Do Non-audit Service Fees Impair Auditor Independence? Evidence from Going-concern Audit Opinions

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Abstract
We find no evidence that non-audit service fees impair auditor independence, where independence is surrogated by auditors' propensity to issue going concern audit opinions. We do find, however, that auditors are more likely to issue going concern opinions to clients paying higher audit fees, suggesting that auditors behave with relatively greater independence towards these clients. Our findings are consistent with Reynolds and Francis (2001) and suggest that market-based incentives, such as loss of reputation and litigation costs, dominate the benefits auditors are likely to receive from compromising their independence to retain clients that pay larger fees. Overall, our findings indicate that recent SEC regulations based on concerns that non-audit services impair auditor independence, are unfounded.