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IJAIM 19,2

Association between audit opinion and provision of non-audit services

Nasrollah Ahadiat
Accounting Department, College of Business Administration, California State Polytechnic University, Pomona, California, USA
Abstract
Purpose While a few US studies on the impact of the provision of non-audit services on auditor judgment have found potential harm to independence, it is the purpose of this study to investigate whether the British and Australian auditors involvement with both audit and non-audit services for the same clients may also produce similar results. Design/methodology/approach The parametric t-tests and the nonparametric Mann-Whitney tests are used in this study on the empirical data from the British and Australian companies to examine the potential for loss of independence when high levels of non-audit services are provided to audit clients. Findings The results corroborated the US Securities and Exchange Commissions contention that the provision of non-audit services may indeed impair independence. Research limitations/implications No attempts were made to isolate the effects of other factors that could result in the issuance of qualied opinions. In addition, the sample used in this investigation is comprised of rms that had voluntarily disclosed non-audit fees in the early years of the study. This could potentially introduce a self-selection bias. Nevertheless, this study is one of a kind in the international arena. Originality/value This paper extends the line of research examining the impact of non-audit services on the auditors independence. Keywords Accounting, Auditors, Securities markets, United Kingdom, Australia Paper type Research paper

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Received 8 January 2009 Accepted 17 March 2010

International Journal of Accounting and Information Management Vol. 19 No. 2, 2011 pp. 182-193 q Emerald Group Publishing Limited 1834-7649 DOI 10.1108/18347641111136463

In the USA, some highly publicized corporate scandals (e.g. Enron-Anderson, Adelphia, and WorldCom) and the widespread use of earnings management schemes placed the issue of auditor independence and quality of nancial reporting at the forefront of corporate accountability discussions. In response to these events, the US Federal Government has become increasingly committed to the restoration of investors condence in the nancial statements of publicly traded companies. The US Senate amended the existing requirements of the Securities Exchange Act of 1934 by passing the so-called Sarbanes-Oxley Act (US 107th Congress, 2002). In an attempt to enhance auditor independence, the Sarbanes-Oxley Act has limited the scope of services that public accounting rms can provide for their audit clients by excluding certain activities from a wide range of services that accounting rms previously offered to their audit clients. The provisions of the act, which were subsequently adopted by the Securities and Exchange Commission (SEC), changed the auditing and accounting profession in many ways, with profound impacts on public corporations and accounting professionals. According to this new law:
It shall be unlawful for a registered public accounting rm that performs an audit of an issuers nancial statements (and any person associated with such a rm) to provide to that issuer, contemporaneously with the audit, any non-audit services.

These services include: . bookkeeping or other services related to the accounting records or nancial statements of the audit client; . nancial information systems design and implementation; . appraisal or valuation services, fairness opinion, or contribution-in-kind reports; . actuarial services; . internal auditing outsourcing services; . management functions or human resources; . broker-dealer services, investment advisor, or investment banking services; . legal services; and . any other service that the (Public Company Accounting Oversight) Board determines, by regulations, is impermissible (US SEC, 17 CFR, 2003). However, accounting rms will still be allowed to provide such services as tax planning, tax compliance, and tax advice to their audit clients if the clients audit committee approves the engagement. The study Despite a strong support for auditor independence, research results are generally inconclusive and do not fully support the SECs position. Prior studies using British or Australian samples generally used cross-sectional data pooled over the period of 1980-1990 when volatility of data were considerably high. The 1980s was a critical period for the British and Australian auditors as they experienced signicant rule changes resulting in greater opportunity for auditors to compete for clients (Craswell, 1999; Dedman, 2003). In addition, this period was characterized by the lack of transparency in nancial reporting as it was later manifested by some highly publicized corporate scandals such as Maxwell Communication (Arcot and Bruno, 2006). These were precisely the events that contributed to the loss of public condence in corporate reporting, which ultimately led to the establishment of the Cadbury Committee. Clearly, reliability of corporate data reported for this period is highly suspect. In addition, earlier studies used samples from the top large 500 public companies representing rms that could generally afford stronger internal control systems compared to their smaller counterparts, and thus comprised of an inherent bias in their sample selection. Empirical evidence has documented that material weaknesses in internal control are negatively associated with rm size (Chan et al., 2009; Ge and McVay, 2005). Finally, while the models employed in prior studies made a genuine effort to eliminate the effects of confounding factors, in turn such methodologies may hinder generalization of the ndings due to reduction of the sample size. The present research has made an attempt to minimize the effects of the above factors by: . using a set of data that span a period of time other than that used by previous studies; . drawing a sample that includes both large and small companies;

