Non-audit services and audit quality in non-PIE non-small Maltese companies

Abstract

Purpose: This study aims to obtain an understanding of stakeholders’ perceptions of audit quality attributes within a non-PIE non-small company audit setting, and the effect thereon of different types of auditor-provided non-audit services. This study also seeks to identify any gaps between stakeholders’ perceptions and regulations governing non-PIE non-small company audits. Design: A mixed methodology was adopted, combining quantitative and qualitative research methods. Quantitative data was collected through a questionnaire, which was distributed to registered auditors. Qualitative data was collected from 13 semi-structured interviews conducted with members from four stakeholder groups: regulators, audit partners, auditees and external users. Findings: Stakeholders perceive attributes relating to auditors’ competence and reputation to be the most important in ensuring audit quality within a non-PIE nonsmall company audit context. However, when assessing the impact of auditorprovided NAS on audit quality, stakeholders focus primarily on how auditors’ independence is impacted. Knowledge spillovers are only perceived to positively impact audit quality when auditors’ independence is not impaired. Perceptions vary across different types of NAS; whereas auditor-provided tax services are perceived to positively influence audit quality, stakeholders consider some NAS types (including legal, litigation and bookkeeping services) to impair audit quality when provided by auditors, despite such provision being permitted by law. Conclusions: Despite not perceiving independence to be the sole determinant of audit quality, stakeholders consider primarily the impact on auditors’ independence when assessing how different auditor-provided NAS types impact audit quality within a non-PIE non-small company setting. The study concludes that not all NAS types are perceived to affect audit quality in the same manner. Furthermore, it is established that the current regulatory regime allows the provision of certain NAS types by auditors to non-PIE non-small company auditees which are perceived by stakeholders to impact audit quality negatively. Implications: The findings increase auditors’ knowledge of stakeholders’ expectations in the case of non-PIE non-small company audits. Moreover, regulators are alerted to certain provisions of the law where changes could improve perceptions of auditors’ independence. By focusing on non-PIE nonsmall companies, this study contributes to the debate regarding the suitability of prohibitions brought about by EU Regulation 537/2014 and the possibility of imposing further restrictions.