Partner-Scale Economies, Service Bundling, and Auditor Independence in the Australian Self-Managed Superannuation (Pension) Fund Industry

2016 ◽  
Vol 36 (2) ◽  
pp. 161-180 ◽  
Author(s):  
Bruce Arnold ◽  
Hazel Bateman ◽  
Andrew Ferguson ◽  
Adrian Raftery
Keyword(s):  
Pension Fund ◽  
Scale Effects ◽  
Scale Economies ◽  
Audit Fees ◽  
Auditor Independence ◽  
The Self ◽  
Retirement Savings ◽  
Audit Pricing ◽  
Level Scale ◽  
The Impact

SUMMARY Using proprietary Australian Taxation Office (ATO) data, this study examines audit pricing, service bundling, and independence issues in the self-managed superannuation fund (SMSF) sector, the fastest growing and largest segment of the Australian $2 trillion retirement savings industry. We consider the impact of partner-level scale effects for a large sample of SMSF audits for the three years to June 2010. After controlling for factors known to determine audit fees, we find evidence of fee discounting by partners with large client portfolios. However, when the dependent variable is redefined to the total “bundle” of services (including audit and non-audit fees), the firms of partners with larger client portfolios are shown to earn bundling fee premiums. This finding suggests industry specialists price strategically using audits as a conduit to supply higher margin non-audit services (NAS) to clients with more resources. Last, we find no evidence the supply of NAS impairs auditor independence, alleviating joint supply concerns raised in the Cooper Review.

Impact of the SEC's Public Fee Disclosure Requirement on Subsequent Period Fees and Implications for Market Efficiency

2005 ◽  
Vol 24 (s-1) ◽  
pp. 145-160 ◽  
Author(s):  
Jere R. Francis ◽  
Dechun Wang
Keyword(s):  
Bargaining Power ◽  
Audit Fees ◽  
Auditor Independence ◽  
Adjustment Process ◽  
Public Disclosure ◽  
Audit Pricing ◽  
Subsequent Period ◽  
Disclosure Requirement ◽  
The Impact ◽  
The U.S

This study investigates the impact of the U.S. Securities and Exchange Commission's (SEC) mandated public disclosure of audit fees on subsequent period audit pricing. Our theoretical model predicts that the initial public disclosure of fees will lead to greater precision and reduced dispersion (less variance) in subsequent period fees. Using the new fee disclosures in the first two disclosure years (2000 and 2001), we find significantly smaller variances in audit fees as predicted for 2001 relative to 2000. In addition, we document that those clients that were “overcharged” (“undercharged”) in 2000 have significantly lower (higher) fees in 2001. However, there is greater downward fee adjustment than upward adjustment that suggests that clients have bargaining power over auditors. We also document that subsequent period fees appear to have completed the adjustment process by the second post-disclosure year (2002) with subsequent fees adjusting on average around 0.31 percent for each one percent of fee surprise in 2000. In sum, the evidence indicates that public disclosure has improved the precision of audit pricing (less variance) and this is a potentially more fundamental and lasting consequence of public disclosure, and transcends the SEC's original rationale, which was more narrowly premised on the conjectured adverse effect of nonaudit services on auditor independence.

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 Audit Fees and Financial Performance of Deposit Taking Saccos in North RIFT, Kenya

2020 ◽  
Vol 6 (5) ◽  
pp. 15-27
Author(s):  
Dorris Serem ◽  
Dr. Rashid Fwamba ◽  
Dr. Alala Benedict
Keyword(s):  
Financial Performance ◽  
Audit Quality ◽  
Secondary Data ◽  
Financial Statements ◽  
Audit Fees ◽  
Positive Influence ◽  
Auditor Independence ◽  
Audit Firm ◽  
Firm Experience ◽  
The Impact

The collapse of Deposit-Taking SACCOS and financial institutions in Kenya has caught the attention of the public and supervisory agencies to query the quality of audit. SACCO Societies Regulatory Authority on its inspection report indicated that SACCOs have been implicated in maladministration, scams and fraudulent dealings that led to their eventual collapse. SASRA also revoked licenses and rejected audited financial statements of some Deposit Taking SACCOs between 2013 to 2017.These financial scandals have been traced to poor audit quality. The study aimed to test the impact of audit quality on financial performance of Deposit-Taking SACCOs in North Rift Region, Kenya. The study sought to establish the influence of audit fees on financial performance; determine the influence of audit firm tenure on financial performance; establish the influence of auditor independence on financial performance and to determine the influence of audit firm experience on financial performance of Deposit-Taking SACCOs in North Rift Region, Kenya. This study was based on Agency theory, Role theory and the Concept of audit expectation gap, and Stakeholders’ theory. This research adopted descriptive cross-sectional research design. The target population for the study was 266 staff of all the 16 registered Deposit-Taking SACCOs in North Rift Region, Kenya. The sample size was 48 respondents comprising of chief executive officers, finance officers and internal auditors of the Deposit-Taking SACCOs selected using purposive sampling method. Primary and secondary data was used. Questionnaires collected primary data while audited annual financial statements of SACCOs provided secondary data. Inferential and descriptive statistics was used in analyzing data through SPSS version 25. It emerged that audit fees, audit firm tenure and audit firm experience have a significant positive influence on financial performance of Deposit-Taking SACCOs in North Rift Region, Kenya. Auditor independence had an insignificant positive influence on financial performance of Deposit-Taking SACCOs in North Rift Region, Kenya. The study concluded that audit quality has a positive noteworthy impact on financial performance of Deposit-Taking SACCOs in Kenya. The study recommends that regulatory authorities should formulate strict rules on audit fee charges and oversee the implementation of the same. Also, SASRA should ensure DT-SACCOs implement auditor rotation in compliance with auditing regulations and standards. DT-SACCOs to consider auditor’s professional competence and experience before initiating any audit engagement. Finally, DT-SACCOs and auditors should reinforce the professional code of ethics in regard to auditor independence in terms of familiarity between auditor and the client that may lead audit work into jeopardy.

