Do auditor-provided nonaudit services improve audit effectiveness?

This study examines whether auditors are able to transfer knowledge from a nonaudit task to an audit task to determine whether performing both tasks potentially improves audit effectiveness. Auditors are presented with nonaudit workpapers indicative of increased audit risk and three different levels of personal involvement with the audit client. Results indicate that auditors who completed the nonaudit task transferred the knowledge about client risks and provided higher audit risk assessments than auditors who only reviewed the nonaudit workpapers. There was no evidence of knowledge transfer when the same nonaudit workpapers were attributed to a member of his or her firm or another audit firm. This study's results suggest that in order to obtain a positive knowledge transfer from nonaudit services to audit services, the same personnel must work on both engagements. However, fewer fraud risk factors were identified when the audit firm provided nonaudit services versus when a different firm provided the nonaudit services. This finding suggests that auditors might exhibit less professional skepticism for clients when their firm performs nonaudit services.