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Auditor independence: evidence on the joint effects of auditor tenure and nonaudit fees

Version 2 2024-06-04, 06:53
Version 1 2016-11-01, 17:03
journal contribution
posted on 2024-06-04, 06:53 authored by Ferdinand GulFerdinand Gul, BL Jaggi, GV Krishnan
This study examines whether the impact of nonaudit fees on auditor independence is contingent on auditor tenure. The results, based on a sample of 4,720 U.S. firms for the years 2000 and 2001, show that there is a positive association between nonaudit fees and positive discretionary current accruals, a proxy for auditor independence, for firms with short auditor tenure of not more than three years. These findings suggest that non audit fees may impair auditor independence when auditor tenure is short and not when auditor tenure is long. Furthermore, exploratory analyses show that the positive association between non audit fees and earnings management for firms with short auditor tenure is significant for small clients but not for large clients. Taken together, these results suggest that the association between non audit fees and auditor independence is contingent upon auditor tenure, and that high non audit fees have a negative impact on auditor independence when audit tenure is short and client firm size is small.

History

Journal

Auditing: a journal of practice & theory

Volume

26

Pagination

117-142

Location

[Lakewood Ranch, Fla.]

ISSN

0278-0380

eISSN

1558-7991

Language

eng

Publication classification

C Journal article, C1.1 Refereed article in a scholarly journal

Copyright notice

2007, American Accounting Association

Issue

2

Publisher

American Accounting Association