Effect of Client Reputation on Audit Fees at the Office Level: An Examination of S&P 500 Index Membership

2013 ◽  
Vol 33 (1) ◽  
pp. 1-27 ◽  
Author(s):  
Sharad C. Asthana ◽  
Rachana Kalelkar
Keyword(s):  
Stock Prices ◽  
Reporting Quality ◽  
Audit Fees ◽  
Brand Name ◽  
Rent Extraction ◽  
Auditor Switching ◽  
Market Shares ◽  
Audit Fee ◽  
Office Level

SUMMARY Prior studies have examined the effect of a decline in the auditor's or client's reputation on auditor switching, market shares, and stock prices. We extend these studies by examining the effect of an unexpected increase in a client's reputation on audit fees at the office level. We argue that association with a reputed client will enhance the auditor's reputation and establish a brand name, thus enabling the auditor to charge higher fees from other clients. Using a client's inclusion into the prestigious S&P 500 index as a proxy for the client's change in reputation, we find that the audit fees are discounted for this S&P client when it enters the index. The audit fee for this client increases following its exit from the index. We posit that changes in the audit fees for the S&P 500 clients are attributable to the changes in the reporting quality of these firms following their entry to and exit from the index. We also find increases in the audit fees of non-S&P clients of the audit office around such events. We argue that the presence of S&P clients helps auditors differentiate themselves from other auditors and allows them to extract rents from non-S&P clients. Last, we find no evidence of improvement in the reporting quality of other non-S&P clients, supporting our rent-extraction story.

scholarly journals The non-audit fee and the auditee’s failure risk

2018 ◽  
Vol 2018 (99 (155)) ◽  
pp. 97-118
Author(s):  
Piotr Staszkiewicz ◽  
Rumiana Górska
Keyword(s):  
New Zealand ◽  
Audit Fees ◽  
Audit Report ◽  
Financial Situation ◽  
The Third ◽  
Cross Border ◽  
Failure Risk ◽  
Audit Fee ◽  
Non Audit Services

This paper examines whether the auditee’s financial situation affects the auditor’s non-audit fee and independ- ence. Three sets of tests were used to address the issue. The first examines whether there are cross-border and intertemporal differences in relationships between non-audit fees and audit fees. The second tests whether there is a relationship between non-audit fees and report modification. The third addresses the relationships between audit fees and the auditee’s financial situation. The results suggest a lack of coexistence of all three motives for the purchase of non-audit fee services, and substantial similarities of auditor and auditee behaviors across Po- land and New Zealand. We documented the lack of a significant link between auditee failure risk and the quality of the audit report. Our findings indicate an operational rather than a strategic nature of non-audit services to incumbent clients.

Family ownership and financial reporting quality: Iranian evidence

2018 ◽  
Vol 8 (3) ◽  
pp. 339-356 ◽  
Author(s):  
Mahmoud Mousavi Shiri ◽  
Mahdi Salehi ◽  
Fatemeh Abbasi ◽  
Shayan Farhangdoust
Keyword(s):  
Financial Reporting ◽  
Family Firms ◽  
Stock Exchange ◽  
Accounting Information ◽  
Reporting Quality ◽  
Audit Fees ◽  
Financial Reporting Quality ◽  
Family Ownership ◽  
Content Type

PurposeIn the process of reporting accounting information, the auditor’s objective is to detect possible misstatements and errors in accounting information. Audit evidence aids auditors in providing reasonable assurance about the quality of financial reporting. Studying the quality of family firms’ financial reporting is of higher importance relative to non-family firms due to lower risk of accounting manipulation. Therefore, the purpose of this paper is to examine the relationship between family ownership structure and financial reporting quality from an auditing perspective.Design/methodology/approachTo analyze the research hypotheses, the authors use a sample data consisted of 221 companies listed on the Tehran Stock Exchange (including 52 family and 169 non-family firms) over a five-year span from 2011 to 2015.FindingsUsing multivariate regression analysis of panel data, our results indicate that audit risk in family firms is lower than their counterparts. Likewise, the findings are indicative of lower audit fees paid by family firms as compared to non-family ones. The authors also find that auditors put more effort in family firms and thus audit effort is more significant for these kinds of firms.Originality/valueThe study focuses on family ownership and financial reporting quality in a developing country like Iran and the results of the study may be beneficial to other developing nations, as Iran stock market possesses some unique features which are not normally prevailing in other equity markets, even in the Middle East.

