Auditor independence and non-audit services - ICAEW

and Philippine respondents indicating least concern. These findings are explained interms of cultural differences.Lindsay’s (1992) study covers Australia and Canada. Four factors (including NASprovision at either 0% or 40% of audit fee) are presented to expert users (analysts andbankers) in a full factorial, repeated measures design. The country effect was notfound to be significant. NAS provision was a significant factor in explainingresponses, accounting for 3% of the variance for analysts and 2% for the bankers.Garcia-Benau and Humphrey (1992) investigate the expectation gap in both the UKand Spain. Auditors, finance directors and users are asked, inter alia, whether auditfirms should not provide NAS to their audit clients. In both countries, the averageresponse was close to neutral for all groups except UK auditors who expressed strongdisagreement.7.4 Experimental studies of actual auditor independenceNAS provision is the focus of Corless and Parker’s (1987) study. They attempt, usingan experiment, to investigate auditors’ independence behaviour rather than theirindependence perceptions. Auditors were asked to evaluate the client company’sinternal control. They find no evidence that the fact of the auditor’s firm designing theclient’s internal control system has a measurable impact on the client’s thoughtprocesses in his audit capacity. There was, in fact, some slight evidence of theopposite effect, i.e. a more critical stance.Dopuch and King (1991) use experimental markets 18 to investigate the impact of NASprovision on auditors’ independence. They compare market outcomes under twodifferent rules (joint provision by auditor allowed or not). These are referred to asnon-restricted and restricted markets. The market setting and general marketprocedures are explained to subjects who then take on a role (seller, buyer or auditor)and interact for multiple periods in one of 12 particular experimental markets. Therewas no indication that allowing joint service provision by auditors adversely affectedauditors’ verification effort decisions for either service. Nor was there any indicationthat buyers perceived audit reports to be less credible because of joint provision.The authors conclude that a prohibition on joint provision could have an ‘adverse’effect on the market structure of the audit industry, since the efficient NAS auditorshowed a preference for being hired for NAS rather than for audit services in therestricted market (p.89). The authors suggest that specialist firms would emerge. It isargued that this market structure effect could offset any benefits that the change mighthave on auditors’ independence. (A useful discussion of this study, together with thelimitations of this method of investigation, is provided by Berg (1991).)Davidson and Emby (1996), in addition to providing a review of prior studies on theimpact of NAS provision on individual perceptions and decision, surveys auditors onthe impact of internal control systems design on audit assessments. Their findings18 Experimental markets are used to explore the impact of different institutional and regulatory settingson the decisions of market participants. Participants are presented with a specific market setting andrequired to engage in several decision-making rounds. After each iteration, the decisions of othermarket participants are revealed. The main limitation of such studies is the unnatural setting and theconcern that market participants may not behave as they would in a real setting.43