The Association between Audit Partner Rotation and Audit Fees: Empirical Evidence from the Australian Market

2015 ◽  
Vol 35 (1) ◽  
pp. 181-197 ◽  
Author(s):  
Jenny Stewart ◽  
Pamela Kent ◽  
James Routledge
Keyword(s):  
Empirical Evidence ◽  
Positive Association ◽  
Audit Fees ◽  
First Year ◽  
Significant Positive Association ◽  
Audit Market ◽  
Second Year ◽  
Audit Partner Rotation

SUMMARY We examine the relation between audit partner rotation and audit fees for a sample of Australian firms from 2007 to 2010. We find a significant positive association between audit fees and partner rotation in the year of rotation. The association persists in the first year post rotation and to a lesser extent in the second year post rotation. Our analysis suggests that higher audit fees are associated with both mandatory and voluntary partner rotation. However, when we divide the sample into large global clients, mid-level clients, and small local clients, we find that mandatory and voluntary rotation are associated with higher audit fees for large global clients, while only voluntary rotation is associated with higher audit fees for small local clients. We do not find an association between partner rotation and audit fees for mid-level clients. Our study suggests that the extent to which firms are able to pass on the costs of partner rotation varies across different segments of the audit market.

Audit Fees, Nonaudit Fees, and Auditor Reporting on Stressed Companies

2003 ◽  
Vol 22 (2) ◽  
pp. 53-69 ◽  
Author(s):  
Marshall A. Geiger ◽  
Dasaratha V. Rama
Keyword(s):  
Audit Committee ◽  
Positive Association ◽  
Audit Fees ◽  
Manufacturing Companies ◽  
Significant Positive Association ◽  
Going Concern ◽  
Reporting Decisions ◽  
Nonaudit Services ◽  
Audit Opinions ◽  
Auditor Reporting

The SEC and legislators have expressed concerns that independence may be negatively impacted if auditors perform significant nonaudit services for their audit clients, and that providing lucrative nonaudit services to clients may make it more likely that auditors will “see things the client's way.” Such concerns are particularly salient in the context of issues that involve significant auditor judgment, as in the case of reporting decisions related to going-concern uncertainties for financially stressed clients. In this study we examine the association between the magnitude of audit and nonaudit fees and auditor report modification decisions for financially stressed manufacturing companies. In our analysis we control for financial stress, company size, reporting lag, default status, audit committee effectiveness, and management plans. The results indicate a significant positive association between the magnitude of audit fees and the likelihood of receiving a going-concern modified audit opinion, but we find no significant association between nonaudit fees and audit opinions. Additional analyses also find no significant relationship between the ratio of nonaudit service fees to audit fees and reporting decisions, and indicate that our results are robust across alternative model, variable, and sample specifications. We also control for the potential endogeneity of audit opinions, audit fees, and nonaudit fees, and find the same positive association of audit fees with opinions, but no association between nonaudit fees and audit opinions. Overall, we find no evidence of a significant adverse effect of nonaudit fees on auditor reporting judgments for our sample of distressed companies.

Financial Statement Disaggregation and Auditor Effort

2021 ◽  
Author(s):  
Matthew Beck ◽  
Matthew Glendening ◽  
Chris E. Hogan
Keyword(s):  
Positive Association ◽  
Financial Statements ◽  
Audit Fees ◽  
Financial Statement ◽  
Litigation Risk ◽  
Significant Positive Association ◽  
Material Line

We examine the consequences of firms' disaggregation choices for auditor effort and audited financial statements. We document a significant positive association between disaggregation and audit fees, our proxy for auditor effort. Using separate measures of disaggregation of smaller line items versus larger, obviously material, line items, we provide evidence that one of the avenues through which disaggregation may increase auditor effort is through changes in auditors' assessments of materiality for smaller line items, especially when financial statement scrutiny is high. We also find disaggregation (and the audit fees associated with disaggregation) constrain the ability of managers to manipulate earnings in the audited financial statements compared to the unaudited financial statements, suggesting the fee response to disaggregation is due to auditor effort. Lastly, we provide evidence that our results are not fully explained by client litigation risk or other client attributes driving disaggregation choices.

