The Relation between Auditor-Provided Tax Service Fees and Audit Fees after the Sarbanes-Oxley Act: From the Perspective of Cross-Selling of Services
Posted: 13 Jan 2011 Last revised: 10 Sep 2014
Date Written: September 10, 2014
The Sarbanes-Oxley Act of 2002 (SOX) permits the provision of tax services by auditors and restricts other major non-audit services previously provided by auditors for their audit clients. This paper examines the relation between auditor-provided tax fees and audit fees after SOX. The results, using a tax fee model and an audit fee model with a larger set of non-overlapping independent variables in both models, show a positive relationship between tax and audit fees, after controlling for factors that could drive both fees. An additional test shows that firms that employ (do not employ) their incumbent auditors also for tax service are likely to pay higher (lower) audit fees than in the case when they only (also) employ their auditors for audit service. The results of other tests are also consistent with the suggestion that auditors cross-sell their non-audit services to their audit clients.
Keywords: Tax service, audit fees, cross-selling of services, Sarbanes-Oxley Act
JEL Classification: M42
Suggested Citation: Suggested Citation