Umeå University's logo

The joint provision of audit and non-audit services byincumbent auditors has been intensively debated in theliterature. The basic issue is that, while non-audit services canimpair auditor independence, knowledge spillovers from theseservices can reduce the audit cost. This is an importanttrade-off for small and medium-sized enterprises (SMEs) thatdepend on their auditors for non-audit services. Using datafrom 322 Swedish SMEs, this study investigates the choice ofpurchasing non-audit services from the incumbent auditor andother audit firms. We hypothesize, and find, that the lengthof the auditor-client relationship is positively related to thepurchase of non-audit services from incumbent auditors. Also,we find a positive association between perceived quality ofaudit services and the likelihood of a client purchasingnon-audit services from the auditor. However, unlike studiesof publicly traded companies, agency variables do not drive thepurchase of non-audit services by SMEs.