The Perception Of Auditors Independence Accounting Essay

4.1 Introduction

The purpose of this thesis is to look into whether the perceptual experience of hearers ‘ independency is being compromised by supplying the hearers ‘ houses their clients with a high degree of non-audit services. Otherwise, this survey examines grounds in the UK about whether hearers supplying more non-auditors, as their independency would be affected.

The current chapter presents the empirical consequences of this research survey. This chapter is organised harmonizing to following: the following subdivision 4.2 nowadayss descriptive statistics consequences, whilst the 3rd, forth, and 5th subdivisions 4.3, 4.4 and 4.4 present the cardinal arrested development theoretical accounts ‘ finings of proving the chief three research hypothesis. The 6th subdivision 4.6 presents the some statistics consequences of the sensitiveness trials. The last subdivision will show some treatments respects to the chief findings in this research.

4.2 Descriptive Statisticss

Table 1 ( panel A ) nowadayss descriptive statistics. The mean of audit fee paid by the sample houses are ? 2,563,643 in 2005, ? 4,158,636 in 2006, ?4,376,788 in 2007 and ?5,149,828. The mean of non-audit fees paid by audit clients to their hearers are ?3,527,600 in 2005, ?2,293,610 in 2006, ?2,063,765 in 2007 and ?2,665,149 in 2009.Overall, it can be seen from the tabular array that the average audit fees paid by the sample companies have doubled during the period of five old ages from ? 2,563,643 in 2005 to make ?5,149,828. Whereas the average non-audit fees have fluctuated during the survey period. The ratio of non-audit fee to entire fees is presented in Panel B. In add-on, Panel A is besides supplying descriptive statistics for a assortment of control variables. The mean of the audit ‘s client ‘s entire assets is ?61.308 billion in 2005, ?67.831 billion in 2006, ?83.438 billion in 2007 and ?91.242 billion in 2009, as it is evidently that the mean of entire plus has increased by 50 % during the period. This might due to the planetary increasing of the competition in the worldwide market. Furthermore, in compassing to recent surveies concluded in US, Australia and New Zealand, the UK companies examined here are somewhat similar. They purchase lower degree of non-audit services than those houses in recent surveies utilizing US informations. Nevertheless, the degrees are similar and comparable to those in New Zealand surveies such as Hay et al. , ( 2006 ) and Li et Al, . ( 2003 ) .

Panel B of Table 1 shows the ratio of non-audit fees to entire audit and non-audit fees for each twelvemonth of the survey period including the old ages 2005, 2006, 2007 and 2009. It excludes 7 observations for which there were either zero audit fees or zero non-audit fees. In order to hold a consistent base comparing, it is besides includes merely the houses for which the informations are available for the all four old ages. The average ratio of non-audit fees to entire audit and non-audit fees quickly lessenings by about 50 % from 55. % in 2005 to 29.77 % in 2006 and so to make 25.97 % in 2007, but it has somewhat increased to about 30 % in 2009. The lessening tendency of non-audit services provided by the independency hearers during the old ages 2005 to 2007 is consistent with anterior findings in New Zealand ( Wong et al. , 2002 ; Hay et al. , 2006 ) and in other states. In add-on, a Mann-Whitney trial is applied in order to compare the ratio of non-audit fees to entire audit and non-audit fees for 2005 against 2006, 2006 against 2007, and 2007 against 2009. The effects provide grounds that even thought there are observation decreased they are non important.

Table 1: Descriptive Statisticss

Panel A: Continues variables

Variable

Year

Mean

Median

Std.dev

Minute

Soap

Nitrogen

Audited account Fees ( ?000 )

2005

2,563.643

1,625.000

3,013.808

0.000

18,303.000

70

2006

4,158.636

2,200.000

6,116.310

206.000

40,679.000

77

2007

4,376.788

2,291.000

6,103.646

200.000

31,140.000

85

2009

5,149.828

2,737.000

7,319.941

216.000

38,600.000

93

Non-audit fees ( ?000 )

2005

3,527.600

2,150.000

4,820.547

0.000

33,333.000

70

2006

2,293.610

1,500.000

2,592.104

0.000

12,000.000

77

2007

2,063.765

1,200.000

2,353.686

0.000

12,701.000

85

2009

2,665.194

1,600.000

3,792.545

0.000

28,121.000

93

Entire assets ( ?000 )

