Auditor's Engagement Risk and Audit Fees: The Role of Audit Firm Alumni

2007 ◽  
Vol 0 (0) ◽  
pp. 070702033426005-??? ◽  
Author(s):  
Ilias G. Basioudis
Keyword(s):  
Audit Fees ◽  
Audit Firm

The Market for Audit Services: The Role of Market Power

2020 ◽  
Vol 19 (3) ◽  
pp. 3-8
Author(s):  
Tracy Ti Gu ◽  
Dan A. Simunic ◽  
Michael T. Stein ◽  
Minlei Ye ◽  
Ping Zhang
Keyword(s):  
Market Power ◽  
Firm Size ◽  
Academic Research ◽  
Audit Fees ◽  
Local Market ◽  
Capital Investments ◽  
Audit Firm ◽  
Big 4 ◽  
The Subject

ABSTRACT The market for audit services has been the subject of extensive academic research since the 1970s. The prevailing view is that audit markets are characterized by tiers of suppliers (Big 4 versus non-Big 4, and industry specialists versus non-specialists) where the upper tier suppliers produce and sell a systematically higher level of assurance, while competition among suppliers within tiers is essentially perfect and a uniform price prevails within the submarkets. We discuss three papers that challenge this orthodoxy. These papers argue and find that the price of an audit is essentially unique to each (auditor, client) pair and that this price depends on both audit firm size and client size. Furthermore, audit firm size is linked with the firm's capital investments, which enhance auditor efficiency and market power. We conclude that audit markets are atomistic and that local market power is an important determinant of audit prices and audit fees.

Fee Discounting and Audit Quality Following Audit Firm and Audit Partner Changes: Chinese Evidence

2014 ◽  
Vol 90 (4) ◽  
pp. 1517-1546 ◽  
Author(s):  
Hua-Wei Huang ◽  
K Raghunandan ◽  
Ting-Chiao Huang ◽  
Jeng-Ren Chiou
Keyword(s):  
Earnings Management ◽  
Audit Quality ◽  
Audit Fees ◽  
Audit Firm ◽  
Audit Fee ◽  
Significant Attention

ABSTRACT Issues related to low-balling of initial year audit fees and the resultant impact on audit quality have received significant attention from regulators in many countries. Using 9,684 observations from China during the years 2002–2011, we find that there is a significant initial year audit fee discount following an audit firm change when both of the signing audit partners are different from the prior year. The evidence is mixed if one or both of the signing partners from the prior year also moves with the client to the new audit firm. We find evidence of audit fee discounting in our analysis of fee levels, but not in our analysis of changes in audit fees from the prior year. Sanctions for problem audits and greater earnings management are more likely when there is an audit firm change that involves two new signing partners together with initial year audit fee discounting.

CEO and CFO Equity Incentives and the Pricing of Audit Services

2013 ◽  
Vol 33 (2) ◽  
pp. 1-25 ◽  
Author(s):  
B. Anthony Billings ◽  
Xinghua Gao ◽  
Yonghong Jia
Keyword(s):  
Positive Association ◽  
Audit Fees ◽  
Internal Controls ◽  
Audit Risk ◽  
Pricing Decisions ◽  
Equity Incentives ◽  
Accounting Scandals ◽  
Using Data ◽  
Distinctive Role

SUMMARY: The alleged perverse role of managerial incentives in accounting scandals, and the distinctive role of auditors in identifying and intervening in attempted earnings manipulation, highlight the importance of explicitly considering executive incentive plans by auditors in the auditing process. By empirically testing auditors' responses to CEO/CFO equity incentives in planning and pricing decisions using data from 2002 through 2009, we document compelling evidence that CFO equity incentives are positively associated with audit fees and CEO equity incentives are not statistically related to audit fees, suggesting that auditors perceive heightened audit risk associated with CFO equity incentives. Our further analyses reveal that the positive association between CFO equity incentives and audit fees is more pronounced in firms with weak internal controls, indicating heightened risk associated with CFO equity incentives in this setting perceived by auditors. JEL Classifications: G30, G34, M42, M52.

The Effect of Office Changes within Audit Firms on Clients' Audit Quality and Audit Fees

2020 ◽  
Vol 39 (1) ◽  
pp. 71-99
Author(s):  
Carl W. Hollingsworth ◽  
Terry L. Neal ◽  
Colin D. Reid
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Additional Analysis ◽  
Audit Firm ◽  
Audit Firms ◽  
Audit Fee ◽  
The Impact ◽  
Audit Partner Rotation

SUMMARY While prior research has examined audit firm and audit partner rotation, we have little evidence on the impact of within-firm engagement team disruptions on the audit. To examine these disruptions, we identify a unique sample of companies where the audit firm issuing office changed but the audit firm did not change and investigate the effect of these changes on the audit. Our results indicate that companies that have a change in their audit firm's issuing office exhibit a decrease in audit quality and an increase in audit fees. In additional analysis, we partition office changes into two groups—client driven changes and audit firm driven changes. This analysis reveals that client driven changes are more likely to result in a higher audit fee while audit quality is unchanged. Conversely, audit firm driven changes do not result in a higher audit fee but do experience a decrease in audit quality.

The Case of Undetected Fraud: Can Audit Firm Policies or Highlighting the Fraud Examiner’s Role Reduce Juror Assessments of Auditor Negligence?

