Audit Pricing of Shared Leadership

This study explores audit implications of shared leadership in client firms. Analyzing data from 2002 to 2013 of Korean listed companies, we find that auditors spend fewer audit hours and charge lower audit fees for clients with multiple CEOs. Additional tests reveal that the lower audit fees for co-CEO clients are likely attributable to reduced audit effort rather than to reduced hourly rates. We also document that firms with co-CEOs exhibit better-reporting quality than do firms with a solitary CEO. In sum, this article presents evidence that mutual monitoring via co-CEO appointments assures high-quality financial reporting of audit clients, and thus leads to reduced audit fees.     

审计师收取客户债务风险溢价了吗?

已有研究发现,公司债务风险越高,审计师收取的审计费用越高;然而,审计费用提高的原因可能是审计投入的增加,也可能是审计师收取客户公司的债务风险溢价。由于缺少审计投入的数据,已有研究无法回答审计师是否收取客户公司债务风险溢价的问题。本文以我国A股上市公司为研究样本,运用我国独到的审计工时数据,就此展开相关问题研究。研究发现,在控制了审计投入之后,客户债务风险与审计费用显著正相关,表明审计师收取了客户公司的债务风险溢价。进一步研究表明,审计师对财务状况较差和治理较差的公司以及非国有企业收取更高的债务风险溢价,规模较小的会计师事务所收取的债务风险溢价高于规模较大的会计师事务所。     

非审计业务对审计市场绩效的影响——基于会计师事务所业务结构的角度

以审计质量和审计收费作为审计市场绩效的衡量指标,从会计师事务所业务结构角度来考察我国注册会计师行业拓展非审计业务对审计市场所带来的影响。实证检验发现,相对于其他事务所而言,非审计业务规模越大和当年非审计业务规模较上年扩大的事务所,其审计质量越好,审计收费也越高。这说明在目前审计服务市场容量有限,竞争过于激烈的环境下,拓展非审计业务有利于增强审计独立性和提高审计收费,是改善行业执业环境的一个重要途径。     

Auditors' Perceived Business Risk and Audit Fees: Analysis and Evidence

This study analyzes the relation between auditors' perceived business risk and audit fees to determine whether audit firms or their clients bear the expected legal costs of business risk. We predict that hourly audit fees and the number of audit hours are increasing in business risk. Using confidential survey data collected by a large international accounting firm for 422 audits, we find that high business risk increases the number of audit hours, but not the fee per hour. This implies that firms perceive firm-level differences in business risk and obtain compensation through billing additional hours, not by raising the hourly charge.     

The vanishing searches and audit fees: Evidence from Google's withdrawal from China

I investigate the impact of the disruption of free information access via search engines on audit fees using a quasi-natural experiment provided by Google's withdrawal from China. Employing a difference-in-differences design, I document an increase in audit fees for firms with overseas business relative to firms without overseas business after Google's withdrawal. The results are robust to matched samples, placebo tests, alternative specifications, excluding alternative explanations and different event windows. This trend in audit fees suggests that Google's withdrawal hampers firms' foreign information streams and increases audit risk and audit effort. Consistent with this argument, after Google's withdrawal, firms with overseas business conduct more earnings management, pay more abnormal audit fees and experience longer audit report lags. Furthermore, the increase in audit fees is greater for firms with poor information environments, more retail investors or non-Big 4 auditors. My findings suggest a potential auditing cost of restricting the free flow of public foreign information about firms.     

