Defense Date

Spring 4-10-2017

Degree Type


Degree Name



Business Administration

Committee Chair/First Advisor

Divesh S. Sharma, Ph.D

Committee Member or Co-Chair

Vineeta D. Sharma, Ph.D


Marcus L. Caylor, Ph.D


For over 40 years, the issue of auditors providing both auditing and non-audit services (NAS) to their audit-clients continues to be at the forefront of concerns to regulators, investors, and academics. The literature primarily provides two competing effects of NAS on financial reporting quality. The first being the compromise on auditor independence and the other on the benefits attained from knowledge spillover. Though these competing effects have been studied in various contexts, there has been little to no research on the association between NAS and the outcomes from mergers and acquisitions (M&A) to infer whether NAS lessens the threat to auditor independence and provides value to the firm and investors.

The purpose of this study is to examine the relationship between M&A-related NAS, and M&A financial reporting outcomes (i.e., goodwill impairments, M&A related internal control weaknesses, M&A related financial restatements, and market reaction to goodwill impairments) when the auditor provides NAS to an audit-client in a successful M&A transaction.

The final sample used for this study consists of 203 completed business combinations by U.S. publicly listed companies for the period 2007 to 2013. The results show that M&A NAS has a positive and statistically significant association with goodwill recognized during the acquisition year. However, the likelihood of a goodwill impairment in a subsequent year is greater if the auditor provides M&A NAS. These findings indicate that M&A NAS seems to impair auditor independence because audit-clients “book” higher goodwill, yet in a subsequent year, this goodwill is reduced. It may be that auditors that provide M&A NAS are lenient and permit the M&A NAS clients to report higher (goodwill) asset values to justify the acquisition. Findings also show no relation between M&A NAS and the likelihood of M&A-related internal control weaknesses or M&A-related financial restatements. These results suggest specific financial reporting outcomes are not affected by M&A NAS. I find no evidence of an association between market reactions to announcement of goodwill impairments when the auditor provides M&A NAS. Overall, these results have practical implications for policy makers, regulators, and investors and provides additional evidence on the impact of NAS when provided as due diligence services in connection with M&A.

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Accounting Commons