Beaulieu P. Dan A. Reinstein - Belief Perseverance

J. Account.
Public Policy 29 (2010) 353373
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J. Account. Public Policy

journal homepage: www.elsevier.com/locate/jaccpubpol
Belief perseverance among accounting practitioners

regarding the effect of non-audit services on auditor
independence
Philip Beaulieu a,1, Alan Reinstein b,*
a
b
Haskayne School of Business, University of Calgary, Canada

School of Business Administration, Wayne State University, Detroit, MI 48202-3930, USA
a r t i c l e
Article history:
i n f o
a b s t r a c t
We hypothesize, based on management control processes in large
rms (Covaleski et al., 1998), that large-rm practitioners will be
less likely than small-rm auditors to report beliefs that non-audit
services (NAS) impair auditor independence. Based on Goldman
and Barlevs (1974) analysis of auditor-rm conict of interests
and procedural independence safeguards, we also predict that
auditors will report less concern over impairment than non-auditors. We investigate also belief perseverance whether practitioners tend to maintain prior reported beliefs after reading
research on the relationship between NAS and auditor independence.
Practitioners reported their beliefs before and after reading a
summary of Frankel et al. (2002) indicating that providing NAS
may impair independence; Ashbaugh et al. (2003) suggesting that
independence is not impaired; or a summary of both ndings.
Twenty-six percent of small-rm practitioners and 23% of nonauditors reported prior beliefs that NAS impair independence,
much larger proportions than for large-rm practitioners (5%)
and auditors (6%). After reading the summary 20% of small-rm
practitioners and 19% of non-auditors changed their answers, larger proportions than for large-rm practitioners (9%) and auditors
(8%). Results generally support our hypotheses and suggest that as
evidence regarding the effectiveness of key provisions of the
SarbanesOxley Act of 2002 emerges, accounting practitioners will
maintain their beliefs, but react differently depending upon their
* Corresponding author. Tel.: +1 313 577 4530/248 368 8841/248 420 1522; fax: +1 248 368 8950.
E-mail addresses: reinstein@wayne.edu, a.reinstein1@comcast.net (P. Beaulieu), pbeaulie@ucalgary.ca (A. Reinstein).
1
Tel.: +1 403 220 7304; fax: +1 403 210 2217.
0278-4254/$ - see front matter 2010 Elsevier Inc. All rights reserved.
doi:10.1016/j.jaccpubpol.2010.06.005
354
P. Beaulieu, A. Reinstein / J. Account. Public Policy 29 (2010) 353373
specializations and rm afliations. This will affect public policy to

the extent that accountants and auditors, rather than academics,
report research ndings to regulators.
2010 Elsevier Inc. All rights reserved.
1. Introduction
The following statement about the effects of providing non-audit services (NAS) on auditor independence is an excerpt of an interview with Rodger Hughes, former partner in charge of PricewaterhouseCoopers UK Assurance and Business Advisory Services (Nixon 2004, p. 34).
To this day, no one has produced any evidence, and indeed academic studies have actually proved
otherwise, to demonstrate that providing non-audit services creates any problem in terms of audit
quality. And there are very good arguments that providing some non-audit services improves the
audit quality.
This idea that its somehow wrong to provide other services to audit clients is complete and utter
nonsense, and anyone who really understands what we do wouldnt be fooled by that. Theres no
doubt that there are certain services that make absolute sense for your auditors to do and couldnt
in any way be regarded as compromising auditor independence.
By referring to supporting academic studies, this statement seeks to convince the public that
accounting rms do not impair audit quality when they offer NAS. In the larger context, the interview
is part of large rm attempts to inuence public policy on auditor independence that began in 2000,
when the SEC proposed new independence rules. The Big Five accounting rms rst intensied their
lobbying efforts by approaching members of Congress, increasing correspondence to the SEC, and
sharply increasing campaign contributions (Boyd, 2004; Turner, 2006). Since the Enron and WorldCom
scandals and passage of the SarbanesOxley Act (SOX) in 2002 that limited the types of NAS that audit
rms could perform for their audit clients, lobbying has continued and is being extended to the issue
of legal liability, where the Big Four rms have pursued caps (Directorship, 2007). The rms have economic incentives to advocate their positions on these issues: Big Four rms fastest growing segment
in 2007 was advisory services, at rates of 1525% (Deloitte, 2007; Ernst and Young, 2007; KPMG, 2007;
PricewaterhouseCoopers, 2007). Because much of that growth occurred in such international markets
as China, large CPA rms may wish to discourage the spread of SOX-style regulation to such markets.
Even within the US, large rms continue to advocate relaxing current independence rules that can inhibit competition among accounting rms, according to William Parrett, Global CEO of Deloitte Touche Tohmatsu (Deloitte, 2006). Large rms may be concerned about state boards of accountancy that
contemplate adopting certain SOX provisions for governmental, regulatory and other audits, i.e., a
cascade effect of SOX (Brau and Fawcett, 2006). They will likely continue lobbying against such legislative interventions, nationally and internationally (Labaton and Glater 2003; Morris, 2003). Such
lobbying may become even more prevalent as debate over the costs and benets of SOX intensies
(Hemphill, 2005) and Congressional and Mayoral leaders (Schumer and Bloomberg, 2006) call for
new legislation.
The quote is signicant because, in summarizing the results of academic studies, Mr. Hughes acts as
a high-prole intermediary between the accounting academy and stakeholders in capital markets
investors, regulators, and other accounting practitioners not conversant with academic research.
How intermediaries like Mr. Hughes view research could affect public policy more than the original
publications, which non-academic audiences may not perceive as relevant (Tuttle and Dillard,
2007). We analyze non-academics reported beliefs both before and after reading about new research,
to understand better the process by which the research affects policy. We rely upon two seminal papers from outside the belief revision literature to channel the discussion in this new direction; the rst
is Covaleski et al.s (1998) ethnographic study of management control in Big Six accounting rms. We
hypothesize that large-rm control systems lead practitioners to report less concern about the relationship between NAS and auditor independence than would small-rm practitioners.
355
The second seminal paper is Goldman and Barlevs (1974) analysis of power relationships between
auditors and their clients, where the state of professional ethics helps auditors minimize client pressure. We hypothesize that auditors, who experience rst-hand the effects of independence and internal independence safeguards (Kinney, 1999), are less likely than non-auditors to report beliefs that
providing NAS could impair independence, regardless of their rms sizes.2 We also predict that
large-rm auditors will be less likely than any other practitioners (non-auditors in large rms and all
small-rm practitioners) to report beliefs that NAS could compromise auditor independence.
A second set of hypotheses addresses changes in self-reported beliefs after practitioners read summaries of credible research on the effect of provision of NAS on auditor independence. These hypotheses are founded on the concept of belief perseverance, the tendency to maintain prior beliefs even in
the face of contradictory information (Anderson et al., 1980; Anderson and Lindsay, 1998; Anderson,
2007; Slusher and Anderson, 1996). While expecting (based on belief perseverance) that research
summaries will not greatly inuence practitioners beliefs in general, we nevertheless predict differences in belief revision related to occupational group. We argue that avowal processes that large
accounting rms management control systems support (Covaleski et al., 1998) motivate large-rm
practitioners to engage in belief perseverance more than do small-rm practitioners. Similarly, professional ethics role in maintaining auditors power relationships with their clients (Goldman and Barlev,
1974) motivates them to persevere in their beliefs more than non-auditors. Practitioners with the
strongest motivation to persevere are auditors in large rms, where avowal and power dynamics related to ethics are combined.
Two papers with similar methods but contrary results provide the research needed to test the
hypotheses. Frankel et al. (2002) found in part that non-audit fees associate positively with the magnitude of their clients discretionary accruals, providing evidence consistent with the view that such
services compromise auditor independence. Ashbaugh et al. (2003) performed tests similar to Frankel
et al. but after controlling for rm performance found no systematic evidence supporting their claim
that auditors violate their independence as a result of clients purchasing relatively more non-audit
services (p. 611). These papers, appearing in the same journal within 1 year and using the same research methods, present contradictory results about the independence issue. We summarized the papers as part of a questionnaire for distribution to four groups of practitioners: large-rm auditors,
large-rm non-auditors, small-rm auditors, and small-rm non-auditors. Practitioners randomly received a summary of Frankel et al., Ashbaugh et al., or both. This research design differs from other
research on practitioners beliefs about independence in that other studies manipulated information
found in hypothetical audit cases e.g., Imhoff, 1978; Lowe et al., 1999; Wright and Booker, 2005).
We asked two nominal multiple-choice questions: one on agreement that auditing rms impair
their independence when accepting non-audit fees from audit clients, and the other for a range of
non-audit fees that would likely compromise independence. The rst time these questions appeared
(before the summary) all of the hypotheses were supported. Large-rm practitioners were less likely
than small-rm practitioners to indicate that auditing rms impair their independence when performing NAS for their audit clients. Auditors answered positively less often than non-auditors and a smaller
percentage of large-rm auditors compared to all other practitioners reported beliefs that independence could be impaired. Large-rm practitioners, auditors, and large-rm auditors also responded
differently to the question on non-audit fees than their comparison groups (small-rm practitioners,
non-auditors, and all other practitioners respectively), groups that more likely answered that relatively small ratios of non-audit fees to total fees could impair auditor independence.
After respondents read the summary, we asked both questions a second time. Regarding impairment of independence, when rms accept non-audit fees from audit clients, 9% of large-rm practitioners, 8% of auditors, and only 5% of large-rm auditors changed their answers. About 20% of their
comparison groups (small-rm practitioners, non-auditors, and all other practitioners) changed answers, signicantly greater fractions and consistent with the differential belief persistence hypotheses.
Results regarding changes in answers to the non-audit fees question were in the predicted direction
2
Non-auditing practitioners may specialize in any area other than auditing. We dene auditors as practitioners who describe
themselves as such in our instrument.
356
but not as strong. Large-rm practitioners reported signicantly fewer changes in their beliefs less
than small-rm practitioners (11% versus 20%); no signicant differences arose regarding auditors
versus non-auditors or large-rm auditors compared to all other practitioners.
The following section reviews the literature on the effect of providing NAS on auditor independence, management control in large rms, the role of ethics in conict of interest, and belief persistence. Six hypotheses, three each on practitioners initial and revised beliefs, are then presented.
The remaining sections present the method, results, and conclusions.
2. Literature review and hypothesis development

