Decomposing Fees Paid to Audit Firms -- Assessing Knowledge Spillovers and Independence

45 Pages Posted: 25 Mar 2015 Last revised: 26 May 2015

See all articles by Claus Holm

Claus Holm

Aarhus University - Department of Economics and Business

Date Written: March 24, 2015

Abstract

We extend prior studies (e.g., Whisenant et al., 2003; Krishnan and Yu, 2011; Chan et al., 2012) by explicitly utilizing a stringent decomposition of total fee paid for audit services and other services in a sample of listed non-financial Danish companies. When controlling for the joint determination of fees pertaining to the statutory audit and non-audit services, we find support for the existence of positive knowledge spillover from non-audit to audit and the possible independence problems related to this economic bonding. In terms of the non-audit components, the knowledge spillover argument holds for tax services provided. Some support is also found for other services provided, but not for the provision of audit-related services. We also consider the implication of new regulation of the provision of non-audit services in EU countries. From the perspective of maintaining independence, there will be no apparent conflict with continued allowance to provide audit-related services. Prohibiting most tax services and a wide array of other services could have detrimental effect on potential knowledge spillover benefits, while our findings also suggest that the potential for economic bonding could be constrained.

Keywords: Knowledge spillover, independence, audit fees, non-audit fees, 2SLS

JEL Classification: M42, M48

Suggested Citation

Holm, Claus, Decomposing Fees Paid to Audit Firms -- Assessing Knowledge Spillovers and Independence (March 24, 2015). Available at SSRN: https://ssrn.com/abstract=2584485 or http://dx.doi.org/10.2139/ssrn.2584485

Claus Holm (Contact Author)

Aarhus University - Department of Economics and Business ( email )

Fuglesangs Alle 4
Aarhus University
Aarhus C, Danmark DK-8210
Denmark
40422778 (Phone)
40422778 (Fax)

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