The relation between auditor-provided tax service fees and audit fees after the sarbanes–oxley act: From the perspective of cross-selling of services

Abstract

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 article 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.