Non-audit services, auditor quality and the value relevance of earnings

Ferdinand A. Gul; Judy Tsui; Dan S. Dhaliwal

doi:10.1111/j.1467-629x.2006.00189.x

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Non-audit services, auditor quality and the value relevance of earnings

Journal article

Peer reviewed

Non-audit services, auditor quality and the value relevance of earnings

Ferdinand A. Gul, Judy Tsui and Dan S. Dhaliwal

Accounting & Finance, Vol.46(5), pp.797-817

2006

DOI: https://doi.org/10.1111/j.1467-629x.2006.00189.x

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Abstract

Audit quality

Auditor independence

Earnings

Non-audit services

Value relevance

This paper tests the hypothesis that there is an inverse relation between non-audit services (NAS) provided by a firm auditor and the value relevance of earnings (measured as the earnings response coefficient) and that this relation is weaker for firms with Big 6 auditors. The hypothesis is based on anecdotal evidence and previous research that suggests that the provision of NAS by the external auditor is likely to adversely affect investors' perceptions of the credibility of financial reports, and that Big 6 auditors, because of reputational capital and litigation costs, are likely to mitigate the adverse effects of NAS. Results using 840 firm-year observations of Australian companies document a statistically significant inverse relationship between NAS and the value relevance of earnings, and this inverse relationship is weaker for Big 6 auditors, therefore supporting the hypothesis.

Details

Title: Non-audit services, auditor quality and the value relevance of earnings
Authors: Ferdinand A. Gul (Author) - Hong Kong Polytechnic University
Judy Tsui (Author) - Hong Kong Polytechnic University
Dan S. Dhaliwal (Author) - University of Arizona
Publication details: Accounting & Finance, Vol.46(5), pp.797-817
Publisher: John Wiley & Sons, Inc.
DOI: 10.1111/j.1467-629x.2006.00189.x
ISSN: 1467-629X
Organisation Unit: University of the Sunshine Coast, Queensland; School of Business and Creative Industries
Language: English
Record Identifier: 99679189302621
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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