The Effect of Pure Audit Firms, Non-Provision of Non-Audit Services to Audit Clients, and a Fee Schedule on Audit Quality Perceptions

Abstract

An ongoing debate among accounting academics and regulators revolves around instruments to strengthen financial statements user audit quality perceptions. Despite constant regulatory change, the occurrence of accounting scandals (e.g., recently Carillion in the U.K. or Wirecard in Germany) has reignited public discussion that existing regulation is insufficient. Therefore, this study investigates two measures that lack empirical evidence but could theoretically improve perceived audit quality: a full ban of NAS (either by requiring pure audit firms or a voluntary decision to not provide NAS to audit clients) and a statutory fee schedule. We conduct an experiment with bankers and non-professional investors in Germany. The results indicate a positive main effect of pure audit firms and non-provision of NAS to audit clients on perceived audit quality and auditor independence; but not on perceived auditor competence. Furthermore, we find a positive main effect of a statutory fee schedule on audit quality, auditor independence, and auditor competence perceptions.