Joint provision of external audit and non-audit services: empirical test of alternative hypotheses

Providing jointly external audit and non-audit services to the same client-company remains a major dilemma for the accounting profession. However, recent professional ethics reforms by the IFAC and the AICPA on networks of firms may have offered a new solution to the problem. However, in search for the best solution to the problem, we test the following three alternative hypotheses: 1) a same CPA firm provides jointly both services by using separate personnel teams; 2) a same CPA firm provides jointly both services by using two separate specialised divisions; 3) two legally distinct CPA firms, both members of the same network of CPA firms, provide one the external audit and the other the non-audit services. Dependent variables of interest are: 1) perceived audit firm's independence; 2) perceived firm's external audit quality, while the independent variable is the type of solution tested: solution 1, solution 2, or solution 3. The empirical results revealed, as hypothesised, the two-network firms arrangement (solution 3) as the best solution, followed by the specialised divisional arrangement (solution 2), and by the personnel-teams arrangement (solution 3). Based on these results, one may conclude that the higher the division of labour within the accounting profession, the better is the solution for the joint provision of services dilemma.