The effect of non-audit fees and industry specialization on the prevalence and accuracy of auditor's going-concern reporting decisions

Marshall A. Geiger*, Ilias G. Basioudis, Paul DeLange

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

The issue of auditors impairing their independence when providing non-audit services (NAS) to audit clients continues to be subject of global regulatory concern. However, the profession has long argued that knowledge gained from providing NAS can spill over to other areas and can serve to improve audit quality. Accordingly, we revisit the effect that NAS have on the likelihood of an auditor issuing a going concern modified opinion (GCMO) to distressed clients, as well as the accuracy of those opinions. We also examine whether industry specialization is associated with GCMO decisions and their accuracy. Our analysis of Australian company audits finds a significant negative association between auditors rendering a GCMO and the magnitude of NAS fees, and that increasing NAS fees are associated with fewer GCMO-related reporting misclassifications. Our analyses also find no strong evidence of an industry specialist auditor effect on GCMO reporting or report accuracy. In sum, our analysis of audit reporting decisions in Australia supports the concerns of regulators regarding reduced GCMOs when NAS fees increase, and also supports the contention of the accounting profession that providing NAS improves the quality of audit decision-making, leading to improved accuracy of GCMO reporting decisions.

Original languageEnglish
Article number100473
Number of pages22
JournalJournal of International Accounting, Auditing and Taxation
Volume47
Early online date23 May 2022
DOIs
Publication statusPublished - Jun 2022

Bibliographical note

© 2022 Elsevier Inc. This accepted manuscript version is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License https://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

  • Audit firm specialization
  • Audit reporting accuracy
  • Auditor independence
  • Going concern
  • Non-audit fees

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