| || || Prasad, Pranil|
| || || Auditor independence, audit fees low-balling, and non audit services : evidence from a developing market |
Author: Prasad, Pranil
Institution: University of the South Pacific.
Subject: Auditors -- Fiji, Auditing -- Fiji, Auditing -- Standards -- Fiji
Call No.: pac HF 5616 .F5 P732 2013
Copyright:Under 10% of this thesis may be copied without the authors written permission
Abstract: The joint provision of audit and non-audit services remains a contentious issue for the regulators, legislators and the auditing profession to date. In the past two decades, audit research has examined whether the joint provision of audit and nonaudit services impairs auditor independence. However, empirical evidence on nonaudit services and auditor independence has remained mixed and inconclusive. In the wide range of studies conducted on non-audit services and auditor independence, many of the studies also investigated the market for non-audit services and in particular, the demand side of the market for non-audit services. These studies examined the factors that affect the decisions of clients to purchase non-audit services from their auditors. While a number of studies have examined the demand side of the market for non-audit services, few if any, audit research has examined the supply side of the market for non-audit services. This thesis seeks to contribute to the debate on the joint supply of audit and non-audit services by empirically investigating the supply side of the market for non-audit services. In particular, a model for the supply side of the market for non-audit services is developed and empirically tested. A supply side focus can be potentially informative because the reason why auditors supply non-audit services to their audit clients can have important implications for the independence of the auditor. The supply side of the market for non-audit services is examined in the context of a developing economy. Whilst most of the research on non-audit services and auditor independence has been conducted in developed markets, it is an important issue in developing markets as well. There are differences between developed and developing markets in the area of financial reporting regulations, auditor appointment and dismissal regulations, corporate governance codes and most importantly differences in the regulation of the supply of non-audit services. There are also differences in the oversight of the audit function and the audit professional structure and standard setting between developed and developing economies. A developing economy focus will provide useful insights on the supply of non-audit services to the regulators, legislators, and auditors in these countries. iv An ordinary least squares regression model is used to model the supply side of the market for non-audit services. In addition, a panel dataset is used. The data relates to the companies listed on the South Pacific Stock Exchange in Fiji from the year 1980 to 2010. The results of this study indicate that auditors supply non-audit services to audit clients for opportunistic reasons, as audit fee low-balling is a significant factor explaining the supply of non-audit services. The variables, auditor tenure and auditor type are statistically insignificant in the model. This study provides regulators and legislators in Fiji with important insights into the supply of non-audit services by incumbent auditors to their audit clients. The results reveal that auditors supply non-audit services to recover low-balled audit fees. This has implications for the independence of the auditors in the Fiji audit market. Thus, it is recommended that regulators and legislators in Fiji consider some form of regulation pertaining to the supply of non-audit services to improve and safeguard auditor independence. Regulations that depend on the market to regulate the supply of non-audit services will be ineffective because the capital market in Fiji is inactive. The findings of this thesis provide empirical evidence on the factors affecting the supply of non-audit services. The results are potentially informative to the regulators, the legislators, the profession, and the audit firms operating in Fiji.