2005

61,308.730

6,348.400

180,124.400

4.268

923,671.000

70

2006

67,831.090

8,358.200

188,350.400

0.000

996,023.000

77

2007

83,439.090

8,586.300

275,706.500

0.000

1,897,575.000

85

2009

91,242.910

8,938.000

287,905.100

927.000

1,689,447.000

93

INVREC

2005

0.1781

0.1418

0.1666

0.000

0.6300

70

2006

0.1767

0.1417

0.1812

0.000

0.9847

77

2007

0.1653

0.1328

0.1852

0.000

0.9767

84

2009

0.1544

0.1194

0.1456

0.000

0.9108

93

ROA

2005

8.4944

7.5030

6.6276

0.000

26.6050

69

2006

10.8486

8.8015

8.9398

0.000

35.4670

74

2007

10.2573

8.0195

9.7838

0.000

55.7530

84

2009

6.8079

6.1260

5.4677

0.000

27.0460

83

TD/TA

2005

0.2418

0.2321

0.1751

0.000

0.7956

70

2006

0.2400

0.2420

0.1601

0.000

0.7414

76

2007

0.2591

0.2532

0.1638

0.000

0.6632

84

2009

0.2389

0.2262

0.1649

0.000

0.6296

93

CA/CL

2005

1.9063

0.8575

6.3815

0.000

50.0000

70

2006

1.0966

0.9049

1.3591

0.000

8.6480

77

2007

0.9705

0.8644

1.1699

0.000

7.9394

83

2009

1.1350

1.0037

1.2171

0.000

7.4822

92

FEEDEP

2005

1.0000

1.0000

0.0000

1.0000

1.0000

70

2006

0.8716

0.9091

0.1438

0.2000

1.0000

77

2007

0.8719

0.9219

0.1380

0.3967

1.0000

85

2009

0.9107

0.9438

0.1011

0.5150

1.0000

93

Notes: INVREC: the ratio of the amount of stock lists and accounting receivable to entire assets ; ROA: Ratio of return on assets ; TD/TA: Ratio of fiscal purchase ( entire debt to entire assets ) ; CA/CL: the current ratio ( entire current assets to entire current liabilities ) ; FEEDEP: Free dependance measured as the Auditee ‘s audit and non-audit payment divided by the entire audit and non-audit fees of the external hearer.

Panel Bacillus: The ratio of Non-audit Fees to Total audit and non-audit fees ( for houses with non-zero audit fees or non-audit fees and with informations for 4 old ages )

2005

2006

2007

2009

NAF/ ( AF + NAF )

NAF/ ( AF + NAF )

NAF/ ( AF + NAF )

NAF/ ( AF + NAF )

Nitrogen

69

76

89

90

Mean

0.5971

0.3353

0.3131

0.3191

Median

0.5556

0.2977

0.2597

0.3043

Std. Dev.

0.1775

0.1802

0.1785

0.159

Minimum

0.1064

0.0435

0.0339

0.0821

Maximum

0.9031

0.8463

0.8333

0.7918

Table 1 ( Continued )

Note: NAF/ ( AF+ NAF ) : The ratio of non-audit fees to the sum of audit fee and non-audit fees.

4.3 Key findings of proving the first hypothesis: Audited account Fees and Non-audit Fees

The effects of trials look intoing the relationship between audit and non-audit fees in 2005, 2006, 2007 and 2009[ 1 ]( excepting the twelvemonth 2008 due the unavailable informations of audit and non-audit fees as before reported ) as reported in Table ( 2 ) . In Panel A, the chief findings of OLS arrested development are reported. The cardinal point of the all theoretical accounts ‘ consequences show that all theoretical accounts have adjusted R- squared of greater than 63 % . Consistent with anterior research surveies such as Basioudis et al. , ( 2008 ) , It has been found that in this survey that there is a undistinguished positive relationship between non-audit fees and audit fees, which gives indicates that the first hypothesis which assumes that non-audit fees have a important positive relation with audit fees is supported.

However, In footings of understanding this positive relation between the non-audit and audit fees, one of the accounts for this relationship is that “ job houses ” as audit ‘s clients may necessitate a high degree of the assuring services ( both scrutinizing and non-auditing services ) . Furthermore, in order to prove that possible account, it is included the variables of ROA, the current ratio ( ca/cl ) , every bit good as the ration of job houses in the theoretical account of non-audit fees.