The Business Risk Audit Approach and Audit Production Efficiency

Essentially, this study asks: Does the business risk audit (BRA) approach increase audit production efficiency? To answer this question empirically, direct and indirect tests are employed using proprietary, working paper data from the larger clients of a major Australian public sector audit provider and an efficiency frontier analytic methodology, data envelopment analysis (DEA). Results based on this proprietary, audit hours data for audit engagements carried out just after BRA approach implementation show that they have high levels of production efficiency and are risk-adjusted, with no significant difference in production efficiency between higher and lower business risk audit engagements. Results based on audit fees data for audit engagements carried out shortly before and after BRA approach implementation show that overall production efficiency significantly improves. Importantly, while this improvement is significant for lower-risk audit engagements, there is no significant improvement for higher-risk audit engagements. In the context of this study's research site, this is consistent with the BRA approach addressing inefficiencies created when lower-risk audit engagements are being over-audited. That is, the BRA approach can result in both risk-adjusted and more efficiently produced audits. With the re-emergence of the BRA approach in the literature and in practice, this study provides empirical evidence to support the claim that this audit approach can lead to ‘creating auditing efficiencies’ (Bell et al., 1997, p. 1).     

The Role of Risk Management and Governance in Determining Audit Demand

Abstract:  Most prior research into audit fees has been based on a theoretical model which treats audit fees as the by-product of a production function ignoring potential demand forces that may drive the level of the audit fee. Inspired by prior 'anomalous' results, we take a different perspective by focusing on demand factors that may affect the level of the audit fee. Using data collected from a sample of listed companies in Belgium, we consider both disclosures about risk and risk management and actual decisions about corporate governance to examine whether audit fees are higher when these demand forces exist. In general, we expect that external auditing will increase in situations where there are multiple stakeholders with individual risk profiles who can shift some of the cost of monitoring to other stakeholders. Consistent with our theory and expectations, our results indicate that audit fees are higher when a company has an audit committee, discloses a relatively high level of financial risk management, and has a larger proportion of independent Board Members. Audit fees are lower when a company discloses a relatively high level of compliance risk management. The latter result indicates that controls are only complementary as long as they are voluntary, as mandated controls act as substitutes for non-mandated controls.     

Costs Associated With Going-Concern-Modified Audit Opinions: An Analysis of the Australian Audit Market

This article examines the potential costs to Australian auditors and their clients from the issuance of first-time going-concern-modified audit opinions. We examine the population of Australian companies receiving a first-time going-concern-modified audit opinion during the period 1994–97 and a matched sample of financially distressed firms receiving a clean audit opinion. Results indicate that auditor switching is positively associated with receipt of a going-concern-modified opinion. However, we find no empirical evidence that there is a self-fulfilling prophecy of increased probability of company failure following the issuance of a going-concern-modified opinion for the Australian companies in our study. Our analyses of lost audit fees indicate that auditors issuing first-time going-concern-modified audit opinions lost proportionately more fees by losing clients (through switching or company failure) than firms not issuing a going-concern-modified opinion to financially stressed clients.     

Workforce environment and audit fees: International evidence

Using a dataset from 30 countries over the period from 2002 to 2017, we examine the effects of auditing clients’ workforce environment on audit fees as well as the role that national labor market flexibility plays in this relationship. We find evidence that audit fees are significantly lower for firms with a good workforce environment, suggesting that auditors perceive such clients as less risky; as a result, auditors expend less effort and/or charge a lower risk premium. Furthermore, we find this effect to be stronger for firms in countries with a more flexible labor market. Our mediation test results indicate that the relationship between the audit client workforce environment and audit fees is mediated by media coverage of workforce controversies. Our study contributes to the international audit fee literature by identifying employee welfare as a distinct audit pricing factor, above and beyond the effects of overall corporate social responsibility practices.     