The efficiency of corporate boards and firms’ audit fees: the case of the FTSE financial institutions

2018 ◽  
Vol 30 (3) ◽  
pp. 297-317 ◽  
Author(s):  
Rabih Nehme ◽  
Mohammad Jizi
Keyword(s):  
Financial Institutions ◽  
Financial Reporting ◽  
Reporting Quality ◽  
Financial Statements ◽  
Audit Fees ◽  
Governance Structure ◽  
Negative Consequences ◽  
Reverse Causality ◽  
Content Type

Purpose The quality of financial reporting for the financial institutions is vital for the public, as the negative consequences of manipulated financial statements will not only affect shareholders but also the regulators’ reputation and the society at large. The purpose of this paper is to assess the association between different corporate governance mechanisms and their impact on audit and reporting quality. The gender factor is introduced from a diverse boards’ perspective to highlight any impact of female presence on the quality of financial statements. Design/methodology/approach The authors examine a sample of financial institutions listed on the FTSE-350 index for the years 2011 to 2015. The financial sector has its own and different regulations, and financial reporting framework and auditors are expected to behave into more scrutiny. Bloomberg database is used to obtain governance and financial data, while firms’ annual reports are used to collect audit fees and audit committee information. A panel data regression is used to test hypotheses. The authors also control for unobservable heterogeneity, reverse causality and endogeneity. Findings The results suggest that boards with larger size and higher independence pay higher audit fees to enhance the monitoring capacity and protect the wider group of stakeholders. The results also show that women on boards are likely to reduce the risk of manipulated financial statements, as women are more inclined toward truthfulness, cautiousness and conservatism. In addition, the reported results show that audit committees with more independent members are more inclined toward obtaining higher quality audit to enhance firm’s reporting quality. Originality/value Given the recent governments’ intervention to avoid financial institutions’ negative impact on the economy, this study is relevant and provide policymakers insights into the existing relationships between audit fees and financial institutions’ governance structure.

The effect of Legal Entity Identifiers on audit fee changes

2021 ◽  
Author(s):  
Ju-Chun Yen
Keyword(s):  
Empirical Evidence ◽  
Learning Effect ◽  
Audit Fees ◽  
Policy Implications ◽  
Brand Name ◽  
Legal Entity ◽  
Audit Firms ◽  
Audit Fee ◽  
Legal Entities ◽  
Industry Expertise

This study investigates whether a client's use of a Legal Entity Identifier (LEI) is associated with audit fee changes. An LEI uniquely identifies different legal entities worldwide, making audit clients' transactions and related parties more transparent and traceable, potentially reducing auditors' costs and audit risks, as reflected in audit fee changes. Using a sample of U.S. firms, I find that audit fees increase more for LEI firms than for non-LEI firms within the first few years of LEI registration, but they increase less for LEI firms than for non-LEI firms afterward. The results support a reduction in audit costs due to LEIs, with a learning effect. I also find that audit firms' brand name and industry expertise strengthen this association. This study provides initial empirical evidence of the effects of LEI and policy implications.

Auditor switching and audit fee discounting: the Iranian experience

2017 ◽  
Vol 25 (3) ◽  
pp. 335-360 ◽  
Author(s):  
Fakhroddin MohammadRezaei ◽  
Norman Mohd-Saleh
Keyword(s):  
Bargaining Power ◽  
Initial Period ◽  
Audit Fees ◽  
Maximum Point ◽  
Content Type ◽  
Auditor Switching ◽  
Audit Market ◽  
Audit Fee ◽  
Relative Bargaining Power ◽  
The Impact

Purpose The purpose of this paper is to examine the impact of auditor switching on audit fee discounting in Iran. The increased competition in the Iranian audit market following audit market liberalization in 2001 has resulted in a rapid increase in auditor switching and reduces the relative bargaining power of auditors compared to the clients. It is expected that auditor switching results in fee discounting because the relative bargaining power of an auditor (client) is likely to be at the minimum (maximum) point during the initial period of engagement. Since the increased bargaining power of a client in initial year seems to be different in the case of different type of auditor switching (from a state auditor to a private and from a private auditor to another), the magnitude of fee discounting is expected to be different. Design/methodology/approach The objective is tested using a sample of 1,022 firm-year observations between 2001 and 2010. This study applies the multivariate regression model using the first difference specification of audit fee as a dependent variable. Findings Multivariate analysis reveals that auditor switching results in 14 percent of fee discounting. In addition, the results show that 18 and 13 percent of fees discounting during the initial year of engagement arise from cases of auditor switching involving a change from state auditors to private auditors, and a change from one private auditor to another, respectively. The findings support bargaining power view explanation in relation to audit fees discounting in initial year engagement. Originality/value This study is the first to examine the impact of auditor switching (and analyzed different types of auditor switching) on audit fee discounting using the bargaining power view.

