Ken Y. Chen
National Cheng Kung University
Randal J. Elder
Syracuse University
Jian Zhou
SUNY at Binghamton
Abstract: Non-audit services are criticized as potentially weakening auditor independence. We investigate the relation between auditor size, non-audit services, and loan loss provisions by commercial banks. This setting provides an account that is subject to significant managerial discretion, in a complex regulated industry where the potential for knowledge spillovers from non-auditing services to auditing may be greater. We find a positive relation between use of Big 5 auditors and total and discretionary loan loss provisions, consistent with previous research that finds that Big 5 auditors reduce management discretion. We also find a positive relation between non-audit services and loan loss provisions, consistent with reduced income-increasing discretion. For this setting, the results do not support a relation between non-audit services and reduced auditor independence.
Back to Program
