Chair or Co-Chair
Dr. Divesh Sharma
Committee Member or Co-Chair
Dr. Vineeta Sharma
Dr. Velina Popova
Are nonaudit services (NAS) good or bad? Regulators, investors, and the professional accounting community have intensely debated this question for the last five decades. While seemingly a simple question, the abundance of conflicting literature surrounding this topic has indicated that the answer is anything but simple. The professional accounting community maintains that joint provision of the audit engagement and NAS results in a more in-depth knowledge base that positively impacts the auditor/client relationship. Regulators and investors have taken an opposing view by arguing that NAS lead auditors to compromise their independence. While an extensive body of literature has sought to reconcile these contrasting views, research has not yet established a relationship between NAS and impaired independence. Financial frauds and regulatory action taken in the 21st century indicate the debate is far from over.
However, recent evidence supports the professional accounting community’s argument that NAS positively benefits the auditor/client relationship. Of particular interest to the current study is recent evidence that NAS may be positively associated with improved economic performance of the audit client. Client specific benefits have been largely overlooked by regulatory bodies, investors, and the academic community. Yet, client specific benefits resulting from provision of NAS may help resolve the continued disconnect within the NAS literature. This study will exam firms in Chapter 11 bankruptcy to determine whether provision of NAS are associated with client specific benefits, as suggested by the professional accounting community. Or, argued by regulators, does procurement of NAS suggest auditors are more likely to impair independence?
The current research indicates that some types of NAS in the year of filing provide some client specific benefits, while NAS fees in both the year of filing and year prior to filing appear to improve auditor judgment and GCM reporting quality. Overall, this dissertation contributes to the GCM and NAS literature, and these finding have important implications for policy makers considering further restrictions on NAS. Also, scholars reporting a negative association between financially distressed firms and GCM reporting for firms with high levels of NAS may consider how NAS impacted financial performance of the distressed client.