IDEAS home Printed from https://ideas.repec.org/a/eee/jiaata/v36y2019ic3.html
   My bibliography  Save this article

The effects of non-audit services on auditor independence: An experimental investigation of supervisory board members’ perceptions

Author

Listed:
  • Meuwissen, Roger
  • Quick, Reiner

Abstract

Based on the notion that the simultaneous provision of audit and non-audit services (NAS) to clients may endanger auditor independence, current European auditing regulation prohibits the provision of most NAS to audit clients, and limits total fees for NAS (European Parliament and the Council of the European Union, 2014). There is, however, only limited evidence on whether real insiders perceive the provision of NAS as negatively affecting auditor independence. Therefore, this study experimentally investigates the perceptions of German supervisory board members on auditor independence when auditors simultaneously provide NAS and audit services. The results of the study show that the provision of NAS is perceived as having a negative effect on auditor independence. Furthermore, in distinguishing between various forms of NAS, human resource consulting is perceived as having the most negative impact. The results contribute to the debate in the European Union (EU) on whether or not to further restrict the provision of NAS, and help to evaluate the EU regulation aimed at restricting the provision on NAS.

Suggested Citation

  • Meuwissen, Roger & Quick, Reiner, 2019. "The effects of non-audit services on auditor independence: An experimental investigation of supervisory board members’ perceptions," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 36(C), pages 1-1.
    • Handle: RePEc:eee:jiaata:v:36:y:2019:i:c:3
    DOI: 10.1016/j.intaccaudtax.2019.05.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1061951817300708
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.intaccaudtax.2019.05.004?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. Dogui Kouakou & Olivier Boiral & Yves Gendron, 2013. "ISO auditing and the construction of trust in auditor independence," Accounting, Auditing & Accountability Journal, Emerald Group Publishing Limited, vol. 26(8), pages 1279-1305, October.
    2. Quick, Reiner & Sattler, M., 2011. "Beeinträchtigen Beratungsleistungen die Urteilsfreiheit des Abschlussprüfers? Zum Einfluss von Beratungshonoraren auf diskretionäre Periodenabgrenzungen," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 54029, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    3. Gerhard Cromme, 2005. "Corporate Governance in Germany and the German Corporate Governance Code," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(3), pages 362-367, May.
    4. Franks, Julian & Mayer, Colin, 2001. "Ownership and Control of German Corporations," Review of Financial Studies, Society for Financial Studies, vol. 14(4), pages 943-977.
    5. Andreas Hackethal & Reinhard H. Schmidt & Marcel Tyrell, 2005. "Banks and German Corporate Governance: on the way to a capital market‐based system?," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(3), pages 397-407, May.
    6. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    7. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    8. Michael J. Ferguson & Gim S. Seow & Danqing Young, 2004. "Nonaudit Services and Earnings Management: UK Evidence," Contemporary Accounting Research, John Wiley & Sons, vol. 21(4), pages 813-841, December.
    9. Quick, Reiner & Warming-Rasmussen, B., 2015. "An Experimental Analysis of the Effects of Non-audit Services on Auditor Independence in Appearance in the European Union: Evidence from Germany," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 77036, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    10. Zachary T. Kowaleski & Brian W. Mayhew & Amy C. Tegeler, 2018. "The Impact of Consulting Services on Audit Quality: An Experimental Approach," Journal of Accounting Research, Wiley Blackwell, vol. 56(2), pages 673-711, May.
    11. Quick, Reiner, 2005. "The formation and early development of German audit statements," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 26486, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    12. Inder K. Khurana & K. K. Raman, 2006. "Do Investors Care about the Auditor's Economic Dependence on the Client?," Contemporary Accounting Research, John Wiley & Sons, vol. 23(4), pages 977-1016, December.
    13. Mckinley, S & Pany, K & Reckers, Pmj, 1985. "An Examination Of The Influence Of Cpa Firm Type, Size, And Mas Provision On Loan Officer Decisions And Perceptions," Journal of Accounting Research, Wiley Blackwell, vol. 23(2), pages 887-896.
    14. Jennifer R. Joe & Scott D. Vandervelde, 2007. "Do Auditor†Provided Nonaudit Services Improve Audit Effectiveness?," Contemporary Accounting Research, John Wiley & Sons, vol. 24(2), pages 467-487, June.