2.1. Auditor independence and non-audit services
The Second General Auditing Standard and Audit (AU) Section 220 requires CPAs to maintain independent mental attitudes in all audits and attest engagements. This framework consistently views
auditor independence as a trait correlated with the relatively unobservable traits of integrity and
objectivity (Kinney 1999, p. 70). AICPA Professional Standards [Code of Professional Conduct] (ET)
Section 101.01 (Independence) requires all CPAs providing attest and non-attest professional engagements to maintain their independence (e.g., independence in mind and in appearance). However,
empirical research usually avoids dening auditor independence strictly in terms of unobservable
mental states that are virtually impossible to prove (Schneider et al., 2006). The domain of empirical
research contains such observable correlates of independence as providing NAS and ownership stakes
in client rms.
SEC Final Rule S7-13-00 (20003a), Revision of the Commissions Auditor Independence Requirements,
classies an unobservable independent mental attitude as independence in fact, but also imposes
proxy statement disclosures of non-audit fees to help ascertain an auditors capability to make impartial judgments. The disclosure requirements address independence in appearance. Rule S7-13-00
deems an auditor not independent of a client in appearance if a reasonable investor, with knowledge
of all relevant facts and circumstances, would conclude that the auditor is not capable of exercising
objective and impartial judgment (SEC, 2000, Section I, quoted in Frankel et al., 2002, p. 73). As stated
in the preceding paragraph, empirical research focuses on observable correlates of independence such
as non-audit fee disclosures, and thus is consistent with the Rules orientation towards independence
in appearance. We also focus on independence in appearance in this paper.
Frankel et al.s (2002) nding that non-audit fees are positively associated with the magnitude of
clients discretionary accruals stimulated interest in the association between these variables and its
implications regarding auditor independence. Ashbaugh et al. (2003) countered their result by performing similar tests with additional controls for rm performance and found no such consistent relationship between non-audit fees and discretionary accruals. Chung and Kallapur (2003) also replicated
Frankel et al. controlling for industry effects and were unable to nd a relationship. Geiger and Rama
(2003) did not nd a signicant effect of non-audit fees on audit opinions in a sample of distressed
rms. Kinney et al. (2004) had mixed results regarding the association between NAS and restatements,
but reported a general lack of adverse economic impacts. Larcker and Richardson (2004) found a positive association between the ratio of non-audit fees to total fees and unexpected accruals, but only
for 8.5% of their sample, consisting of smaller rms with distinctive corporate governance (including
higher insider holdings). Reynolds et al. (2004) replicated the Frankel et al. result, but after controlling
for high-growth clients found that the Frankel et al. result for the fee ratio disappeared. Mitra and
Hossain (2007) found that blockholders of common stock vary negatively with the non-audit service
fee ratio, suggesting that they play a monitoring role and affect managements decision to purchase
NAS.
In summary, research since Frankel et al. (2002) has qualied their result to specic sample characteristics and has reduced concern over the relationship between auditor independence and NAS. An
exception to this generalization is Srinidhi and Gul (2007), who concluded that non-audit fees are
associated with a loss of audit quality, while audit fees result in higher quality. Nevertheless, together
Frankel et al. and Ashbaugh et al. (2003) have formed the foundation for most archival research on the
357
relationship between NAS and auditor independence in this decade, thus helping to motivate this
study of belief perseverance among accounting and auditing practitioners.
2.2. Practitioners stated beliefs about auditor independence and non-audit services [NAS]
The accounting profession has historically opposed restrictions on the scope of services auditors
can provide to their audit clients, e.g., AICPA CEO Melancons (2000a, p. 26) response to the SECs
(2000) proposal to proscribe 10 non-audit services that auditors could provide to their audit clients.
He said that no study of the perceptions of users of audited nancial information supports the massive shift in public policy that the proposed rule would enforce. Whether Melancon accurately assessed public support for proposed rule changes, his blanket statement raises the question, Will all
practitioners state that there is a relationship between auditor independence and provision of NAS
and will they disregard evidence to the contrary? We answer this question by dividing practitioners
into subsamples based on two criteria: size of the accounting rm and area of specialization (audit
versus non-audit).
We assert that the divergent interests of large and small accounting rms cause varying beliefs
about independence in appearance.3 The former groups self-interest would favor regulators allowing
their rms to offer NAS; competing with other professional service consulting rms requires CPA rms
to market and cross-sell the largest possible array of services (Wyatt, 2004).4 Before passage of the SOX
and Section 404 increased the demand for compliance services, auditing was deemed a mature industry
in contrast to the growth area of NAS, with the long-term success of accounting rms then linked to marketing such services. For example, former Touche Ross managing partner Russell Palmer (1989) stresses
that this maturation process had changed the professions very identity due to the increasing importance
of consulting to a profession once dened by its auditing function; the expanding product base for audits
can no longer satisfy larger rms need for growth. However, before passage of the SOX, SEC Chair Levitt
(2000) noted that consulting services represented an ever-increasing proportion of larger CPA rms total
revenues, a trend that could impair their independence.5
Large accounting rms lobbying efforts regarding independence rules reect their economic interests. In the 1990s, the large rms and the AICPA resisted SEC attempts to restrict consulting services
that they could offer to audit clients (Wyatt, 2004). Gerde and White (2003) note that in 2000 the Big
Five rms argued that the SECs proposed segregation of work requirements restrained trade, portrayed as a conict largely between large accounting rms and the SEC. In 20022003, the Big Four
accounting rms lobbied the SEC to classify due diligence work on mergers as audit-related fees,
rather than audit fees (Weil and Rapoport, 2003), hoping that this classication would attract less
attention regarding independence. In January 2003, after large rm lobbying, the SEC decided not
to restrict tax work performed for audit clients (Parker, 2003).6 However, SEC Release No. 34-53677
(June 2, 2006) reversed this conclusion in light of the Public Company Accounting Oversight Boards
(PCAOB) rulings prohibiting auditors from performing certain tax services.
Thus far we argue that large accounting rms self-interests regarding NAS can be inferred from
their lobbying positions; a literature on socialization in the profession and practitioners identication
with their rms (e.g., Fogarty and Dirsmith, 2001; Empson, 2004; Almer et al., 2005) provides a basis
for extending rm-level positions to the reported beliefs of individuals. Covaleski et al.s (1998) eth3
In the rest of the paper, we call independence in appearance independence unless otherwise specied.
Large rms have divested themselves of consulting services, but Wyatt (2004) claims they did so under duress rather than
under the belief that they acted in the rms best interests.
5
Nonetheless, AICPA President Melancon (2000b) stated that despite such possible threats to independence, competition to
recruit accounting graduates helps justify large rms performing such services. Limiting the array of NAS could hinder such rms
from recruiting highly qualied graduates who may wish to perform both consulting work and audit services. SOX Section 208s
requiring at least a 1-year cooling off period for [high-level] auditors moving to client rms exacerbates this problem. Facing such
narrow career paths, potential recruits may shun public accounting for private industry or government. Jean Wyer of
PriceWaterhouseCoopers commented on the impairment of recruiting effects of the 1-year cooling-off period at a 2005 American
Accounting Association Auditing Midyear Meeting plenary session.
6
We assume that these lobbying activities supply a frame of reference to individual large-rm practitioners regarding the
independence issue, and that they tend to adjust their beliefs accordingly.
4
358
nographic eld study of management control in Big Six rms suggests that individual practitioners
will report beliefs that are consistent with their rms positions. Covaleski et al. (1998, p. 300) rely
on the process of avowal as Foucault (1988) described to characterize control in Big Six rms as follows (emphasis added):
In the following sections, our purpose is to demonstrate how Management by Objective (MBO) and
mentoring can be understood as managerial programs directed at transforming the subjectivity of
professionals into entrepreneurs or corporate clones. In particular, whereas MBO as a disciplinary
technique seeks to forge corporate clones by integrating individual goals within rm goals, mentoring, as a technique of the self, is complicit in realizing corporate clones when people avow organizational imperatives as their own.
The organizational imperative at issue here is large accounting rms ability to offer NAS to their
audit clients; Covaleski et al. (1998) establish that control systems are in place to encourage large-rm
practitioners to avow positions supporting provision of NAS, particularly that auditor independence is
not compromised. Such ethnographic studies have not been conducted in smaller accounting rms,
and we make no assertions as to whether they generally rely on avowal as a control process. However,
