2. Literature Review
For this research proposal review of other papers is necessary, those papers can provide the research methods and findings for reference. Some of the papers argued that no evidence to prove the joint audit services can impair the auditor independence and some of the papers are reverse. Client chooses the non-audit service usually focus on the service providers if audit and non-audit services provided by the same auditor the segregation of duties existed. Some research findings on providing jointly audit and non-audit services auditor’s independence reported conflicting and inconclusive (Ashbaugh 2004). Let’s explore the difference kinds of the position of those papers, quality of auditing would be raised and need not bias auditor’s independence or the non-audit services quality, which would be increased auditor independence. Cost saving by the provision joint audit services will reduce the cost to the clients, end up a lead to both markets decrease the price (Arrunada 1999).
2.1 Non-Audit Fees and Audit Fees
The Negative relationship between audit fees and non-audit fees would be happened due to trade off both services (Simunic 1984) “knowledge spillover theory” explained that auditors used their professional knowledge to obtain the non-audit service works into the audit works. Knowledge spillover was benefited to the companies to reduce the audit fees. Audit services used to obtain more lucrative consultancy works the benefits reduce the audit fees and increase the non-audit services fees (Hillison ; Kennelley 1988). Many factors could be influences the audit fees such as auditee size, in which company total assets usually measured. Complexity, if more complex of the audit work, audit firm need spend more manpower to complete the works, it is a positive correlation with the audit fees. Audit risks and leverage also considered (Ahmad, Shafie ; Yusof, 2006). If audit fees were controlled by non-audit service, the auditor independence may be impaired.
Some proponents of providing joint audit services argued that it could improve the audit quality and not be affect the auditor’s independence (Antle et al. 1997). Proponents also believe provide joint audit service would create a benefit to the economy (Arrunada 1999). Overall costs would be reduced when audit and non-audit services provided by the same auditor, auditor understanding the audit process to aware the duplicate works.
Provision of audit and non-audit services will increase auditor’s financial reliance on audit clients lead to increasing impair auditor’s independence (Rong, Wen & Chi 2007). Basically, a benefit for auditors are professional service fees and avoid reputation loss and litigation risks. Before the Procomp scandal, regulatory sanctions are not efficient because the time of lawsuit is long and no civil lawsuit against was successful. Clients requiring less audit adjustment indicates that auditor’s independence was impaired. Other types of service fees can impair the auditor independence not only the non-audit service fees. Argued that auditor provide non-audit services fees is an association with auditor issues going concern reporting. After examines by the association of fees paid to auditor and report decisions, some of the assertion auditors are tended to retain the future income, on the other hand, some assertion non-audit services fees are negatively associated with GCM audit opinion (Geiger ; Blay, 2011). On the other hand, found that minor of people believed that posed a threat to independence by the provision of audit and non-audit services (Firth 1980).
2.2 Non-Audit Services and Auditor Independence
Although market-based economy could remain the auditor independence, many factors still have potentially threatened auditor independence. The main factor non-audit services fee is public more concern. Non-audit service fees make financial dependent on the clients, audit firm management have the pressure of losing their business to affect the future income for business operation. Retaining clients paid higher non-audit services fees may overweight market expected, auditor fear of losing the retaining clients to sacrifice their independence. Non-audit service fees are the factors linked with earnings management of firm (Frankel et al 2001). Specially in higher levels of non-audit service fees.