The distraction effect of non-audit services on audit quality

Regulators have expressed concerns that an emphasis on non-audit services (NAS) could distract from the audit function, even for clients with minimal NAS purchases. Motivated by this concern, we examine whether a greater emphasis on providing NAS to audit clients generally (i.e., not to a specific c...

Full description

Saved in:
Bibliographic Details
Published in:Journal of accounting & economics 2021-04, Vol.71 (2-3), p.101380, Article 101380
Main Authors: Beardsley, Erik L., Imdieke, Andrew J., Omer, Thomas C.
Format: Article
Language:English
Subjects:
Audit quality
Auditor distraction
Auditor fees
Non-audit services
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Regulators have expressed concerns that an emphasis on non-audit services (NAS) could distract from the audit function, even for clients with minimal NAS purchases. Motivated by this concern, we examine whether a greater emphasis on providing NAS to audit clients generally (i.e., not to a specific client) can distract from the audit function, thus reducing audit quality. We find evidence of an NAS distraction effect, where a greater emphasis on NAS at the audit office-level results in more client financial statement restatements, even after controlling for client-specific NAS. Further, the association exists among clients that purchase minimal NAS, suggesting that this association relates to distraction effects in addition to independence issues examined in prior research. This study should be of interest to audit firms, audit committees, and regulators because it provides new evidence regarding issues related to a business model that includes both audit and non-audit services.
ISSN:0165-4101
1879-1980
DOI:10.1016/j.jacceco.2020.101380