ABSTRACT
The contrasting views about auditors providing non-audit services are illustrated by these statements: “(The) performance of (non-audit) and auditing for the same client by the same accountant (is) a combination of incompatible services” (Mautz and Sharaf 1961: 223); and: “Synergies … exist when a firm provides a broad array of auditing and nonauditing services to its clients” (Melancon 2000: 3). Ever since the external financial statement auditor’s firm (hereafter auditor) provided consulting or non-audit services (NAS) to audit clients, concerns about the auditor’s independence have been paramount. NAS became a significant concern following deregulation of the audit market in the 1970s. The intent of deregulating the audit market was to create competition and increase audit quality. However, competition and active advertising including pursuit of clients by audit firms resulted in discounted audit fees and paring of margins. To compensate, audit firms entered the consulting market which rapidly became very lucrative. The audit was a loss-leader commodity as firms low-balled to secure new clients. Some commentators argue that deregulation of the audit market brought unintended consequences such as revenue and profit focus through NAS resulting in recurring audit failures (Hay and Knechel 2010).
