THE IMPACT OF NON AUDIT SERVICES ON INVESTOR PERCEPTIONS OF AUDITOR INDEPENDENCE, AUDITOR KNOWLEDGE, AND AUDIT QUALITY:AN EMPIRICAL STUDY

Abstract

The issue of auditor independence has been of concern since the Generally Accepted Auditing Standards (GAAS) were first written in 1947. The general standards state that an auditor must not only have adequate technical training and proficiency, and exercise due professional care in planning and performing the audit and preparing the audit report, but must also maintain independence in mental attitude in all matters relating to the assignment . One intention of the Securities and Exchange Commission (SEC) is to insure that companies are telling the truth about their financial condition and the securities they offer. Independence is generally understood to refer to the external auditor's mental state of objectivity and lack of bias (SEC 2000). The American Institute of Certified Public Accountants (AICPA) in their code of professional conduct requires independence both in fact and in appearance when a member in public practice provides auditing and other attestation services (AICPA).

As early as the 1960s, researchers and the trade press have raised concern about the provision of various non-audit services (NAS) by a firm's external auditors. This concern led to the SEC adoption of Accounting Series Release (ASR) No. 250 in 1978