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

Kevin F. Brown
Write State University

Seong Y. Cho
Drexel University

Jongsoo Han
Rutgers University - Camden

Abstract: In the wake of the Enron and WorldCom accounting scandals, nonaudit services provided by auditors have come under the scrutiny of Congress as reflected in the Sarbanes-Oxley Act of 2002. In an attempt to better understand the impact of the Act, this study sets forth two specific objectives. The first objective is to examine the value relevance of auditor’s fees. The other objective is to investigate which components of the fees, if any, are important in the determination of firm values. We find that nonaudit fees have a positive association with firm values, which suggests that investors perceive nonaudit services as value increasing services. Among the components of auditor’s fees, audit related fees and tax fees have significant positive relationships with firm values. These results are contrary to the prevailing belief that nonaudit services impair auditor independence.

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