The provision of nonaudit services by accounting firms to their audit clients
Document Type
Journal article
Source Publication
Contemporary Accounting Research
Publication Date
Summer 1-1-1997
Volume
14
Issue
2
First Page
1
Last Page
21
Abstract
There has been a strong growth in accounting firms' provisions of nonaudit services to their audit clients. To date, however, there have been few studies into the determinants of this joint provision of audit and nonaudit services. One reason for the paucity of research is the lack of publicly available data with which to empirically examine relationships and test theories. However, recent legislation in the United Kingdom requires publication of nonaudit fees paid to a company's auditor, and this disclosure provides the data with which to investigate the joint provision of consultancy and audit services. A model is developed that seeks to explain a company's decision to hire nonaudit services from the auditor. The model argues that companies that face potentially high agency costs purchase relatively smaller amounts of nonaudit services from their auditor. High agency-cost companies require independent audits in order to reassure investors and creditors; the provision of joint services, which increases the economic bonding of the auditor to the client, may jeopardize independence or the appearance of independence. The model is tested using data observations from 500 companies, and the results indicate that companies that have higher agency-cost proxies are associated with smaller purchases of nonaudit services from their auditors.
DOI
10.1111/j.1911-3846.1997.tb00524.x
Print ISSN
08239150
E-ISSN
19113846
Publisher Statement
Copyright © 1997 Canadian Academic Accounting Association
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Firth, M. (1997). The provision of nonaudit services by accounting firms to their audit clients. Contemporary Accounting Research, 14(2), 1-21. doi: 10.1111/j.1911-3846.1997.tb00524.x