This study examines the differences in the provision of non-audit services (NAS) for audit offices that receive SEC Accounting and Auditing Enforcement Releases (AAERs). While prior research examines the links between the provision of non-audit services and impaired auditor independence, less attention has been paid to the contagion effects of independence violations. However, I do not find any evidence of a significant difference in the amount of NAS provided by offices that receive an independence-related AAER, relative to offices that receive other auditor-related AAERs. Broadly, my findings suggest that clients do not differentiate between independence violations and other audit-related violations and that no contagion effect exists for independence violations.

Recent financial crises and accounting scandals resulting from perceived audit failures have given rise to increase criticism in the manner which accountants and auditors respect their professional code of ethics. As a consequence, the SEC rules in 2000 limits the services auditors are allowed to provide to their clients and also set limits on fees for internal audit services. In addition to this, they called upon all firms to disclose all fees paid to auditors for both audit and non-audit services. This thesis investigates whether the provision of Non-Audit Services is associated with auditor’s independence evidence from the earnings management perspective proxy by discretionary accruals. I began this study by examining the relevant textbooks and related articles of accounting and auditing. Furthermore, the hypotheses and research model are proposed based upon related accounting and auditing theories. The data for this thesis were manually collected from the NASDAQ OMX website from the annual financial reports of 107 Swedish public listed firms in the Stockholm Stock Exchange. The selection of these companies was based on their capitalization i.e., Large, Medium and Small size firms. In this study, quantitative research method has been used to explore the relationship between provision of NAS and auditor’s independence with the help of statistical soft wares (SPSS and Excel) for data analysis. My research outcome provides evidence that the amount of non-audit services rendered by a firm’s external auditors is not associated with earnings management; therefore, the auditor’s independence is not compromised for providing NAS to their clients. This no association is an indication that, the auditor’s independence is strengthened during the provision of non-audit services a result consistent with that of prior researches (e.g., DeFond et al. (2002); Crabtree et al. (2004); Chung & Kallapur (2003)). I also found out that, the provision of audit services is not associated with earnings management, an indication of no management discretionary accruals. Therefore, the auditor’s independence is not compromised when providing a joint audit and non-audit services. These results provide an insight concerning the perceptions of auditor independence and also afford empirical evidence regarding the role that non-audit and audit services fees plays in establishing confidence among the users of firms’ annual financial report.

Background: Over the years the EU, the US and the rest of the world have experienced several devastating financial crises. As a result of the Great Recession and several accounting scandals the EU-commission added new proposals of regulations. The Commission carried out a proposal to restrict the non-audit services to audit clients with the purpose to achieve improved audit quality and a more competitive market, which was later approved by the European Parliament.   Purpose & Problem:  The purpose of this thesis was to evaluate how non-audit services to audit clients affect the audit quality and with that information evaluate the opinion divergence between the regulators and the practitioners, on providing non-audit services to audit clients and its effect on audit quality. Method: Our intentions were to compare collected evidence and earlier reports with fresh intake of raw data along with statements from several interview subjects from different positions such as the EU-commission and audit firms. By gathering information from both company personnel and state-working staff in the area of auditing, we obtained sufficient information on the thesis empirical findings we did also take part of professional bodies like IFAC and FAR.   Conclusion: Our conclusion is that both regulators and practitioners chose to define audit quality based on their own interests. We believe that this creates an opinion divergence. In order to resolve this conflict of interest, there is a need to agree on a universal definition of audit quality. To be more particular a definition that leave no room for ambiguities and misinterpretation regarding both practitioners and regulators.