制度变迁、集团客户重要性与非标准审计意见

客户重要性是否影响审计师独立性,是审计理论界和实务界都非常关注的话题。本文以企业集团作为一个整体来研究集团客户重要性对审计师独立性的影响,发现集团客户经济依赖性会损害审计师的独立性,这种现象对于小规模事务所而言尤为严重。此外,本文还进一步考察了2007年新会计准则、审计准则及事务所民事诉讼风险加强等制度环境变化对审计师行为的影响。研究发现,在制度环境改善之后,审计师执业总体上变得更加谨慎,大规模事务所尤其如此。     

关系型交易对审计费用的影响——基于经营风险理论视角

关系型交易模式可能会在议价能力、关系专用性投资成本转换等方面加剧上市公司的经营风险,进而影响审计费用。已有研究主要集中于关系型交易对审计行为的影响,鲜有文献关注其中的作用机制。本文基于经营风险理论视角,选取2008~2017年沪深A股制造业上市公司的相关数据,实证分析了关系型交易对审计费用的影响,结果表明:关系型交易显著加剧了企业经营风险的集聚,进而提升审计费用,即经营风险在关系型交易对审计费用的影响中起到了中介作用。进一步研究,在区分了产权性质以及耐用品特征后,实证结果显示关系型交易与审计费用的正相关关系在非国有企业以及耐用品行业的企业中较为显著,为审计师进行合理审计定价提供了经验证据支持。     

融资约束、审计费用与现金持有价值

审计费用和现金持有价值是公司财务审计研究领域的两个重要话题。审计费用高低所隐含的公司风险程度影响着投资者对公司增加现金持有量将产生积极还是消极效应的判断,会导致公司股票超额回报率的变化,进而也可能影响其现金持有价值,目前尚无相关的研究。本文以现金持有的边际价值模型为基础,引入审计费用和融资约束变量,对融资约束条件下审计费用与公司现金持有价值的关系进行研究后发现,过高的审计费用会降低公司的现金持有价值,审计费用增加得越多,公司的现金持有价值越低。进一步的分析发现,相对于其面临较高程度的融资约束时,公司面临较低程度的融资约束时审计费用对其现金持有价值的负向影响更为显著。     

The Unintended Consequences of the Frequency of PCAOB Inspection

After more than 50 years of self‐regulation of the US auditing profession, the Sarbanes‐Oxley Act of 2002 (SOX) created the Public Company Accounting Oversight Board (PCAOB) as a quasi‐governmental entity with statutory authority to inspect accounting firms that audit public clients. The frequency of this inspection is annual or triennial, based upon the number of public clients the firm audits. We examine the effects of these two levels of inspection frequency on financial reporting quality and audit fees for clients of small and midsize public accounting firms. Our findings provide evidence of significantly higher audit quality and audit fees for clients of annually inspected firms relative to clients of triennially inspected firms. These findings are robust to auditor‐client alignment analyses, propensity score matching, time‐series analyses, examination of firms that have changed from triennial to annual inspection, and particular examination of firms with inspection deficiencies. Overall, our study suggests that the two‐tier frequency system of PCAOB inspection may have also resulted in two‐tier audit quality and audit fee systems for small and midsize public accounting firms, with more frequent inspection leading to more rigorous and informed auditor decisions. We discuss the implications of our results for the Board and the profession at large.     

Effects of audit partners on clients’ business risk disclosure

We empirically investigate audit engagement partners’ involvement in business risk disclosure. Specifically, we examine whether the quality of business risk disclosure is influenced by engagement partner tenure and knowledge. We also examine whether the effects of partner tenure and knowledge are similar for Big 4 audit firms and non-Big 4 firms. Since fiscal year 2003, listed companies in Japan have been required to disclose business risk information. Although the business risk information is not audited, auditors concerned about their audit quality may seek to influence clients’ business risk disclosure practices. Giving advice to management on the narrative business risk disclosure can contribute to improving the perceived value of the auditor’s services which can be a competitive advantage. Using a sample of Japanese listed companies from 2003 to 2010, we find that if the engagement partners’ tenure is shorter, a company discloses more business risk information and the disclosure is more detailed. Furthermore, companies with audit partners who have a larger number of client engagements disclose larger amounts of business risk information in more detail. However, the engagement partner effects are mitigated if they belong to a Big 4 firm.     

