Academics have found that larger audit firms are less likely to compromise their independence than smaller ones when providing non-audit services to their clients.

And when the provision of non-audit services - and consequently the fee - is relatively high, these smaller firms find it hard to resist aggressive accounting by their clients.

The Lancaster University study into non-audit services, auditor independence and earnings management found that the latter's proximity to analyst's forecasts varies according to the size of the fee for Big Five and non-Big Five firms.

Pelham Gore, Peter Pope and Ashni Singh carried out the research following the recent furore over the issue. In early 2000, the Securities and Exchange Commission found over 8,000 violations of auditor independence at PricewaterhouseCoopers. Guidelines limiting auditor independence were subsequently issued.

On the surface, auditors can still provide non-audit services to their clients. But the findings in this report suggest a "direct causal link" between non-audit services, audit reporting and financial reporting quality.

The study looked at earnings management activity in a sample of 4,779 UK listed non-financial companies between 1992 and 1998.

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