The Association between Non-audit Services and the Quality of Voluntary Earnings Forecasts：An Empirical Analysis

• Main Authors: Hsin-Yi Chi, 紀信義
• Other Authors: Shou-Min Tsao
• Format: Others
• Language: en_US
• Published: 2007
• Online Access: http://ndltd.ncl.edu.tw/handle/17222183034440160264

博士 === 國立中央大學 === 企業管理研究所 === 95 === This paper examines the association between the quality of voluntary earnings forecasts, as measured by forecast bias and accuracy reviewed by an incumbent CPAs, and the purchase of non-audit services (NAS) from the incumbent auditor. In the context of this study, we focus primarily on the Taiwanese market. Unlike in the U.K. and U.S, management forecasts must be reviewed by the incumbent CPA in Taiwan. Besides, enforcement of rules with regard to the provision of review-level assurance for management earnings forecasts tends to be less stringent than one of audit-level assurance for financial reporting. Using panel data of audit and non-audit fees available for Taiwanese firms, we find that firms with a high ratio of NAS tend to issue more optimistically biased and inaccurate forecasts under a lower auditor liability regime. These results provide some support for concerns expressed about the potential impact of unusually high levels of NAS on auditor independence and ultimately, the quality of audited financial reports. We also find that the NAS is negatively associated with stock returns on the date of announcements of voluntary earnings forecasts. These results are consistent with arguments that the provision of non-audit services strengthens an auditor’s economic bond with the client and that investors price this effect.