Audit fees via an indirect payment channel and professional skepticism

2018 ◽  
Vol 33 (5) ◽  
pp. 517-534 ◽  
Author(s):  
Sanghun Kim ◽  
Taewoo Kim ◽  
Sujin Pae ◽  
Sangphill Kim
Keyword(s):  
Audit Fees ◽  
Payment System ◽  
Future Research ◽  
Systematic Change ◽  
Content Type ◽  
Professional Skepticism ◽  
Scarce Resources ◽  
Big 4 ◽  
Audit Fee ◽  
Auditor Judgments

Purpose This paper aims to examine the merit of an indirect payment system for audit fees, a system where an intermediary collects fees from the auditee and then pays this audit fee to the auditor. Design/methodology/approach Big 4 auditors and professional analysts in South Korea participated in an experiment and survey to investigate whether the change in the payment channel (from direct to indirect) of audit fees positively impacts auditors’ decision-making. Findings The authors find evidence that the indirect payment of audit fees is positively associated with professional skepticism. Research limitations/implications This paper, by highlighting the potential for alternate auditor payment channels to improve the quality of auditor judgments, motivates future research in this area. Practical implications Qualified by the need for further research, the potential merit in an indirect payment system may have implications for audit regulators. Social implications An indirect payment channel has the potential to improve public perceptions of the audit function, thereby elevating society’s confidence in auditor opinions and improving the effectiveness and efficiency with which scarce resources are distributed within society. Originality/value This study is one of the first that looks into a systematic change in audit fee payment channel and how an indirect payment system of audit fees impacts professional skepticism.

Facilitating the application of auditors’ underlying skeptical disposition

2020 ◽  
Vol 33 (1) ◽  
pp. 34-56
Author(s):  
Jahanzeb Khan ◽  
Noel Harding
Keyword(s):  
Design Methodology ◽  
Audit Quality ◽  
Future Research ◽  
Relative Importance ◽  
Content Type ◽  
Professional Skepticism ◽  
Schwartz Value Survey ◽  
Auditor Judgments ◽  
The Relationship ◽  
Practical Implications

Purpose Motivated by ongoing calls for auditors to exercise an elevated level of professional skepticism, this paper aims to examine the relationship between basic human values (values) and an underlying skeptical disposition (trait skepticism). Understanding the values that are associated with levels of trait skepticism will help in the design of audit environments that make the application of an underlying skeptical disposition more likely. Design/methodology/approach A survey was administered in which 140 postgraduate auditing students responded to the Schwartz value survey to measure the relative importance of different values, and the Hurtt trait skepticism scale to measure trait skepticism. The relative importance of the ten values was regressed against trait skepticism. Findings This study finds that the importance placed in the values of tradition and power, relative to other values, is negatively associated with levels of trait skepticism. Research limitations/implications The use of postgraduate auditing students as participants may limit the generalizability of the study’s findings. Practical implications Qualified by the need for future research to test the generalizability of the findings to an audit practitioner sample, the results of this study suggest that auditors with higher levels of trait skepticism may experience negative affect in environments that emphasize values of power and tradition. To the extent that current audit environments emphasize tradition and power, the results may help explain why trait skepticism is not consistently reflected in audit judgments and actions. Originality/value The affective implications of the environment within which auditors exercise professional skepticism is emerging as an important area by which to understand and improve audit quality. By identifying the values that those with a high skeptical disposition place relatively less importance in, this study informs an understanding of the circumstances where an underlying skeptical disposition is more or less likely to be reflected in auditor judgments and actions.

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.

