Local accounting firms’ pricing responses to entry of the Big Four accounting firms into China

2016 ◽  
Vol 6 (1) ◽  
pp. 50-68 ◽  
Author(s):  
Vikram Desai ◽  
Bixia Xu ◽  
Tao Zeng
Keyword(s):  
Market Entry ◽  
Audit Fees ◽  
Annual Reports ◽  
Pricing Strategies ◽  
Accounting Firms ◽  
Content Type ◽  
Audit Market ◽  
The Usa ◽  
Audit Reports ◽  
Big Four

Purpose – The historical development and size of China’s audit market provides an opportunity to investigate important questions regarding the functioning of the market for audit services that are difficult, if not impossible, to test in other globally established markets. The purpose of this paper is to examine the effect of the market entry of the Big Four accounting firms into China on the audit fees charged by its local accounting firms. Design/methodology/approach – In this paper the authors rely primarily on the incumbent pricing literature (Simon, 2005; Geroski, 1995) to assist them in developing the specific hypotheses and empirical tests. This paper is an empirical study, which examines whether local incumbent accounting firms cut prices in response to the Big Four’s entry by using data from annual reports and audit reports for China’s listed companies from the 1994 to 2008 period. Findings – This study shows that local incumbent firms cut prices post-entry. This study also finds that it was local large-sized accounting firms as well as accounting firms located in regions with highly developed- and competitive markets that cut prices in response to the Big Four’s entry. Practical implications – This study has important implications for the Big Four accounting firms as it provides useful information about pricing strategies that would likely be used by local accounting firms in a new market. Local accounting firms in emerging markets can also gain useful insights about the pricing strategies adopted by the Big Four accounting firms when they enter a market. Originality/value – Audit market research has little to offer on how local accounting firms respond in their pricing to the entry of Big Four accounting firms into their market, mainly because in western countries such as Canada, England, and the USA, the Big Four accounting firms are the oldest firms operating in those markets. This paper is the first study that examines the effect of the market entry of the Big Four accounting firms into China.

Is Hong Kong ready for accounting education reform: an analysis of tri-partite views

2014 ◽  
Vol 27 (3) ◽  
pp. 249-265 ◽  
Author(s):  
Theodore T.Y. Chen
Keyword(s):  
Hong Kong ◽  
Education Reform ◽  
Financial Reporting ◽  
Accounting Education ◽  
Accounting Firms ◽  
Content Type ◽  
The Usa ◽  
Accounting Practitioners ◽  
The Uk ◽  
Big Four

Purpose – The purpose of this study is to determine whether Hong Kong is ready for accounting education reform. Design/methodology/approach – The approach for this study is using a Likert-scale questionnaire for the academic institutions, the Hong Kong Institute of Certified Public Accountants and the big four accounting firms, followed by detailed follow-up interviews with each. Findings – There is general agreement among accounting academics and the profession that the Accounting Education Change Commission initiatives should be adopted in Hong Kong. Hong Kong accounting academics in public institutions do not oppose to a balance between teaching and research, but would oppose to an emphasis of teaching over research. This is important as an overemphasis on research could mean less time for teaching and curriculum development. The big four accounting firms are either happy with the way Hong Kong universities have been educating the accounting graduates or have no complaints against them. This is also important as an urge for accounting education reform usually comes from the practitioners as in the USA. Originality/value – The USA was the first country that saw the need for accounting education reform as accounting practitioners felt that curriculum and pedagogical considerations placed heavy emphasis on the technical aspects of accounting at the expense of a general, broad-based education. Similar needs for change were also found in the UK and Australia. As Hong Kong is one of the world’s major financial centres with a large securities exchange, there is a great deal of emphasis on accounting standards, financial reporting, corporate governance, etc., and hence the importance of accounting education. Is Hong Kong ready for the change?

The impact of market inequality on audit price

2019 ◽  
Vol 34 (9) ◽  
pp. 1149-1172
Author(s):  
Kimberly Dunn ◽  
Mark Kohlbeck ◽  
Brian Mayhew
Keyword(s):  
Market Structure ◽  
Audit Fees ◽  
Opposite Pattern ◽  
Content Type ◽  
Audit Market ◽  
Industry Level ◽  
The Usa ◽  
National Industry ◽  
The Impact ◽  
The City