The Impact of Mandatory IFRS Adoption on Audit Fees: Theory and Evidence

2012 ◽  
Vol 87 (6) ◽  
pp. 2061-2094 ◽  
Author(s):  
Jeong-Bon Kim ◽  
Xiaohong Liu ◽  
Liu Zheng
Keyword(s):  
Financial Reporting ◽  
Reporting Quality ◽  
Audit Fees ◽  
Data Availability ◽  
Financial Reporting Quality ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Audit Fee ◽  
European Union Countries ◽  
The Impact

ABSTRACT: This study examines the impact of International Financial Reporting Standards (IFRS) adoption on audit fees. We first build an analytical audit fee model to analyze the impact on audit fees for the change in both audit complexity and financial reporting quality brought about by IFRS adoption. We then test the model's predictions using audit fee data from European Union countries that mandated IFRS adoption in 2005. We find that mandatory IFRS adoption has led to an increase in audit fees. We also find that the IFRS-related audit fee premium increases with the increase in audit complexity brought about by IFRS adoption, and decreases with the improvement in financial reporting quality arising from IFRS adoption. Finally, we find some evidence that the IFRS-related audit fee premium is lower in countries with stronger legal regimes. Our results are robust to a variety of sensitivity checks. Data availability: Data are available from public sources identified in the paper.

scholarly journals Audit Fees Determinants: A Study on the Impact of Key Audit Matters Reporting and other Factors

2021 ◽  
Vol 12 (3) ◽  
pp. 1695-1704
Author(s):  
Zuaini Ishak Et.al
Keyword(s):  
Competitive Advantage ◽  
Audit Fees ◽  
Company Size ◽  
Brand Name ◽  
Audit Pricing ◽  
Reporting Requirement ◽  
Audit Firms ◽  
The Impact ◽  
Insight Into

Knowledge is now an essential source of competitive advantage. Itenhanceseconomic growth and increasescorporate value. In the field of auditing, authority was aware of the need for improved reporting and thus has issued a brand newstandard related to auditor's report.While the new report is expected to enhanceaudit reporting and improve the quality of audit, the move may also increasethe audit costs as auditorsnow needto expandtheir efforts. We analyzed 261 companies listed on Bursa Malaysia and the results indicate that the requirement to improve auditor's communication through enhanced reporting does not influence audit fees. Instead, the study suggests that the company size, poor financial performance and liquidity issue are key determinants of audit fees.  The two world's largest audit firms, i.e., PWC and KPMG, are found to charge higher fees than others, possibly for the brand name. This study informs regulators of the influence of the new requirement on audit output costs.It also offers insight into the main drivers for audit pricing following the current reporting requirement.

scholarly journals Pengaruh Fee Audit dan Profesionalisme Auditor Terhadap Kualitas Audit dengan Kepuasan Kerja Sebagai Variabel Moderasi pada Kantor Akuntan Publik di Bali

2020 ◽  
Vol 1 (1) ◽  
pp. 39-44
Author(s):  
A.A Istri Intan Permata Sari ◽  
I Wayan Rupa ◽  
I.B.Made Putra Manuaba
Keyword(s):  
Job Satisfaction ◽  
Audit Quality ◽  
Audit Fees ◽  
Public Accounting ◽  
The Public ◽  
Analysis Technique ◽  
Audit Fee ◽  
Saturated Sample ◽  
Sample Method