Table 2

Models of Audit Fees, Non-audit Fees and Controlling Variables

A Panel Angstrom: OLS Regression

A

A

A

A

A

A

A

A

Ln ( AF ) = a + b1*Ln ( NAF ) + b2*Ln ( TA ) + b3* INVREC + b4* ROA

+ b5* TD/TA+ b6* CA/CL+ b7* BIG4+ b8* OPINION+ vitamin E

2005

2006

2007

2009

Independent Variables

Coefficient

p-value

Coefficient

p-value

Coefficient

p-value

Coefficient

p-value

Intercept

1.942**

0.003

2.032**

0.021

1.372

0.123

2.385**

0.002

Ln ( NAF )

0.466**

0.000

0.534**

0.000

0.327**

0.000

0.223**

0.000

Ln ( TA )

0.195**

0.000

0.237**

0.001

0.433

0.000

0.446**

0.000

INVREC

1.21

0.084

0.513

0.280

0.091

0.862

0.455

0.407

ROA

0.109

0.503

0.011

0.313

0.034**

0.001

0.041**

0.010

TD/TA

-0.241

0.638

-0.990

0.062

-1.099

0.062

0.214

0.651

CA/CL

-0.001

0.962

-0.173**

0.033

-0.047

0.588

-0.28

0.687

BIG4

0.012

0.963

-0.130

0.715

-0.253

0.504

-0.728

0.088

Opinion

-0.151

0.409

-0.117

0.479

0.137

0.448

0.175

0.254

Adjusted R-sequared

68.40 %

68.13 %

63.26 %

69.18 %

F-Statistic

62.995**

0.000

60.78 %

0.000

81.379**

0.000

71.841**

0

Numbe of observations

A

69

72

83

82

Panel B: Two-Stage Least Squares Regression

Ln ( NAF ) = a + b1*Ln ( TA ) + b2* INVREC + b3* ROA + b4*TD/TA+ b6*CA/CL

+ b6* BIG4 + b7*OPINION + vitamin E

Ln ( AF ) = a + b1*Ln ( NAF ) + b2*Ln ( TA ) + b3* INVREC + b4* ROA + b5*TD/TA

+ b7*CA/CL + b8*OPINION + vitamin E

2005

2006

2007

2009

Independent Variables

Coefficient

p-value

Coefficient

p-value

Coefficient

p-value

Coefficient

p-value

Intercept

1.802

0.576

1.408

0.367

3.709

0535

4.583

0.310

Ln ( NAF )

0.495

0.417

0.695

0.119

-0.362

0.817

-0.679

0.602

Ln ( TA )

0.187

0.304

0.171

0.375

0.670

0.216

0.810

0.136

INVREC

1.131

0.566

0.604

0.267

0.836

0.661

1.843

0.424

ROA

0.012

0.689

0.010

0.398

0.034**

0.024

0.063

0.224

CA/CL

-0.001

0.989

-0.205

0.072

-0.239

0.588

-0.217

0.553

TD/TA

-0.223

0.707

-1.053

0.068

-0.897

0.391

-0.347

0.801

Opinion

-0.134

0.744

-0.105

0.540

0.059

0.856

0.243

0.537

Adjusted R-squared

0.683

0.663

0.140

0.678

F-Statistic

62.940**

0.000

59.23**

0.000

18.09**

0.000

-98.164**

0.005

Numbe of observations

A

69

72

83

82

Notes:

* , ** , *** denote important at the 10 % , 5 % and 1 % degrees ; severally ( two-tailed trial ) .

Ln ( NAF ) : Natural logarithm of non-audit fees ; Ln ( TA ) : Natural logarithm of entire assets ; INVREC: the ratio of the amount of stock lists and accounting receivable to entire assets ; ROA: Ratio of return on assets ; CA/CL: the current ratio ( entire current assets to entire current liabilities ) ; TD/TA: Ratio of fiscal purchase ( entire debt to entire assets ) ; OPINION: Companies holding received a qualified or modified study ( 1 ) , others ( 0 ) .

The beta coefficients for the variables ROA, current ratio ( CA/CL ) and the fiscal purchase ratio ( TD/TA ) are non important in any of the four old ages tested. This consequences can non back up the possible account that the positive relationship between non-audit and audit fees caused by the job houses. Nevertheless, companies may familiar other jobs that require a high degree of the confidence services ( audit and non-audit services ) .