scholarly journals A theoretical approach to auditor independence and audit quality

2020 ◽  
Vol 17 (2) ◽  
pp. 124-141
Author(s):  
Rahman Yakubu ◽  
Tracey Williams
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Audit Fees ◽  
Auditor Independence ◽  
Accounting Scandals ◽  
Audit Firms ◽  
Mandatory Audit Firm Rotation ◽  
The Impact ◽  
Insight Into

Auditor independence and the quality of audit report is of growing concern to regulators, institutional investors and stakeholders as a series of accounting scandals have undermined the professionalism of auditors. The findings from this study produced an insight of how auditor’s independence improve audit quality and that abnormal audit fees is as a result of additional effort for auditor to carry out rigorous audit engagement as a result of wider audit scope; that mandatory audit firm rotation will enhance auditor independence, and that audit committee with nonexecutive independence will promote audit quality. The study also finds that in terms of auditor size, smaller audit firms that belong to professional bodies will provide higher audit quality. The main conclusion of this research is that where an auditor is fully independent in carrying out audit engagement with strong resistance to fees pressure will enhance audit quality. This research provides insight into the impact of IFRS adoption on audit fees.

City-Level Auditor Industry Specialization, Economies of Scale, and Audit Pricing

2012 ◽  
Vol 87 (4) ◽  
pp. 1281-1307 ◽  
Author(s):  
Simon Yu Kit Fung ◽  
Ferdinand A. Gul ◽  
Jagan Krishnan
Keyword(s):  
Bargaining Power ◽  
Economies Of Scale ◽  
Scale Economies ◽  
Audit Fees ◽  
The United States ◽  
Data Availability ◽  
Audit Pricing ◽  
Industry Specialization ◽  
Auditor Industry Specialization ◽  
Negative Effect

ABSTRACT We examine the effects of city-level auditor industry specialization and scale economies on audit pricing in the United States. Using a sample of Big N clients for the 2000–2007 period, and a scale measure based on percentile rankings of the number of audit clients at the city-industry level, we document significant specialization premiums and scale discounts in both the pre- and post-Sarbanes-Oxley Act (SOX) periods. However, the effects of industry specialization and scale economies on audit pricing are highly interactive. The negative effect of city-industry scale on audit fees obtains only for clients of specialist auditors. By contrast, clients of non-specialist auditors obtain scale discounts only when they enjoy strong bargaining power, suggesting that auditors are “forced” to pass on scale economies to clients with greater bargaining power. Data Availability: Data are available from sources identified in the article.

Financial reporting quality, audit fees and risk committees

2020 ◽  
Vol 28 (3) ◽  
pp. 423-444 ◽  
Author(s):  
Md. Borhan Uddin Bhuiyan ◽  
Ummya Salma ◽  
Jamal Roudaki ◽  
Siata Tavite
Keyword(s):  
Financial Reporting ◽  
Financial Risk ◽  
Investment Decision ◽  
Reporting Quality ◽  
Audit Fees ◽  
Financial Reporting Quality ◽  
Audit Pricing ◽  
Content Type ◽  
The Impact ◽  
Matching Techniques

PurposeThe purpose of this paper is to examine the association between the existence of a risk committee (RC) in a firm and financial reporting quality. We also investigate whether having an RC has an effect on audit pricing. We argue that the existence of an RC in a firm contributes to higher financial reporting quality and this, eventually, affects audit pricing.Design/methodology/approachThis study uses two different proxies for RC measures and investigates the impact on financial reporting quality and audit pricing. Multivariate regression analysis and propensity score matching techniques are both applied to data from the Australian Stock Exchange's listed companies for the years 2001–2013.FindingsThe results indicate that the existence of an RC reduces the discretionary accruals; this means the financial reporting quality improves when RCs are in operation. Our findings also indicate that the existence of an RC increases audit fees.Practical implicationsThe findings from this study will be beneficial to the regulatory authorities responsible for improving the compliance of corporate governance (CG). An RC can serve as a risk-mitigating tool in the investment decision-making process. Finally, the results are beneficial for the development of best practices in CG by promoting the existence of an RC.Originality/valueThis study goes beyond the traditional focus on CG as we use the existence of an RC as an indicator of better governance practices to mitigate financial and non-financial risk factors. To the best of our knowledge, this paper is among the first to investigate the consequences for firms operating with RCs. This issue has implications for investors, auditors, directors and regulators.