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strengthening validity of the results and the sample size by pooling data from two very similar countries; and concentrating on only the relationship between the audit opinion and non-audit fees as the basis for the investigation.

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Other conning factors that could possibly interfere are disregarded for the purpose of this investigation. Background In 1991, the UK established a new set of regulations aimed at a stronger framework for auditors relationships with their clients (Cadbury Report, 1992). Similar rules were enacted in Australia through the Statements of Auditing Standards (AARF, 1992). Later, in the UK, the Cadbury Committee endorsed establishment of the audit committee to administer selection of independent accountants (Cadbury Report, 1992). While the British and Australians were working to strengthen the auditors role as the overseers of public interests, the American Institute of Certied Public Accountants (AICPA) Ethics Committee was moving in a direction to allow AICPA members to perform extended services for their audit clients. The new rules were embraced by many in that they granted more latitude to CPAs to assume greater consulting roles and provided corporate managers with the alternative of outsourcing their internal audit department, since it was generally difcult to hire and retain competent internal auditors. While the CPA rms had performed non-audit services for their clients for many years, most of the growth in this area came after the enactment of the AICPAs new rules. The accounting rms evolved into multidisciplinary professional service providers with management advisory services contributing more than 50 percent of total revenues. In the year 1999, fees received from management advisory services excluding tax services accounted for more than $15 billion of the accounting rms revenues (New York State Education Department, 2003). As these events were unfolding, both academics and policy makers argued that non-audit services had expanded to such levels that auditor independence could become questionable. Although Australian regulators always viewed auditors involvement with non-audit services for the audit clients as a threat to auditor independence, studies by Barkess and Simnett (1994) and later Craswell (1999) put these ideas to the test. Using cross-sectional data from Australian public companies, the researchers argued that independence could be compromised if they detected a strong relationship between qualied audit opinions and the extent of non-audit services provided by the auditor. Both of these studies were unable to nd any association between the auditors decision to issue a qualied opinion and their involvement with non-audit services (Barkess and Simnett, 1994; Craswell, 1999). Likewise, British researchers Beattie et al. (1999) conducted a survey of nance directors of UK-based companies and found that involvement with non-audit services did not signicantly impair directors perceived auditor independence. In September 1998, SEC Chairman Arthur Levitt charged the accounting profession with failure to maintain auditor independence (Tie, 2000). In his speech, Chairman Levitt reiterated his view that accounting rms, in an attempt to increase their rms overall revenue, provide consulting services that have overlooked certain unethical activities, including misstatement of earnings. The US SEC argued that an auditor is not independent with respect to an audit client if a reasonable investor would conclude that the auditor is incapable of exerting