Audit Market Structure and Audit Pricing

2016 ◽  
Vol 31 (1) ◽  
pp. 57-81 ◽  
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.

On the Economics of Mandatory Audit Partner Rotation and Tenure: Evidence from PCAOB Data

2020 ◽  
pp. 0000-0000
Author(s):  
Brandon Gipper ◽  
Luzi Hail ◽  
Christian Leuz
Keyword(s):  
Cross Section ◽  
Audit Quality ◽  
Audit Fees ◽  
Large Cross Section ◽  
Public Firms ◽  
Audit Market ◽  
Audit Firms ◽  
Mandatory Rotation ◽  
Audit Team ◽  
Audit Partner Rotation

We analyze the effects of partner tenure and mandatory rotation on audit quality, pricing, and production for a large cross-section of U.S. public firms over the 2008 to 2014 period. On average, we find no evidence that audit quality declines over the tenure cycle and little support for "fresh-look" benefits provided by the new audit partner. Audit fees decline and audit hours increase after mandatory rotation, but then reverse over the tenure cycle. We also find evidence that audit firms use "shadowing" in preparation for a lead partner turnover. These effects differ by competitiveness of the local audit market, client size, and partner experience. When multiple members of the audit team commence at a new client, the transition appears to be more disruptive and more likely to exhibit audit quality effects. Our findings point to costly efforts by the audit firms to minimize disruptions and audit failures around mandatory rotations.

scholarly journals Audit fee discounting in the post-SOX environment

2017 ◽  
Vol 32 (7) ◽  
pp. 715-730 ◽  
Author(s):  
Benjamin W. Hoffman ◽  
Albert L. Nagy
Keyword(s):  
Positive Association ◽  
Audit Fees ◽  
Ordinary Least Squares ◽  
Least Squares Regression ◽  
Audit Pricing ◽  
Significant Positive Association ◽  
Content Type ◽  
Sarbanes Oxley ◽  
Sensitivity Tests ◽  
Audit Fee

Purpose This paper aims to investigate whether the expected implementation of Section 404(b) of the Sarbanes-Oxley Act (SOX 404(b)) (the integrated audit requirement) caused auditors to discount their audit fees for non-accelerated filers in anticipation of expected increased future economic rents (DeAngelo, 1981) from those clients. Design/methodology/approach This paper predicts that auditors charged their non-accelerated filer clients lower audit fees during the years 2005-2007 (in anticipation of increased expected future economic rents from the implementation of the SOX 404(b) requirement) compared with the years 2010-2012 (when it had been determined that non-accelerated filers were permanently exempt from complying with SOX 404(b)). The authors use ordinary least squares regression analysis to examine whether audit fees increased significantly for non-accelerated filers after the permanent exemption announcement. Findings The results show a significant positive association between the exemption announcement and audit fees, supporting the theory that auditors discounted their audit fees for non-accelerated filers in the pre-exemption announcement period. This finding is robust when sensitivity tests are used. Practical implications The findings of audit fee discounting literature related to the post-SOX period are mixed. This study adds to this stream of literature by supporting the notion that audit fee discounting is being practiced post-SOX and is a potential unintended consequence of SOX 404 and the exemption. Thus, investors will be interested in the results of this paper when making their investment decisions with regard to non-accelerated filers. Social implications The results of this paper show that, even in the post-SOX environment, auditors will employ the use of audit fee discounting if a change in regulation incentivizes it. This commentary on the present state of the audit pricing market should be of interest to audit pricing policymakers. Originality/value This paper is one of the first to study audit fee discounting outside the realm of initial audit engagements.