Purpose This paper aims to evaluate policymakers’ concerns about the lack of competition in highly concentrated markets for public company audits by examining the association between audit fees and the inequality of Big 4 market shares at both the USA national-industry and city-industry levels. Design/methodology/approach Using publicly available data, this paper uses regression analysis to examine publicly available data to test research hypotheses related to the association between audit market inequalities and audit fees at both the USA national-industry and city-industry levels. Findings The findings support a U-shaped association between national-industry inequality and audit fees. As inequality initially increases, fees decrease; however, as inequality becomes increasingly large fees increase. The city-industry level analysis shows the opposite pattern. The results are consistent with capacity constraints at the national-industry level that are less binding at the city-industry level. Research limitations/implications This study provides evidence that market inequality has a non-linear association with audit price and contributes to the limited findings in industrial organization research on the importance of market share inequality in highly concentrated markets. Originality/value This study provides new insights into the growing body of research on audit market structure by documenting that national-industry and city-industry analysis provides different insights into the market structure. In addition, the sample period for this study (2004-2017) addresses the General Accounting Office (GAO) concern about the lack of a stable audit market in the period it examined (GAO, 2008, p. 94) and finds evidence of market structure effects not present in the earlier GAO studies (GAO, 2003, 2008).

Audit prices and Big 4 fee premiums: further evidence from Thailand

2017 ◽  
Vol 7 (1) ◽  
pp. 2-15 ◽  
Author(s):  
Thanyawee Pratoomsuwan
Keyword(s):  
Price Competition ◽  
Stock Exchange ◽  
Audit Fees ◽  
Audit Pricing ◽  
Content Type ◽  
Audit Market ◽  
Big 4 ◽  
Audit Fee ◽  
The Usa ◽  
Using Data

Purpose Because there is mixed evidence regarding Big N fee premiums across countries, the purpose of this paper is to re-examine the phenomenon of audit price differentiations in the market for auditing services in Thailand. Although Hay et al. (2006) and Hay (2013) reviewed over 80 audit fee papers from 20 countries over 25 years, 13 of which were based in emerging economies, the understanding of the market for auditing services in Thailand remains limited. Because the Thai auditing market is also classified as a segmented market – i.e., a market that is less competitive for large-client firms and more competitive for small-client firms – this study tests audit price competition in an emerging audit market using Thailand as an example. Design/methodology/approach The traditional audit fee model is used to estimate audit fee premiums for a sample of over 300 non-financial companies listed on the Stock Exchange of Thailand in 2011. Findings Although the market for auditing services in Thailand is consistent with that described in Ferguson et al. (2013) – in which Big N audit firms dominate only the large-client segment – the results show that Big N auditors charge higher audit fees and earn higher fee premiums compared with non-Big N auditors in both the small- and large-client segments of the audit market. Research limitations/implications The evidence from this study reveals the existence of Big N fee premiums across market segmentations. Audit price differentials between Big N and non-Big N firms in both small- and large-client market segments might concern regulators regarding competition in the audit market with respect to whether the Big N firms are charging uncompetitive audit fees. These findings also imply that audit pricing varies across countries and the Big N price deferential is typically larger in emerging markets than in more developed audit markets and that it might be inadequate to study single-country audit pricing. However, the question whether the Big N fee premium results from Big N product differentiation is not directly investigated in this study. Originality/value Because earlier studies focusing on audit fee premiums have been conducted using data from the USA and Australia, the findings add to the limited evidence regarding audit fee premiums in an emerging country such as Thailand.

External auditor and KAMs reporting in alternative capital market of Thailand

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muttanachai Suttipun
Keyword(s):  
Capital Market ◽  
Descriptive Analysis ◽  
Audit Fees ◽  
External Pressure ◽  
Annual Reports ◽  
Content Type ◽  
External Auditors ◽  
Audit Reports ◽  
Societal Expectations

Purpose This study aims to investigate the extent, level and pattern of key audit matters (KAMs) reporting by companies listed in the market for alternative investment (MAI) in Thailand, and to test for a relationship between the external auditors and KAMs reporting. Design/methodology/approach The population and sample used in this study were all companies listed in the MAI. Based on the annual reports issued by the sample of companies from 2016 to 2018, content analysis was used to quantify the KAMs reporting in the audit reports by using word counting and a checklist. Descriptive analysis, correlation matrix and multiple regression were used to analyse the data. Findings The results showed that the word counts of KAMs reporting fluctuated around 600 words during the three year period studied, while the number of issues on which KAMs reporting was performed was similar each year with an average of 1.63 KAMs issues per company. Moreover, the study found a significant positive relationship between auditor type, audit fees and the level of KAMs reporting. Practical implications This is the first longitudinal study of the KAMs reporting of companies listed in the alternative capital market in Thailand. Originality/value Communication and legitimacy theories were found to offer cogent explanations explaining the quality of and reasons for KAMs reporting by Thai listed companies as a reaction to the need for quality communication between external auditors and company stakeholders, based on external pressure due to societal expectations.

