Audit Market Concentration and Audit Fees: An International Investigation

SUMMARY We investigate the effects of audit market concentration on audit fees and audit quality in China, where competition is intense and the legal environment is relatively weak compared with developed countries. Analyzing 12,334 firm-year observations for the period 2001 to 2011, we find a significant positive relation between concentration and audit fees. Path analysis shows that concentration improves client earnings quality and reduces the need for auditors to issue modified audit opinions through increased audit fees. Additional analysis indicates that the increased audit fees and client earnings quality resulting from increased concentration are associated with a lower likelihood of executives and auditors being sanctioned by regulators for audit failures. Together, our results suggest that concentration improves audit quality indirectly through increased audit fees and this positive indirect effect offsets the negative direct effect of concentration on audit quality. By separating the direct and the indirect effect of concentration on audit quality, our study would explain why previous studies that do not have a separation document mixed evidence. Our findings inform regulators that actions taken to eliminate the indirect effect of concentration, for example restricting the upper bound of audit fees, could produce unintended outcomes such as decreased audit quality.

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Anticompetitive behaviour in the audit services market by the big audit firms: Evidence over time

Corporate Ownership and Control ◽

10.22495/cocv10i2art5 ◽

2013 ◽

Vol 10 (2) ◽

pp. 56-79 ◽

Cited By ~ 3

Author(s):

Harjinder Singh

Keyword(s):

Multivariate Analysis ◽

Audit Fees ◽

Total Sample ◽

Market Concentration ◽

Observation Window ◽

Audit Market ◽

Auditor Tenure ◽

Audit Firms ◽

Competitive Behaviour ◽

Over Time

This study investigates the existence of anticompetitive behaviour and cartel pricing by the Big4 international providers of auditing services (resulting from the halving in the number of such providers from the Big8 to Big4).This study uses both a composite and dis-aggregated measure for auditor attributes (namely, auditor reputation, industry specialisation, provision of non-audit services and auditor tenure) and regresses the derived measure against changes in audit fees for the periods 2001 to 2003, 2003 to 2005 and 2001 to 2005 for a total sample of 600 firm-year observations.Main results from longitudinal multivariate analysis indicate that there is no significant association between the four auditor attributes utilised in this study with changes in audit fees over the observation window. This study finds no evidence of anti-competitive behaviour and cartel pricing by Big4 auditors resulting from increased audit market concentration. This has implications in relation to the need to consider legislation to reduce the power and influence of the Big4 audit firms and this subsequently has flow-on implications for the management of firms

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An Examination of Audit Fees for Initial Audit Engagements after the H3C Inspection in French Context

International Journal of Economics and Finance ◽

10.5539/ijef.v11n12p41 ◽

2019 ◽

Vol 11 (12) ◽

pp. 41

Author(s):

Jamel Azibi ◽

Catherine Grima ◽

Hubert Tondeur

Keyword(s):

United States ◽

Audit Fees ◽

The United States ◽

Market Concentration ◽

Main Hypothesis ◽

Empirical Results ◽

Audit Market

This paper examines the audit fees for initial audit engagements after the H3C inspection in French context through 2008 to 2015. According to the theory, we suppose that audit fees increase after the start of the H3C inspection program. To test our main hypothesis, we use the methodology of the (Desir, Casterella, & Kokina, 2013) and (Huang, Raghunandan, & Rama, 2009) reported on the United States context. Our empirical results demonstrate that the audit fees in French context for the initial audit engagement decreased after the start of the H3C inspection program. Contrary to our prediction, the massive disciplinary sanction associated to the audit fees and the less level of the audit market concentration in France, are two determinants that explain the decrease of the audit fees in this country.

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Audit market concentration, audit fees, and audit quality: A cross-country analysis of complex audit clients

Journal of Accounting and Public Policy ◽

10.1016/j.jaccpubpol.2019.106693 ◽

2019 ◽

Vol 38 (6) ◽

pp. 106693

Author(s):

Joshua L. Gunn ◽

Brett S. Kawada ◽

Paul N. Michas

Keyword(s):

Audit Quality ◽

Audit Fees ◽

Market Concentration ◽

Audit Market ◽

Country Analysis ◽

Cross Country

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Audit Market Structure and Audit Pricing

Accounting Horizons ◽

10.2308/acch-51603 ◽

2016 ◽

Vol 31 (1) ◽

pp. 57-81 ◽

Cited By ~ 18

Author(s):

John Daniel Eshleman ◽

Bradley P. Lawson

Keyword(s):

Fixed Effects ◽

Audit Quality ◽

Audit Fees ◽

Market Concentration ◽

First Year ◽

Audit Pricing ◽

Ongoing Debate ◽

Audit Market ◽

Big 4 ◽

The U.S

SYNOPSIS Extant literature finds mixed evidence on the association between audit market concentration and audit fees. We re-examine this issue using a large sample of U.S. audit clients covering 90 metropolitan statistical areas (MSAs) spanning 2000–2013. We find that audit market concentration is associated with significantly higher audit fees, consistent with the concerns of regulators and managers. We also find that increases in audit market concentration are associated with fewer initial engagement fee discounts (i.e., reduced lowballing), particularly for non-Big 4 clients. We reconcile our findings with those of prior research and find that our divergent findings are attributable to controls for MSA fixed effects. In supplemental analyses, we find that audit market concentration is associated with higher audit quality. We also find that concentration is associated with higher audit quality for first-year engagements, but only if the auditor does not lowball on the engagement. Our results are relevant to the ongoing debate regarding the consequences of increased concentration within the U.S. audit market (GAO 2003, 2008). JEL Classifications: M41; M42; L13.

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Anticompetitive behaviour in the audit services market by the big audit firms: Evidence over time

Corporate Ownership and Control ◽

10.22495/cocv10i4c1art3 ◽

2013 ◽

Vol 10 (4) ◽

pp. 177-199

Author(s):

Harjinder Singh

Keyword(s):

Multivariate Analysis ◽

Audit Fees ◽

Total Sample ◽

Market Concentration ◽

Observation Window ◽

Audit Market ◽

Auditor Tenure ◽

Audit Firms ◽

Competitive Behaviour ◽

Over Time

This study investigates the existence of anticompetitive behaviour and cartel pricing by the Big4 international providers of auditing services (resulting from the halving in the number of such providers from the Big8 to Big4).This study uses both a composite and dis-aggregated measure for auditor attributes (namely, auditor reputation, industry specialisation, provision of non-audit services and auditor tenure) and regresses the derived measure against changes in audit fees for the periods 2001 to 2003, 2003 to 2005 and 2001 to 2005 for a total sample of 600 firm-year observations.Main results from longitudinal multivariate analysis indicate that there is no significant association between the four auditor attributes utilised in this study with changes in audit fees over the observation window. This study finds no evidence of anti-competitive behaviour and cartel pricing by Big4 auditors resulting from increased audit market concentration. This has implications in relation to the need to consider legislation to reduce the power and influence of the Big4 audit firms and this subsequently has flow-on implications for the management of firms.

Download Full-text