smaller rms have not lobbied as large rms have, participate less in the audit market, and do not
share the same economic interests, so less reason arises to expect them to use avowal processes specically to encourage practitioners to express the opinion that provision of NAS does not compromise
auditor independence.
The depth of personal conviction of practitioners avowed positions consistent with rms imperatives faces much interpretation and debate. We asked them direct questions about independence,
recognizing that two dimensions exist in these self-reports: practitioners (1) true beliefs, which
may be subconscious and consequently difcult to report (Moore et al., 2006) and (2) actual reports
to others (e.g., to researchers). The latter dimension entails an awareness of reporting a position, albeit
anonymously, to all readers of the survey results. We do not pretend to capture private beliefs and
changes therein that may be inaccessible to practitioners, even if they wanted to report them. We take
these self-reports at face value; they are the beliefs that practitioners want represented, through us, to
the public.7 We predict that self-reports of beliefs will suggest more concern about effects of NAS on
independence among small-rm than large-rm practitioners, who may be encouraged to avow that
independence can be maintained.
H1. Small accounting rm (auditors and non-auditors combined) practitioners will be more likely
than large rm (auditors and non-auditors combined) practitioners to report beliefs that providing
non-audit services to audit clients will reduce auditor independence.
Besides effects of economic interests on practitioners beliefs, we posit a specialization effect such
that auditors should usually view providing NAS as a smaller threat to independence than would nonauditors. We posit two sources of auditors beliefs on this topic: procedural and ethical. First, auditors
experience restrictive independence guidelines within their rms which, combined with compensation plans that protect auditors economic interests, encourage objectivity and integrity of the auditor (Kinney, 1999, p. 73). These safeguards exist regardless of the state of external regulation and
sanction (Kinney, 1999), although external principles, rules and threats likely strengthen the perception among auditors that safeguards are effective.
Second, we apply Goldman and Barlevs (1974) theory of conict of interests and power relationships, cited in papers such as Nichols and Price (1976), Shockley (1981), Knapp (1985), and Green
(2005). In this theory, a key source of power for accounting rms seeking to resist audit client pressure
is the state of professional ethics, especially if they are elaborate and vigorously and visibly enforced
7
An alternative explanation of our approach to reported beliefs is that we have incorporated demand effects into the research
design (explained more fully in the methods section). Participants are fully aware that the research question concerns the
relationship between providing NAS and auditor independence, and how the research summary is related to this issue. We rely on
their awareness to predict differences in what could be considered the personal lobbying positions of various groups of
practitioners. We generalize to what practitioners will report to the public about this issue and the effect of research on their
beliefs, not to how they would interact with actual audit clients.
359
(Goldman and Barlev, 1974, p. 712).8 We extend this line of reasoning from a supposedly objective
state of ethics to practitioners perceptions of their efcacy. Auditors likely will view professional ethics as more powerful allies than non-auditors because they are more familiar with them and may have
personally relied on them in negotiations with clients. While opinions vary as to the current state of
professional ethics in auditing, we assume that auditors perceive them differently than do non-auditors, and that thus a stronger belief than non-auditors that independence can be maintained when
providing NAS. David et al.s (1994) survey of 161 practitioners from a large CPA rm supports this
position; auditors attributed signicantly more importance than non-auditors to the AICPA Code of
Professional Conduct statement regarding maintaining independence when providing auditing and
other attestation services.
Additionally, Gendron and Suddaby (2004) interviewed a small sample of Big Five audit partners;
four of ve did not believe that non-audit fees threaten auditor independence, consistent with our
expectations based on procedural safeguards and Goldman and Barlevs (1974) posited power relationships. Auditors may be more knowledgeable about ethics and safeguards than non-auditors; for
example they may be more aware that consultants on tax or information systems are not the same
people who audit. Due to differing perceptions of the efcacy of ethics and knowledge of how safeguards operate, we predict that the prior beliefs of auditors and non-auditors will differ.
H2. Non-auditors (in both small and large rms) will be more likely than auditors (in both small and
large rms) to report beliefs that providing non-audit services to audit clients will reduce auditor
independence.
We expect the rm-size effect based on economic interests and the audit specialization effect predicted in H1 and H2 to be most pronounced among large-rm auditors. Avowal control processes in
large accounting rms as described by Covaleski et al. (1998) reinforce auditors experience of both
independence-promoting procedures and the power-enhancing effect of professional ethics (Goldman
and Barlev, 1974). A practical factor contributing to this effect is that larger rms can segregate better
audit and non-audit teams, facilitating adherence to ethical standards on the audit side when providing NAS. We do not assert that procedures and professional ethics are or are not actually effective in
maintaining independence in large rms, but suggest that large-rm auditors experience them more
directly than other practitioners, resulting in stronger belief in their efcacy.
H3. Auditors in large rms will be less likely than all other practitioners (including non-auditors in
small and large rms and auditors in small rms) to report that providing non-audit services to audit
clients will reduce auditor independence.
2.3. Differential belief perseverance
The rst three hypotheses examine accounting professionals reported beliefs before seeing new
evidence of auditor independence. Based on the belief perseverance concept, the tendency to cling
to ones initial belief even after receiving new information that contradicts or disconrms the basis
of that belief, (Anderson, 2007, p .109) we expect that practitioners will tend to maintain their beliefs
after reading summaries of new evidence. Three psychological processes may contribute to belief perseverance (Anderson, 2007), which relates closely to primacy effects (Nickerson, 1998). First, people
using the availability heuristic rely upon a memorable argument, and in our study this would supersede the content of a summary. Availability is strongest when a theory supports memorable arguments (Anderson et al., 1980; Anderson and Lindsay, 1998), or more explanations exist to support a
prior belief than an alternative one (Slusher and Anderson, 1996), and most accounting professionals
have likely discussed theories about auditor independence in their education and careers. Second, under the illusory correlation process, people remember more conrming than disconrming cases, which
8
Goldman and Barlev (1974)also discuss three other sources of auditors power: law, the nature of the problem solved (routine
or non-routine), and beneciaries from services. We deem these sources less relevant to auditors beliefs and therefore limit our
discussion to the state of professional ethics. In addition, we do not argue that auditors are aware of Goldman and Barlev (1974),
only that their beliefs about the role of ethics may be consistent with Goldman and Barlevs theory.
360
may strengthen practitioners beliefs in the face of new summarized evidence. Finally, data distortion
involves inventing conrming evidence and ignoring disconrming evidence; the latter disconrming
process would be relevant to this study. The study is not designed to determine which of these three
processes dominates practitioners belief perseverance. Rather, we nd in this literature a strong basis
for expecting that their beliefs will not be easily changed by a summary of large-sample research evidence regarding the effect of NAS on auditor independence. Involving heuristics in belief perseverance
processes is not necessarily dysfunctional in auditing; conservatism, for instance, may be viewed as a
functional heuristic that serves to minimize economic losses (Smith and Kida, 1991).
Based on belief perseverance, we expect research summaries not to inuence greatly practitioners
general beliefs, but we still predict differences in belief revision related to occupational group. Large
rms have economic motives to provide a full range of NAS to audit clients, and if practitioners in those
rms choose to report beliefs consistent with lobbying positions (H1), then they should be less likely to
report changes in their beliefs than small-rm practitioners. The basis of H1 was the avowal control
processes large accounting rms employed (Covaleski et al., 1998); H4 explores the strength of avowal
when large-rm practitioners are exposed to evidence on the independence issue. To the extent that
they were transformed into self-managing subjects in their discourse (Covaleski et al., 1998, p.
322), large-rm practitioners will refrain from changing their reported beliefs regardless of evidence
provided. Small-rm practitioners, whose rms have less reason to invoke avowal control processes
with regard to providing NAS to audit clients, may be less motivated to report unchanged positions.
H4. After reading evidence regarding the effect upon auditor independence of providing non-audit
services to audit clients, practitioners in small accounting rms (auditors and non-auditors combined)
will be more likely to report changes in their beliefs than practitioners in large rms (auditors and
non-auditors combined).
The argument regarding audit specialization (H5), following H2 on auditors initial beliefs auditors,
