamoorthy

    ()
    (School of Management)

  • Ling Zhou

    ()
    (School of Management)

Registered author(s):

    Abstract

    Prior research has estimated piecemeal the determinants of audit fees, non-audit services fees and abnormal accruals. Intuition, informal analysis, and a variety of theories of various aspects of auditor-client interaction suggest that audit fees, nonaudit fees, and abnormal accruals are jointly determined. We address this endogeneity issue by modeling the confluence of audit fees, fees for non-audit services and abnormal accruals in a system of simultaneous equations. Using audit and non-audit fee data from the U.K. for 1994-2000, we find evidence consistent with knowledge spillovers (or economies of scope) from auditing to non-audit services and from non-audit services to auditing. While knowledge spillovers from non-audit services to auditing is a known result [e.g. see Simunic (1984)] the presence of knowledge spillovers from auditing to non-audit services is a new result. Contrary to recent results in Ferguson et al. (2001) and Frankel et al. (2002), we do not find support for the assertion that fees for non-audit services increase abnormal accruals. In fact, we find that nonaudit fees decrease abnormal accruals. We also find evidence that audit fees increase abnormal accruals. Finally, our evidence is not consistent with audit firms playing pricing games, bribery or the demand and supply effects of abnormal accruals. The findings are robust to preliminary tests with U.S. data.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=318943
    Download Restriction: no

    Bibliographic Info

    Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm289.

    as in new window
    Length:
    Date of creation: 07 Aug 2002
    Date of revision:
    Handle: RePEc:ysm:somwrk:ysm289

    Contact details of provider:
    Web page: http://icf.som.yale.edu/
    More information through EDIRC

    Related research

    Keywords: Auditing; Auditor Independence; Earnings Management; Abnormal Accruals; Economies of Scope; Endogeneity;

    Find related papers by JEL classification:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:ysm:somwrk:ysm289. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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