Background In 2008 a global financial crisis erupted. Even though auditors were not to blame for the financial crisis the public questioned how auditors could issue a clean bill of health despite the serious weaknesses. This made the Commission release the 2010 Green Paper on audit policy: Lessons from the Crisis. The Green Paper is a consultation paper which received around 700 replies from various stakeholders. In 2011, the Commission presented their proposal on reform of the audit market, in which many of the key elements had been discussed in the Green Paper. The 2011 proposal seeks to enhance auditor independence and introduce a more dynamic audit market. The proposed reforms are very strict and if the proposal is passed in its current form it would imply a major change of the audit market. This thesis has studied the replies made by investors to the Green Paper; investors are the primary stakeholders and those who should be most concerned with auditor independence. It is therefore important and interesting to study their viewpoints to the Green Paper. Purpose The purpose of this study is to understand and explain investors’ standpoints on the proposals mentioned in the Green Paper to enhance auditor independence, and to examine whether the European Commission, as indicted by the 2011 proposal, require more independence than investors as indicted by the replies made to the Green Paper. Method This study has taken a qualitative approach where the data has been analyzed in-depth. The Green Paper consists of 38 questions; four of these have been studied as they strongly relate to auditor independence. Furthermore this thesis has studied the replies made by investors; investors are the primary stakeholders and those who should be most concerned with auditor independence. It is therefore important and interesting to study their viewpoints to the Green Paper. Conclusion The majority of the respondents’ are negative to the ideas presented in the Green Paper but that does not imply that the Commission requires more independence than investors. Both the Commission and investors argue that status quo is not an option and that auditor independence must be strengthened. What separates their views is how to strengthen auditor independence. The Commission seeks to impose strict regulations while investors prefer good corporate governance as an alternative approach to strengthen auditor independence.

Bakgrund: Rådgivningstjänster utgör idag en betydande del för många revisionsbyråers verksamhet. Revisionsbyråer har på grund av sin revision en kunskapsbas som konkurrenterna ofta inte har, och ett förtroende som revisorer som ger en fördel i rådgivningsbranschen. Dock är det detta förtroende, eller oberoende, som många är rädda för ska åsidosättas när revisorn utför rådgivningstjänster. Studien tar stöd av olika ekonomiska teorier, med fokus på agentteorin. Syfte: Studien syfte är att granska forskning avseende förhållandet mellan rådgivningstjänster och revisorns oberoende. Metod: Studien har utförs genom en litteraturstudie. Fem stycken tidigare publicerade vetenskapliga artiklar har analyserats. Samtliga utvalda artiklar behandlar ett land som är medlem i EU. Resultat: Studiens resultat visar att rådgivningstjänster påverkar revisorns synbara oberoende, men hittar inga starka bevis för att det påverkar revisorns faktiska oberoende. Olika länder i EU förhåller sig olika till revision och rådgivningstjänster. Studien visar även att intressenterna i regel upplever revisorn som mer oberoende om rådgivningstjänster utförs av en annan avdelning/personal på revisionsbyrån än den som utför revisionen. Den relativa nivån mellan rådgivning- och revisionsavgifter spelar också roll, samt om man köper rådgivningen från en Big-4 byrå eller inte. Diskussion: IFACs etiska regler som EU följer nämner att revisorn måste vara synbart oberoende för sakkunniga intressenter. Vilka dessa intressenter är och huruvida de är sakkunniga eller ej diskuteras i studien, samt eventuell diskrepans mellan de analyserade artiklarnas resultat och intressenters faktiska åsikter och konkreta agerande. Studien väger företagens efterfrågan av rådgivning mot intressenters negativa syn på rådgivning och oberoende. / Background: Non-auditing services is a big part of the revenue of auditing firms. Because of auditing, auditing firms aquire a knowledge about their clients that their competitors do not, along with a trust as auditors which gives them a competitive advantage in the non-auditing services industry. However it is this trust, or independence, that is of concern. There is a fear of an auditor compromising their independence when the auditor also supplies non-auditing services to the same client. This study is supported by different economic theories and models, focusing primarily on the agency-theory. Purpose: The purpose of this study is to peruse research concerning the relationship between non-auditing services and auditor independence. Method: The study is performed through a literature review. Five previously published articles have been analyzed. All the selected articles base their research on a specific country, being a member of the EU. Results: The results of this study show that non-auditing services influences auditor independence in appearance, but find no strong evidence for influence on independence in fact. Different member states in the EU approach auditing and non-auditing services differently. The study shows that interested parties sometimes experience the auditor as more independent if the non-auditing services are performed by another division or personnel than the same auditor performing the audit itself. The relative level between non-auditing fees and auditing fees matter to some extent, as well as if the non-auditing services are bought from a Big-4 firm or not. Discussion: The EU follows IFAC’s ethical guidelines, which mentions that auditors must be both independent in fact and independent in appearance to their interested parties, which are deemed to be outside experts. The study further discusses if these interested parties are experts or not, and if there is a discrepancy between the results of the analyzed articles and the actual opinions and actions of the interested parties. The study also weighs the demand for non-auditing services by the business management against the interested parties’ reported negative opinion towards non-auditing services and independence.