objective and impartial judgment throughout the engagement. Independence was believed to be compromised if the auditor has a mutual or conicting interest with the client; audits its own work; functions as management or an employee of the client (US SEC, 2000). The Enron-Anderson case provided additional ammunition for this argument that extensive non-audit relations between the auditor and the client can develop into unethical and even criminal behavior. Research conducted in the USA used the quality of corporate earnings as the basis for examining whether involvement with non-audit services compromises auditor independence. The general methodology of these studies was to use restatements of corporate nancial statements as an indicator of quality of earnings. Among them, Frankel et al. (2002) used the association between the ratio of non-audit fees to total fees and the rms level of discretionary accruals as well as whether it met analysts earnings forecasts as a measure of auditor independence. The authors concluded that the likelihood for compromise in auditor independence is greater when the non-audit fees received by the auditor constitute a higher proportion of the total fees. In another study, Hodge (2003) surveyed a group of independent investors to determine the impact of extended auditor-client relationships or conict of interest on their perceptions of auditor independence. A later study by Ferguson et al. (2004) also found that the higher the level of auditors involvement with its client, the lower the degree of objectivity demonstrated in conducting audit services. All of these results were consistent with earlier ndings and supported the SECs position. Taking a contrary view, some researchers have argued that it is possible for the audit rms to provide audit and non-audit services to their audit clients and maintain independence (Davis et al., 1993; Ezzamel et al., 1996; Arrunada, 1999). They point out that nothing in the earlier history of the professions provision of non-audit services (i.e. disregarding the few cases disclosed in recent years), have indicated otherwise. They believe that audit committees, management, and auditors are fully capable of exercising their responsibilities and making rational and appropriate judgments. Thus, there is no need to resort to extreme measures that, while well intended, may produce negative unintended consequences. Using this line of reasoning, the ndings of Frankel et al. (2002) were later challenged by Ashbaugh et al. (2003) who applied the same empirical procedures to investigate whether previous research results could be subject to research design choices. Unlike Frankel et al., the authors discovered no association between the magnitude of non-audit fees and auditor independence. Likewise, Raghunandan et al. (2003) used restatements, adjustments, and errors to investigate whether restatements of nancial statements constitute any association between the level of non-audit fees and audit quality. The authors reported no signicant correlation between the restatements and the level of non-audit fees, and thus disputed the concerns that non-audit fees jeopardize the audit and potentially compromise auditor independence. Some have even argued that the knowledge gained through engagement in non-audit services increases the audit rms intellectual capital, leading to more efcient audit performance (Kinney et al., 2004; Flaming, 2005). As previous research has produced mixed results and failed to resolve the issues surrounding auditors independence, additional research is required to investigate whether independence may be undermined when the auditor is involved in rendering non-audit services.

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Research questions RQ1. Does the provision of non-audit services by auditors to their audit clients in the UK and Australia pose similar threats that are considered controversial in the USA? RQ2. Is there any evidence that involvement with non-audit services affects auditors reporting decisions in these countries? The arguments directed against auditors providing non-audit services are normally expressed in terms of economic dependency and mutuality of interest. If non-audit services become sufciently important to the auditor, either in total or in relation to an individual client, the auditors economic dependence on those services and clients may result in a loss of impartiality and objectivity (e.g. Enron-Anderson case). Extensive relationships forged by consulting services may cause the auditor to empathize with the client and become unable to form an unbiased judgment. On the other hand, an auditors involvement with management for consulting services can help the auditor gain additional knowledge about the client and develop a more informed opinion (Simunic, 1984; Palmrose, 1986). However, the audit philosophy in the USA differs from that in the UK and Australia in that it is not a civil law responsibility. The role of an auditor in British and Australian companies involves a stewardship function that goes beyond enforcement of rules and regulations. There are those who believe that different philosophies between the two systems result in different outcomes (Bush, 2005). Considering the differences in the reporting systems between the USA and Commonwealth countries, the primary purpose of this research is to examine audit opinions issued for British and Australian companies to determine whether there is any association between the level of non-audit fees paid to their audit rms and the type of audit opinion rendered (i.e. qualied/unqualied). In other words, the following hypothesis is to be tested: H1. All things equal, there is signicantly higher frequency of receiving an unqualied opinion in companies that pay greater non-audit service fees than in those companies that pay a relatively lower non-audit service fees. Sample selection Disclosure of audit fees in the annual reports is a requirement of the Companies Act in British Commonwealth countries (UK Legislation, 1989). However, separate disclosure of fees paid for non-audit services to the companys auditor was not adopted by Australia and the UK until a few years later (FEE, 1996). Thus, due to the lack of a large sample of publicly available data and in light of the similarities between the Commonwealth countries nancial reporting systems, the sample selected for this study represented public companies that had voluntarily reported the data for the rst two years of the investigation. Initially, a total of 100 companies were identied from DATASTREAM annual reports and The Financial Times. These companies had disclosed both the total fees as well as the non-audit fees paid to their auditors prior to the effective date of regulations in their respective countries. To improve the validity of investigation, data over a period of ten years from 1992 to 2001 were included. The data were carefully reviewed for major restatements, delisting, and restructuring. Of the selected companies, 24 were found to be subject to these changes, and thus were

