The interdependence between market structure and the quality of audited reports: the case of non-audit services

Christopher Bleibtreu () and Ulrike Stefani
Additional contact information
Christopher Bleibtreu: BI Norwegian Business School
Ulrike Stefani: University of Konstanz

Review of Accounting Studies, 2024, vol. 29, issue 2, No 14, 1524-1574

Abstract: Abstract This paper addresses the effects of a prohibition of providing non-audit services (NAS) to audit clients. By combining a strategic auditor–client game with a circular market-matching model that has an endogenous number of auditors, we take into account the interdependence between the auditors’ and clients’ incentives, the market structure, and the quality of audited reports. We show that the regulation’s effects depend on the preexisting audit market concentration and the types of blacklisted NAS. In sharp contrast to the effects that regulators desire, a prohibition of providing NAS to audit clients can further increase audit market concentration and decrease the quality of audited reports if the fees that auditors previously earned from providing the blacklisted NAS were relatively high, compared to the reduction in audit costs that result from spillovers. In contrast, a prohibition of the NAS that generate intense spillovers and low NAS fees can have the unexpected—but desired—effect of decreasing market concentration; however, reporting quality also decreases.

Keywords: Audit market concentration; Audit market regulation; Circular market-matching model; Financial reporting quality; Non-audit services; Spatial competition (search for similar items in EconPapers)
JEL-codes: D43 L11 M42 (search for similar items in EconPapers)
Date: 2024
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11142-022-09734-9 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:reaccs:v:29:y:2024:i:2:d:10.1007_s11142-022-09734-9

Ordering information: This journal article can be ordered from
http://www.springer.com/accounting/journal/11142

DOI: 10.1007/s11142-022-09734-9

Access Statistics for this article

Review of Accounting Studies is currently edited by Paul Fischer

More articles in Review of Accounting Studies from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().