Auditor Independence: A Nonparametric Test of Differences Across the Big-5 Public Accounting Firms

This small sample study provides additional evidence on the unsettled question of auditor independence: Does the provision of non‐audit services by an auditor compromise independence resulting in a poor quality audit? We also examine whether these findings vary across the “Big‐5” public accounting firms. Most prior studies addressing this question, using parametric approaches and various measures of audit quality, have reported conflicting results. Contrary to these studies, we use a non‐parametric approach and the probability of GAAP violation as a new measure of audit quality to address this question. Using data from a sample of Fortune 500 companies for the year 2000, we find that firms whose auditors provide substantial non‐audit services tend to have a higher propensity to violate GAAP. At the firm‐level analysis, we find that these results are more likely driven by few of the Big‐5 public accounting firms. For the remaining firms, the association between non‐audit services and quality of audit could not be established, primarily because of small sample size and lack of power in the test. Our main finding is consistent with other recent studies that provide evidence that the rendering of significant non‐audit services by auditors creates conflict of interest resulting in poor quality audits. Furthermore, our result of differences in these levels of association among the Big‐5 accounting firms represents a new finding, and suggests that there is a need for controlling them separately in research studies examining auditor independence. L'indépendance de l'auditeur : un test non paramétrique des différences entre les Cinq Grands cabinets d'expertise comptable Résumé L'étude, fondée sur un petit échantillon, livre des données supplémentaires quant à la question non résolue de l'indépendance de l'auditeur : la prestation de services autres que l'audit par un auditeur compromet‐elle l'indépendance de ce dernier et diminue‐t‐elle, ce faisant, la qualité de l'audit ? Les auteurs se demandent également si les observations à cet égard varient selon le cabinet d'expertise comptable parmi les « Cinq Grands ». La plupart des chercheurs qui se sont penchés sur cette question auparavant, à l'aide de méthodes paramétriques et de diverses mesures de la qualité de l'audit, ont obtenu des résultats conflictuels. Contrairement à ces chercheurs, les auteurs ont ici recours à une méthode non paramétrique et utilisent la probabilité de dérogation aux PCGR comme nouvelle mes