How do audit fees change? Effects of firm size and section 404(b) compliance

2019 ◽  
Vol 34 (4) ◽  
pp. 393-437
Author(s):  
Alexey Lyubimov
Keyword(s):  
Audit Fees ◽  
Section 404 ◽  
Content Type ◽  
Control Effectiveness ◽  
Big 4 ◽  
Audit Firms ◽  
Audit Fee ◽  
Second Tier ◽  
Changes Over Time ◽  
Over Time

Purpose The purpose of this paper is to investigate the effect of the size of the audit firm and compliance with Section 404(b) on how audit fees change over time. Design/methodology/approach This study uses panel data and an OLS regression to examine the relationship between audit fee changes, firms’ size and Section 404(b) compliance. Findings Section 404(b)-compliant companies experience a larger change in audit fees if they are audited by Big 4 firms than second-tier firms. Second-tier audit firms increase the fees primarily for the companies which do not comply with Section 404(b). Practical implications Regulators have been concerned with the Big 4 fee premium for four decades. This study informs regulators that the Big 4 continue increasing their fees at a higher rate than second-tier firms for their Section 404(b)-compliant clients (even though recent research shows that second-tier firms have increased quality to match the Big 4). This suggests that the Big 4 fee premium increases for this subset of clients, adding to the regulatory concerns. Originality/value While prior research has established the existence of the Big 4 fee premium, little is known about how this premium changes over time. Prior research shows that audit fees increase when internal controls are weak; however, little is known about how Section 404(b) compliance (once control effectiveness is controlled) affects fee changes. This paper addresses these voids in research.

The impact of non-timely 10-Q filings and audit firm size on audit fees

2018 ◽  
Vol 33 (5) ◽  
pp. 503-516 ◽  
Author(s):  
Tiffany Chiu ◽  
Feiqi Huang ◽  
Yue Liu ◽  
Miklos A. Vasarhelyi
Keyword(s):  
Regression Model ◽  
Firm Size ◽  
Audit Fees ◽  
Audit Risk ◽  
Content Type ◽  
Audit Firm ◽  
Big 4 ◽  
Audit Firms ◽  
Audit Fee ◽  
The Impact

Purpose Prior studies suggest that non-timely 10-Q filings indicate higher potential risks than non-timely 10-K filings. Furthermore, larger audit firms tend to be more risk-averse and conservative about reporting. Inspired by these research streams, this paper aims to investigate the influence of non-timely 10-Q filings on audit fees and the impact of audit firm size on this association. Design/methodology/approach The cross-sectional audit fee regression model used in this study is similar to that used in prior audit fee research (Simunic, 1980; Francis et al., 2005; Hay et al., 2006; Wang et al., 2013). The model includes the following five major characteristics that would influence auditors’ fee decisions: auditee size (LNAT), complexity (REIVAT, FOREIGN, SEG), financial condition (LOSS, ROA, GROWTH, ZSCORE), special events (ICW, RESTATE, INITIAL, GC) and auditor type (BIG4). To examine the effect of non-timely 10-Q filings on audit fees, the variable NT10Q is included in the audit fee model. Findings The results indicate that when both non-timely 10-K and non-timely 10-Q filings are included in the regression model, only non-timely 10-Q filings are significantly associated with higher audit fees, suggesting that the presence of non-timely 10-Q filings signals more serious underlying problem than non-timely 10-K filings in the audit fees decision processes. In addition, we find that audit fees for firms audited by Big 4 auditors are 26.4 per cent higher when those firms file non-timely 10-Q reports, whereas there is no significant association between non-timely 10-Q filings and audit fees for firms audited by non-Big 4 auditors. Practical implications As no attention has been paid to the investigation of the impact of non-timely 10-Q filings on audit fees, with the aim of filling the gap of this specific research area, this study examines the association between non-timely 10-Q filings and audit fees and the influence of audit firm size on this association. Originality/value The contribution of this paper is threefold: first, it is the first study to examine the association between non-timely 10-Q filings and audit fees. The results show that non-timely 10-Q filings are a better and earlier indicator of audit risk than non-timely 10-K filings. Second, the results reveal that the relationship between non-timely 10-Q filings and audit fees is affected by audit firm size. Specifically, Big 4 auditors tend to charge higher audit fees in the presence of non-timely 10-Q filings, reflecting that they are more sensitive to audit risk than smaller audit firms are. Third, an examination of the quarterly effect of non-timely 10-Q filings on audit fees indicates a stronger effect from the first quarter’s non-timely 10-Q filings, compared to the second or third quarter.

