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Tax Service Fees and Auditor Independence: Evidence from Going-Concern Audit Opinions Prior to Bankruptcy Filings
Dahlia Robinson,
Arizona State University Tempe
ABSTRACT. This study examines the relation between auditors’ issuance of going concern opinions and auditor-provided tax services among a sample of bankruptcy filing firms. The evidence from the bankruptcy setting is particularly salient to the debate on auditor independence and non-audit services because the bankruptcies of several large corporations such as Enron brought the issue to center stage and motivated several provisions of the Sarbanes-Oxley Act. Contrary to concerns about diminished auditor independence, but consistent with improved audit quality, the study documents a significant positive correlation between the level of tax services fees and the likelihood that the auditor will correctly issue a going concern qualified opinion prior to the bankruptcy filing. One implication of this result is that restricting tax services by auditors of poorly performing firms may diminish the quality of auditors’ reporting decisions without leading to an improvement in auditor indepen
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