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The Effects of Auditors’ Provision of Nonaudit Services on an Audit Engagement
Chia - Chi Lu,
National Chengchi University
Yu - Lin Chen, Chung Yuan Christian University
ABSTRACT. This study is motivated by the Sarbanes-Oxley Act of 2002, which dramatically restricts auditors from providing nonaudit services to their clients. We analyze the impact of knowledge spillovers and independence doubt related to auditor’s provision of nonaudit services to his audit clients (hereafter clients) on an audit engagement. We find in all scenarios considered in which a restriction of the provision of nonaudit services results in an increase in audit effort by the auditor, so as in deceptive reporting by the client, and audit failure rate. In addition, this study presents a discussion to the implementation of mechanisms designed by the Sarbanes-Oxley Act.
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