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

Ilias G. Basioudis
Aston University Business School

Marshall A. Geiger
University of Richmond

Vaggelis Papanastasiou
Aston University

Abstract: The accounting profession has come under increased scrutiny recently about the growing amount of non-audit fees received from audit clients and the possible negative impact of such fees on auditor independence. Providing lucrative NAS to clients may make it more likely that auditors concede to the wishes of client management and such concerns are particularly salient in the case of reporting decisions related to going concern uncertainties for financially stressed clients. This study empirically examines claims that auditors may act more favorably towards those clients from whom they receive higher NAS fees by looking at the audit reports rendered to financially stressed companies in the UK. The results indicate that financially stressed clients with high audit (non-audit) fees are more (less) likely to receive a going-concern modified audit opinion. Overall, we find evidence of an adverse effect of NAS fees on auditor reporting judgments for our sample of UK distressed clients

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