Too Much of a Good Thing? Evidence of a Nonlinear Association Between Non-Audit Services and Audit Quality

The effect of providing clients non-audit services (NAS) on audit quality remains relevant and important to regulators. Prior academic studies provide evidence of either positive or negative effects of NAS on audit quality via knowledge spillover and independence or distraction. This study complements existing research by examining whether the association between NAS and audit quality varies over the range of NAS provisions by the audit offices. Specifically, we predict and find a nonlinear (i.e., concave) association between office NAS provision and audit quality. Additional analysis reveals that the result is primarily related to auditor-provided tax services (APTS) rather than non-tax NAS. Overall, this study contributes to our understanding of the effect of NAS provision on audit quality over the distribution of NAS provision