Abstract
Non-audit services (NAS) provide auditors a platform to market their unique expertise and provide services surpassing the necessities of a financial statement audit. In this paper I study the effect of local competition on auditors' use of NAS within their product mix. My findings show that auditors respond to intensifying competition by increasing their selling of NAS. This response is especially strong in local markets where there are smaller differences in the average audit quality gap between the highest versus lowest quality auditors or when audit fees are depressed. The results suggest that NAS function as both a differentiation tool for higher quality auditors as well as a supplementary revenue stream when audit fees are reduced. I also find that the provision of NAS reduces audit quality in highly competitive environments, suggesting that the nature of NAS sold in competitive markets is more detrimental to audit quality than NAS sold elsewhere.
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