To be or not to be – auditors’ ability to signal going concern problems

2015 ◽  
Vol 11 (2) ◽  
pp. 175-192 ◽  
Author(s):  
Torbjörn Tagesson ◽  
Peter Öhman
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Annual Reports ◽  
Content Type ◽  
Going Concern ◽  
Big 4 ◽  
Audit Firms ◽  
Research Opportunity ◽  
Audit Reports ◽  
The Impact

Purpose – This paper aims to chart Swedish auditors’ likelihood of issuing going concern warnings (GCWs), and to investigate the relationship between formal auditor competence, audit fees and audit firm, respectively, and the likelihood of issuing GCWs. Design/methodology/approach – The empirical data are based on annual reports and audit reports for 2,547 limited companies that went bankrupt in 2010 in the wake of the financial crisis and had filed a financial statement in the year before the bankruptcy. Findings – The findings indicate that Swedish auditors seldom issue GCWs. Moreover, there is a positive relationship between audit fee level and the likelihood of issuing GCWs, and Big 4 auditors being more likely to issue such warnings than other auditors. However, the analyses identify differences between audit firms (within the group of Big 4 firms and within the group of other audit firms) in terms of their predictions of client bankruptcies. This suggests a need for further investigation of firm-specific differences. Contrary to what was predicted, authorized auditors are not more likely to issue GCWs than approved auditors. Research limitations/implications – This paper did not investigate the impact of audit experience and tenure or the possibility that auditors may signal survival problems by resigning. Practical implications – Levying appropriate audit fees creates opportunities for thorough audits, but auditors’ formal competence based on training and qualification is not a factor that enforces audit quality. Based on the findings, the authors also suggest some clarifications of existing standards to reduce ambiguity regarding the reporting of survival problems. Originality/value – The Swedish setting is a context in which most companies are small, creditor interest in accounting and auditing is strong and auditors must issue a modified audit opinion if half of the shareholders’ equity is spent. This setting offers a unique research opportunity because the formal competence differs between Sweden’s two categories of certified auditors, and it allows exploration beyond the dichotomy of Big 4 versus other audit firms.

Audit and legal implications of PCAOB’s inspections among BRIC

2016 ◽  
Vol 58 (2) ◽  
pp. 231-244
Author(s):  
Henry Huang ◽  
H. Gin Chong
Keyword(s):  
New York ◽  
Internal Control ◽  
Audit Quality ◽  
Stock Exchange ◽  
Dominant Role ◽  
Content Type ◽  
Sarbanes Oxley ◽  
The Usa ◽  
Audit Reports ◽  
Big Four

Purpose – This paper aims to analyze Public Companies Accounting Oversight Board (PCAOB) inspection reports on audit reports of those inspected accounting firms in Brazil, Russia, India and China (BRIC). In meeting the requirements of the Sarbanes-Oxley Act, the PCAOB conducts inspections on audit reports of firms listed on the New York Stock Exchange. Design/methodology/approach – The reports include those submitted by both the US audit parent firms and their secondary firms located outside the USA. In each PCAOB report, it unravels the nature of audit deficiencies. The focus is on Big Four because they play a dominant role in the marketplace and issuers’ market capitalization. All the seven-year deficiencies are documented since publications of the reports from 2004 to 2012. Findings – Of the 37 reports, 19 (51 per cent) were issued relating to audits conducted by the Big Four. Out of these 19 reports, 10 (53 per cent) contain inspection criticism. These include audit quality and common recurring audit deficiencies. Research limitations/implications – This paper is based solely on those inspection reports published by the PCAOB. Practical implications – The findings have significant implications to audit firms and the audit profession on improving audit quality, firms’ internal control and reports. Originality/value – No known prior research paper is available on the ramifications of the PCAOB’s inspection reports relating to BRIC.

Audit fee stickiness

2013 ◽  
Vol 29 (1) ◽  
pp. 2-26 ◽  
Author(s):  
Charl de Villiers ◽  
David Hay ◽  
Zhizi (Janice) Zhang
Keyword(s):  
Audit Fees ◽  
Audit Committees ◽  
Future Research ◽  
Audit Pricing ◽  
Content Type ◽  
Audit Market ◽  
Audit Fee ◽  
The Usa ◽  
The Difference ◽  
One Year

