Non-audit services and the corporate governance of audit clients

This paper investigates whether firms with strong corporate governance perceive non-audit services (NAS) as a threat to auditor independence or as a mechanism to improve audit quality. The sample consisted of 706 firms listed on Bursa Malaysia in 2014 and employed six proxies for corporate governance. The findings show that firms with a bigger audit committee and a higher proportion of independent members in the audit committee are linked with higher NAS, consistent with the resource-based view. The study also found that audit firms in the Big 4 were paid a higher amount of NAS compared to non-Big 4 firms., in line with the general view that the Big 4 auditors supply higher quality services than the non-Big 4. However, it was also found that a more independent board of directors is associated with a low NAS. This suggests that although the board of directors might perceive NAS a threat to auditor independence, a strong audit committee subscribes to the argument that the benefits outweigh the costs. This study contributes to the present literature on the determinants of NAS in an emerging market and would be informative to regulators worldwide when considering new policies related to NAS.