Non-Audit Services and Auditor Independence: the Case of Saudi Arabia

Al-Eissa, Abdulaziz Ibraheim (2009) Non-Audit Services and Auditor Independence: the Case of Saudi Arabia. PhD thesis, Victoria University.


The nature of the client-auditor relationship is a critical issue for stakeholders and other users of the audited financial statements. This type of relationship is predicated on trust; however, it is susceptible to differing motives, conflict of interest, and information asymmetries. An external auditor’s independence is crucial to users of audited financial statements. A number of factors may impact the independence of the external auditor. This study investigates stakeholders’ perceptions of NAS on auditor independence in Saudi Arabia, where NAS is banned except tax and zakat service. This study adopted the framework developed by the Independence Standard Board (ISB) Statement of Independence Concepts: A Conceptual Framework for Auditor Independence, which identified five types of threats, four of which occurs when auditors provides NAS for their audit clients. A mail questionnaire method was used to collect the data. Participants were divided into six groups: major audit firms; minor audit firms; loan officers; financial analysts; financial directors; and academics. Non-parametric statistical tests were used in this study, including the Kruskal-Wallis Test and the Mann-Whitney Test, to draw inferential conclusions regarding the data collected. Findings show that participant categories differ in their views on legalising NAS for Saudi auditor clients. While minor audit firms, financial directors, and academics supported the joint provision of audit and NAS, the other three categories did not. This result was supported by the second hypothesis, where the minor audit firms viewed that auditor independence with NAS can be maintained. In addition, all participant categories agreed that the joint provision enhances audit quality. Furthermore, participant categories were divided about the effectiveness of the total ban of NAS. However, all groups agreed that certain procedures can be undertaken to enhance auditor independence. These procedures are: separation of personnel; disclosure of fees; and limiting recruiting services. The familiarity threat was selected by the academic group as the greatest risk to auditor independence while the self-interest threat was selected by the other five categories. Conclusions of this study are that NAS could be extended in Saudi Arabia, with the exception of NAS with proven risk to auditor independence. The nature of the NAS relationship should be clear and pre-approved by the client, and NAS fees published. Further, audit firm personnel undertaking NAS must be separated from the firm’s auditors at all times during the procedures.

Item type Thesis (PhD thesis)
Subjects Historical > RFCD Classification > 350000 Commerce, Management, Tourism and Services
Historical > Faculty/School/Research Centre/Department > School of Accounting
Keywords client-auditor relationship, auditing, financial statements, auditor independence, Saudi Arabia
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