Background: Maintaining auditor independence is an essential key element of efficient capital markets. Regulators and the public have long been concerned with independent auditing and its potential threats. However, the deliberation on the potential effect non- audit services have on auditor independence rose after the financial crisis. In an attempt to strengthen the credibility of auditors’ work and to restore auditor independence, the European Commission issued the regulation (EU) No 537/2014, which restricts the provision of non-audit services.

Purpose: The purpose of this study is to investigate the effect non-audit services have on auditor independence in the Swedish audit market. By investigating Public Interest Entities in Sweden, a country that exhibits distinct traits from the Roman legal system, we will add empirical evidence to prior research which has yielded mixed results and for the most part been conducted in an Anglo-Saxon country. The results of the study will contribute to the ongoing debate whether the provision of non-audit services influence auditor independence negatively, and thus regulators can use the findings in future stipulation of regulations.

Method: The study uses a deductive approach with a panel research design when investigating non-audit services impact on auditor independence. The sample constitutes of small-, mid- and large cap entities listed on NASDAQ Stockholm in the period from 2012 to 2017. To test the hypotheses of the inquiry, regression analyses were performed. We report one test of independence in mind and two tests of independence in appearance.

Conclusion: The findings demonstrate that there is no association between non-audit fees and the propensity to issue a modified or qualified audit opinion. There is no relationship between unexpected or excess non-audit fees and cost of debt. There is no relation between abnormal non-audit fees and timely loss recognition. Our empirical evidence gives no indication of loss of auditor independence, neither in mind nor in appearance as a result of the statutory auditor providing non-audit services. Regulators and the public can use these findings in future deliberations concerning non-audit services and investors are given an assurance that the reporting quality of financial statements will not necessarily be poor, even though the provision of non-audit services is high.