The Economics of Nonaudit Services .

Abstract This article investigates the economics of non-auditing services offered by accounting firms in the United States. A recent study disclosed that non-audit fees of the top 20 U.S. CPA firms now average about 40 percent of total fees collected. Many accountants believe that the percentage may increase to 50 percent or more for some firms within the next five years. This rapid deployment of CPA firms into non-audit services has been noted with interest by members of the U.S. Congress. This article attempts to provide an objective analysis of the economic incentives to and consequences of offering non-audit services. It intends to cut through the typical rhetoric offered by proponents and opponents alike and identify the issues related to the economics of offering these services. Clearly, the potential problem posed by non-audit services provided audit clients is that reasonable people might believe that certain non-audit services are likely to influence the auditor's independence. It is important to note that the issue is not whether the auditor is, in fact, independent but whether others think the auditor is independent since it is these third parties who ultimately determine the demand for auditors' services.