Non-audit services and bias and accuracy of voluntary earnings forecasts reviewed by incumbent CPAs

Chen Lung Chin, Shou Min Tsao, Hsin Yi Chi

Research output: Contribution to journalArticlepeer-review

12 Scopus citations

Abstract

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 UK and US, 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. The findings also suggest that examining the auditor, and in particular, the provision of non-audit services, in isolation of an institutional environment provides an incomplete analysis of financial reporting.

Original languageEnglish
Pages (from-to)661-676
Number of pages16
JournalCorporate Governance: An International Review
Volume15
Issue number4
DOIs
StatePublished - Jul 2007

Keywords

  • Accuracy
  • Bias
  • Non-audit services
  • Voluntary earnings forecasts

Fingerprint

Dive into the research topics of 'Non-audit services and bias and accuracy of voluntary earnings forecasts reviewed by incumbent CPAs'. Together they form a unique fingerprint.

Cite this