relies also on Goldman and Barlev (1974). Auditors beliefs about power relationships with audit clients and the state of professional ethics are likely stable, being the product of personal experience and
career interests. Auditors would face some difculty in reporting changes in their beliefs about effects
of NAS on the basis of one piece of evidence. Non-auditors have less at stake in the balance of power
with audit clients, both psychologically and professionally, and may be less reluctant to report
changes in their beliefs. As is the case with H4, we do not claim that non-auditors will change answers
often on the basis of a short summary, only that they are less motivated to report consistent beliefs
than auditors.
services to audit clients, non-auditors (in small and large rms) will be more likely to report changes
in their beliefs than auditors (in small and large rms).
We posit that belief revision will be least among large-rm auditors. If avowal control processes
(Covaleski et al., 1998) and their opinions about the effectiveness of professional ethics in countering
the power of audit clients (Goldman and Barlev, 1974) affect their initial reports, large-rm auditors
would be motivated to report consistent reasoning after evidence is presented. Other practitioner
groups lack this combination of management control and personal interest in the buffering effect of
professional ethics.
services to audit clients, auditors in large rms will report changes in their beliefs less often than all
other practitioners (including non-auditors in small and large rms and auditors in small rms).
3. Method
3.1. Questionnaire development
To collect relevant data, we developed and administered a survey instrument containing two questions about the effect of provision of NAS on auditor independence along with manipulated summa-
361
ries of the Frankel et al. (2002), Ashbaugh et al. (2003), or both papers. Surveys are appropriate for collecting data to help understand or predict human behavior (Alreck and Settle, 1985) and to obtain
respondents preferential characteristics (Rea and Parker, 1997).
The questionnaire contains four parts: Part A, demographic questions; Part B, questions concerning
their beliefs about auditor independence; Part C, the article summary followed by the same questions
about auditor independence that appeared in Part B; and Part D, an open-ended question asking why
the summary paragraph did or did not affect respondents opinions on the topic. Respondents were
asked in Part C to give the same answers as in Part B if their opinions did not change or to select
an alternative if they revised their opinions. They were told that they could refer back to Part B if they
wanted to check their prior answers.
At the beginning of Part B, the following paragraph dened independence in appearance and directed respondents to answer questions with respect to this concept.
Part B contains questions about auditor independence, which SEC Final Rule S7-13-00 denes as a mental state of objectivity and lack of bias. Since mental states are difcult to observe, the SEC set out an
independence in appearance criterion, such that if a reasonable investor, with knowledge of all relevant facts and circumstances, would conclude that the auditor is not capable of exercising objective
and impartial judgment, then an auditor is not considered independent of a client. In all of the following
questions, assume that independence refers to independence in appearance
The two multiple-choice questions that appeared in Parts B and C follow. Neither question asks
about the state of mind of individual auditors independence in fact; they ask about independence
based on rm-level non-audit fees, which may appear to compromise independence. The rst question is categorical while the second allows respondents to report the strength of their positions. For
example, those most willing to indicate that non-audit fees compromise independence may select
the rst quartile (a) rather than the second (b).
1
Auditing rms impair their independence when they accept non-audit fees from audit
clients.
a. Yes
b. No
c. Depends upon circumstances
d. Do not know
2.
Non-audit fees representing what percentage of total audit rm fees will likely
compromise the auditors independence?
a. 125%
d. 76100%
b. 2650%
e. Do not know
c. 5175%
Per H1H3, small-rm practitioners, non-auditors, and all except large-rm auditors would more
likely answer yes to the rst question than large-rm practitioners, auditors, and large-rm auditors.
The former groups would tend to select lower ranges of percentages in response to the second question. H4H6 predict that the former groups would be more likely to select different responses to these
questions when asked a second time in Part C.
In Part C we developed three versions of a one-paragraph summary: (1) Frankel et al. (2002) suggesting that such NAS impair auditor independence; (2) Ashbaugh et al. (2003) suggesting that independence is not impaired; and (3) a summary of both (see Appendix A). The third version, slightly
longer than the other two, states that the two studies support different conclusions due to Ashbaugh
et al.s controlling for rm performance. There are three reasons for this balanced design. First, we
did not assume that all respondents in any group (small rm, large rm, etc.) had the same prior
beliefs about the effects of NAS on independence, and therefore we could not target summaries
to individual respondents. Second, with respect to the second question about the ratio of non-audit
fees to total audit rm fees that would likely compromise auditors independence, a summary could
be consistent with respondents prior beliefs and they could select a stronger consistent answer (an
362
even lower or higher range consistent with priors). Therefore, summaries both inconsistent and consistent with prior beliefs were of interest. Third, a version of the summary covering both papers was
included to give some indication as to which paper may have been more persuasive in a direct
comparison.
All summaries were written in a neutral language, were quite similar, and delivered a simple
message about the effect of NAS on auditors independence. They described the two experimental
variables as discretionary income-increasing accruals, which is a measure of earnings management,
and the ratio of non-audit fees to total fees. A positive association between these variables, found
in Frankel et al. (2002) but not in Ashbaugh et al. (2003), suggests that providing NAS reduces independence. Identifying the source journal as The Accounting Review, we noted in the summaries that
ndings in each paper were based on large samples of about 3000 observations.9 Pre-testing the survey
instrument on 10 local CPA practitioners, four national CPA practitioners, ve accounting and business
professors, and four local Financial Executives Institute [FEI] chapter members revealed no comprehension difculties.
The concise summaries describe only the two variables of interest, a denition of earnings management, the sample size, the result, and a conclusion regarding the effect of provision of NAS on auditor
independence.10 This presentation allows us to conclude that changes in answers represent reactions to
a specic test, i.e., an attempt to maintain internal validity. But, as is common in experimental research
designs, questions about external validity remain. Frankel et al. (2002) and Ashbaugh et al. (2003) include many other tests and interpretations; our design could not present the full articles to respondents,
ask them to read and understand them, and then infer that changes in their answers were reactions to
specic ndings. We do not attempt to draw conclusions regarding these or other accounting and auditing research papers as complete documents.
3.2. Survey method
We asked senior contact persons to distribute versions of our questionnaire to many of their rms
staff professionals. Respondents could either return the anonymous responses to the contact persons
(who would return them to us in sealed envelopes) or send them to us directly. One author also
administered the surveys to targeted users and preparers attending professional meetings in a large
Midwest metropolitan area prior to his meeting presentations and to two large accounting rms
groups of public auditors. Response rates were indeterminable for either technique because we do
not know the number of questionnaire recipients.
4. Results
Of 349 received responses, 24 (7%) who reported having read TAR after 2001 were deleted from the
sample to ensure that Frankel et al., (2002) or Ashbaugh et al. (2003) did not affect reported initial
beliefs.11 Table 1, Panel A shows the distribution of the remaining responses by subgroup, dening
small rms as having up to 500 professional employees and large rms over 500.12 Practitioners
who indicated that their professional work involves (does not involve) auditing work were classied
9
While Frankel et al. (2002) and Ashbaugh et al. (2003) used the ratio of non-audit fees to total fees, we instead used the ratio of
non-audit fees to audit feesbelieving that this ratio is a bit clearer to our respondents. In any event, both sets of ratios should
provide fairly equivalent results. We note, however, that Ashbaugh et al. [p. 612] preferred using the sum of audit and non-audit
fees, rather than the fee ratio to help measure economic dependence, but we wanted to use comparable variables for our
summaries.
10
The summary of both Frankel et al. (2002) and Ashbaugh et al. (2003) also included an explanation for the difference in the
papers results.
11
We also ran statistical tests including the 24 TAR readers, and the results were unaffected. Sixteen other responses were
received from practitioners who did not work for public accounting rms; we deleted these responses.
12
The question regarding rm size gave the following ranges of professionals employed in the respondents rm as responses
(number of responses in parentheses): 1 (31), 25 (49), 610 (23), 1120 (22), 2150 (43), 51100 (10), 100200 (8), 201500 (14),
and over 500 (125). The nal category sought to capture large-rm effects; however, all tests were run with large rms dened as
greater than 200 professionals, and signicance levels were not affected.
363