An empirical analysis of audit pricing and auditor selection: evidence from India

2019 ◽  
Vol 35 (1) ◽  
pp. 111-151
Author(s):  
Arnab Bhattacharya ◽  
Pradip Banerjee
Keyword(s):  
Financial Distress ◽  
Audit Fees ◽  
Ordinary Least Squares ◽  
Regression Technique ◽  
Audit Pricing ◽  
Content Type ◽  
Auditor Choice ◽  
Big 4 ◽  
Audit Fee ◽  
The Impact

Purpose This paper aims to examine various factors affecting the pricing of audit services and the selection of auditors in the Indian audit market. This paper also aims to investigate the impact of financial distress conditions on the audit pricing and auditor choice decisions of a firm, particularly in the context of a developing economy. Design/methodology/approach The sample comprises 22,644 firm-years for 1,366 Indian firms from 1990 to 2015. The authors adopt ordinary least squares regression technique to model audit fee, and logistic regression technique to model auditor choice as a function of various factors relating to firm attributes and auditor characteristics. Findings This paper finds that auditors tend to charge an audit fee premium when they are affiliated to a Big 4 auditor, have industry specialization or jointly provide auditing and non-auditing services. Additionally, firms with larger boards, higher proportion of independent board of directors and CEO–Chairman separation are more likely to choose a Big 4-affiliated auditor. The results also suggest that financially distressed firms tend to pay significantly lower audit fees and are more likely to choose non-Big 4 auditors. Originality/value This paper is among the few studies which investigate how financial distress impacts the audit pricing and auditor choice decisions of a firm in the context of emerging economies. The findings of this paper raises serious concerns about the credibility of the audited financial statements and corporate governance mechanisms of firms undergoing financial distress. The empirical results of this paper have strong implications for practitioners, regulators and investors.

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.

Spatial Competition in Local Audit Markets and the Fallout on Deloitte from the 2007 PCAOB Censure

2016 ◽  
Vol 36 (2) ◽  
pp. 1-19 ◽  
Author(s):  
Jeff P. Boone ◽  
Inder K. Khurana ◽  
K. K. Raman
Keyword(s):  
Market Power ◽  
Audit Quality ◽  
Spatial Competition ◽  
Spatial Location ◽  
Audit Fees ◽  
Audit Market ◽  
Big 4 ◽  
Audit Fee ◽  
The Face ◽  
Market Leader

SUMMARY We examine whether Deloitte's spatial location in local audit markets affected the firm's adverse fallout—in terms of decreased ability to retain new clients and maintain audit fees—from the 2007 PCAOB censure. We motivate our inquiry by the notion that auditor-client alignment and auditor-closest-competitor distance can help differentiate the incumbent Big 4 auditor from other Big 4 auditors and thus provide market power, i.e., inhibit clients from shopping for another supplier because of the lack of a similar Big 4 provider in the local audit market. Consequently, it seems reasonable that the increase in switching risk and loss of fee growth suffered by Deloitte following the 2007 PCAOB censure will be lower in local markets where Deloitte was the market leader and its market share distance from its closest competitor was greater. Our findings suggest that the decline in Deloitte's audit fee growth rate following the 2007 PCAOB censure was concentrated in the pharmaceutical industry, although the client loss rate appears to have occurred more broadly (across all cities and industries). Collectively, our findings suggest that audit quality issues override auditor market power, i.e., differentiation does not provide Big 4 firms market power in the face of adverse regulatory action. JEL Classifications: G18; L51; M42; M49.

Leaving a joint audit system: conditional fee reductions

2014 ◽  
Vol 29 (2) ◽  
pp. 131-152 ◽  
Author(s):  
Claus Holm ◽  
Frank Thinggaard
Keyword(s):  
Audit Quality ◽  
Theory Development ◽  
Future Research ◽  
Research Approach ◽  
Content Type ◽  
Audit Firm ◽  
Audit System ◽  
Interaction Terms ◽  
Audit Firms ◽  
Audit Fee