Consistent with recent surveies ( Antle el al. , 2002 ; whisenant et al. , 2003 ; Li et al. , 2003 ; Hay et al. , 2006 ) it is besides examined the proposition that audit and non-audit fees are jointly determined. In the instance that it occurs, hence the important positive coefficient of the variable of the Natural logarithm of non-audit fees Ln ( NAF ) in this survey every bit good as in earlier surveies may merely be due to misspecification of the theoretical account curried out. Panel B of Table 2 shows the cardinal points of the theoretical accounts ‘ consequences of two-stage least squares arrested development. However, in order to hold sufficient instrumental variables to be used in gauging the new variable of Ln ( NAF ) , it was required to extinguish one explanatory variable from the audit fees ‘ theoretical account, it is found that the most appropriate pick being the variable of Auditor ( BIG4 ) , which appears to be more closely related to the variable of non-audit fees Ln ( NAF ) but non the variable of audit fees Ln ( AF ) . The chief findings are reported in Panel B of Table 2. In add-on, as reported by whisenant et al. , 2003 ; Li et al. , 2003 and Hay et al. , 2006, that non-audit fees do n’t hold any important relation with audit fees in the instance of currying out two-stage least squares, proposing that they are jointly determined.

As more ambitious trial of this issue, it has been farther investigated by adding the new variable of the ratio of non-audit fees to scrutinize fees ( NAF/AF ) , in order to prove whether cognition spillovers or lower degree of independency occur in the instance when comparing the degree non-audit fees NAF to be higher than in the audit fees AF. Harmonizing the chief findings of OLS arrested development theoretical account curried out, it has been found that the coefficient on this variable was negative and important, which was an challenging suggestion of cognition spillovers or lower degree of independence- on the other manus, the coefficient when two-stage least squares regression theoretical account was utilizations is non important, which it can be concluded that the variables are jointly determined.

4.4 Key findings of proving the 2nd hypothesis: Audited account Fees and Audit Opinions

The cardinal findings of the logistic arrested development theoretical account which proving the relationship between the non-audit fees and audit sentiment as it reported in Table 4. It has found that the beta coefficient of the variable of involvement, the ratio of non-audit fees to scrutinize fees NAF/AF is negative although it is non important in all old ages. The coefficient of the variable of natural logarithm of entire assets is negative and marginally important in 2005 which gives us an index that the larger companies are less likely to have qualified or modified audit studies. Furthermore, it can be besides seen from the tabular array 4 that the variable of fiscal purchase TD/TA is important and positively to the audit sentiment over all old ages of the survey period. This nevertheless concludes that audit ‘s clients with higher purchase are more likely to have audit making or alteration. The coefficient of the variable of the ratio of the amount of stock lists and accounting receivable to entire assets ( INVREC ) is important in the twelvemonth of 2005. This could be conclude that this appears to be due to that the most of audit ‘s clients that received qualified or modified audit studies are working in the fiscal and investing sector, as the belongings sector, the media and communications sector, or the leisure and touristry sectors that have comparatively less stock lists and accounting receivable.

In add-on, it is besides included in the theoretical account of audit sentiment a step variable of the dependance of the audit companies ‘ net incomes on the single client ( FEEDEP ) . This nevertheless based on the work of Firth ( 2002, p.676 ) , who reports that:

“ aˆ¦..impairment of hearer independency may be more likely if the client audit fee and consultancy fee repr4esents a big proportion of the scrutinizing house ‘s entire fee income. ”

Table 4

Logistic Regression Model of Auditing Opinion, Non-audit Fees and Control Variables

A Panel Angstrom: OLS Regression

A

A

A

A

A

A

A

A

Auditor sentiment ( 0,1 ) = a + b1* ( NAF/AF ) + b2*Ln ( TA ) + b3* INVREC + b4* FEEDEP

+ b5* ROA + b6* TD/TA+ b7* BIG4+ + vitamin E

2005

2006

2007

2009

Independent Variables

Coefficient

p-value

Coefficient

p-value

Coefficient

p-value

Coefficient

p-value

NAF/AF

-0.896

0.459

-1.215

0.527

-1.163

0.264

-1.567

0.335

Ln ( TA )

0.961*

0.081

0.882

0.489

1.438**

0.047

1.073

0.681

INVREC

0.373

0.604

0.226

0.288

0.940

0.963

3.655

0.134

FEEDEP

0.896

0.563

1.368

0.857

0.514

0.714

0.491

0.780

ROA

0.945

0.244

0.990

0.773

1.022

0.383

1.041

0.436

TD/TA

5.167*

0.055

0.109*

0.068

0.393**

0.054

0.751**

0.048

BIG4

0.667

0.636

0.764

0.787

0.950

0.959

0.957

0.975

Changeless

Model Chi-square

4.98

0.545

2.99

0.885

7.30**

0.002

4.72**

0.000

-2 log likeliness

44.979

48.547

53.732

53.419

Numbe of observations

A

69

73

83

83

Notes:

* , ** , *** denote important at the 10 % , 5 % and 1 % degrees ; severally ( two-tailed trial ) .

