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

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.

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

2013 ◽  
Vol 10 (2) ◽  
pp. 56-79 ◽  
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

scholarly journals Concentration of the Audit Market: Evidence from Serbia

2015 ◽  
Vol 52 (1) ◽  
pp. 115-126
Author(s):  
Kristina Mijić ◽  
Dejan Jakšić ◽  
Bojana Vuković
Keyword(s):  
Concentration Ratio ◽  
Audit Fees ◽  
Market Concentration ◽  
Independent Variables ◽  
Audit Market ◽  
Audit Firms ◽  
The Republic ◽  
Big Four ◽  
Operating Revenue

Abstract This paper presents a research on market concentration of audit services in the Republic of Serbia during the 2008-2011 period. Market concentration was measured by Herfindahl-Hirschman index (HHI) and concentration ratio CR4, based on four independent variables: operating revenue, net earnings, number of employees and number of audit clients. The research of market concentration based on operating revenue as the most referential variable indicated that the market for audit services in the Republic of Serbia has a moderate concentration and that it has the characteristics of an oligopoly of four largest audit firms known as “Big Four”. However, research of market concentration, when other variables are taken in consideration, does not reveal dominance of “Big Four” in terms of net earnings, number of employees and number of clients. The differences in conclusions when different variables are concerned can be explained by relatively high audit fees of “Big Four” and a lack of correlation between operating revenue and net earnings.

Industry Specialization by Auditors

1999 ◽  
Vol 18 (1) ◽  
pp. 1-17 ◽  
Author(s):  
Chris E. Hogan ◽  
Debra C. Jeter
Keyword(s):  
High Risk ◽  
Market Share ◽  
Scale Economies ◽  
The Other ◽  
Industry Specialization ◽  
Audit Market ◽  
Audit Firms ◽  
Regulated Industries ◽  
Concentration Levels ◽  
Over Time

Dramatic changes in recent years in the audit market suggest the timeliness of an investigation of trends in auditor concentration and an extension of prior research (e.g., Danos and Eichenseher 1982). In recent press, large audit firms have claimed that specialization is a goal of increasing importance. Peat Marwick, for example, has restructured along industry lines, claiming to be recruiting professionals for national teams of multidisciplinary experts organized to “focus on the same industry to serve clients optimally.” On the other hand, litigation concerns might prompt auditors to diversify their risks by diversifying their clientele. In this study, we examine trends in industry specialization from 1976 to 1993 and the industry factors which may affect specialization; whether market share increases are greater for audit firms classified as specialists; and whether the nation's largest audit firms have increased their market share in the industries which they have identified as their focus industries. We find evidence that concentration levels have increased over this period, consistent with the claims of the large audit firms. We find that auditor concentration levels are higher in regulated industries, in more concentrated industries and in industries experiencing rapid growth, but lower in industries with a high risk of litigation. Levels of concentration have increased over time in nonregulated industries providing evidence that scale economies or superior efficiencies of heavy-involvement auditors are not limited to regulated industries but extend to nonregulated industries as well. We also find that for the audit firms classified as market leaders at the beginning of the year, market share has increased over time, whereas market share has declined for firms with a smaller share at the beginning of the year. This suggests that there are returns to investing in specialization.

Audit Market Concentration, Audit Fees, and Audit Quality: Evidence from China

2015 ◽  
Vol 35 (2) ◽  
pp. 121-145 ◽  
Author(s):  
Ting-Chiao Huang ◽  
Hsihui Chang ◽  
Jeng-Ren Chiou
Keyword(s):  
Indirect Effect ◽  
Audit Quality ◽  
Earnings Quality ◽  
Audit Fees ◽  
Developed Countries ◽  
Market Concentration ◽  
Legal Environment ◽  
Positive Relation ◽  
Audit Market ◽  
Lower Likelihood

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.

scholarly journals Audit Market Concentration and Audit Fees: An International Investigation

2017 ◽  
Author(s):  
Jong-Hag Choi ◽  
Jeong-Bon Kim ◽  
E. Yujin Lee ◽  
Hee-Yeon Sunwoo
Keyword(s):  
Audit Fees ◽  
Market Concentration ◽  
Audit Market

Does Audit Fee Homogeneity Exist? Premiums and Discounts Attributable to Individual Partners

2011 ◽  
Vol 30 (4) ◽  
pp. 249-272 ◽  
Author(s):  
Stuart D. Taylor
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Data Availability ◽  
Audit Market ◽  
Homogeneity Assumption ◽  
Audit Firms ◽  
Audit Fee ◽  
Using Data ◽  
The Individual ◽  
Made In

SUMMARY This paper investigates the implied assumption, made in many audit fee determination studies, that, within a given audit firm, all partners produce a statistically identical level of audit quality and earn a statistically identical level of audit fees. This is referred to as the “homogeneity assumption.” However, this is contradicted by the individual auditor behavioral literature, which shows that different individual auditor characteristics can have an impact on audit quality. Given the fact that audit partners differ in their quality, this paper hypothesizes that different audit partners will be able to earn differing levels of fees. This hypothesis is tested by estimating an audit fee model using data from 822 Australian publicly listed companies for the year 2005. Australia is an ideal audit market for this research, as the disclosure of the name of the audit engagement partner in the audit report is mandatory. The empirical results indicate that individual audit partners earn individual audit fee premiums (or discounts) that are not explainable by the audit firms of which they are members. Data Availability: All data have been extracted from publicly available sources.

