Joint provision of external audit and non-audit services: empirical test of alternative hypotheses

Abstract

Providing jointly external audit and non-audit services to the same client-company remains a major dilemma for the accounting profession. However, recent professional ethics reforms by the IFAC and the AICPA on networks of firms may have offered a new solution to the problem. However, in search for the best solution to the problem, we test the following three alternative hypotheses: 1) a same CPA firm provides jointly both services by using separate personnel teams; 2) a same CPA firm provides jointly both services by using two separate specialised divisions; 3) two legally distinct CPA firms, both members of the same network of CPA firms, provide one the external audit and the other the non-audit services. Dependent variables of interest are: 1) perceived audit firm’s independence; 2) perceived firm’s external audit quality, while the independent variable is the type of solution tested: solution 1, solution 2, or solution 3. The empirical results revealed, as hypothesised, the two-network firms arrangeme...