Different non-audit fees have different effects on audit completion

What is it about?

This paper examines whether different non-audit service fees have different spillover effects on audit report lag because the related services vary in nature and scope and enable auditors to learn different aspects of their clients’ operations. This paper also investigates whether the implied hierarchy of the Securities and Exchange Commission (SEC) applies to audit report lag. Under the hierarchy, audit-related non-audit services are more permissible than tax or other non-audit services, and tax services are more permissible than other non-audit services. If auditors limit knowledge spillover for non-audit services because of concern for perceived independence, then the impact will be the smallest (greatest) for audit-related (other) non-audit fees with the resultant shortest (longest) report lag. This paper finds that different non-audit fees have different effects on audit report lag and there is partial support for the implied hierarchy of the SEC. Additional tests show that reduced report lag is not achieved at the expense of audit quality.

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Photo by Cytonn Photography on Unsplash

Photo by Cytonn Photography on Unsplash

Why is it important?

It informs regulators and users of financial statements that different non-audit fees do not have the same effect on audit completion and hence, they should be regulated separately, not in a bundle. Investors could employ those non-audit services from auditors which could produce financial statements promptly.