Public accountants in carrying out their profession must pay attention to the quality of audits. To produce good audit quality, an auditor must pay attention to factors that affect audit quality. Audit costs, professionalism, and job satisfaction are all factors that influence audit quality. The purpose of this study was to analyze audit research and auditor professionalism on audit quality with job satisfaction as moderation (study at the Public Accountant Office in Bali). This research was conducted in all seven public accounting offices in Bali in 2018 by making 73 auditors as samples using the saturated sample method. Data collection was carried out by distributing questionnaires using a 5-point Likert scale to measure 18 question items. The data analysis technique used is regression analysis moderation (MRA). Based on the results of the analysis, the variable audit costs and auditor professionalism have a positive effect on audit quality and job satisfaction moderate the effect of a positive cost audit and auditor professionalism on the audit quality of the Public Accounting Firm in Bali. Keywords: Audit fees; professionalism; auditor satisfaction; audit quality Akuntan public dalam melaksanakan profesinya harus memperhatikan kualitas auditnya. Untuk menghasilkan kualitas audit yang baik, seorang auditor harus memperhatikan faktor-faktor yang mempengaruhi kualitas audit. Fee Audit, profesionalisme dan kepuasan kerja merupakan faktor-faktor yang mempengaruhi kualitas audit. Tujuan dari penelitian ini adalah untuk menganalisa pengaruh fee audit dan profesionalisme auditor terhadap kualitas audit dengan kepuasaan kerja sebagai moderasi (studi pada Kantor Akuntan Publik di Bali). Penelitian ini dilakukan di seluruh Kantor Akuntan Publik di Bali sebanyak tujuh kantor yang;terdapat pada Wilayah Bali tahun 2019 dengan menjadikan auditor sebanyak 73 orang sebagai sample dengan metode sample jenuh. Pengumpulan data dilakukan dengan penyebaran kuesioner dengan menggunakan skala like 5 poin untuk mengukur 18 item pertanyaan. Teknik analisa data yang digunakan adalah moderasi regresi analisis (MRA). Berdasarkan- hasil analisis, variable fee audit dan profesionalisme auditor berpengaruh positif terhadap kualitas audit serta kepuasan kerja memoderasi pengaruh positif fee audit dan profesionalisme auditor terhadap kualitas audit Kantor Akuntan Publik di Bali Kata Kunci: Fee audit; profesionalisme; kepuasan auditor; kualitas audit

scholarly journals New Evidence on an Old Question: Does Lowballing Undermine Auditors' Independence or their Clients' Investment Decisions?

2012 ◽  
Vol 7 (1) ◽  
pp. P22-P29
Author(s):  
Darius J. Fatemi
Keyword(s):  
Past History ◽  
Investment Decisions ◽  
Motivated Reasoning ◽  
Audit Fees ◽  
Psychological Effect ◽  
Test Results ◽  
Audit Fee ◽  
History Of ◽  
New Evidence

SUMMARY This paper summarizes Fatemi (2012), which reports the results of an experiment exploring the influence of audit fees on auditor and client decisions. The results indicate that clients are more likely to make choices that maximize a firm's value to shareholders when evidence of audit fee lowballing exists. When clients exhibit a past history of misstatements, auditors exhibit higher levels of skepticism as evidenced by an increased frequency of testing. Auditors' interpretations of test results reveal that they are subject to the psychological effect of motivated reasoning in the presence of lowballing when they are hired by their clients (but not when hired by investors), in that they place more confidence in the quality of tests that support their clients than in equivalent tests that are unsupportive. This article explains these findings and discusses their implications.

Antecedents to the Audit Quality of Non-Financial Firms Listed in Iraq Stock Exchange: The Moderating Role of Accounting Fairness

2021 ◽  
Vol 39 (11) ◽  
Author(s):  
Asaad Mohammed Ali Wahhab ◽  
Abbas Murad Khnaitel Alzubadi Alzubadi ◽  
Ali Shakir Mahmood Haddad
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Stock Exchange ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Earning Management ◽  
Going Concern ◽  
Financial Firms ◽  
Audit Fee

The main objective of the current study is to examine audit fee, financial reporting quality, going concern, and earning management as antecedents to the audit quality of non-financial firms listed in Iraq stock Exchange. In addition to that the study has also examined the moderating role of accounting fairness in the relationship between audit fee, financial reporting quality, going concern, earning management and audit quality of non-financial firms listed in Iraq stock Exchange. The data of 60 firms listed on Iraqi stock exchange over the period of 4 years from 2017-2021 is taken from the audited accounts. The study basically employs panel data analytical tools in achieving the set goals of the research. The choice of panel data approach is informed by a number of methodological advantages it offers. Results indicates that that as interest in the agency theory grows, the importance of fairness as a principle will grow, and that it is expected that the value of this concept would grow as a means of resolving conflict and exploiting interests that arise between the many stakeholders in the firm. on the concept of fairness, agreeing that the interests of particular parties should not trump fairness, which he referred to as clarity. The results of the study have provided support to the hypothesis of the study. The findings of the study will be helpful for policymakers, and researchers on the issues related to accounting fairness ,audit fee, financial reporting quality, going concern, earning management and audit quality of non-financial firms listed in Iraq stock Exchange.

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