The Research Of Relationship Between Non-audit Services And Audit Independence

With the expeditious development of non-audit services, however, dispute concerning whether the non-audit services would undermine the independence of audit has never come into an end, what's more, no opinion on this issue were until now generally accepted.In theory circle, some scholars believe that the non-audit services provided CPAs can enhance the independence of audit; but some others have the idea that CPAs may cross roles with or economically rely on their customers by providing non-audit services, which will consequently affect the independence of audit. In practice, there are also the public appealing for bans on non-audit services for fear that independence of audit might be undermined. For instance, SEC launched in 2000 a massive campaign to amend regulations in connection of independence aiming at a total ban on non-audit services. But, due to opposite voice from AICPA and the "big five", the goal of this campaign turned out to be "individual restrictions" instead of initial "total ban on non-audit services".After the disclosure of Enron's collapse in 2001, the aftermath made non-audit services quickly the target of public attacks. Researches on possible impairment on independence of audit made by non audit services were relaunched; various countries took measures to supervise non-audit services. Taking America as an example, the Sarbanes-Oxley Act of 2002 was passed by American Congress which regulated that 9 items of non-audit services were prohibited to be provided by the accounting firms during the auditing period. At the same time, some internationally well known accounting firms were busy with split their services. However, so far, as mentioned above, there haven't been any fruits of researches about influences on independence of audit by non-audit services having obtaining international and general acceptance.On ground of special institutional background in China, non-audit services started comparatively late. With the social and economical development, non-audit services were developing as well with a gradual increase of audit income. In this circumstance, the focus on influences of non-audit services to audit independence in our country carries particular significance. This essay is written to discuss if the development of non-audit services in China undermines the independence of audit, with taking non-audit services as objective of research, using a research approach of standardization research in combination of empirical study, citing audit opinion given by CPAs to be used as substitute variables with help of data between 2006 and 2009 of exchange listed companies. As the author of this essay, I hope that readers will get a further acknowledge about non-audit services in China from the discussion on this topic and would like as well my crude remarks in this article may draw forth more excellent and persuasive research fruits in the near future and some kind of helps on related legislation or formulation of relevant regulations. This article consists of five parts with the brief introduction being given below.Chapter 1:IntroductionPreface part of this paper mainly introduces the background and significance, research methods and research contents and features. Through the method of combining theoretical research and empirical analysis, the author deeply analyze that non-audit services will adversely affect the independence of audit in China or not in essence, and provide policy suggestions for starting relevant work, and through simple chart describes the research framework.Chapter 2:Literature ReviewThis paper will into two aspects which are normative research and empirical research respectively to interpret the studies of non-audit services on audit independence overseers. Among the normative research, there are four views, namely: non-audit services will damage the audit independence, non-audit service won't harm the audit independence, non-audit services will not only damage independence and help, the influence on audit independence both positive and negative. Empirical studies from the auditing opinion and earning management and the auditor change three perspectives respectively introduces non-audit services to the influence of audit independence. For domestic research, the author found that the Chinese scholars about the study most of which are on the attitude of neutral, and think that non-audit services have positive effect on audit independence and negative effect. Chapter 3:Analysis of theories relating in connection with non-audit service and independence of auditThis chapter is began with definition of non-audit service, followed by causes of development of non-audit services, then emphasizes on different definitions of non-audit service among IFAC (International federation of accountants), AICPA (American Institute of Certified Public Accountants) and China, which then elicits the class of business of non-audit service stated in this essay, that is "non-audit service is a general term for various services provided and charged by certified public accountants apart from audit and vetting services". For the researches discussing theories on the subject of independence of audit, definition and contents of independence of audit is studied in this essay. Moreover, potential threats to independence of audit service may be caused by non-audit services supplied by certified public accountants. Form the economic view, using "rent seeking theory" and "principal agent theory", the relations between non-audit service and independence of audit is discussed in this essay, as well the influence exerted on independence of audit by provision of non-audit service. At the end of this chapter, a summary about relation between non-audit service and independence of audit is given. Generally speaking, this chapter mainly depicts the preliminary definitions of non-audit service and independence of audit, which concentrates the main discussing points of this paper and plays an important role among all chapters.Chapter 4:empirical research into the influence exercised by non-audit service into independence of auditThis chapter can be divided into two parts which respectively gives the design and tests of empirical researches utilized in this paper and analysis of results generated from researches above mentioned. The research was design on base of related research productions published by others and also analysis in this essay in relation to influence over independence of audit exerted by non-audit service, hypothesis of research serving for this paper is put forward as follows:there exist a positive correlation between non-audit service and independence of audit. Since it's a difficult task to quantify the independence of audit, audit opinion is chosen to work as substitute variable in this essay and set as dependent variable, at the same time, percentage of fees of non-audit service in sum of fees of that and audit service adopted as independent variable, in this way, influence over independence of audit made by non-audit services could be analyzed in two standards:absolute and relative values. In addition, in order to have a good control over research to increase its reliability, various scales of listed companies are selected in view of features of firms audited and CPA firms and used as control variables. The conclusion of this research is finally drawn on base of explanations for origins of samples and actual data and documents with empirical researches being tested by adopting descriptive statistics, correlation test and binary logistic regression analysis.Chapter 5:Development of non-audit services of the current situation and policy recommendationsIn this paper introduces the development status of non-audit services at home and abroad, and through comparison interprets the necessity, the existing problems and suggestions. Policy advice mainly include: with information disclosure as the premise, to treat the non-audit services dialectically, strengthen the self-discipline of certified public accountants; strengthen supervision and proper intervention to non-audit services, standardize the disclosure of attention services fees and non-audit services fees; strengthen the non-audit services market role of the government and industry organizations.Major contributions of this article are (1) The definition of "Non-audit services" in this article is not simply opposite that of "audit services". To be accurate, in the research of this article, authentication services and other relative services constitute the definition of non-audit services with eliminating the vetting service from "non-audit services" which is classified into the scope of "audit services" as it has a higher requirement for independence of audit. (2) This article verified the present feasibility of carrying out non-audit services in China on base of CPA service market in China. By means of combination of standardization and empirical studies, using the experience and research conclusions of other countries as sources of reference, in consideration of Chinese particular institutional environment, advises for policy-making for purpose of maintaining a healthy and orderly development of non-audit services in China are equally given in this article.Limitations of this article:(1) Insufficiency of theoretical profundity and extent due to limited theoretical level of author. (2) Independence of audit is characterized by non-observation therefore very difficult to be quantified. In this article, type of audit report prepared by CPAs is adopted as substitute variable. This substitution itself cannot be outright satisfactory to serve the procession of research, therefore, even control variable is introduced for better control, some extent of influence to research results are almost inevitable. (3) The current situation of information disclosure in China is far from the ideal condition demanded by the public. Falsification and disguise of expenses conducted by listed companies are possible to exist. Moreover, since not all information is disclosed, some important disclosure which may have potential influences may be omitted. In this case, despite that the writer have combed and analyzed the data quoted in this article in order to do the utmost to ensure the accuracy, however, the results of research are still prone to be affected.