2021 ◽  
Author(s):  
Joseph F. Brazel ◽  
Christine Gimbar ◽  
Tammie J. Schaefer
Keyword(s):  
High Risk ◽  
Reference Point ◽  
Specific Level ◽  
Professional Skepticism ◽  
Audit Firm

This study explores two potential safeguards against liability when auditors exercise professional skepticism, but do not detect a fraud: (1) a firm policy requiring a specific level of professional skepticism in high-risk audit areas and (2) providing jurors with key differences between the role of a fraud examiner and the role of an auditor as a reference point for judging the auditor’s performance. We find that describing a specific firm policy to jurors does not significantly decrease negligence findings for auditors who do not detect a fraud. However, providing the role of a fraud examiner as a reference point (e.g., scope of work, testing approaches) does significantly decrease negligence findings. Encouragingly, we also find some evidence that jurors are apt to decrease negligence findings when auditors exercise higher skepticism, but ultimately do not detect a fraud.

scholarly journals Audit Quality, Joint-Auditors and Game Theory: Empirical Validation in the French Context

2016 ◽  
Vol 11 (7) ◽  
pp. 292
Author(s):  
Abdelhakim Ben Ali
Keyword(s):  
Game Theory ◽  
Business Performance ◽  
Audit Quality ◽  
Audit Fees ◽  
Scientific Discipline ◽  
Debt Ratio ◽  
Complex Relationships ◽  
High Level ◽  
Gains And Losses

<p>The objective of our research is to show the role of “game theory” as a scientific discipline permitting better explanation of the nature of complex relationships between the different stakeholders of the company. Motivated by the current discussions on the choice of the composition of the college auditors, we try to study the combination of auditors to ensure a better audit quality; and to demonstrate the gains and losses of the two players in the game studied during the period 2005-2010.</p>The empirical results reveal that the best audit quality is conditioned by the presence of pair heterogeneous auditors (Big4_Non Big4). Added to that, the audit quality is affected by a high level of audit fees, minimizing the debt ratio, a large reflection of the business performance and financial means to enable it to meet the economic crises that surround it.

A New Approach to Estimating the Relation between Audit Fees and Financial Misconduct

2019 ◽  
Vol 34 (2) ◽  
pp. 41-61 ◽  
Author(s):  
Bidisha Chakrabarty ◽  
Scott Duellman ◽  
Michael A. Hyman
Keyword(s):  
Selection Bias ◽  
Audit Fees ◽  
Governance Structure ◽  
Small Sample ◽  
New Approach ◽  
Audit Firm ◽  
Public Firms ◽  
Financial Misconduct ◽  
Systematic Selection ◽  
The Impact

SYNOPSIS Research on the association between abnormal audit fees (measuring audit effort) and financial misconduct has produced mixed results. The use of actual misstatements in this research creates small-sample inferences, introduces systematic selection bias, and reduces the scope of sample coverage. In this study we use a metric based on Benford's Law to analyze the impact of abnormal audit fees on the likelihood of misconduct. This measure is parsimonious, avoids selection bias, and can be computed for a large sample of public firms. Consistent with theory, we find that greater audit effort reduces the likelihood of misconduct and auditor resignations are more likely for clients with higher misconduct likelihood. Our findings are not driven by audit firm size, client size, the governance structure of the client, or economic bonding explanations. The effect is not subsumed when controlling for alternative misconduct measurement metrics and is robust across multiple tests to address endogeneity. JEL Classifications: G32; M41.

Do Global Audit Firm Networks Apply Consistent Audit Methodologies across Jurisdictions? Evidence from Financial Reporting Comparability

2019 ◽  
Vol 95 (6) ◽  
pp. 151-179 ◽  
Author(s):  
Matthew S. Ege ◽  
Young Hoon Kim ◽  
Dechun Wang
Keyword(s):  
Financial Reporting ◽  
Cash Flows ◽  
International Standards ◽  
Global Network ◽  
Global Networks ◽  
Audit Firm ◽  
Operating Cash Flows ◽  
Audit Firms ◽  
Financial Reporting Comparability

ABSTRACT Brand name audit firms are global networks of local audit firms. These networks claim to enforce consistent audit methodologies across their member firms, which, if true, should systematically affect client financial reporting. We find that clients from different countries have more (less) comparable accruals when they are audited by local audit firms from the same global network (different global networks). Furthermore, inferences are similar when we examine client accrual comparability around audit firm switches induced by the failure of Andersen, which serves as a shock that helps improve identification. In falsification tests, having auditors from the same global network is not associated with differences in operating cash flows. Results also suggest that the role of global network methodologies in global financial reporting comparability is more pronounced across stronger investor protection jurisdictions and across jurisdictions that have adopted International Standards on Auditing. JEL Classifications: M41; M42.

Does audit quality mediate the relationship between audit firm size and audit fees

2019 ◽  
Vol 6 (4) ◽  
pp. 279
Author(s):  
Ayman Bader ◽  
Mohammad Ebrahim Nawaiseh ◽  
Halla Noor Nawaiseh
Keyword(s):  
Firm Size ◽  
Audit Quality ◽  
Audit Fees ◽  
Audit Firm ◽  
The Relationship
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