Types of nonaudit fees and financial reporting quality

Hua Wei Huang, Suchismita Mishra, K. Raghunandan

Research output: Contribution to journalArticle

49 Citations (Scopus)

Abstract

Ashbaugh, LaFond, and Mayhew (ALM 2003), using data from proxy statements filed in 2001, fall to find that nonaudit fees are associated with biased financial reporting. The SEC (2002, 2003) has asserted that combining all types of nonaudit service fees In a single category would confuse financial statement users, and that audit-related services represent "services that accountants, in effect, must perform for their audit clients" (SEC 2002, 2003). In this paper, we replicate and extend ALM (2003) by using the more finely partitioned data that is required to be disclosed by SEC registrants after FRR No. 68 (SEC 2003). We find some weak evidence that biased financial reporting (in the form of abnormal accruals) is less likely when the tax and other nonaudit fee ratios are high; we do not find an association between high nonaudit fee ratios and meeting or just beating earnings benchmarks. Overall, we fall to find a systematic association between nonaudit service fees and biased financial reporting; thus, our results reinforce the findings of ALM (2003).

Original languageEnglish
Pages (from-to)133-145
Number of pages13
JournalAuditing
Volume26
Issue number1
DOIs
Publication statusPublished - 2007 May 1

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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