Non-audit services and financial reporting quality
Subtitle: evidence from 1978-1980
By: Kevin Koh, Shiva Rajgopal, Suraj Srinivasan
Contributors: Rajgopal, Shiva; Srinivasan, Suraj; Harvard Business School
Series: Working paper / Harvard Business School -- 12-002; Working paper (Harvard Business School) -- 12-002
Publisher: Harvard Business School
Published: 2011
Place of publication: Boston]
Language: eng
Number of pages: 46
Description: We provide evidence on the long standing concern on auditor conflicts of interest from providing non-audit services (NAS) to audit clients by using rarely explored NAS fee data from 1978-80. Using this earlier setting, we find cross-sectional evidence of improved earnings quality when auditors provide NAS, especially those related to information services. This is consistent with better audit quality from knowledge spillovers due to the joint offering of audit and consulting services. Events related to the repeal of these NAS disclosures in 1982 are associated with a small positive stock price reaction suggesting no adverse economic consequences of withdrawing NAS disclosures. Further, following the repeal of disclosure requirements we find no change in the earnings quality of client firms. In sum, data drawn from an earlier time period suggest that auditors' reputational incentives, possible synergies and knowledge transfers imply that NAS offered by audit firms can be associated with improved audit and reporting quality in client firms.
Notes: "July 2011" -- Publisher's website.

"April 19, 2011" -- added t.p.

Includes bibliographical references.