The Association between Audit-Firm Tenure and Audit Fees Paid to Successor Auditors: Evidence from Arthur Andersen

2007 ◽  
Vol 26 (2) ◽  
pp. 95-116 ◽  
Author(s):  
Burch T. Kealey ◽  
Ho Young Lee ◽  
Michael T. Stein
Keyword(s):  
Positive Association ◽  
Audit Fees ◽  
Audit Firm ◽  
Audit Market ◽  
The Past ◽  
Auditor Tenure ◽  
Auditor Change ◽  
Auditor Switches ◽  
Arthur Andersen

This study tests whether prior auditor-client tenure is associated with the audit fees paid to the successor auditor. In the past, studying the association between tenure with the prior auditor and fees charged by the successor was problematic because of the difficulty in controlling for the causes of the auditor change. However, the collapse of Andersen in late 2002 led to a significant number of exogenous auditor switches. Using a sample of former Andersen clients, our major finding is that audit fees charged by the successor auditor varied positively with the length of the prior auditor's tenure. Given that the audit market is efficient, the observed positive association between current fees and prior auditor tenure suggests to us that successor auditors perceived higher risk from new clients having longer tenure with their previous auditor.

The Effect of Mandatory Audit Firm Rotation on Audit Quality and Audit Fees: Empirical Evidence from the Korean Audit Market

2014 ◽  
Vol 33 (4) ◽  
pp. 167-196 ◽  
Author(s):  
Soo Young Kwon ◽  
Youngdeok Lim ◽  
Roger Simnett
Keyword(s):  
Empirical Evidence ◽  
Audit Quality ◽  
Audit Fees ◽  
Discretionary Accruals ◽  
Data Availability ◽  
Audit Firm ◽  
Audit Market ◽  
Audit Firms ◽  
Mandatory Rotation ◽  
Mandatory Audit Firm Rotation

SUMMARY: Using a unique setting in which mandatory audit firm rotation was required from 2006–2010, and in which both audit fees and audit hours were disclosed (South Korea), this study provides empirical evidence of the economic impact of this policy initiative on audit quality, and the associated implications for audit fees. This study compares both pre- and post-policy implementation and, after the implementation of the policy, mandatory long-tenure versus voluntary short-tenure rotation situations. Where audit firms were mandatorily rotated post-policy, we observe that audit quality (measured as abnormal discretionary accruals) did not significantly change compared with pre-2006 long-tenure audit situations and voluntary post-rotation situations. Audit fees in the post-regulation period for mandatorily rotated engagements are significantly larger than in the pre-regulation period, but are discounted compared to audit fees for post-regulation continuing engagements. We also find that the observed increase in audit fees and audit hours in the post-regulation period extends beyond situations where the audit firm was mandatorily rotated, suggesting that the introduction of mandatory audit firm rotation had a much broader impact than the specific instances of mandatory rotation. Data Availability: Most of the financial data used in the present study are available from the KIS Value Database. The data for audit hours and fees were drawn from statements of operating results filed with the Financial Supervisory Services (FSS) in Korea.

scholarly journals Effect Of Corporate Governance On The Association Between Book-Tax Differences And Audit Quality: Evidence From Korea

2016 ◽  
Vol 32 (4) ◽  
pp. 1097-1114 ◽  
Author(s):  
Hyunmin Oh ◽  
Sambock Park ◽  
Soonwook Hong
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Interaction Effect ◽  
Audit Quality ◽  
Positive Association ◽  
Audit Fees ◽  
Negative Association ◽  
Significant Positive Association ◽  
Social Proof ◽  
The Relationship