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excluded from the sample. Accordingly, the results presented in this paper relate to the remaining 76 companies listed for all ten years of the study period. A summary of the composition of these companies is contained in Table I. Just over 50 percent of the sample is represented by Top 100 companies. Sample companies were partitioned into two groups: unqualied and qualied. Qualied companies were dened as those that had received at least one audit qualication over the study period. The analysis involved a comparison of the proportion of non-audit service fees derived by incumbent auditors for each of the two company groups. This non-audit service fees percentage was calculated for each company by dividing the amount paid for non-audit services by the total non-audit and audit remunerations. Auditor remuneration for audit and non-audit services for each company comprises the groups total gures, representing remuneration paid to both the parent and any subsidiary company auditors. During the earlier years of the investigation period, few companies separately disclosed remunerations paid to the auditors other than what was paid by the parent company. Thus, the groups audit report was used as the basis for this investigation as it encompassed the results of the audit of all subsidiaries, whether or not the same auditor was engaged by all group companies. The disclosure of the audit fee in the annual report has long been a Companies Act requirement in the UK. These requirements have made the provision for the disclosure of audit fees a legal requirement for all public British companies. However, payments for non-audit services to accounting rms were not included in the audit fee and were not a required disclosure in corporate nancial statements. In more recent years, separate disclosure of non-audit services fees paid to the companys auditor has become a requirement in Australia, Norway, and the UK. The Companies Act 1989 (Eligibility for Appointment as Company Auditor) (Consequential Amendments) Regulations 1991, requires UK companies to disclose, by way of a note in their annual reports, the fees paid to the auditor for non-audit services. The regulations apply to years ending on or after September 30, 1992. The research approach is therefore designed to determine whether there is any association between the audit qualication status of a companys audit reports and the level of non-audit services provided by auditors. If the unqualied companies had been audited by auditors who had derived a signicantly higher proportion of their total fees from non-audit services (in comparison to the auditors of the qualied companies), such an association could represent impairment of auditor independence. Study ndings 1. The trend in non-audit services remuneration Average auditor remuneration derived from non-audit services in 1992 amounted to $64,500 per company. This increased to an average of $617,800 per company in 2001, representing a cumulative average annual increase over the ten-year period of 30 percent in nominal terms and 19.9 percent in real terms (by reference to changes in
Company size Top 100 Non-top 100 Total 40 36 76 Company auditor Big Five Non-Big Five 54 22 76 Industry Industrial Mining/oil 57 19 76

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Table I. Classication of sample companies

