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An International Meeting of American Accounting
Association
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Non-audit Services and Bias and Accuracy of Voluntary Earnings Forecasts Reviewed by Incumbent CPA |
Hisn Yi Chi
National Taichung Institute of Technology
Chen Lung Chin
National Chengchi University
Abstract: This paper examines the association between the quality of voluntary earnings forecasts, as measured by forecast bias and accuracy reviewed by incumbent CPA, and the purchase of non audit services (NAS) from the incumbent audit. In the context of this study, we focus primarily on the Taiwanese market. Besides, enforcement of rules with regard to the provision of review-level assurance for management earnings forecasts tends to be less stringent than one of audit-level assurance for financial reporting. Using panel data of audit and non-audit fees available for Taiwan firms, we hypothesize and find that firms with the higher ratio of NAS tend to issue more optimistically biased and inaccurate forecasts under lower auditor’ liability regime. These results provide some support for concerns expressed about the potential impact of unusually high levels of NAS on auditor independence and ultimately, the quality of audited financial reports.