We investigate whether auditors input additional audit hours according to the sizes of book-tax differences (hereinafter BTD) and request additional audit fees for additional audit hours. In addition, the interaction effects of corporate governance on the relationships between BTD and audit hours/audit fees are examined using the total corporate governance (TCG) scores, data from the Korea Corporate Governance Service (KCGS). We predict that since auditors have the incentive and ability to consider BTD, audit hours and audit fees will increase when BTD are larger. Empirical results of our study are as follows. First, BTD and audit hours (LnAH) show a negative (-) association that is not statistically significant. Second, audit fees (LnAF) were shown to increase along with BTD. This can be interpreted as a result of requests for additional audit fees for increased audit risks due to individual firms' BTD. Third, the interaction effect of corporate governance on the relationship between BTD and audit hours (LnAH) showed a positive (+) association, but the association was not statistically significant. Fourth, the interaction effect of corporate governance on the relationship between BTD and audit fees (LnAF) showed a statistically significant positive (+) association. This be understood as meaning that firms with better governance make more efforts for financial reporting in order to maintain their reliability in the market. This study contributes to the literature in several important aspects. First, it empirically demonstrates whether auditors properly reflect BTD on audit risks. Next, our study is analyzes the effects of corporate governance on the relationship between BTD and audit hours/audit fees using the total corporate governance (TCG) scores presented by the Korea Corporate Governance Service (KCGS). Finally, our findings empirically showed social proof function of accounting audits as a strategy to reduce information risks. 

scholarly journals Population fluctuations of the pistachio twig borer, Kermania pistaciella Amsel, 1964 (Lep.: Oinophylidae) using delta pheromone trap

2019 ◽  
Vol 114 (1) ◽  
pp. 13
Author(s):  
Najmeh FAKHRI ◽  
Habib ABBASIPOUR
Keyword(s):  
Sex Pheromones ◽  
Positive Association ◽  
Weather Conditions ◽  
Pheromone Trap ◽  
First Year ◽  
Flight Period ◽  
Pheromone Traps ◽  
Population Fluctuations ◽  
Delta Type ◽  
Second Year

<p>Population fluctuations of adult insects of pistachio twig borer, <em>Kermania pistaciella</em> Amsel were studied using delta pheromone traps and sampling from 2016-2017 in Kashan pistachio orchards. Delta type traps baited with sex pheromones were hung in pistachio orchards (‘Akbari’) at 20 lures per one hectare and the numbers of captured male insects were counted every three days. Kermania pistaciella males have begun to attract the traps from 18th March and 8th April in the first and second year, respectively and this trend continued to 31st April and 4th May and flight period of about 42 days in the first year and the second year that lasted 27 days. First, peak and end of each catch insects occurred on 18 March, 8-21 April and 31 April in the first year and on 8 March, 23-26 April and 4 May in the second year, respectively. There was no association in the first year and a weak positive association in the second year of study between the average daily temperature and the number of K. pistaciella moths captured in pheromone traps. It seems that moths capture was different because of the weather conditions of these orchards was different in two consecutive years.</p>

Audit Report Lags after Voluntary and Involuntary Auditor Changes

2010 ◽  
Vol 24 (4) ◽  
pp. 671-688 ◽  
Author(s):  
Paul Tanyi ◽  
K. Raghunandan ◽  
Abhijit Barua
Keyword(s):  
Empirical Evidence ◽  
Fiscal Year ◽  
Future Research ◽  
First Year ◽  
Audit Report ◽  
Cost Component ◽  
Big 5 ◽  
Audit Firm ◽  
Auditor Rotation ◽  
Second Year

SYNOPSIS: We find that the audit report lag is significantly higher for former Andersen clients (that did not follow their Andersen partner to the new audit firm) than for clients voluntarily changing auditors from another Big 5 predecessor for the fiscal year ended December 31, 2002 (the first year with the new auditor for ex-Andersen clients). The differences in audit reporting lags between the two groups are not significant for fiscal years ended December 31, 2000 (the last year before Andersen’s Enron related problems surfaced), or 2003 (the second year with the successor auditor). We also find that clients with voluntary (i.e., non-Andersen) auditor changes have only marginally higher audit reporting lags compared to clients without auditor changes. Our results, focusing on a cost component of involuntary auditor changes, thus provide relevant empirical evidence for debates surrounding mandatory auditor rotation. We also find that ex-Andersen clients that followed the Andersen partner to the new audit firm had shorter audit report lags than ex-Andersen clients that did not follow their Andersen partner. Our findings highlight the importance of individual relationships in the auditing process, and suggest new avenues for future research.

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