New zealand provides a natural laboratory to test whether knowledge spillovers arise from auditor-provided non-audit services. Unlike prior research, we do not assume constant audit quality but first test whether audit quality varies with auditor-provided non-audit services and audit efficiency. Results show that higher non-audit fees paid to the auditor in conjunction with shorter audit lag does not reduce the quality of the audit. Results reveal a negative association between non-audit fees and audit lag, thus suggesting the presence of knowledge spillovers. However, the knowledge spillover effect is limited to the city office providing both the audit and non-audit services.
Knechel, W. R., Sharma, D., & Sharma, V. (2012). Non-audit services and knowledge spillovers: Evidence from New Zealand. Journal of Business Finance & Accounting, 39(1-2), 60-81. https://doi.org/10.1111/j.1468-5957.2011.02268.x