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Auditor Independence and the Provision of Non‐Audit Services: Perceptions by German Investors
Author(s) -
Quick Reiner,
WarmingRasmussen Bent
Publication year - 2009
Publication title -
international journal of auditing
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.583
H-Index - 21
eISSN - 1099-1123
pISSN - 1090-6738
DOI - 10.1111/j.1099-1123.2009.00397.x
Subject(s) - auditor independence , independence (probability theory) , accounting , audit , business , german , external auditor , economic rent , joint audit , economics , geography , market economy , internal audit , statistics , mathematics , archaeology
An economic model by DeAngelo shows that the existence of client‐specific quasi‐rents impairs auditor independence. The provision of non‐audit advisory services (NAS) increases quasi‐rents, and thus it is a threat to independence. Recently, a number of changes have been made not only to the relevant international and US regulations, but also to the German regulations related to NAS. A large number of empirical studies have investigated the influence of NAS on the perceived auditor independence. Most of these studies were performed in Anglo‐Saxon countries, particularly in the US, and a majority found a negative impact. Six studies are based on data from Germany. Most of them failed to find a significant negative impact on auditor's independence. German investors have not been surveyed so far. Thus an empirical investigation of the impact of NAS on investors' perceptions of auditor independence in Germany seemed promising. It was found that shareholders generally perceive a negative effect on auditor's independence if NAS are provided. The effects of 19 different services have been analysed. For most of them a negative effect was found, even if these services are not explicitly prohibited in Germany. Furthermore, it was shown that the type of NAS influences the degree to which auditor independence is perceived to be impaired. Thus, independence rules related to NAS could be differentiated. Additionally, the study ascertained that perceived auditor independence does increase if NAS are provided by a separate department of the audit firm.