Non-Audit Services (NAS) and Auditor Independence (AI): Moderating Role of Regulatory Environment

Objectives: This study aimed to examine the influence of non-audit services (NAS) on audit independence (AI) among non-financial companies listed on the Nigerian Stock Exchange (NSE). Specifically, it investigated the relationship between NAS fees and AI, with a focus on how regulatory quality moderates this relationship. Theoretical Framework: The study is grounded in agency theory, which suggests that conflicts of interest may arise when auditors provide NAS, potentially compromising their independence. The research also explores the role of regulatory quality in mitigating such conflicts, contributing to the broader understanding of corporate governance in emerging markets. Method: An ex-post facto research design was employed, analysing secondary data from 280 firm-year observations across 20 companies in nine industry groups on the NSE over a 15-year period (2006-2020). Audit independence was proxied by discretionary accruals, while NAS was measured using the NAS fee ratio (NFR) and the natural logarithm of NAS fees (LNNF). The hypotheses were tested using Autoregressive Distributed Lag (ARDL) models with the aid of Stata v15. Results and Discussion: The findings reveal that higher NAS fees (LNNF) are significantly associated with reduced audit independence, as indicated by increased discretionary accruals. However, this negative impact is moderated by the quality of the regulatory framework, which helps preserve AI. Contrary to initial expectations, the NAS fees ratio (NFR) was found to be positively associated with discretionary accruals, further emphasizing the critical role of regulatory quality in safeguarding audit independence. Research Implications: The study underscores the importance of robust regulatory frameworks in maintaining audit independence in the presence of NAS. It offers practical insights for policymakers and regulators to enhance corporate governance and financial reporting integrity in Nigeria. Originality/Value: This research contributes to the literature by providing empirical evidence from an emerging market, demonstrating the significance of regulatory quality in moderating the relationship between NAS and audit independence. It offers valuable guidance for policymakers, regulators, and practitioners aiming to strengthen corporate governance practices.