The distraction effect of non-audit services on audit quality

摘要

The effect of auditor-provided non-audit services (NAS) on audit quality has been a long-standing debate among academics, practitioners, and regulators. Academic research on this topic primarily examines client-level data to evaluate the tradeoff between independence and knowledge spillover related to providing NAS to a particular client.1 However, prior studies have not examined whether an emphasis on providing NAS to audit clients more generally (i.e., not just to a specific client) can distract auditors from providing high-quality audits. This ?distraction effect? can occur by diverting resources away from the audit function and toward other lines of business (Harris, 2014; 2015; PCAOB, 2015; Bloomberg, 2018). Distraction is distinct from independence because distraction represents a business decision, emphasizing providing NAS to audit clients. In contrast, independence is a client-specific issue related to the auditor's economic bond with that specific client (e.g., DeAngelo, 1981). We investigate this possible distraction effect by examining whether clients of audit offices that emphasize providing NAS receive lower audit quality. We motivate this study by regulator concerns that the promotion of NAS could distract audit firms from providing auditRegulators have expressed concerns that an emphasis on non-audit services (NAS) could distract from the audit function, even for clients with minimal NAS purchases. Motivated by this concern, we examine whether a greater emphasis on providing NAS to audit clients generally (i.e., not to a specific client) can distract from the audit function, thus reducing audit quality. We find evidence of an NAS distraction effect, where a greater emphasis on NAS at the audit office-level results in more client financial statement restatements, even after controlling for client-specific NAS. Further, the association exists among clients that purchase minimal NAS, suggesting that this association relates to distraction effects in addition to independence issues examined in prior research. This study should be of interest to audit firms, audit committees, and regulators because it provides new evidence regarding issues related to a business model that includes both audit and non-audit services.0 2020 Elsevier B.V. All rights reserved.