Purpose – The authors aim to exploit a natural experiment in which voluntary replace mandatory joint audits for Danish listed companies and analyse audit fee implications of using one or two audit firms. Design/methodology/approach – Regression analysis is used. The authors apply both a core audit fee determinants model and an audit fee change model and include interaction terms. Findings – The authors find short-term fee reductions in companies switching to single audits, but only where the former joint audit contained a dominant auditor. The authors argue that in this situation bargaining power is more with the auditors than in an equally shared joint audit, and that the auditors' incentives to offer an initial fee discount are bigger. Research limitations/implications – The number of observations is constrained by the small Danish capital market. Future research could take a more qualitative research approach, to examine whether the use of a single audit firm rather than two has an effect on audit quality. The area calls for further theory development covering audit fee and audit quality in joint audit settings. Practical implications – Companies should consider their relationship with their auditors before deciding to switch to single auditors. Fee discounts do not seem to reflect long-lasting efficiency gains on the part of the audit firm. Originality/value – Denmark is the first country to leave a mandatory joint audit system, so this is the first time that it is possible to study fee effects related to this.

scholarly journals Kualitas Audit: Ditinjau dari Fee Audit, Risiko Audit dan Skeptisme Profesional Auditor sebagai Variabel Moderating

2020 ◽  
Vol 8 (1) ◽  
pp. 9
Author(s):  
Muslim Muslim ◽  
Syamsuri Rahim ◽  
Muhammad Faisal AR Pelu ◽  
Alma Pratiwi
Keyword(s):  
Regression Analysis ◽  
Audit Quality ◽  
Audit Fees ◽  
Public Accounting ◽  
Audit Risk ◽  
Accounting Firms ◽  
Professional Skepticism ◽  
Audit Fee ◽  
The Relationship ◽  
Positive Effect

The purpose of this study was to determine the effect of audit fees and audit risk on audit quality with auditor professional skepticism as a moderating variable. This research was conducted at 8 public accounting firms in Makassar city with 40 respondents. The analytical method used is multiple regression analysis (Moderated Regression Analysis) which is used to measure the strength of the relationship between two or more variables. The results of this study found that the audit fee variable had a negative and not significant effect on audit quality. These results illustrate that the higher the audit fee received by the auditor, the audit quality will decrease. While audit risk is not a significant positive effect on audit quality. The results of this study illustrate that the higher the audit risk, the audit quality will decrease. The auditor's professional skepticism as a moderating variable is not able to strengthen the effect of audit fees on audit quality. Furthermore, auditor professional skepticism as a moderating variable is also unable to strengthen the effect of audit risk on audit quality

Investigating the impact of audit features on money laundering

2020 ◽  
Vol 23 (4) ◽  
pp. 913-930
Author(s):  
Shaban Mohammadi ◽  
Nader Naghshbandi ◽  
Zahra Moridahmadibezdi
Keyword(s):  
Money Laundering ◽  
Audit Quality ◽  
Screening Method ◽  
Audit Fees ◽  
Statistical Population ◽  
Content Type ◽  
Quality Audit ◽  
Auditor Tenure ◽  
Audit Fee ◽  
The Impact

Purpose The purpose of the present study is to investigate the impact of audit features, including audit quality, audit fees and auditor tenure on money laundering in Iranian stock companies. Design/methodology/approach This research is descriptive-correlational and applied in terms of purpose. To evaluate the audit features, variables including audit quality, audit fee and auditor tenure were used. The statistical population of this study includes all companies listed in Tehran Stock Exchange and the research period from 2012 to 2018. A sample of 150 companies was selected by the screening method. In this study, logistic regression and Eviews 10 software were used for data analysis and hypothesis testing. Findings The results showed that variables including audit quality, normal audit fee and auditor tenure have a significant effect on money laundering. Originality/value Observing money laundering rules and regulations for businesses involves is a critical issue. In auditing the financial statements of the business units subject to these laws, the auditor reviews their actions to obtain reasonable assurance of guaranteeing the money laundering laws, evaluates their effectiveness and gains approval of managers regarding observing laundering regulations. In this regard, the auditor is required to report definitive or suspected money-laundering cases or its certain or suspected evidence to the relevant authorities. Although the law prohibits the auditor from disclosing such matters to the client, it is not necessary. It seems that even if the auditors perform non-audit functions, they should report money laundering or suspicious operations and transactions.

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