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.

An empirical analysis of audit pricing and auditor selection: evidence from India

2019 ◽  
Vol 35 (1) ◽  
pp. 111-151
Author(s):  
Arnab Bhattacharya ◽  
Pradip Banerjee
Keyword(s):  
Financial Distress ◽  
Audit Fees ◽  
Ordinary Least Squares ◽  
Regression Technique ◽  
Audit Pricing ◽  
Content Type ◽  
Auditor Choice ◽  
Big 4 ◽  
Audit Fee ◽  
The Impact

Purpose This paper aims to examine various factors affecting the pricing of audit services and the selection of auditors in the Indian audit market. This paper also aims to investigate the impact of financial distress conditions on the audit pricing and auditor choice decisions of a firm, particularly in the context of a developing economy. Design/methodology/approach The sample comprises 22,644 firm-years for 1,366 Indian firms from 1990 to 2015. The authors adopt ordinary least squares regression technique to model audit fee, and logistic regression technique to model auditor choice as a function of various factors relating to firm attributes and auditor characteristics. Findings This paper finds that auditors tend to charge an audit fee premium when they are affiliated to a Big 4 auditor, have industry specialization or jointly provide auditing and non-auditing services. Additionally, firms with larger boards, higher proportion of independent board of directors and CEO–Chairman separation are more likely to choose a Big 4-affiliated auditor. The results also suggest that financially distressed firms tend to pay significantly lower audit fees and are more likely to choose non-Big 4 auditors. Originality/value This paper is among the few studies which investigate how financial distress impacts the audit pricing and auditor choice decisions of a firm in the context of emerging economies. The findings of this paper raises serious concerns about the credibility of the audited financial statements and corporate governance mechanisms of firms undergoing financial distress. The empirical results of this paper have strong implications for practitioners, regulators and investors.

The Impact of Conservatism Accounting on Audit Fees

2021 ◽  
pp. 253-280
Author(s):  
Sandra Alves
Keyword(s):  
Fixed Effects ◽  
Positive Relationship ◽  
Audit Fees ◽  
Audit Pricing ◽  
High Quality ◽  
Audit Risk ◽  
Investor Confidence ◽  
Conservative Accounting ◽  
Big 4 ◽  
The Impact

For a sample of listed Portuguese and Spanish firms from 2010 to 2018, this study draws on audit pricing, substitution, signaling, and complementary theories to evaluate the impact of conservatism accounting on audit fees. Using fixed effects technique, the author finds a positive relationship between conservatism accounting and audit fees. The results suggest that firms with more conservative accounting (with strong internal corporate governance) could be more likely to demand high-quality audit to strengthen investor confidence in financial information and, thus pay higher audit fees. Therefore, this study supports signaling and complementary theories. The results also suggest that Big 4, growth, firm size, and leverage are positively related with audit fees. To Spain, audit risk and ROA are also positively related with audit fees.

Eliminating the Form 20-F Reconciliation and Audit Pricing

2016 ◽  
Vol 16 (1) ◽  
pp. 1-19 ◽  
Author(s):  
Yi-Hung Lin ◽  
Hua-Wei (Solomon) Huang
Keyword(s):  
Financial Reporting ◽  
Direct Evidence ◽  
Audit Fees ◽  
International Financial Reporting Standards ◽  
Reporting Standards ◽  
Audit Pricing ◽  
Listed Firms ◽  
Financial Reporting Standards ◽  
The Impact ◽  
Industry Specialist

ABSTRACT This study examines the impact of the Securities and Exchange Commission's (SEC) policy in 2007 to eliminate the Form 20-F reconciliation requirements for foreign cross-listed firms following the International Financial Reporting Standards (IFRS) on audit pricing. We find that the elimination of this requirement decreases audit fees, and this fee decrease is less prominent when foreign cross-listed firms engage industry-specialist auditors. Our findings reinforce prior studies that found that managers of foreign cross-listed firms have a greater tendency to manage earnings when there is a need to reconcile earnings (Bradshaw, Bushee, and Miller 2004; Lang, Raedy, and Wilson 2006; Kang, Krishnan, Wolfe, and Yi 2012), and thus eliminating the Form 20-F reconciliation impedes managerial manipulation of earnings, decrease financial reporting risk, and audit fees. The results also provide direct evidence to support the SEC's (2007) claim that eliminating the Form 20-F reconciliation would reduce the preparation costs and regulatory burdens for foreign issuers.

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