While many non-audit accounting & tax services are now either banned or require audit committee pre-approval, a new academic study shows little or no correlation between those services and lax GAAP enforcement.

Scholz

The study of non-audit services, conducted by several academics including Susan Scholz at

the University of Kansas and William Kinney at the University of Texas, compared hundreds of restatements with "non-restatement" clients by the same auditor that shared similar characteristics (e.g., industry, size, etc.).

The study found that "companies that spent large amounts on tax services from

their audit firm typically had fewer restatements than those who spent small amounts or zero."

The study also found "no consistent, statistically significant" association between banned services like financial information systems design/implementation and restatements.

The summary:

substantial tax services do not typically create an economic dependence on auditors that yields lax GAAP enforcement, and in fact may help improve audit quality.

The complete 44-page study is available, below:

  Download Auditor Independence and Non-Audit Services

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