Non-audit Services and Auditor Independence: New Zealand Evidence

Abstract

This paper examines evidence in New Zealand about whether auditors providing more non-audit services are less independent. Three tests are used to address the issue. The first examines whether there is a relation between non-audit fees and audit fees, the second examines whether there is a relation between non-audit fees and audit report qualification or modification, and the third examines whether there is a relation between non-audit fees and stability of audit tenure. Data are obtained from publicly available information for the Top 200 companies in New Zealand and listed companies not in the Top 200. There is a significant and positive relationship between non-audit fees and audit fees. The only significant relationship between non-audit fees and audit qualifications or modifications is positive, and occurs in only one of three years. There is no significant relationship between non-audit fees and the stability of audit tenure. These results suggest that there is a potential for the impairment of auditor independence in appearance when the auditors provide non-audit services but no evidence of any impact on independence of mind.