Purpose – This study aims to contribute to the understanding of audit pricing and the competitiveness of the audit fee market by examining audit fee stickiness. Design/methodology/approach – The authors explore the price behavior of audit fees in response to changes in the variables that are usually seen as their determinants, such as size, complexity, and risk in order to examine audit fee stickiness and the competitiveness of the market for audit services. Findings – The authors find that audit fees are sticky, i.e. audit fees do not immediately or fully adjust to changes in their determinants. Audit fees also respond to changes leading to an increase more quickly than they respond to changes leading to a decrease. The difference between positive and negative fee adjustments declines over periods longer than one year and is no longer significant when four-year periods are considered. Research limitations/implications – The study is limited to companies in the USA from 2000 to 2008. Future research should examine this issue in other settings and periods. Practical implications – The results suggest that the audit market is competitive, at least in the medium term. Originality/value – The study helps to explain why the audit fee model does not fully explain the level of audit fees; why audit fees are more likely to be too high than too low; and why auditor switches are commonly associated with larger changes in audit fees. The findings provide evidence that may be useful to managers and audit committees when managing their audit fees, auditors when considering the risks and opportunities associated with changes in the determinants of audit fees, and regulators concerned with the competitiveness of the audit market.

Incumbent audit firm pricing: a response to entry of the Big Four accounting firms in India

2015 ◽  
Vol 5 (4) ◽  
pp. 382-394
Author(s):  
Barri Litt ◽  
Vikram Desai ◽  
Renu Desai
Keyword(s):  
Emerging Market ◽  
Multivariate Regression Analysis ◽  
Professional Services ◽  
Accounting Firms ◽  
Content Type ◽  
Audit Market ◽  
Price Cutting ◽  
Pricing Dynamics ◽  
Big Four ◽  
Insight Into

Purpose – The purpose of this paper is to explore the audit price reactions of local accounting firms to the entry of the Big Four accounting firms into the Indian audit market, providing unique insight into emerging market dynamics. Design/methodology/approach – Using financial data from Indian audit clients for a ten-year period from 1996 to 2005, the authors conduct a multivariate regression analysis based on extant audit fee literature. Findings – This study finds evidence of a price-cutting strategy on behalf of the local incumbent accounting firms in response to the entry of the Big Four firms. It also shows small-sized incumbent firms to cut prices more drastically relative to medium-sized incumbent firms. Originality/value – This study provides empirical insight into the pricing dynamics of professional services in an emerging market setting. Such insight is increasingly important in our evermore globalized economy where emerging markets are frequently the targets of expansion.

The interplay between global accounting firms and national institutional contexts: The establishment of the Big Four in China from 1978 to 2007

2021 ◽  
pp. 103237322110581
Author(s):  
Wenjun Wen ◽  
Amanda Sonnerfeldt
Keyword(s):  
Economic Transition ◽  
Professional Service ◽  
Service Firms ◽  
Professional Service Firms ◽  
Accounting Firms ◽  
Audit Market ◽  
Institutional Contexts ◽  
Reform And Opening Up ◽  
Big Four ◽  
Opening Up

This paper provides an analysis of the establishment of global accounting firms (the ‘Big Four’) in China between 1978 and 2007. Drawing on the extant literature on professional service firms, and the work of Faulconbridge and Muzio (2015) , this paper examines how the Big Four entered China following the country's ‘Reform and Opening-up’ and evolved from tentative representative offices to established accounting firms in the Chinese audit market. Based on an extensive analysis of archival materials and interviews, the findings of this paper show that the Big Four's establishment in China has been deeply intertwined with the country's socio-political and economic transition. It reveals important conjunctural moments in history that have provided the Big Four with important windows of opportunity to actively shape local institutional change to their own interests. This paper contributes to the extant accounting literature on the expansion of the Big Four in China by highlighting the interplay between their surrounding institutional context and their capacity for agency.

The effect of the financial crisis on audit quality: European evidence

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Maria I. Kyriakou
Keyword(s):  
Financial Crisis ◽  
Audit Quality ◽  
Ordinary Least Squares ◽  
Least Squares Regression ◽  
Cross Sectional ◽  
Accounting Firms ◽  
Content Type ◽  
Financial Firms ◽  
The Impact ◽  
Big Four

Purpose This paper aims to examine the impact of the recent financial crisis on audit quality by analysing discretionary accruals. Design/methodology/approach This study considers a sample of German, French, Italian and Spanish non-financial firms from 2005 to 2013 to investigate the auditor’s independence. It uses a cross-sectional and time-series ordinary least squares regression model to control for other predictors of the auditor’s independence when the financial crisis produces a decrease in audit quality. Findings The proportion of the non-financial firms having lower audit quality was higher during the financial crisis. In addition, during the crisis auditors were less likely to provide a higher audit quality for these non-financial firms. The level of audit quality returned to normal levels during the post-crisis years when the crisis had ceased. Originality/value These findings contribute to the literature on the impact of economic and financial changes on audit quality. In addition, this research finds that the Big Four accounting firms provide a higher audit quality in different circumstances from non-Big Four accounting firms, and that audit quality decreased during the crisis and returned to normal in the post-crisis period.

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