• Corpus ID: 52206243

Evidence of a nonlinear association between audit office provision of non-audit services and audit quality

@inproceedings{Beardsley2018EvidenceOA,
  title={Evidence of a nonlinear association between audit office provision of non-audit services and audit quality},
  author={Erik L. Beardsley},
  year={2018}
}

• Erik L. Beardsley
• Published 2018
• Business

Because of continued regulatory concerns, the effect of auditor-provided non-audit services (NAS) on audit quality remains a relevant and important issue. One view is that NAS provision creates knowledge spillover, improving audit quality. Another view is that too much focus on NAS can create problems with independence or distract from audit services, lowering audit quality. However, because these two potentially offsetting effects likely vary depending on the extent to which an audit office provides NAS, we predict a nonlinear (i.e., concave) association between NAS provision and audit quality. Consistent with this prediction, we find that client misstatement rates are higher for audit offices with both high and low levels of NAS, suggesting that knowledge spillover effects occur at lower levels of NAS, while the issues with independence or distraction occur at higher levels of NAS. We also find a nonlinear association between NAS provision and both missed material weaknesses and meeting or beating analysts’ consensus forecast by a small amount. This study should be of interest to audit firms, audit committees, and regulators because it advances our understanding of the effects of NAS on audit quality.