The effects of recurring and non-recurring non-audit services on auditor independence

Purpose – This study seeks to examine whether there are differences between companies that purchase either recurring or non-recurring audit services and those that do not, and whether auditors discount their audit fees for either type of non-audit service. Design/methodology/approach – The study examines associations between audit and non-audit fees in New Zealand, for the period 1995 to 2001. The advantage of this setting is that data on non-audit services was disclosed in this period and that the period pre-dates more recent controversies over whether non-audit services are permissible. Findings – Companies that purchase any type of non-audit services from their auditors are larger and more complex than companies that purchase auditing only. Companies that obtain tax services from their auditors usually do so on a recurring basis. In contrast, consulting services do not tend to occur every year. Auditors do not discount their fees for either recurring or non-recurring non-audit services. Research limitations/implications – While useful data is available about the type of non-audit services provided, there are limitations to the extent to which this information provides a precise measure of whether the services were recurring or not. Originality/value – The research contributes to understanding the issues regarding auditors providing non-audit services by providing evidence that neither recurring nor non-recurring services are associated with a reduction in audit fees. This finding is relevant when considering whether regulation of non-audit services should permit certain types of services, or should prohibit all non-audit services.