scholarly journals Determinants of audit fees: The perception of external auditors

2019 ◽  
Vol 1 (4) ◽  
pp. 44-54
Author(s):  
Godfred Matthew Yaw Owusu ◽  
Rita Amoah Bekoe
Keyword(s):  
Audit Fees ◽  
Firm Reputation ◽  
External Auditors ◽  
Audit Market ◽  
Audit Firms ◽  
Client Risk ◽  
Level Of Importance ◽  
Chartered Accountants ◽  
Self Administered Questionnaire

This paper examines the perception of external auditors on the dominant factors that influence audit fees determination. By means of a survey, the study explored from the perspective of external auditors the level of importance audit firms attach to some identified factors in the determination of audit fees. A self-administered questionnaire was used to gather data from professional auditors working with practicing auditing firms certified and approved by the Institute of Chartered Accountants, Ghana (ICAG). Using a total of 339 valid responses, the study explored the dimensionality of the factors that influence audit fees by employing the Exploratory Factor Analysis (EFA) procedure. Based on the factor structure identified from the EFA, we subsequently evaluated the level of importance auditors perceive these factors to be in the determination of audit fees. The EFA results suggest that audit fees determinants can be grouped into five distinct factors (Audit firm reputation, experience & expertise; Nature and scope of the audit; Market-wide factor; Client size; Client risk). The factor ‘Client risk’ was rated to be the most important determinant of audit fees distantly followed by the ‘Nature and scope of the audit’ factor. The ‘Market-wide factor’ was rated to be the least important factor in the determination of audit fees. The findings of this study provide some useful insights from the perspective of external auditors on the factors that influence audit fees from a developing country context. 

scholarly journals The Impact Of The Joint Provision Of Non-Audit Services On Audit Firm’s Tenure: A Kuwaiti Evidence

2017 ◽  
Vol 34 (1) ◽  
pp. 69-80
Author(s):  
Meshari O. Al-Hajri
Keyword(s):  
Negative Relationship ◽  
Audit Fees ◽  
Developed Countries ◽  
Auditor Independence ◽  
Audit Market ◽  
Audit Firms ◽  
Using Data ◽  
The Impact ◽  
Audit Independence ◽  
Joint Provision

Concerns about the potential harm of the increased economic bond between the audit firm and the audit client resulting from the joint provision of audit and NAS have been investigated extensively in the audit literature. However, much of this research was conducted in developed countries’ settings, with very little, if any, carried out in the context of a developing country. The current study aims at filling this gap in audit research by investigating two important issues related to the joint provision using data from the Kuwaiti audit market. First, this study examines whether there is an association between the provision of NAS to the audit client and audit firm’s tenure as a surrogate of audit independence. Second, the current study aims at examining factors expected to influence clients’ purchase of NAS in the Kuwaiti audit market. Contrary to expectations, the results reveal a negative relationship between the joint provision and external audit firm’s tenure, suggesting that such a joint provision does not lead to the impairment of auditor independence. Results obtained from the NAS purchase logistic regression also show that audit client’s purchase of NAS from their audit firms is positively related to the amount of audit fees and client’s financial leverage.

scholarly journals Auditing versus consultancy: a critique of the EU law reforms on the new form of auditing

2016 ◽  
Vol 5 (3) ◽  
pp. 90-97 ◽  
Author(s):  
H. Kubra Kandemir
Keyword(s):  
Audit Fees ◽  
Auditor Independence ◽  
Eu Law ◽  
Financial Reports ◽  
External Auditors ◽  
Consulting Services ◽  
Expectations Gap ◽  
Auditor Tenure ◽  
Audit Firms ◽  
New Form

Auditors used to serve the interest of the shareholders only. However, there have been significant changes in terms of auditors’ role and their function. Auditors are now expected to verify financial statements, but at the same time give an assurance regarding the financial sustainability of the entity. Regarding the latter role, audit firms provide consulting services, including risk assessment and management services. However, the law does not assign the latter role to external auditors. This situation results in an expectations gap in relation to both the role of the auditors and the scope of the external auditing. In addition, the growing economic importance of consulting and the long years of auditor tenure is likely to impair auditor independence. This paper submits that the new form of auditing is not problematic but creates issues. First, the expectations between the users of the financial reports and auditors are wider. Second, auditors’ independence is damaged due to the long years of auditor tenure and dependence of non-audit fees generated from consultancy services that not related to audit. The recent law reforms issued by the European Commission has brought some important provisions in terms of filling the expectations gap, reinforcing auditor independence and reducing the familiarity threat. EU’s relatively strict rules on provision of non-audit services and audit firm rotation are expected to have an important impact in the audit market. A critical analysis of the new EU law is submitted with some policy recommendations.

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

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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