Non-audit Services To Audit Quality And Investor Perception

The relationship between non-audit services provided by a firm and audit quality is a long-standing focus for audit industry and academic world. With the outbreak of financial fraud at home and abroad from 2001, non-audit services were faced with questions in the society. Compared with well-developed audit market abroad, the Chinese non-audit services are still in the initial stage. Because of the related non-standard disclosure mechanism, it is hard to collect data on non-audit services. That is why the empirical research in this area is relatively rare, and the study from investor perception angle is of little literature. This article will apply the return model of value-relevance of accounting income to study the relationship between non-audit services and investors' perceived audit quality in China, and try to make contribution to the audit literature.Based on the above research purposes, this paper executes empirical tests based on the data of A-share listed companies that ever disclosed audit and non-audit fees in their annual reports from 2002 to 2007. From the angle of investor perception, with the proportion of non-audit services fees to total fees as the substitute variable of non-audit services, and value relevance of accounting income as the substitute variable of audit quality, this paper studies this relationship. In the same time, firm size character is also taken into consideration. The empirical study results show that the provision of non-audit services by a firm lowers investors' perceived audit quality. This negative impact of non-audit attestation services is greater than related services. After adding the firm size factor, study finds that whether non-audit services are offered by large-scale firms do not influence investors' perception of the relationship between non-audit services and audit quality.