When Fee-Pressured Audit Offices Focus on Non-Audit Services, Financial Statements Suffer, Study Shows

Firms hire auditors to create independent assessments of their financial statements, providing assurance to investors and outside parties that they are free from material misstatement.

However – especially since the economic downturn – companies pressure auditors to lower their fees as a way to reduce costs. Auditors, in turn, place greater emphasis on more-profitable non-audit services, such as consulting, which can negatively impact audit quality, according to new research from the University of Notre Dame.

“How do Audit Offices Respond to Audit Fee Pressure? Evidence of Increased Focus on Non-audit Services and their Impact on Audit Quality” by Erik Beardsley, assistant professor of accountancy in Notre Dame’s Mendoza College of Business, along with Dennis Lassila of Texas A&M University and Thomas Omer from the University of Nebraska-Lincoln, is forthcoming in Contemporary Accounting Research.

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