Contemporary Accounting Research · 2003 · 262 citations · 24 references
BusinessAccountancyAccountingAgency TheoryAuditingFinancial AccountingExternal AuditExternal AuditingFinancial OversightFinancial Statement AuditsAccounting FeesAudit Committee EffectivenessAudit Committee IndependenceAudit Fee DisclosuresAudit IndependenceEmpirical EvaluationMandatory Fee Disclosure
NAS fees have long concerned practitioners, regulators, and academics, and prior research indicates that audit committee characteristics influence the client‑auditor relationship. The study investigates whether independent, active audit committees reduce the NAS fee ratio to promote auditor independence, using SEC fee disclosure data. The authors analyze 538 firms’ SEC fee disclosures to assess the relationship between audit committee characteristics and the NAS fee ratio. Audit committees of independent directors meeting at least four times a year are associated with a lower NAS fee ratio, suggesting committees actively reduce high NAS fees.
Abstract This study examines the association between audit committee characteristics and the ratio of nonaudit service (NAS) fees to audit fees, using data gathered under the Securities and Exchange Commission's (SEC's) fee disclosure rules. Issues related to NAS fees have been of concern to practitioners, regulators, and academics for a number of years. Prior research suggests that audit committees possessing certain characteristics are important participants in the process of managing the client‐auditor relationship. We hypothesize that audit committees that are independent and active financial monitors have incentives to limit NAS fees (relative to audit fees) paid to incumbent auditors, in an effort to enhance auditor independence in either appearance or fact. Our analysis using a sample of 538 firms indicates that audit committees comprised solely of independent directors meeting at least four times annually are significantly and negatively associated with the NAS fee ratio. This evidence is consistent with audit committee members perceiving a high level of NAS fees in a negative light and taking actions to decrease the NAS fee ratio.
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Separation of Ownership and Control
Eugene F. Fama, Michael C. Jensen · The Journal of Law and Economics · 1983 · 19.1K citations
Auditor independence, ‘low balling’, and disclosure regulation
Linda DeAngelo · Journal of Accounting and Economics · 1981 · 1.7K citations
Business, Accountancy, Accounting +16