Auditor Independence: Evidence on the Joint Effects of Auditor Tenure and Nonaudit Fees

Ferdinand A. Gul; Bikki L. Jaggi; Gopal V. Krishnan

doi:10.2308/aud.2007.26.2.117

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Auditor Independence: Evidence on the Joint Effects of Auditor Tenure and Nonaudit Fees

Journal article

Peer reviewed

Auditor Independence: Evidence on the Joint Effects of Auditor Tenure and Nonaudit Fees

Ferdinand A. Gul, Bikki L. Jaggi and Gopal V. Krishnan

Auditing, Vol.26(2), pp.117-142

2007

DOI: https://doi.org/10.2308/aud.2007.26.2.117

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Abstract

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 nonaudit 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 nonaudit 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 nonaudit fees and auditor independence is contingent upon auditor tenure, and that high nonaudit fees have a negative impact on auditor independence when audit tenure is short and client firm size is small.

Details

Title: Auditor Independence: Evidence on the Joint Effects of Auditor Tenure and Nonaudit Fees
Authors: Ferdinand A. Gul (Author) - Hong Kong Polytechnic University
Bikki L. Jaggi (Author) - Rutgers, The State University of New Jersey
Gopal V. Krishnan (Author) - George Mason University
Publication details: Auditing, Vol.26(2), pp.117-142
Publisher: American Accounting Association
DOI: 10.2308/aud.2007.26.2.117
ISSN: 1558-7991
Organisation Unit: School of Business and Creative Industries; University of the Sunshine Coast, Queensland
Language: English
Record Identifier: 99679189402621
Output Type: Journal article

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Collaboration types: Domestic collaboration; International collaboration
Web Of Science research areas: Business, Finance

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