    15. Cristi A. Gleason & Lillian F. Mills, 2011. "Do Auditor†Provided Tax Services Improve the Estimate of Tax Reserves?," Contemporary Accounting Research, John Wiley & Sons, vol. 28(5), pages 1484-1509, December.
    16. Kirsten A. Cook & G. Ryan Huston & Thomas C. Omer, 2008. "Earnings Management through Effective Tax Rates: The Effects of Tax†Planning Investment and the Sarbanes†Oxley Act of 2002," Contemporary Accounting Research, John Wiley & Sons, vol. 25(2), pages 447-471, June.
    17. Gietzmann, M. B. & Quick, R., 1998. "Capping auditor liability: The German experience," Accounting, Organizations and Society, Elsevier, vol. 23(1), pages 81-103, January.
    18. Reiner Quick & Bent Warming-Rasmussen, 2005. "The impact of MAS on perceived auditor independence-some evidence from Denmark," Accounting Forum, Taylor & Francis Journals, vol. 29(2), pages 137-168, June.
    19. Simunic, Da, 1984. "Auditing, Consulting, And Auditor Independence," Journal of Accounting Research, Wiley Blackwell, vol. 22(2), pages 679-702.
    20. John M. Thornton & Michael K. Shaub, 2013. "Tax services, consequence severity, and jurors' assessment of auditor liability," Managerial Auditing Journal, Emerald Group Publishing, vol. 29(1), pages 50-75, December.
    21. Reiner Quick, 2005. "The formation and early development of German audit firms," Accounting History Review, Taylor & Francis Journals, vol. 15(3), pages 317-343.
    22. 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.
    23. Quick, Reiner & Warming-Rasmussen, B., 2005. "The impact of MAS on perceived auditor independence - some evidence from Denmark," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 24921, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    24. Paul K. Chaney & Kirk L. Philipich, 2002. "Shredded Reputation: The Cost of Audit Failure," Journal of Accounting Research, Wiley Blackwell, vol. 40(4), pages 1221-1245, September.
    25. Quick, Reiner & Warming-Rasmussen, B., 2009. "Auditor Independence and the Provision of Non-Audit Services: Perceptions by German Investors," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 39453, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    26. Mohammad Hudaib & Roszaini Haniffa, 2009. "Exploring auditor independence: an interpretive approach," Accounting, Auditing & Accountability Journal, Emerald Group Publishing Limited, vol. 22(2), pages 221-246, January.
    27. Quick, Reiner & Laudemann, H. & Schmidt, F. & Warming-Rasmussen, B., 2016. "Die zeitliche Entwicklung von Abschlussprüferhonoraren in Deutschland - Eine empirische Untersuchung der Jahre 2009 bis 2013," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 84651, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    28. Quick, Reiner & Meuwissen, R., 2009. "Abschlussprüfung und Beratung - Eine experimentelle Analyse der Auswirkungen auf Unabhängigkeitswahrnehmung deutscher Aufsichtsräte," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 39457, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    29. DeAngelo, Linda Elizabeth, 1981. "Auditor independence, `low balling', and disclosure regulation," Journal of Accounting and Economics, Elsevier, vol. 3(2), pages 113-127, August.
    30. William R. Kinney & Zoe‐Vonna Palmrose & Susan Scholz, 2004. "Auditor Independence, Non‐Audit Services, and Restatements: Was the U.S. Government Right?," Journal of Accounting Research, Wiley Blackwell, vol. 42(3), pages 561-588, June.
    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. Wening Estiningsih & Juni Mashita & Sidik Lestiyono, 2019. "The Effect of Perception on the Benefits of Tax toward the Discipline of Paying Taxes in Jakarta," Journal of Economic Development, Environment and People, Alliance of Central-Eastern European Universities, vol. 8(3), pages 16-21, September.
    2. Marco Angelo Marinoni & Anna Maria Fellegara & Andrea Lippi, 2022. "Potential Threats to Audit Firm Independence: Evidence from Italy on Audit Quality," International Business Research, Canadian Center of Science and Education, vol. 15(6), pages 1-88, June.
    3. Hwang, Seokyoun & Sarath, Bharat & Han, Seung-youb, 2022. "Auditor independence: The effect of auditors’ quality control efforts and corporate governance," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 47(C).
    4. Papirakis, Rachel, 2022. "Auditors’ self-actualization and ability to resist client pressure: Evidence from Canada," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 47(C).
    5. Peter Michael Robinson & Olav Muurlink, 2022. "Impact of CLERP 9 Reforms: A Longitudinal Analysis," Australian Accounting Review, CPA Australia, vol. 32(1), pages 77-90, March.
    6. 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.