NAF/AF: The ratio of non-audit fee to scrutinize fee ; Ln ( TA ) : Natural logarithm of entire assets ; INVREC: the ratio of the amount of stock lists and accounting receivable to entire assets ; FEEDEP: Free dependance measured as the Auditee ‘s audit and non-audit payment divided by the entire audit and non-audit fees of the external hearer ; ROA: Ratio of return on assets ; TD/TA: Ratio of fiscal purchase ( entire debt to entire assets ) ; BIG4: Large 4 hearers ( 1 ) , others ( 0 ) ;

Following the work of Firth ( 2002 ) , Li et Al ( 2003 ) and Hay et Al ( 2006 ) , the sum of the audit fees and non-audit fees for a peculiar audit client is divided by the amount of the audit and non-audit fees obtained from all of its clients in the top 100 listed companies in the index FTSE-100. The negative coefficient of the variable would indicate out that when the fee payment histories of audit client for a high per centum of an hearer ‘s entire net incomes, so the hearer is less likely to keep independency and publish audit making of alteration. Nevertheless, the coefficient of this variable ( FEEDEP ) in non important in any of the old ages covered during the survey period. By and large, the undistinguished coefficient of the variable of the ratio of non-audit fees to scrutinize fees ( NAF/AF ) was unsuccessful in order to back up the 2nd hypothesis which assumes that the flat non-audit fees are negatively related with the audit making.

In add-on, it has besides tested the last phase of the 2nd hypothesis, as it is estimated another OLS arrested development theoretical account of the non-audit fees as stated in the Table figure 5. The cardinal findings of this theoretical account suggest that there is a high positive important relationship between audit fees and the degree of non-audit fees, in every of the four old ages of the survey period. It is besides shown in this theoretical account that the qualified or audit sentiment have undistinguished positive relation to the audit fees, describing that the hearers ‘ houses are no less likely to give a qualified or modified audit sentiment to scrutinize clients from whom they receive a high degree of the non-audit services. This concludes to the fact that these findings are besides unsuccessful in order to back up the 2nd hypothesis.

OLS Regression Models of Non-audit Fees, Opinion and Controlling Variables

The OLS Regression theoretical account is:

A

A

A

A

A

A

A

A

Ln ( NAF ) = a + b1*Ln ( TA ) + b2*AF + b3* OPINION + b4* BIG4

+ b5* MINING+ b6* FINANCE+ vitamin E

2005

2006

2007

2009

Independent Variables

Coefficient

p-value

Coefficient

p-value

Coefficient

p-value

Coefficient

p-value

Intercept

1.508 ***

0.017

5.237***

0.000

4.494***

0.002

3.037***

0.036

Ln ( TA )

0.042

0.425

0.265**

0.003

0.183

0.206

0.198

0.155

Ln ( AF )

0.781**

0.000

0.005**

0.020

0.008**

0.013

0.002**

0.007

Opinion

0.087

0.676

-0.125

0.589

-0.209

0.478

0.010

0.976

BIG4

1.303**

0.027

0.748**

0.031

0.551**

0.039

1.954**

0.015

Mining

0.029

0.932

0.355

0.320

-0.517

0.295

-0.986**

0.033

Finance

-0.343

0.198

-0.167

0.559

-0.097

0.849

-0.097

0.851

Adjusted R-sequared

71.913

0.531

0.553

0.598

F-Statistic

62.49**

0.000

43.222**

0.000

39.742**

0.000

69.079**

0.000

Numbe of observations

69

74

84

93

Table 5

Notes:

* , ** , *** denote important at the 10 % , 5 % and 1 % degrees ; severally ( two-tailed trial ) .

