International Business Research; Vol. 15, No. 6; 2022 ISSN 1913-9004 E-ISSN 1913-9012 Published by Canadian Center of Science and Education 88 Potential Threats to Audit Firm Independence: Evidence from Italy on Audit Quality Marco Angelo Marinoni 1 , Anna Maria Fellegara 2 & Andrea Lippi 3 1 Assistant professor, Catholic University of Sacred Heart, Piacenza, Italy 2 Dean, Faculty of Economics and Laws, Catholic University of Sacred Heart, Piacenza, Italy 3 Associate professor, Catholic University of Sacred Heart, Piacenza, Italy Correspondence: Marco Angelo Marinoni, Catholic University of Sacred Heart, Piacenza, Italy. (*) The present paper is a joint paper but Anna Maria Fellegara wrote the Introduction. Marco A. Marinoni wrote paragraphs 2, 3, and 4, and Andrea Lippi wrote the conclusion. Received: March 7, 2022 Accepted: May 19, 2022 Online Published: May 24, 2022 doi:10.5539/ibr.v15n6p88 URL: https://doi.org/10.5539/ibr.v15n6p88 Abstract Purpose – This study aims to investigate the potential threats to the independence of an auditor who provides both auditing and non-audit services (NAS), in terms of credibility of and confidence in audit quality. Design/methodology/approach – In this study, we first replicate the results of Campa and Donnelly (2016) using hand-collected publicly available data for a sample of 91 Italian manufacturing public companies audited by a Big 4 and non-Big 4 audit firm over a longer time horizon (2015˗2019) using the panel data approach, based on three interconnected regression models. Findings – Previous studies in this area did not find a unique interpretation of the association between auditor independence and provision of NAS. Our findings reveal that auditor independence, as measured by the magnitude of discretionary accruals, is compromised by the provision of NAS, especially when unexpected audit fees are lower than expected. Enhanced credibility can lead to greater confidence in audit value. This study’s results should be of interest to European and U.S. legislators, to improve financial reporting quality. Originality/value – In the wake of the global financial crisis and loss of confidence in the role of auditors, this study investigates the supposed threats, to to aim to enhance the credibility of and confidence in audit quality, especially in settings outside the Anglosphere. This study would contribute to the literature to support the more binding approach for audit firms. Keywords: audit credibility, audit fees, audit market regulation, audit quality Paper type: Research paper JEL Classifications: M410; M480; G38, G28 1. Introduction The aim of this research is to examine the independence of audit firms, with particular regard to the possibility of providing non-audit services (NAS). This is a widespread practice both in SMEs and in large companies, which the European Union and the Member States have tried to restrict by setting constraints to protect the formal and substantial independence of auditors, a fundamental requirement for accepting and subsequently retaining their mandate. In recent decades, companies have increased their demand for NAS from auditing firms, as evidenced by the increasing income from “non-core business” operations of the Big 4 and, subsequently, all other audit firms. Consulting audit firms' “transparency reports” has made possible analysis of the revenues of the main audit firms in Italy. The concept of NAS includes all those services provided by the audit firm that do not relate to the auditing. There is only a potential threat to independence if the auditor (or their professional network) provides NAS to the direct clients and, to a lesser extent to their subsidiaries and associated companies. It is for this reason, therefore, that this research considers potential threats to the independence of an auditor who provides both