ABSTRACT Title: The effect of regulatory reforms on audit quality in a lax enforcement and high trust environment: A quantitative study on Swedish companies                      Level: Student thesis, final assignment for Master Programme in Business Administration  Author: Julia Owczarek Blom  Supervisor: Asif M Huq  Date: 2023 - May Aim: The aim of the study is to investigate the impact of regulatory changes on the consumption of non-audit services and the audit quality among the Swedish publicly listed firms on the Nasdaq Stockholm Stock Exchange. Specifically, the study focuses on whether there is a relationship between the 8th Directive on Statutory Audit and the EU Audit Package on non-audit services and the quality of audits. Furthermore, the study additionally investigates if the Swedish ownership structure has a negative impact on the audit quality among the companies.  Method: The method used in this study is based on a quantitative approach where the final sample that is empirically tested includes 626 Swedish large-, mid-, and small-cap firms listed on the Swedish stock market, Nasdaq OMX Stockholm. Moreover, the data consist of 5517 firm years and annual reports between the years 2001 and 2021.  Result and Conclusions: The result of this study suggests that the implementation of the 8th Directive on Statutory Audits has positively impacted audit quality, although it has not limited the consumption of non-audit services. Furthermore, the study further suggests that the EU Audit Package efficiently increased audit quality among the Swedish firms while, at the same time, decreasing the consumption of NAS. Although both regulations enhanced audit quality, the second regulatory change has been a lot more impactful than the previous one. In addition, the findings of the study suggest that the Swedish ownership structure, consisting of a single or few strong shareholders and companies being majority family owned, has a positive impact on audit quality. Contribution of the thesis: There have not been any studies investigating the impact of the 8th Directive and the EU Audit Package in a Swedish setting, and therefore this study provides insight on the topic. Furthermore, this is one of the first European studies investigating whether a concentrated ownership structure with the majority of firms being family owned has a positive or negative impact on audit quality. Suggestions for future research: For future research, it would be interesting to complement this study through a qualitative method with surveys or interviews to see what kind of NAS is currently most consumed by Swedish companies. Keywords: non-audit services, NAS, non-audit services in Sweden, audit fees, non-audit fees, auditor, audit quality, and auditor independence.

The faith in financial reporting quality and the corresponding auditing process has suffered a lot within the last decade, due to significant accounting scandals (e.g. Enron, WorldCom, Parmalat, etc.). As an answer to these accounting scandals, the law-makers in Germany and the European Union, respectively, have strengthened audit regulations in order to improve the quality of the conducted audits. The aim of this cumulative dissertation is to provide empirical evidence on the effects of intended and already implemented regulative audit requirements in Germany. ln order to consider the wide range of different audit requirements, the dissertation is based on four different study manuscripts, highlighting various perspectives with regard to the appointment, duration, and remuneration of a statutory auditor in the German audit environment. Besides the empirical evidence for separate auditing issues, this dissertation is also aimed to provide a solid theoretical background and critical suggestions for future research.

The faith in financial reporting quality and the corresponding auditing process has suffered a lot within the last decade, due to significant accounting scandals (e.g. Enron, WorldCom, Parmalat, etc.). As an answer to these accounting scandals, the law-makers in Germany and the European Union, respectively, have strengthened audit regulations in order to improve the quality of the conducted audits. The aim of this cumulative dissertation is to provide empirical evidence on the effects of intended and already implemented regulative audit requirements in Germany. ln order to consider the wide range of different audit requirements, the dissertation is based on four different study manuscripts, highlighting various perspectives with regard to the appointment, duration, and remuneration of a statutory auditor in the German audit environment. Besides the empirical evidence for separate auditing issues, this dissertation is also aimed to provide a solid theoretical background and critical suggestions for future research.:I. Audit services, non-audit services, and audit firm tenure – three perspectives on audit quality … 1 II. Abnormal audit fees and audit quality in German audit market: initial evidence on association of audit fee premiums and audit fee discounts with earnings management … 13 III. Effects of initial audit fee discounts on audit quality: evidence from Germany … 32 IV. Non-audit services and audit quality: blessing or curse? … 60 V. Relationship of auditor tenure to audit quality: empirical evidence from the German audit market … 89

