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Audit committees, non-audit services, and auditor reporting decisions prior to failure

Wu, Chloe Yu-Hsuan; Wu, Chloe Yu Hsuan; Wu, Chloe; Hsu, Hwa Hsien; Haslam, Jim

Authors

Chloe Yu-Hsuan Wu

Chloe Yu Hsuan Wu

Dr Chloe Wu Y.Wu@hull.ac.uk
Lecturer in Accounting and Finance/ Programme Director of BSc in Accounting (HKU)

Hwa Hsien Hsu

Jim Haslam

Abstract

This study investigates the associations between audit committee characteristics and the likelihood of auditors’ going-concern decisions among UK failed firms. Specifically, we examine whether the threat posed by auditor-provided non-audit services (NAS) to auditors’ reporting decisions is mediated by audit committee characteristics. We find that failed firms with higher proportions of independent non-executive directors (NEDs) and financial experts on the audit committee are more likely to receive auditor going-concern modifications prior to failure, but that there is no significant relationship between NAS fees and the likelihood of receiving a going-concern modification. The evidence further suggests that the association between NAS and auditors’ reporting decisions is subject to audit committee characteristics. Where the audit committee is more independent and includes a greater proportion of financial experts, auditors providing the client with NAS are less likely to issue a standard unmodified going-concern report prior to failure. 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 for auditors’ reporting decisions.

Publication Date 2016-06
Journal The British accounting review
Print ISSN 0890-8389
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 48
Issue 2
Pages 240-256
Institution Citation Wu, C., Hsu, H. H., & Haslam, J. (2016). Audit committees, non-audit services, and auditor reporting decisions prior to failure. The British accounting review, 48(2), 240-256. https://doi.org/10.1016/j.bar.2015.03.001
DOI https://doi.org/10.1016/j.bar.2015.03.001
Keywords Audit committee; Corporate governance; Non-audit services fees; Going-concern report; Corporate failure
Publisher URL http://www.sciencedirect.com/science/article/pii/S0890838915000153
Additional Information Authors' accepted manuscript of article published in: British accounting review, 2016, v.48, issue 2.

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