Ln ( NAF ) : Natural logarithm of non-audit fees ; Ln ( TA ) : Natural logarithm of entire assets ; Ln ( AF ) : Natural logarithm of audit fees ; OPINION: Companies holding received a qualified or modified study ( 1 ) , others ( 0 ) ; BIG4: Large 4 hearers ( 1 ) , others ( 0 ) ; Mining: Mining and oil industry ( 1 ) , others ( 0 ) ; FINANCE: Fiscal establishments ( 1 ) , others ( 0 ) .

4.5 Key findings of proving the 3rd hypothesis: Audited account Fees and Auditor Change

The chief findings of multivariate analysis of the curried out OLS arrested development theoretical account of non-audit fees including audit term of office as reported in Table 6 shown below. The consequences suggest that the degree of non-audit fees have undistinguished relation with and the changing of hearers during the survey period of the five old ages ( except the twelvemonth 2008 as antecedently mentioned ) . In add-on, the consequences besides suggest that the variables exhibiting a important association with non-audit fees ( NAF ) are audit fees ( AF ) , size of hearer ( Big4 audit houses ) every bit good as the audit client ‘s size ( TA ) . However, the results of the theoretical account are non able to back up the 3rd hypothesis which assumes that the degree of non-audit fees received by the audit houses has a important positive association with the continuance of hearer term of office.

Table 6

OLS Regression Models of Non-audit Fees, Auditor Change and Controlling Variables

The OLS Regression theoretical account is:

Ln ( NAF ) = a + b1*CHANGE + b2* Ln ( TA ) + b3* Ln ( AF ) + b4* OPINION

+ b5* BIG4+ b6* MINING + b7*FINANCE + vitamin E

Independent Variables

Coefficient

p-value

Intercept

-4.391**

0.000

Change

-0.139

0.406

Ln ( TA )

0.082**

0.008

Ln ( AF )

0.732

0.000

Opinion

-0.182

0.149

BIG4

6.105***

0.000

Mining

-0.161

0.411

Finance

0.067

0.700

Adjusted R-squared

41.65 %

F-Statistic

41.704***

0.000

Number of observations

320

Notes:

* , ** , *** denote important at the 10 % , 5 % and 1 % degrees ; severally ( two-tailed trial ) .

CHANGE = Audit ‘s clients change hearers during the research period ( 1 ) , others ( 0 ) ; Ln ( TA ) : Natural logarithm of entire assets Ln ( AF ) : Natural logarithm of audit fees ; OPINION: Companies holding received a qualified or modified study ( 1 ) , others ( 0 ) ; BIG4: Large 4 hearers ( 1 ) , others ( 0 ) ; Mining: Mining and oil industry ( 1 ) , others ( 0 ) ; FINANCE: Fiscal establishments ( 1 ) , others ( 0 ) .

Furthermore, in order for proving the 3rd hypothesis further, it is run the theoretical account of logistic arrested development of hearer switch theoretical account, for the non-audit fees and the control variables across the four old ages of the survey period. However, the chief findings shown in Table 7 besides suggest that the variable of involvement, the ratio of non-audit fees to scrutinize fees ( NAF/AF ) is undistinguished. Of all the control variables, except the variables of the fiscal purchase ( TD/ TA ) which has a important coefficient of ( I? = 0.017 ) . These consequences suggest that audit clients with a high proportion of the fiscal purchase are more likely to alter the audit house. These findings nevertheless could non besides to back up the 3rd hypothesis which predicts that there is a positive association between the degree of non-audit fees and the hearer term of office.

Table 7

Logistic Regression Models of Auditor Change, Non-audit Fees and Controlling Variables

The Logistic Regression theoretical account is:

CHANGE ( 0, 1 ) = a + b1*NAF/AF + b2* Ln ( TA ) + b3* OPINION + b4* BIG4

+ b5* ROA+ b6* CA/CL + b7*TD/TA + vitamin E

Independent Variables

Coefficient

p-value

NAF/AF

0.901

0.199

Ln ( TA )

2.197

0.000

Opinion

0.849

0.605

BIG4 )

0.091

0.628

ROA

1.057

0.170

CA/CL

1.023

0.706

TD/TA

0.554**

0.017

Changeless

1.209

0.891

Model Chi-square

6.085

0.070

-2 log likeliness

129.133

Number of observations

305

Notes:

* , ** , *** denote important at the 10 % , 5 % and 1 % degrees ; severally ( two-tailed trial ) .

