An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Ching - Chieh Lin
National Taiwan University

Rong - Ruey Duh
National Taiwan University

Wen - Chih Lee
National Kaohsiung University of Applied Sciences

Jong - Ping Chu
Soochow University

Abstract: This paper reports the results of two experiments in an attempt to examine whether rendering non-audit service to audit clients will jeopardize auditor independence and whether the level of auditor independence has changed after the Procomp scandal in 2004, which has caused the auditors to be suspended and sued by the Investor Protection Center in Taiwan. We conduct two experiments, one before and the other after the Procomp scandal. Experiment 1 shows that auditor independence as measured by their decision on the amount of allowance for doubtful accounts is negatively associated with provision of non-audit service. Experiment 2 indicates no such effect of providing non-audit service. The findings suggest that auditors make a trade-off between the incentives of quasi rent and the incentives of avoiding litigation risk and reputation loss in performing financial statement attestation.

Back to Session Listing

AAA Home Page