Audit Committees, Non-Audit Services, and Auditor Reporting Decisions Prior to Failure

This study investigates the associations between audit committee characteristics and the likelihood of auditor going-concern decisions among a sample of UK failed firms. Specifically, we examine whether the threat posed by auditor-provided non-audit services (NAS) to auditor reporting quality is mediated by audit committee characteristics. We find that failed firms with higher percentages of independent non-executive directors and financial experts on the audit committee are more likely to receive auditor going-concern modifications prior to failure. The evidence further suggests that the association between NAS and auditor reporting decisions is subject to audit committee characteristics. NAS is less likely to have an unfavorable link with auditor going-concern opinions when the audit committee is more independent and includes more financial experts. Overall, the findings provide support for corporate governance regulators' concerns about the monitoring benefits of audit committee independence and the presence of financial expertise on the audit committee on auditor reporting quality