    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. 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.
    2. Knechel, W. Robert & Thomas, Edward & Driskill, Matthew, 2020. "Understanding financial auditing from a service perspective," Accounting, Organizations and Society, Elsevier, vol. 81(C).
    3. 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.
    4. Reiner Quick & Niklas Schenk & Florian Schmidt & Thilo Towara, 2018. "The impact of corporate governance on auditor choice: evidence from Germany," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 22(2), pages 251-283, June.
    5. Quick, Reiner & Schmidt, Florian, 2018. "Do audit firm rotation, auditor retention, and joint audits matter? – An experimental investigation of bank directors' and institutional investors' perceptions," Journal of Accounting Literature, Elsevier, vol. 41(C), pages 1-21.
    6. 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.
    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. Reiner Quick & Matthias Sattler, 2012. "Erwiderung auf Hansrudi Lenz: Eine wissenschaftsethische Anmerkung zum Beitrag „Beeinträchtigen Beratungsleistungen die Urteilsfreiheit des Abschlussprüfers? Zum Einfluss von Beratungshonoraren auf di," Schmalenbach Journal of Business Research, Springer, vol. 64(3), pages 271-279, May.
    9. Chen, Anthony & Duong, Hong & Ngo, Anh, 2019. "Types of nonaudit service fees and earnings response coefficients in the post-sarbanes-oxley era," Advances in accounting, Elsevier, vol. 44(C), pages 132-147.
    10. Beardsley, Erik L. & Imdieke, Andrew J. & Omer, Thomas C., 2021. "The distraction effect of non-audit services on audit quality," Journal of Accounting and Economics, Elsevier, vol. 71(2).
    11. Marco Angelo Marinoni & Anna Maria Fellegara & Andrea Lippi, 2022. "Potential Threats to Audit Firm Independence: Evidence from Italy on Audit Quality," International Business Research, Canadian Center of Science and Education, vol. 15(6), pages 1-88, June.
    12. Roger Meuwissen & Reiner Quick, 2009. "Abschlussprüfung und Beratung - Eine experimentelle Analyse der Auswirkungen auf Unabhängigkeitswahrnehmungen deutscher Aufsichtsräte," Schmalenbach Journal of Business Research, Springer, vol. 61(4), pages 382-415, June.
    13. Dart, Eleanor, 2011. "UK investors’ perceptions of auditor independence," The British Accounting Review, Elsevier, vol. 43(3), pages 173-185.
    14. Bugeja, Martin, 2011. "Takeover premiums and the perception of auditor independence and reputation," The British Accounting Review, Elsevier, vol. 43(4), pages 278-293.
    15. Luo, Bing, 2019. "Effects of auditor-provided tax services on book-tax differences and on investors' mispricing of book-tax differences," Advances in accounting, Elsevier, vol. 47(C).
    16. Weber, Anke, 2009. "An empirical analysis of the 2000 corporate tax reform in Germany: Effects on ownership and control in listed companies," International Review of Law and Economics, Elsevier, vol. 29(1), pages 57-66, March.
    17. 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.
    18. Srinivasan Krishnamurthy & Jian Zhou & Nan Zhou, 2006. "Auditor Reputation, Auditor Independence, and the Stock†Market Impact of Andersen's Indictment on Its Client Firms," Contemporary Accounting Research, John Wiley & Sons, vol. 23(2), pages 465-490, June.
    19. Christiane Pott & Tobias Tebben & Christoph Watrin, 2014. "The effect of outside directors’ and auditors’ incentives on managers’ ability to manage cash bonuses," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(2), pages 505-540, May.
    20. Jeroen van Raak & Erik Peek & Roger Meuwissen & Caren Schelleman, 2020. "The effect of audit market structure on audit quality and audit pricing in the private‐client market," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(3-4), pages 456-488, March.

    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:eee:jiaata:v:36:y:2019:i:c:3. 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: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/journal-of-international-accounting-auditing-and-taxation .

    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.