IntroduktionRevisionsbranschen anses ha utvecklats från att tidigare ha fokuserat på professionella principer och bedömningar, till att idag fokusera mer på kommersiella intressen. Hög NAS-försäljning har antytts utgöra en utmärkande faktor gällande avancemanget till partnerskapet. Vi undersöker hur konkurrensen om partnerskapet påverkar försäljningen av NAS, då den har antytts påverka revisorns arbetsutförande. NAS-försäljning är ett aktuellt ämne som nyligen har reglerats av EU vilket motiverar och aktualiserar studien.  SyfteSyftet med studien är att utforska hur partnerstrukturen i revisionsbolagen påverkar försäljningen av NAS.  MetodStudien har en kvantitativ forskningsstrategi, en deduktiv forskningsansats och är av explorativ art. Genom dokumentstudier har data från svenska noterade bolag och revisionsbyråer samlats in för två enskilda år och har med hjälp OLS-regressioner analyserats. NAS har mätts som det logaritmerade värdet av bolagens kostnader till revisionsbyrån utöver den lagstadgade revisionen. SlutsatsStudien visar på ej samstämmiga resultat då vi för år 2014 fann att ökad konkurrens om partnerskapet leder till minskad försäljning av NAS, medan inget samband upptäcktes för år 2009. Möjliga förklaringar till resultatet återfinns i Turneringsteorin, som säger att anställdas motivation och prestation kan minska vid för hög intern konkurrens. Att inget samband upptäcktes för år 2009 tyder istället på att revisorn är professionell i sin roll och agerar därmed i professionens linje. / IntroductionThere has been an evolution away from the founding values of the audit industry, which centered on professional values and judgements toward profit-minded commercial interests. High sales of NAS has been implied to be a factor that make auditors prominently conspicuous on their path to becoming a partner. We are exploring the possibility that a competitive environment affect sales of NAS, which has been suggested to impact the way the auditor works. NAS is a current topic that recently was regulated by the EU, which is a motivating factor for this study. PurposeThe purpose of this study is to explore how the audit firms’ partnership structure impacts Non-Audit Services.  MethodThis study has a quantitative research strategy and a deductive research approach that is exploratory in nature. Data from the Swedish listed firms and audit firms have been collected for two years through document studies and have been analyzed with an OLS-regression. NAS was measured as the natural logarithm of the listed firms’ cost to the audit firm beyond the statutory audit costs.  ConclusionOur study shows inconsistent results. In 2014 we found that an increased competition for the partnership leads to a decrease in sales of NAS, while in 2009, no correlation was found. The results in 2014 can be explained by the Tournament Theory, whereas the employee’s motivation and accomplishments may decrease if there is high competition within the firm. A lack of correlation in 2009, suggests a professionalism among the auditors that is in accordance with the auditing profession.

