Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/318567 
Year of Publication: 
2022
Citation: 
[Journal:] Review of Accounting Studies [ISSN:] 1573-7136 [Volume:] 29 [Issue:] 2 [Publisher:] Springer US [Place:] New York, NY [Year:] 2022 [Pages:] 1524-1574
Publisher: 
Springer US, New York, NY
Abstract: 
This paper addresses the effects of a prohibition of providing non-audit services (NAS) to audit clients. By combining a strategic auditor–client game with a circular market-matching model that has an endogenous number of auditors, we take into account the interdependence between the auditors' and clients' incentives, the market structure, and the quality of audited reports. We show that the regulation's effects depend on the preexisting audit market concentration and the types of blacklisted NAS. In sharp contrast to the effects that regulators desire, a prohibition of providing NAS to audit clients can further increase audit market concentration and decrease the quality of audited reports if the fees that auditors previously earned from providing the blacklisted NAS were relatively high, compared to the reduction in audit costs that result from spillovers. In contrast, a prohibition of the NAS that generate intense spillovers and low NAS fees can have the unexpected–but desired–effect of decreasing market concentration; however, reporting quality also decreases.
Subjects: 
Audit market concentration
Audit market regulation
Circular market-matching model
Financial reporting quality
Non-audit services
Spatial competition
JEL: 
D43
L11
M42
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.