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the consumer price index). The average non-audit services fee percentage in 1992 was 26.2 percent. That is, on average, non-audit fees represented 26.2 percent of total auditor remuneration. The lowest percentage for the period was 22.2 percent in 1992. This was followed by a mainly rising trend to a high of 32.1 percent in 2001. The median non-audit services fee percentage over the study period was 23 percent. About 84 percent of companies had an average non-audit services fee percentage of less than 40 percent. The percentage of non-audit services fees paid by seven companies (9.2 percent of the sample) exceeded an average of 50 percent per annum over the ten-year period. Therefore, the auditors of these companies were receiving, on average, a higher level of remuneration for providing non-audit services to these clients compared with the audit services. It is important to note that none of those companies received an audit qualication over the study period. 2. Comparison of unqualied and qualied companies Of the 76 companies included in the sample, 38 experienced at least one audit qualication and hence formed the qualied group of companies. The remaining companies formed the unqualied group. Table II includes the average non-audit services fee percentages for each year 1992-2001, partitioned between the unqualied and qualied groups of companies. The data presented in this table reveal that the average non-audit services fee percentage for the unqualied group of companies exceeds that of the qualied group for every year of the study period. This is consistent with the direction postulated by the studys research hypothesis. Further examination of the gures in Table II demonstrates that the difference in the average ratio of non-audit services fees between the unqualied and qualied groups of companies declined over the study period, particularly after 1994. The difference in the non-audit fees ratio between the unqualied and qualied companies which started at 16.6 percent in 1992, gradually diminished over the investigation period. The difference dropped to 1.4 percent in 2001. This demonstrates the increasing rate of corporations involvement with their auditors for management advisory and other non-audit services over the years. However, this increase in the non-audit service fees for the qualied companies does not signicantly impact the testing of the research hypothesis for two reasons. First, more than half of the qualied companies had already received their rst audit qualication early in the study period. Of the 38 qualied companies, 22 (57.9 percent) had
Unqualied vs qualied companies Unqualied companies (%) Qualied companies (%) 34.50 33.20 26.40 31.50 29.60 27.40 27.80 30.60 31.30 32.80 30.51 17.90 19.80 18.00 17.10 20.60 22.50 25.20 25.60 30.10 31.40 22.82

Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Average

Table II. Average non-audit service fees percentages

received their rst audit qualication in 1994 or earlier. Second, the research hypothesis is based on the notion that the provision of non-audit services creates a relationship between the auditor and the audit client that may be perceived as a potential impairment to the auditors professional judgment, resulting in a lesser chance of issuing a qualied opinion. Such a relationship would have either already been in existence or developed during the earlier years of the investigation and will continue through the later years. 3. Statistical tests The research hypothesis is tested by applying the parametric t-test and the nonparametric Mann-Whitney test. The tests were performed on the average non-audit fee percentages of the unqualied and qualied groups of companies. The results strongly support the H1 and are presented in Table III. A potential confounding factor that could arise in the analysis is a change of auditor by any of the companies in the sample during the study period. A switch of auditor could result in a change in the relationship between the non-audit services fee percentage and the audit qualication status for that company, and thus introduce a possible source of error. To examine the possible effect of auditor change, the research hypothesis is retested by using the average non-audit service fee percentages of only those companies that did not experience an auditor change. A change of auditor is not deemed to have occurred during the study period unless there had been a change in the audit rm and the auditor undertaking the engagement. Hence, mergers of audit rms and audit rm name changes are not considered to represent a change of auditor. Of the 76 companies, 57 were identied as those that did not experience a change of auditor during the period. Of these companies, 30 were in the unqualied group (average non-audit services fee of 29.4 percent) while 27 belonged to the qualied group (average non-audit services fee of 21.9 percent). Analysis of the mean differences in the non-audit services fee percentages of the two groups of companies revealed that the direction postulated by the studys research hypothesis holds. Results of t and Mann-Whitney U-tests conrmed the signicance of this difference (at p 0.024 and 0.058, respectively). Having already established that the average non-audit services fee percentages for the unqualied group of companies exceeded those of the qualied group, the analysis reported here indicates that the difference is statistically signicant. Conclusions and limitations This research provides some evidence that the potential for the impairment of auditor independence exists when higher levels of non-audit services are provided to the British and Australian audit clients. Accordingly, nancial statement users, reasonable observers, and other interested parties may rationally conclude that auditors are less likely to issue a qualied opinion on a companys nancial statements when higher levels of non-audit fees are derived. Therefore, this and similar ndings provide the rationale for the establishment of the legal environment aimed at inuencing corporate behavior (Chan et al., 2009).
Unqualied Mean n 30.50 380 Qualied Mean 22.80

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n 38

t-test 2.291( p 0.013)

