Non-audit services and the value relevance of accounting information: a case study

To increase revenues, audit firms often try to persuade their audit clients to purchase their non-audit services. Listed firms in Taiwan have to disclose their audit/non-audit fees under some conditions. It provides a context for examining whether providing non-audit services by the client's auditor influences the value relevance of accounting information in Taiwan. The empirical results indicate that the value relevance of earnings (discretionary accruals) decreases in contrast with the value relevance increase of book value for the firms with higher non-audit fee ratio. It supports that providing non-audit service by the firm’s auditor harms earnings quality.