Table 1
Sample distribution.
Panel A: Responses by subgroup
Small-rm non-auditorsa
Small-rm auditors
Large-rm non-auditors
Large-rm auditors
Total responsesb
Version of
paragraph
conclusion
Small-rm
non-auditors
Panel B: Sample frequencies of paragraph

Auditors are less
55 (32%)
independent
Independence is not 60 (35%)
affected
Both articles are
57 (33%)
summarized
Total
172 (100%)
172
28
52
73
325
Small-rm
auditors
Large-rm
non-auditors
Large-rm
auditors
summaries
10 (36%)
18 (35%)
26 (36%)
9 (32%)
16 (31%)
23 (32%)
9 (32%)
18 (35%)
24 (33%)
28 (100%)
52 (100%)
73 (100%)
Respondents in small rms reported up to 500 professional employees in their rms.

Those in large rms indicated over 500 professionals.
b
Sample sizes are reduced slightly in subsequent tables due to unanswered questions.
as auditor (non-auditors). Non-auditors all had work experience in accounting and/or had accounting
designations (e.g., CPA). Sample sizes range from 28 small-rm auditors to 172 small-rm non-auditors,
but as shown in Table 1, Panel B, within each group the three versions of the summary paragraph were
distributed equally (in thirds). A chi-square test indicates no signicant differences in distributions of
paragraph versions.
The rst multiple-choice question asked whether auditing rms impair their independence when
they accept non-audit fees from audit clients, responding yes, no, depends upon circumstances, and do
not know. Frequencies of responses appear in Table 2. Majorities ranging from 56% to 78% of all groups
in Panels AC selected the depends on circumstances responses, which could be expected given the
complexity of auditor independence. A categorical yes or no answer indicates a strong desire to report
unconditional belief that accepting non-audit fees does or does not affect independence. In Panel A,
consistent with H1, practitioners in small rms were much more likely to answer yes than those in
large rms (26% versus 5%). The former group also indicated less often that impairment depends upon
circumstances (58% versus 70%). The chi-square p value for Panel A is .000.13
As reported in Table 2, Panels B and C, the frequency results regarding the effect of audit specialization (H2) and large-rm auditors compared to all other practitioners (H3) are similar to Panel A.
Large-rm auditors answered yes to the impairment question least often (3%, Panel C). The chi-square
p value is .000 for Panels B and C.
H4H6 focus on changes in beliefs following reading the article summary. Regarding the rst multiple-choice question on impairing independence, we combined the depends and the do not know
answers because they are both uncommitted responses. Thus, we classied Table 3 subjects as changing their answers if there was any change between yes, no, and depends/do not know, and as not
changing their answers if no changes arose between these three categories.
Sixteen percent of the total sample changed their answers to the independence impairment question the second time it was asked, after respondents read the summary paragraph. The effect of rm
13
All tests in this and remaining tables are chi-square due to the nominal level of data, specically these responses: yes, no,
depends on circumstances, do not know, did not change answer, and changed answer. ANOVA or regression cannot be used; values
of 1, 2, etc. cannot be assigned to these responses because there is no ordinal, let alone interval or ratio, relationship among the
values. As a result we were unable to control for demographic variables such as years of experience in the tests; setting criteria for
demographic groups (e.g., less or greater than 10 years of experience) would be arbitrary and results in insufcient samples sizes
for chi-square tests. We recognize this as a limitation of the study.
364
Table 2
Responses to rst impairment question.
Panel A: Effect of rm size (chi-square p value = .000a)
Is independence
impaired?
Small-rm auditors and non-auditors (n = 198) (%)
Large-rm auditors and non-auditors

(n = 125) (%)
Yes
No
Depends on
circumstances
Do not know
Total
26
15
58
5
23
70
1
100
2
100
Panel B: Effect of audit specialization (chi-square p value = .000)

Is independence
Non-auditors in small and large rms (n = 222) (%)
impaired?
Yes
23
No
19
Depends on
56
circumstances
Do not know
2
Total
100
Auditors in small and large rms