Mann-Whitney 1.621( p 0.051)

Table III. Statistical testing results non-audit services fee percentage test statistics

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As with all research, the current study has its inherent limitations. The rst limitation relates to the assumption of all things equal. No attempts were made to isolate the effects of other compounding factors. For example, it is possible that differences exist between audit rms in the frequency of issuing qualied opinions. Various studies have noted that auditing conditions are not randomly distributed among rms and that, due to the unique client proles of different rms, it would be expected that differences exist in the percentage of qualied opinions issued by different auditors (Cushing and Deakin, 1974; Shank and Murdock, 1978; Warren, 1980). Second, the sample used in this investigation is comprised of rms that had voluntarily disclosed non-audit fees in the early years of the study. This could potentially introduce a self-selection bias. Also, problems and threats to independence become problematic only when an error is discovered (DeAngelo, 1981; Watts and Zimmerman, 1986). A more rigorous research approach than that adopted herein could involve a comparison of instances where opinions are qualied following the discovery of errors by auditors with those that are not qualied. Such an investigation would indeed require inside information, as such data are non-public and not disclosed in general-purpose nancial statements. Nevertheless, the above limitations do not invalidate the studys conclusions that there is potential for impairment of auditor independence in appearance, and they do suggest that the conclusions are automatically extended to impairment of independence, which in fact would imply causation. For this nding to occur, one would have to determine that the nancial statements of the unqualied group could have been qualied and it was in fact because of the auditors involvement with non-audit services that they were not qualied. However, it may well be that the audit reports of non-qualied companies were not qualied because no conditions were present in the nancial statements or in the underlying accounting systems which necessitated audit qualication. One of the arguments against the SECs requirements of limiting non-audit services is that such involvement may in fact give the auditor greater relative power over the client (Goldman and Barlev, 1974). Therefore, the auditor may be in a better position to enforce greater professional supervision and scrutiny over the audit engagement. Further research could assess the clients potential losses from involvement with non-audit services by the auditor versus the benets derived from apparent auditor independence. The view adopted in the study of possible impairment of independence raises a further limitation. The research hypothesis assumes that it is the proportion of non-audit services fees, rather than the absolute fee level, from which the possibility for the impairment of independence in appearance arises. Also, it is assumed that nancial statement users are aware of any preceding audit qualications for companies over the period examined. These assumptions may not necessarily hold in practice. Future research could investigate the cross-sectional variation in the association found according to company size, and whether there is any cross-sectional variation based on other factors such as an individual companys nancial characteristics, audit qualications of different types, categories of different non-audit services, or by country. In conclusion, this study provides further proof that the potential for loss of auditor independence increases when higher levels of non-audit services are provided to audit clients. While it is not possible to establish a direct association between involvement with non-audit services and non-qualied, the sheer perception of its existence nonetheless casts a shadow on the reputation and credibility of the auditor and, to a certain extent, of the auditing and accounting profession in general. These ndings lead

