Nonaudit services provided by incumbent auditors and earnings management: Evidence of auditor independence from an EU country

Abstract

ABSTRACTThis paper examines whether the joint provision of audit and non-audit services undermines auditor independence by testing for an association between the provision of consulting services and auditor independence measured by discretionary accruals. For the most part, previous literature has studied the issue in countries with an Anglo-American business environment. This study analyzes the possible impairment of auditor independence in the context of a continental European Union country (Spain). A cross-sectional regression is estimated to test the relationship between non-audit fees and reporting quality. Based on publicly available information for Spanish listed companies, the evidence suggests that there is no statistically significant association between non-audit fees and earnings management. These findings are consistent with the idea that auditors' objectivity is not impaired by the joint provision of audit and non-audit services.