Non-Audit Services and Knowledge Spillovers: Evidence from New Zealand

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New Zealand provides a natural laboratory to test whether knowledge spillovers arise from auditor-provided non-audit services. Unlike prior research, we do not assume constant audit quality but first test whether audit quality varies with auditor-provided non-audit services and audit efficiency. Results show that higher non-audit fees paid to the auditor in conjunction with shorter audit lag does not reduce the quality of the audit. Results reveal a negative association between non-audit fees and audit lag, thus suggesting the presence of knowledge spillovers. However, the knowledge spillover effect is limited to the city office providing both the audit and non-audit services.