Restricting Non-Audit Services in Europe - The Potential (Lack of) Impact of a Blacklist and a Fee Cap on Auditor Independence and Audit Quality

Nicole V.S. Ratzinger-Sakel and Martin W. Schönberger

Accounting in Europe, 2015, vol. 12, issue 1, 61-86

Abstract: The European audit reform aims to stabilize financial markets by enhancing trust in the statutory audit. To strengthen auditor independence and to increase audit quality, the provision of non-audit services to audit clients is further restricted. The supranational introduction of a blacklist, including prohibited non-audit services, and of a cap on the volume of non-audit fees is a novelty on the European level. The purpose of this paper is threefold. First, we analyze these measures in light of both current national restrictions of non-audit services and auditor fee disclosure requirements in France, Germany and the UK. Second, we assess the potential impact of the cap on the volume of non-audit services by providing descriptive evidence on current fee levels in these three countries. Third, we critically assess the impact of the audit reform regarding non-audit services in light of audit research by analyzing the state of the art. On this basis, we doubt whether the European reform of auditor-provided non-audit services is effective and efficient. The main goal of enhancing perceived auditor independence and, thus, public trust in audited financial statements of public-interest entities may be hardly achieved and the blacklist might present a tradeoff between auditor independence and audit quality.

Date: 2015
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DOI: 10.1080/17449480.2015.1035290

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