Clinch (1983) examined the possibility that there are cash‐flow effects involved in the decision not to comply with the requirement to depreciate buildings. He interpreted his results as evidence that non‐compliance involved greater auditing costs than compliance and provided possible benefits associated with avoiding violations of debt covenants. In this paper, the analytical and empirical grounds for expecting increased auditing costs are discussed and it is argued that, in general, such cost increases may be expected to follow qualified opinions. However, as the sample tested by Clinch consisted predominantly of continuing qualifications, it is suggested that the increasedaudit fees reported by Clinch may not be attributable to the non‐compliance qualifications. A further test of the bond‐covenant hypothesis was conducted using an alternative research design. The results from this test are inconsistent with those reported by Clinch and with the suggestion that decisions not to depreciate buildings are driven by bond‐covenant consi