Modelling issues in the relationship between audit and non-audit fees
Journal of Applied Accounting Research, 2009, vol. 10, issue 2, 96-108
Purpose - The purpose of this paper is to examine modelling issues in the research of the relationship between audit and non-audit fees by comparing the outcome of a single-equation model of fees to the results of simultaneous equation model (SEM) of these interactions for a sample of UK listed companies and also by exploring the benefits of using a panel data approach. Design/methodology/approach - The paper is an empirical analysis of audit and non-audit fees for a sample of 2,072 UK companies. Three types of models, single linear equation, SEM and panel data, are compared and the strengths and weaknesses of each discussed. Findings - The results indicate possible mis-specification in the single linear equation model and the potential for simultaneous equation basis in the SEM. The panel data analysis confirms the findings of prior literature that there is a relationship between audit and non-audit fees but statistically insignificant. Research limitations/implications - The implication of these findings is that previously published findings on audit fees, which used single equation, may have overstated the case for a relationship between audit and non-audit fees due to problems in the econometric models. Practical implications - The issues addressed in this paper are very pertinent to a better understanding of the role of the auditor in the corporate environment. In particular, the findings are relevant to the debate on auditor independence and corporate governance. Originality/value - The study contributes to knowledge of the behaviour of audit fees and non-audit fees, cross-sectionally and through time and the most appropriate models for describing that behaviour.
Keywords: Auditing; Auditor's fees (search for similar items in EconPapers)
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