(n = 101) (%)
6
16
78
1
100
Panel C: Large-rm auditors versus all other practitioners (chi-square p value = .000)
Is independence
Non-auditors in all rms and auditors in small rms Auditors in large rms (n = 73) (%)
impaired?
(n = 250) (%)
Yes
22
3
No
18
18
Depends on
58
78
circumstances
Do not know
2
1
Total
100
100
a
For chi-square tests, both of the do not know cells have expected counts less than ve. The p values are the same with the
do not know row included or excluded from the tests.
size is reported in Table 3, Panel A; 20% of small-rm practitioners and 9% of large-rm practitioners
changed their answers. The chi-square test yields a p value of .007, supporting H4. Again the results
are similar regarding audit specialization (H5, Panel B) and large-rm auditors compared to other
practitioners (H6, Panel C), with the lowest frequency of changed answers reported for large-rm
auditors (5%, Panel C). The chi-square p values for Panels B and C are both less than .05.
Table 4 breaks down changed opinions by version of the summary. A consistent change occurs
when an uncommitted answer, or an answer contrary to the studys conclusion, changes to an answer
consistent with the conclusion. About half of changed opinions among small-rm non-auditors (15)
were consistent with the summary concluding that providing NAS impairs auditor independence; a
total of six other practitioners changed this way, including only one large-rm auditor. These results
appear to drive the differences shown in Table 3. This pattern is repeated for the summary nding that
independence is not impaired in that more (seven) small-rm non-auditors made consistent changes
than other (three) practitioners. Regarding the balanced summary of both articles, few changed answers appeared (one or two each) for all groups except for small-rm non-auditors, who recorded
eight changed answers. Table 4 also indicates that four small-rm non-auditors, one large-rm
non-auditor, and one large-rm auditor changed answers in a fashion inconsistent with the summary
they read; uncommitted answers were changed to inconsistent answers, or answers consistent with
the studys conclusion were changed to uncommitted or inconsistent answers. The chi-square tests
reported in Table 3 are not affected when deleting these inconsistent changes from the sample.14
14
Forty respondents answered either yes or no to the rst question about impairing independence and received a summary
contrary to that opinion (of either Frankel et al. (2002) or Ashbaugh et al. (2003)), but these numbers are too small to conduct
hypothesis tests on this subsample.
365
Table 3
Changes in answer to impairment question after reading summary paragraph percentages.
Panel A: Effect of rm size (chi-square p
value = .007)
Is independence + impaired?
Did not change answera
Changed answer
Total
Panel B: Effect of audit specialization (chi-square
p value = .021)
Is independence impaired?
Did not change answer
Changed answer
Total
Panel C: Large-rm auditors versus all other
practitioners (chi-square p value = .006)
Is independence impaired?
Changed answer
Total
a
Small-rm auditors and non-auditors

(n = 192) (%)
80
20
100
Large-rm auditors and nonauditors (n = 124) (%)

91
9
100
Non-auditors in large and small rms

(n = 215) (%)
81
19
100
Auditors in large and small

rms (n = 101) (%)
92
8
100
Non-auditors in all rms and auditors

in small rms (n = 243) (%)
81
19
100
Auditors in large rms

(n = 73) (%)
95
5
100
Changed answers are dened as any change between yes, no, and uncommitted answers (depends or do not know).
The second multiple-choice question asked what ratio of non-audit to total audit rm fees would
likely compromise an auditors independence; lower percentages indicate that NAS will likely impair
independence. Responses to the rst time this question was asked appear in Table 5. The effect of rm
size is shown in Panel A; a higher percentage of small-rm practitioners (24%) selected the minimum
125% category, reporting strong beliefs that non-audit fees compromise independence, than the percentage of large-rm practitioners who did so (9%). The former group also indicated do not know
less often than the latter (33% versus 48%). The chi-square test of Panel A has a p value less than
.001, supporting H1.
Table 5, Panel B reports the effects of audit specialization on responses to the fees question. Responses of auditors again reect less concern that provision of NAS compromise independence; for
example, 21% of non-auditors selected the 125% category, compared to 11% of auditors who chose
it. The chi-square p value for Panel B is .055, indicating marginal support for H2. Table 5, Panel C is
consistent with Panels A and B because large-rm auditors (the focus group) display less apprehension
about harmful effects of providing NAS than all other practitioners (the comparison group). The chisquare test for Panel C is signicant (p = .027), supporting H3. The combined results of Table 5 are consistent with the theory that control systems in large accounting rms encourage practitioners to state
positions consistent with their rms interests (Covaleski et al., 1998), as well as the theory that auditors draw upon professional ethics as a source of power in relationships with clients (Goldman and
Barlev, 1974).
Table 6 reports changed answers to the non-audit fees question after reading the summary paragraph. Fewer large-rm practitioners changed answers than small-rm practitioners (11% versus
20%, Panel A), fewer auditors changed than non-auditors (14% versus 18%, Panel B), and fewer
large-rm auditors changed answers compared to all other practitioners (14% versus 17%, Panel C).
However, the only signicant difference was the rm-size effect (Panel A, p = .029), limiting support
to H4.15,16 This may be due in part to the response options for the fees question, which were quartiles
15
The most common answer change for the fees question, 49% of the total changes (25 of 51),was from do not know to one of the
4% ranges.
16
The questionnaire also included ten Likert scale questions asking for level of agreement that providing specic NAS (e.g.,
consulting, internal audit) reduces auditor independence. As with the two multiple-choice questions, these questions were asked
before and after the summary paragraph. Practitioner type did not generally affect responses or changes in responses to these
questions.
366
Table 4
Direction of changes in answer to impairment question.
Small-rm nonauditors
Small-rm
auditors
Large-rm nonauditors
Large-rm
auditors
Summary concludes independence is impaired

Consistent changea
15
Inconsistent change
2
2
0
3
0
1
0
Summary concludes independence not impaired

Consistent change
7
Inconsistent change
2
2
0
1
1
0
1
2
6
0
1
2
0
2
0
34
Summary of both articles

Change to impairmentb
Change from
impairment
Total changes
a
A consistent change occurs when an uncommitted answer, or an answer contrary to the studys conclusion, is changed to
an answer consistent with the conclusion. An inconsistent change occurs when an uncommitted answer is changed to an
inconsistent answer, or an answer consistent with the studys conclusion is changed to an uncommitted or inconsistent
answer.
b
In this version two papers were summarized, one concluding that NAS may impair independence and the other that
independence is not impaired. Change to impairment means that an answer was changed from uncommitted, or that NAS do
not impair independence, to the opinion that NAS do impair independence. Change from impairment indicates a change in the
opposite direction.
Table 5
Responses to rst non-audit fees question on percentage of fees that would likely compromise independence.
Panel A: Effect of rm size (chi-square p value = .000)
125%
2650%
5175%
76100%
Do not know
Total
Small-rm auditors and nonauditors (n = 193) (%)

24
22
14
7
33
100
Large-rm auditors and

non-auditors (n = 122) (%)
9
11
21
11
48
100
Panel B: Effect of audit specialization (chi-square p value = .055)

Non-auditors in small and large
rms (n = 216) (%)
125%
21
2650%
20
5175%
15
76100%
7
Do not know
37
Total
100
Auditors in small and large

rms (n = 99) (%)
11
13
22
10
43
100
Panel C: Large-rm auditors versus all other practitioners (chi-square p value = .027)
Non-auditors in all rms and
auditors in small rms (n = 243) (%)
125%
21
2650%
20
5175%
15
76100%
8
Do not know
36
Total
100

(n = 72) (%)
7
14
22
8
49
100
(125% of total rm fees are non-audit fees, etc.). Respondents may not have been able to record changes
in their beliefs in these relatively wide ranges.
367

Table 6
Changes in answer to non-audit fees question after reading summary paragraph.
Panel A: Effect of rm size (chi-square p
value = .029)
Did not change answera

Changed answer
Total
Small-rm auditors and non-auditors

(n = 187) (%)
80
20
100
Large-rm auditors and nonauditors (n = 107) (%)

89
11
100
Non-auditors in small and large rms

(n = 209) (%)
82
18
100
Auditors in small and large

rms (n = 98) (%)
86
14
100
Non-auditors in all rms and auditors

in SMALL rms (n = 236) (%)
83
17
100

(n = 71) (%)
86
14
100
Panel B: Effect of audit specialization (chi-square

p value = .453)

Changed answer
Total
Panel C: Large-rm auditors versus all other
practitioners (chi-square p value = .514)