to the conclusion that legislative policy should be aimed at facilitating the development and use of rules derived from the free action of market forces. Regulation should aim to enable the parties, audit rms, regulatory bodies, and audit clients to discover through competitive market interaction both the most efcient mix of services and the corresponding quality that safeguards public condence, adjusting for the costs and benets of each possibility. Particular emphasis should be placed on the role played by diversication of services and improved efciency, through enhanced transparency and disclosure rules derived by market incentives.
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FEE (1996), The Role, Position, and Liability of the Statutory Auditor in the Eurpean Union, Federation des Experts Comptables Europeans, Brussels. Ferguson, M.J., Seow, G.S. and Young, D. (2004), Nonaudit services and earnings management: UK evidence, Contemporary Accounting Research, Winter, pp. 813-42. Flaming, L. (2005), Do nonaudit services affect investor judgments: evidence using auditor fee proxy disclosures?, working paper, Monmouth University, West Long Branch, NJ. Frankel, R., Johnson, M. and Nelson, K. (2002), The relation between auditors fees for nonaudit services and earnings management, The Accounting Review, Vol. 77, pp. 71-105 (supplement). Ge, W. and McVay, S. (2005), The disclosure of material weaknesses in internal control after the Sarbanes-Oxley Act, Accounting Horizons, Vol. 19 No. 3, pp. 137-45. Goldman, A. and Barlev, B. (1974), The auditor-rm conict of interests: its implications for independence, The Accounting Review, Vol. 50 No. 4, pp. 70-1. Hodge, F.D. (2003), Investors perceptions of earnings quality, auditor independence, and the usefulness of audited nancial information, Accounting Horizons, Vol. 17, pp. 37-48 (supplement). Kinney, W.R. Jr, Palmrose, Z. and Scccholz, S. (2004), Auditor independence, non-audit services, and restatements: was the US Government right?, Journal of Accounting Research, Vol. 42 No. 3, pp. 561-75. New York State Education Department (2003), Current issues in public accounting: New York State Senate Higher Education Committee testimony, Public Accountancy, February. Palmrose, Z. (1986), The effect of non-audit services on the pricing of audit services: further evidence, Journal of Accounting Research, Vol. 24 No. 2, pp. 405-11. Raghunandan, K., Read, W.J. and Whisenant, J.S. (2003), Initial evidence on the association between nonaudit fees and restated nancial statements, Accounting Horizons, Vol. 17 No. 3, pp. 223-34. Shank, J.K. and Murdoc, R.J. (1978), Comparability in the application of reporting standards: some further evidence, The Accounting Review, Vol. 53 No. 4, pp. 824-35. Simunic, D. (1984), Auditing, consulting, and auditor independence, Journal of Accounting Research, Vol. 22, pp. 679-702. Tie, R. (2000), SEC renews push for more oversight of auditors, Journal of Accountancy, July, p. 16. UK Legislation (1989), The Companies Act 1989, 16 November. US 107th Congress (2002), The Sarbanes-Oxley Act of 2002, Public Law 107-204 (H.R. 3763), Government Printing Ofce, Washington, DC. US Securities and Exchange Commission (2000), Final Rule: Revision of the Commissions Auditor Independence Requirements, 17CFR Parts 210 and 240, US SEC, Washington, DC. US Securities and Exchange Commission (2003), Final Rule: Strengthening the Commissions Requirements Regarding Auditor Independence, 17CFR Parts 210, 240, 249 and 274, US SEC, Washington, DC. Warren, C.S. (1980), Uniformity of auditing standards: a replication, Journal of Accounting Research, Vol. 18 No. 1, pp. 312-24. Watts, R.L. and Zimmerman, J.L. (1986), Positive Accounting Theory, Prentice-Hall, Englewood Cliffs, NJ.

Further reading Menon, K. and Williams, D.D. (2001), Long-term trends in audit fees, Auditing: A Journal of Practice & Theory, March, pp. 115-36. Pong, C.M. and Whittington, G. (1994), The determinants of audit fees: some empirical models, Journal of Business Finance & Accounting, December, pp. 1071-95. UK Legislation (1991), The Companies Act 1987 (Disclosure of Remuneration for Non-Audit Work) Regulations 1991, 21 September. About the author Nasrollah Ahadiat is a Professor of Accounting at California State Polytechnic University, Certied Management Accountant (CMA), Certied Internal Auditor (CIA), Certied Cost Analyst (CCA). Nasrollah Ahadiats research interests include current topics in nancial and managerial accounting as well as contemporary issues in accounting education. Over the past several years, he has developed numerous research papers with direct or indirect implications to accounting education. The results of most of his research have appeared in the proceedings of the regional, national, and international business conferences. In addition, a number of Nasrollah Ahadiats research papers have been published in some top-tiered refereed journals such as the Journal of Accounting Education, Issues in Accounting Education, the Journal of International Business Studies, the Journal of Business Forecasting, the Government Accountants Journal, and the Journal of Systems Management, to name only a few.

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