Auditor independence and non-audit services - ICAEW

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PART 3EMPIRICAL STUDIES OF NASCHAPTER 4METHODSThere is too great a tendency to rely on argument rather than evidence.Ray Chambers ‘The Anguish of Accountants’,Journal of Accountancy, March 19724.1 Literature search procedures adoptedA variety of on-line databases available at the University of Stirling were searched.Some of these support keyword searches in the title of the article only, some in thetitle and abstract and some allow full text searches. The coverage of these databasesdoes overlap to varying degrees.4.1.1 Keywords usedIn addition to searching for the keywords ‘non-audit services’, we also searched underthe following variations which were known to be used in the literature:• nonaudit services;• NAS; and• MAS.We also searched the main academic journal databases under ‘auditor independence’.4.1.2 Databases searchedThe databases consulted were chosen to obtain good coverage of both the academicliterature and the professional/business literature. They were:• Web of Science – this host offers several databases including the ISICitation Indexes, which covers many leading academic journalsworldwide. The search was restricted to the Social Science Citation Index.• Emerald – an electronic library that includes 100 journals on marketing,general management, human resources and other management areas.• Econlit – an indexed bibliography and selected abstracts of over 400economics journals.• Social Science Research Network (SSRN) – a depositary for over 40,000working papers and accepted papers, organised into sections for auditing,financial accounting, etc.• European Business ASAP via Infotrac – this database covers business andmanagement subjects from 120 journals.• Lexis-Nexis Executive – this is a collection of databases containing around2,300 UK and overseas newspapers, newswires and magazines.In the business-related databases, the search on the acronym ‘NAS’ produced articleson network attached storage and National Autistic Society, in addition to a fewadditional articles on non-audit services.The Lexis-Nexis search produced a massive 704 ‘hits’ for the previous year. Acursory review of this material indicated that the bulk of it was either transcripts fromEnron-related hearings in the US or reporting of Enron-related matters and opinion-25
pieces. While a few research-related items were identified, our review of this couldnot be fully rigorous due to the volume of material.Output from these searches was reviewed and all items that appeared to fall within ourremit were obtained from various sources. 7 Fortunately, many of the journal articleswere already in our personal collection; those that were not were obtained via theinternet, Stirling University Library or the British Lending Library.4.2 Review procedures adopted and classification of empirical studiesAll items collected were reviewed and grouped into categories. Each group of relatedstudies is presented in a separate chapter in this report. Full bibliographic referencesof all items cited appear at the end of the report.The empirical studies of NAS are presented in chapters 5 to 10. Figure 4.1 illustratesthe various topics addressed. Some studies seek merely to document the amount andnature of joint NAS provision. These descriptive studies are reviewed in chapter 5. A(relatively small) group of studies explore the determinants (antecedents) of the NASpurchase decision (chapter 6). Most studies, however, are in one way or another,seeking to uncover the consequences of joint NAS purchase: is the perception ofauditor independence reduced or enhanced; is auditor independence in fact reduced orenhanced; are there economies of scope (knowledge spillovers)?The impact of joint provision on independence perceptions is important in its ownright. However another reason why there have been many studies of this type isbecause it is so difficult to research auditor independence in fact, since this isunobservable. Perception studies are reviewed in chapter 7.Studies investigating the pricing and tenure effects of joint provision are essentiallyindirect tests of the impact on independence. These are covered in chapter 8. Attemptsto conduct more direct tests explore the link between joint provision and the auditopinion given. A closely related set of studies examines the characteristics of ‘badaudits’ to see whether joint provision was a feature. Chapter 9 covers these latter twosets of empirical study.A more recent strand of research focuses on the association between joint provisionand earnings quality (chapter 10).7 In addition to these databases, we consulted the American Accounting Association database ‘TwentyFive Years of Audit Research’, which includes all articles on audit published in eight top accountingjournals (AAA, 2001). No additional items were uncovered.26
Page 5 and 6: LIST OF TABLESPage3.1 Definitions a
Page 7 and 8: LIST OF ABBREVIATIONSACCAAICPAAPBAR
Page 9 and 10: Auditor Independence and Non-audit
Page 11 and 12: 2.2 Current regulatory frameworks:
Page 13 and 14: There is limited evidence that, in
Page 15 and 16: firms have, over the last 10 years,
Page 17 and 18: CHAPTER 2AUDITOR INDEPENDENCE2.1 In
Page 19 and 20: low cost strategies to protect and/
Page 21 and 22: • the costs of auditor switching
Page 23 and 24: Johnstone, Sutton and Warfield (200
Page 25 and 26: estrictive. Nevertheless, these stu
Page 27 and 28: 3.3 Independence in professional an
Page 29 and 30: Table 3.1 (cont.): Definitions and
Page 31 and 32: followed by a detailed set of rules
Page 33 and 34: Provision of some of these services
Page 35 and 36: There is a significant self-review
Page 37: of taking management decisions, sel
Page 41 and 42: CHAPTER 5DESCRIPTIVE STUDIES OF NAT
Page 43 and 44: Ezzamel, Gwilliam and Holland (2002
Page 45 and 46: Parkash and Venable’s (1993) stud
Page 47 and 48: CHAPTER 7IMPACT OF JOINT PROVISION
Page 49 and 50: affirmative to five type of service
Page 51 and 52: McKinley, Pany and Reckers (1985) u
Page 53 and 54: NAS and audit fees regardless of th
Page 55 and 56: 7.3.5 New Zealand studiesGul (1989)
Page 57 and 58: support those of Corless and Parker
Page 59 and 60: CHAPTER 8ASSOCIATIONS BETWEEN JOINT
Page 61 and 62: an independent variable in the audi
Page 63 and 64: Ezzamel, Gwilliam and Holland (2002
Page 65 and 66: 8.7 Auditor tenure and auditor chan
Page 67 and 68: CHAPTER 9EVIDENCE OF ASSOCIATION BE
Page 69 and 70: CHAPTER 10EVIDENCE OF ASSOCIATION B
Page 71 and 72: 10.3.3 Australian studiesGul and Ts
Page 73 and 74: the frameworks are generally imprec
Page 75 and 76: publicly available data of relevanc
Page 77 and 78: Antle, R. and Demski, J.S. (1991),
Page 79 and 80: Craswell, A.T., Stokes, D.J. and La
Page 81 and 82: Frankel, R.M., Johnson, M.F. and Ne
Page 83 and 84: Jeppesen, K.K. (1998), ‘Reinventi
Page 85 and 86: O’Sullivan, N. and Diacon, S.R. (
Page 87 and 88: Schuetze, W.P. (1994), ‘A Mountai

Auditor independence and non-audit services - ICAEW

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