NAF/AF: The ratio of non-audit fee to scrutinize fee ; Ln ( TA ) : Natural logarithm of entire assets ; OPINION: Companies holding received a qualified or modified study ( 1 ) , others ( 0 ) ; BIG4: Large 4 hearers ( 1 ) , others ( 0 ) ; ROA: Ratio of return on assets ; CA/CL: the current ratio ( entire current assets to entire current liabilities ) ; TD/TA: Ratio of fiscal purchase ( entire debt to entire assets ) .

As mentioned earlier, the 3rd probe of proving the 3rd hypothesis applies a matched brace method in order to comparing the ratio of non-audit fees ( NAF ) to scrutinize fees ( AF ) among audit clients houses that both for those whom changed the audit house and did non during the survey period. As it is reported in Table 7 which contains the cardinal findings of the logistic arrested development theoretical account of hearer alteration, non-audit fees and control variables, The consequence nevertheless is undistinguished as the coefficient of the variable NAF/AF is ( p= 0.199 ) . In add-on, this trial besides reports that there is no important difference in non-audit fees between both exchanging every bit good as non-switching audit clients.

4.6 Discussion

This research survey extends the anterior research of probe the issue of the joint proviso of the confidence services ( non-audit and audit services ) into the UK market and through empirical observation testes the consequence of more provided non-audit services by hearers on the independency of the audit houses in the UK. The first inquiry which has been asked that analyzing the association between the audit and non-audit fees in the UK for the four old ages from 2005 to 2009 ( except the twelvemonth 2008 as it is excluded due to the informations inaccessibility as celebrated before ) . The 2nd research inquiry has been examined by the 2nd hypothesis, look intoing the consequence of non-audit fees on the leaning of hearers in order to publish a qualified or modified audit study. The 3rd hypothesis examined the research inquiry that concerns whether if the stableness of audit term of office is affected by the degree of non-audit fees.

The cardinal findings of the arrested development theoretical accounts suggest that the audit fees are positively related with the degree of non-audit fees, after commanding for factors that have been found in order to act upon audit fees merely in the instance of utilizing the OLS arrested development theoretical account and non when connoting the two-stage least square arrested development theoretical account. However, the chief findings of farther trials suggest that the position that both audit and non-audit fees are jointly determined is significantly supported, as the client size ( measured by entire assets ) is the strongest determiner of each of them. However, this might be due to a combination of supply and demand of factors. Equally far as audit services are being concerned by public, big audit clients ( measured by entire assets ) would hold a high degree of the figure of minutess every bit good as balances in order to be audited ; which can supply a higher degree of audit hazard to scrutinize house ; and in these instances the hearer can derive more degree than normal in supplying such a high quality of audit services. In the same manner, every bit far as non-audit services are besides concerned, the larger audit clients would hold a higher degree of truth and complex constructions ; higher degree of complex revenue enhancement issues ; are more likely to lift finance ; and indulge in amalgamations and acquisitions, while the non-audit services they required can be expeditiously provided and delivered in these fortunes by the capable big hearers ‘ house that they deal with.

Harmonizing the chief findings of the logistic arrested development theoretical account with look into the association between the degree of non-audit services ( measured by non-audit fees ) and audit sentiment, the consequences suggest that the qualified or modified audit studies have undistinguished relationship with the degree of non-audit fees. Therefore, this does non bespeak consequence or deficiency of the perceptual experience of hearer independency.

Furthermore, in order to prove the association between the degree of non-audit fees and hearer alteration, three different arrested development theoretical accounts are run. The first 1 is the OLS arrested development theoretical account of non-audit fees, the 2nd method is a logistic arrested development theoretical account, and the last method used is the trial of matched braces. The cardinal findings of the three diffract arrested development theoretical accounts suggest that the degree of non-audit fees provided by hearers have undistinguished relation with the alteration of hearer during the research survey period of the 100 largest United kingdom companies. In the theoretical account of non-audit fees, there is no important relation between the silent person variable for hearer alteration ( CHANGE ) and either the variable of the degree of non-audit fees ( NAF ) or any of the other independency variables, compared with the consequences of the logistic arrested development theoretical account of Auditor Change, Non-audit Fees and Controlling Variables, which suggests that there is a marginally important relation between the variable of hearer alteration and the variable of fiscal purchase, these consequences nevertheless suggest that audit term of office is less stable for those companies whom sing fiscal hurt. The consequences of lucifer braces probe fails to back up any grounds that audit clients which switch have a lower degree of non-audit fees.

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