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Do Nonaudit Services Compromise Auditor Independence? Further Evidence

Hollis Ashbaugh, Ryan LaFond and Brian W. Mayhew
The Accounting Review
Vol. 78, No. 3 (Jul., 2003), pp. 611-639
Stable URL: http://www.jstor.org/stable/3203219
Page Count: 29
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Do Nonaudit Services Compromise Auditor Independence? Further Evidence
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Abstract

This paper challenges the findings of Frankel et al. (2002) (FJN). The results of our discretionary accruals tests differ from FJN's when we adjust discretionary current accruals for firm performance. In our earnings benchmark tests, in contrast to FJN we find no statistically significant association between firms meeting analyst forecasts and auditor fees. Our market reaction tests also provide different results than those reported by FJN. Overall, our study indicates that FJN's results are sensitive to research design choices, and we find no systematic evidence supporting their claim that auditors violate their independence as a result of clients purchasing relatively more nonaudit services.

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