Inom revisionsbranschen upptar tilläggstjänster en betydande del av tjänsteutbudet. Utöver revision erbjuder revisionsbyråerna även tjänster inom redovisning, skatt och rådgivning. Forskning visar att när tilläggstjänster och revision säljs till samma kund så uppstår en synergieffekt som inom forskningsvärlden benämns kunskapsöverföring. Denna synergieffekt har enligt forskarna en positiv inverkan på revisionen vilket i sin tur kan leda till en effektivare revision. Mot denna bakgrund har denna studie som mål att ta reda på vad som konkret bidrar till att kunskapsöverföring kan uppstå inom en revisionsbyrå.Ett delsyfte är att studien ska fungera som en kartläggning av vad kunskapsöverföring kan innebära för revisorers dagliga arbetsuppgifter i praktiken. Eftersom effekten kunskapsöverföring uppstår mellan olika tjänsteområden och avdelningar har studien även som delsyfte att undersöka vilken betydelse kommunikation har för effektens uppkomst.På grund av studiens explorativa karaktär och vår frågeställning valde vi att genomföra dubbla metoder vilket innebar både intervjuer och enkäter. För att utöka vår förståelse och skapa underlag för enkäten genomförde vi sex intervjuer med fem auktoriserade/godkända revisorer och en konsult. Dessa respondenter representerar fem olika revisionsbyråer, varav fyra var big-4 byråer. Efter intervjuerna genomfördes även en enkätundersökning baserad på intervjuernas resultat som vände sig till alla auktoriserade/godkända revisorer i Sverige.Den teoretiska referensramen utgår från den tidigare arkivforskning som gett indikationer på kunskapsöverföringens existens inom revisionsbranschen. Utöver detta behandlas även forskning kring revisorns oberoende samt revisionskvalitet. För att anknyta till studiens delsyfte kring kommunikation presenteras även teorier kring överföring av kunskap.Resultaten från intervjuerna och enkäten presenteras i empirin tillsammans inom gemensamma teman utifrån vilka bidragande effekter vi har hittat. Dessa teman är förberedande arbete och förvarningar, användande av andras arbete, kommunikation, informationsvärdering samt påverkan på revisionsprocess. Empirikapitlet avslutas med två egna förklaringsmodeller för fenomenet kunskapsöverföring.Studien visar att revisorerna i stor utsträckning anser att kunskapsöverföring existerar. Revisorer kan effektivisera revisionsprocessen genom användande av det arbete som andra konsulter gjort under året samt få förvarningar som bättre förbereder dem inför revisionen. Kommunikation är nödvändig för att dessa faktorer ska kunna uppstå och revisorerna värderar information från konsulter individuellt sett. De förklaringsmodeller vi konstruerade kan till 38 % respektive 55 % förklara vad som bidrar till att kunskapsöverföring uppstår mellan tilläggstjänster och revision. / Within the audit industry, non-audit services constitute a significant part of the services that is offered. In addition to auditing, the audit firms also offer services within accounting, tax and advisory. Research has shown that a synergy effect known as knowledge spillover occurs when audit and non-audit services are sold to the same customer. According to the researchers, this synergy effect has a positive influence on the audit service which in turn could lead to a more efficient audit process. With this in mind, this study aims to find out which factors that contributes to the occurrence of knowledge spillover within an audit firm.A subsidiary aim is that the study shall work as an investigation of what knowledge spillover can mean for the daily work tasks of auditors. Since the knowledge spillover effect occurs between different service areas and departments, the study also aims to discover how communication can affect the emergence of the effect.Because of our research question and the explorative character of the study, we choose to perform mixed methods i.e. both interviews and surveys. With the purpose of expanding our understanding and create a basis for our survey, six interviews were performed with five APCs and one advisory consultant. These respondents represented five different audit firms, of which four were big-4. After this, a survey based on the results of the interviews was distributed to all APCs in Sweden.The theoretical framework sets out from earlier archival research that has indicated that knowledge spillover exists within the audit industry. Apart from this, research within the area of auditor independence and audit quality will also be presented. To link with the study’s subsidiary aim regarding communication, theories within the area of knowledge transfer will also be discussed.The empirical findings from the interviews and the survey are presented together in themes based on the contributing effects we’ve found. These themes are preparatory work and warnings, using the work of others, communication, information, evaluation and impact on the audit process. The chapter is then ended with two of our own explanatory models for the phenomenon of knowledge spillover.The results show that auditors to a great extent find that knowledge spillover exists. Accountants can streamline the audit process by using the work of other consultants performed during the year and also by getting early warnings that better prepare them for the audit. Communication is necessary for these factors to occur and auditors’ values information they receive from consultants individually. The explanatory models constructed can explain what factors that contributes to knowledge spillover between audit and non-audit services to 38 % respectively 55 %