Changed answer
Total
a
Changed answers are dened as any change between any of the response categories: 125%, 2650%, 5175%, 76100%, and
do not know.
Table 7
Classication of written responses regarding effects of the summary on opinions upon reading
the Frankel, Johnson, and Nelson or Ashbaugh, LaFond and Mayhew summaries.
Did not change opinion or said that summary did not affect it
Said that effect of NAS depends, but did not specify upon what
Said it depends, and disclosed how they dene it dependsa
Stated beliefs about the effect of NAS on independence
Criticized the paper or summary of it
Miscellaneous
Total
48
10
20
40
31
20
169
a
A synopsis of responses in this and the remaining three categories of Table 7 appears in
Appendix B.
4.1. Additional analysis of written responses

At the end of the questionnaire in Part D, respondents were asked to explain why the summary paragraph affected or did not affect their opinion about effects of accepting non-audit fess upon auditor
independence; 169 wrote responses, which are organized into six categories in Table 7. One-third (58)
wrote no informative answers, stating only that their opinions had not changed; the summary did not
affect them; or NAS affect on independence depends, without specifying upon what; but 60 disclosed
why NAS affects varies or stated their opinions on the topic. Many mentioned the amount of audit or
non-audit fees or the scope and type of NAS as causing the varying effects. Two responses referred
explicitly to the advantages of not allowing the audit team to perform NAS. Only one respondent stated ethics specically (my ethical responsibilities keep me from being affected), but another nine
discussed the role of integrity or punishment of individuals who have hurt the profession, consistent
with Goldman and Barlevs (1974) thesis about the role of professional ethical standards.17 Appendix B
presents a synopsis of the written responses from Table 7.
17
As shown in Table 7, 31 respondents criticized the paper as summarized. Criticisms included that (1) they needed more
information about the 3000 sample rms; (2) earnings management could not be captured by the extent of discretionary accruals;
(3) a causal relationship was not proven; and (4) the research was biased.
368
5. Conclusions
The SEC (2003b) received only two comment letters directly from accounting academics regarding the auditor independence sections of the SOX: Geiger (December 12, 2002) and Kinney et al.
(January 7, 2003), both of which referred to their working papers on independence. Deloitte and
Touches January 7, 2003 comment letter cited Kinneys paper (later published as Kinney et al.
(2004)) to support its position that the Act should not prohibit tax services. Kinney et al. (2004)
found that rms paying higher tax services fees experienced fewer nancial restatements. Regarding
conicts of interest resulting from employment relationships, Deloitte and Touches comment letter
agreed there should be support mechanisms, but argued that the scope of issuers employment relationships affected by the Act should be more restricted. However, unlike its discussion of tax services and the Kinney et al. (2003) comment letter, in the case of employment relationships
Deloitte and Touche did not cite Geigers comment letter, which was led almost a month earlier.
The related paper, later published as Geiger et al. (2005), found higher levels of discretionary accruals by rms that hired CFOs, VPs-Finance, and Controllers from their current auditor than rms hiring from elsewhere.
This is precisely the differential treatment of research evidence by practitioners addressed in this
paper. There may not appear to be public policy consequences because both research papers had been
led by their authors via comment letters, but normally unpublished and published research is not
entered directly into the public record by authors. It is much more common for public accounting
rms to comment on the state of research in general without citing specic studies. This is the approach seen below in the section of the Deloitte and Touche (2003, p. 20) comment letter dealing with
prohibitions on appraisal or valuation services.
There is no new evidence, research, or congressional nding that would serve as support for the
Commission now to eliminate those limited exceptions to the prohibition on appraisal and valuation services that were carved out as part of the 2000 rulemaking.
Statements like this carry public policy consequences to the extent that policymakers rely upon
such assertions by accounting rms about research, including that done by academics. Our objective
is to show that these assertions are not necessarily due to practitioners passive ignorance of research;
active processes contribute to their publicly stated opinions. Large rms have lobbied against restricting provision of NAS to audit clients and have control systems that encourage their members to avow
this organizational imperative as their own (Covaleski et al., 1998). We thus predict and nd that
large-rm practitioners are less likely to report beliefs that non-audit fees impair auditor independence than practitioners in small rms. Large-rm practitioners are also less likely to report beliefs
that relatively lower ratios of non-audit to total fees are needed to compromise independence than
small-rm practitioners.
Ethical standards are a source of power to help auditors resist client pressures (Goldman and Barlev, 1974). Personal experience with such standards and rms procedural independence guidelines
should make auditors less likely to report beliefs that non-audit fees impair independence than
non-auditors. Results supported this hypothesis for two questions, one requesting an opinion about
impairment in general and the other a ratio of non-audit to total audit rm fees that would compromise auditors independence. We also predicted that large-rm auditors are less likely to report beliefs
that non-audit fees impair independence than all other practitioners, because they experience largerm control systems (Covaleski et al., 1998) and perceive that professional ethics support them in
power relationships with audit clients (Goldman and Barlev, 1974). This hypothesis was supported
for both this and the fee ratio question.
We also examine belief persistence, the tendency to maintain prior positions when confronted with
new evidence, and claim that large-rm practitioners and auditors have the stronger motivations to
persevere in their beliefs than small-rm practitioners and non-auditors respectively. Practitioners
were asked to read such evidence in the form of summaries of papers concluding that provision of
NAS appeared to impair independence (Frankel et al., 2002), not to affect independence (Ashbaugh
369
et al., 2003), or supporting either conclusion. Small-rm practitioners were comparatively receptive to
the summaries; 20% of them changed their responses to both the impairment question and the fee
question. Large-rm practitioners changed answers signicantly less often, 9% of them for the impairment question and 11% for the fee question. Changes in reported beliefs regarding both questions were
similar for auditors compared to non-auditors, and large-rm auditors (who have the strongest motivations to persistently report the same beliefs) compared to all other practitioners.
Effects on public policy depend on the uid nature of professional ethics and safeguards, regulation,
and the economy. Regarding ethics, the AICPA (2006) passed a principles-based conceptual framework
for independence standards that is consistent with the International Ethics Standards Board for
Accountants (IESBA) Code of Ethics for Professional Accountants (IFAC, 2007). The AICPA framework
calls upon practitioners to identify threats to auditor independence, such as the threat that an auditor
will advocate on a clients behalf to the point of compromising objectivity. Public accounting rms
should respond with appropriate safeguards, including complaint systems that encourage employees,
clients and the public to report unethical behavior. Practitioners will need to adopt a new ethics mindset consistent with this threats-and-safeguards approach (Leibowitz and Reinstein, 2009), a process
that will likely take years to complete and may affect their reported opinions about threats to auditor
independence.
With respect to increased regulation, to date the cascade effect of SOX has not been dramatic.
Gantt et al. (2007) analyzed legislation prohibiting provision of NAS to audit clients enacted in ve
states and found that although state authorities may enact stricter rules than in SOX, only one state
(California) did so. Most states adopted a wait and see attitude regarding progress of federal legislation (Gantt et al., 2007). However, with the downturn in the American economy in 2008 there is
growing support for greater regulation of the nancial sector (Jackson et al., 2008; Lueck, 2008;
Scannell et al., 2008). If a pro-regulation climate extends to the whole economy, it may trigger renewed interest in SOX-style restrictions at federal and state levels. In this climate incentives for
accounting rms and their professionals to maintain continuity in their reported beliefs, and treat
research accordingly, would increase. Academics wishing to serve the public interest better could
follow the example of Geiger (2002) and Kinney et al. (2003) and le their papers directly with
the authorities.
Acknowledgements
We are grateful for the input from Abe Akresh (Government Accountability Ofce), Michael Wright
(University of Calgary), Steve Moehrle (University of Missouri, St. Louis), Mohammad Abdolmohammadi (Bentley College), Brian Green (University of Michigan, Dearborn), Cathy Miller (Wayne State
University), Greg Trompeter (Boston College), Julia Higgs (Florida Atlantic University), Phil Reckers
(Arizona State University), Michael Grayson (Jackson State University), Kurt Pany (Arizona State University), Ed Swanson (Texas A & M University) and Benzie Barlev (Hebrew University).
Appendix A
A.1. Summary of Frankel et al. (2002)
A recent article in The Accounting Review nds that auditors are less independent when their clients
purchase more non-audit services. The article analyzed the ratio of non-audit to audit fees paid by a
sample of 3074 American rms. Clients paying higher such ratios might be able to exert more inuence over their auditors, thus compromising auditor independence. Earnings management at these
rms, which refers to an optimistic bias in earnings, was measured as the amount of income-increasing accruals (over which management had some discretion to report in nancial statements). The article found that rms paying higher ratios of non-audit to audit fees tended to display greater earnings
management, indicating that auditors are less independent when their clients purchase a higher proportion of non-audit services.
370
A.2. Summary of Ashbaugh et al. (2003)

A recent article in The Accounting Review nds that the independence of auditors is unaffected
when their clients purchase more non-audit services. The article analyzed the ratio of non-audit to
audit fees paid by a sample of 3170 American rms. Clients paying higher such ratios might be able
to exert more inuence over their auditors, thus compromising auditor independence. Earnings management at these rms, which refers to an optimistic bias in earnings, was measured as the amount of
income-increasing accruals (over which management had some discretion to report in nancial statements). The article found no relationship between the ratio of non-audit to audit fees and earnings
management, indicating that auditors are not less independent when their clients purchase a higher
proportion of non-audit services.
A.3. Summary of both Frankel et al. (2002) and Ashbaugh et al. (2003)
Two recent articles in The Accounting Review examined the effect of non-audit services on auditor
independence. Both articles analyzed the ratio of non-audit to audit fees paid by samples of about
3000 American rms. Clients paying higher such ratios might be able to exert more inuence over
their auditors, thus compromising auditor independence. Earnings management at these rms, which
refers to an optimistic bias in earnings, was measured in both articles as the amount of incomeincreasing accruals (over which management had some discretion to report in nancial statements).
One article found that rms paying higher ratios of non-audit to audit fees tended to display greater
earnings management, indicating that auditors are less independent when their clients purchase a
higher proportion of non-audit services. The other article found no relationship between audit fee ratios and earnings management, indicating that auditors are not less independent when their clients
purchase a higher proportion of non-audit services. The difference in the results of the two papers
is due to the fact that one of them adjusted for rm performance in the statistical analysis.
Appendix B. Synopsis of written comments
In Table 7, 20 respondents said the effect of NAS on independence depends, and disclosed how they
dene it depends. Following is a synopsis of their comments.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
Depends on scope of services provided.

It is harder to be independent when the client provides a lot of revenue.
NAS affect independence, except for tax services.
Depends on the mindset of the engagement team willing to take rm stances in spite of
consequences.
There can be an effect on judgments when client fee base is higher on both audit and non-audit
fees.
On judgmental items, whether more liberal interpretations are allowed versus a more stringent
answer.
It depends on who performs services audit team or other professionals.
Depends on integrity of auditors regardless of NAS.
NAS affect independence but question is where do NAS become material enough to affect independence. Also, outsourcing NAS to other accounting rms also affects independence if nonaudit rm depends on audit rm economically.
Ratio of non-audit fees to audit fees matters less than ratio of total client fees to total fees of
partner, ofce, or rm.
Depends on type of NAS and total fees collected from client (does not specify NAS).
NAS can affect independence when fees are a signicant portion of total fees.
Depends on whether audit team members perform the NAS.
If NAS relate to numbers that we audit, independence may be impacted.
Services that affect independence are numbers 4, 5, 9, and 10 on the Likert scale questions.
Independence would be impaired if auditors perform any kind of management function at the
client.
Realistically, fees are difcult to separate from scope of audit and client relationship overall.
371
18. Depends on circumstances, including the size of the rm (but does not say whether its the size
of the client or the accounting rm).
19. Its the nature of NAS that matters (but was not more specic).
20. Consulting fees impair auditor independence.
In Table 7, 40 respondents stated their beliefs about the effect of NAS on independence. Most simply said that NAS fees either do or do not affect independence. Following are eight comments with
additional content.
1. If management is predisposed to manage earnings, will likely distance itself from auditors rather
than engage for additional services.
2. If the public perceives (or believes) auditor independence is impaired then it is. If studies can show
that EM is not related to the amount of non-audit fees, it should be proliferated not just in The
Accounting Review but plastered across billboards, newspapers, and TV broadcasts so the public
perception can be in line with what actually occurs related to auditor independence from clients.
3. AICPA should not let denition of independence be dened by the reasonable investor community.
4. Even if not material to the audit rm NAS fees will affect individual partner compensation.
5. Companies spending on NAS tend to be aggressive and cutting edge and will seek earnings management regardless of who performed the NAS, audit or non-audit rm.
6. CPAs believe themselves independent but do not hold to a higher standard. They are not intentionally deceptive.
7. If auditor has integrity fees do not matter.
8. Weed out individuals who have hurt the profession.
In Table 7, 31 respondents criticized the article(s) and/or the summary. Many comments were general, stating for example that the study was awed. Following are 10 specic comments.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
A causal relationship was not proven.

Earnings management cannot be captured by the extent of discretionary accruals.
More information about the 3000 sample rms was needed.
Hard to believe paragraph was unbiased.
The summary is an academic analysis that ignores the human element.
TAR is an ivory tower publication with no relevance.
Did not believe the study or results measure independence.
Could not tell how the study measured income-increasing accruals.
You cannot detect a weak auditor by studying accrual accounts.
Larger companies have more discretionary dollars to spend. Larger companies have more discretion in nancial reporting. Therefore, overall conclusion of author is awed.
In Table 7, 20 respondents are classied as miscellaneous. Some of them repeated portions of the
summary. Some described their work or business, e.g., I work for smaller businesses that need NAS
or I do not do audits.
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J. Account.

Public Policy 29 (2010) 353373

Contents lists available at ScienceDirect

J. Account. Public Policy

Belief perseverance among accounting practitioners

Haskayne School of Business, University of Calgary, Canada

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specializations and rm afliations. This will affect public policy to

P. Beaulieu, A. Reinstein / J. Account. Public Policy 29 (2010) 353373

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2. Literature review and hypothesis development

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P. Beaulieu, A. Reinstein / J. Account. Public Policy 29 (2010) 353373

P. Beaulieu, A. Reinstein / J. Account. Public Policy 29 (2010) 353373

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Panel B: Sample frequencies of paragraph

Respondents in small rms reported up to 500 professional employees in their rms.

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Small-rm auditors and non-auditors (n = 198) (%)

Large-rm auditors and non-auditors

Panel B: Effect of audit specialization (chi-square p value = .000)

Auditors in small and large rms

P. Beaulieu, A. Reinstein / J. Account. Public Policy 29 (2010) 353373

Small-rm auditors and non-auditors

Large-rm auditors and nonauditors (n = 124) (%)

Non-auditors in large and small rms

Auditors in large and small

Non-auditors in all rms and auditors

Auditors in large rms

P. Beaulieu, A. Reinstein / J. Account. Public Policy 29 (2010) 353373

Summary concludes independence is impaired

Summary concludes independence not impaired

Summary of both articles

Small-rm auditors and nonauditors (n = 193) (%)

Large-rm auditors and

Panel B: Effect of audit specialization (chi-square p value = .055)

Auditors in small and large

Auditors in large rms

P. Beaulieu, A. Reinstein / J. Account. Public Policy 29 (2010) 353373

Did not change answera

Small-rm auditors and non-auditors

Large-rm auditors and nonauditors (n = 107) (%)

Non-auditors in small and large rms

Auditors in small and large

Non-auditors in all rms and auditors

Auditors in large rms

Panel B: Effect of audit specialization (chi-square

Did not change answer

Did not change answer

4.1. Additional analysis of written responses

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A.2. Summary of Ashbaugh et al. (2003)

Depends on scope of services provided.

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A causal relationship was not proven.

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