Audit Fees, Non-Audit Fees and Auditor Going-Concern Reporting Decisions in the United Kingdom

The accounting profession has come under increased scrutiny over recent years about the growing number of non-audit fees received from audit clients and the possible negative impact of such fees on auditor independence. The argument advanced is that providing substantial amounts of non-audit services to clients may make it more likely that auditors concede to the wishes of the client management when difficult judgments are made. Such concerns are particularly salient in the case of reporting decisions related to going-concern uncertainties for financially stressed clients.
 This study empirically examines audit reports provided to financially stressed companies in the United Kingdom and the magnitude of audit and non-audit service fees paid to the company's auditors. We find that the magnitude of both audit fees and non-audit fees are significantly associated with the issuance of a going-concern modified audit opinion. In particular, financially stressed companies with high audit fees are more likely to receive a going-concern modified audit opinion, whereas companies with high non-audit fees are less likely to receive a going-concern modified audit opinion. Additional analyses indicate that the results are generally robust across alternative model and variable specifications. Overall, evidence supports the contention that high non-audit fees have a detrimental effect on going-concern reporting judgments for financially stressed U.K. companies.     

Does International Accounting Network Membership Affect Audit Fees and Audit Quality? Evidence From China

Regulators suggest that small audit firms join international accounting networks to reduce their resource constraints in serving large clients and providing high-quality service. Bills, Cunningham, and Myers (2016) investigate the issue in the United States and find that both audit fees and quality are higher for members of international accounting networks (i.e., member audit firms). We investigate the effects of network membership on audit fees and quality in China, a relatively weaker institutional environment than the United States. Using data of Chinese listed companies audited by non-Big N audit firms from 2001 to 2010, we find that member audit firms charge 3.9% higher fees than nonmember audit firms, much lower than the 30% fee premiums charged by U.S. member audit firms. We do not find consistent evidence that audit quality is higher for member audit firms. Overall, our results demonstrate that China's weak institutional environment may overwhelm the quality control brought by international accounting networks and that it may weaken or even offset the benefits of audit firms' participation in these networks, resulting in smaller or even no effects of membership on audit fees and quality.     

Code of ethics quality and audit fees

Using a sample of U.S. firms from 2003 to 2018, we examine the effect of an audit client’s code of ethics quality on audit fees. We find that clients with a lower code of ethics quality pay significantly higher audit fees, suggesting that auditors perceive such clients as riskier and charge greater risk premiums. We also find that such clients have higher litigation risk and auditors spend greater effort when auditing such clients. Our study is among the first to demonstrate the role of a client’s code of ethics quality in audit pricing. Overall, our findings are consistent with codes of ethics being useful to auditors in assessing managers’ financial representations and providing value to firms.     

企业集团统一审计能降低审计收费吗

审计收费是审计研究的重要问题。已有审计研究文献通常关注的是对单个公司的审计收费,本文则关注在同一实际控制人控制下的企业集团中,多家上市公司选择同一家会计师事务所审计,即集团统一审计对审计收费的影响。研究发现,集团统一审计不但不能降低审计收费,反而会增加审计收费;选择大所进行统一审计可以降低审计费用,而小所执行统一审计则可能存在牺牲独立性以获得更多审计收费的情形。此外,事务所尤其是小规模事务所,在招揽集团客户时存在激烈的低价竞争。     

The Importance of Business Risk in Setting Audit Fees: Evidence from Cases of Client Misconduct

Previous research provides evidence that, for the clients of a large audit firm, audit clients with higher perceived business risk bear the expected costs of this risk with higher audit fees. We extend the literature, which focuses on the relation between litigation risk and audit fees, by examining alleged client misconduct that is not illegal but possibly increases business risk. In particular, we examine the relation between audit fees and business risk for audit clients doing business in developing countries where bribery of top government officials has been an accepted business practice. We hypothesize that bribery‐paying clients are riskier because of both client business risk and audit business risk. Using data collected from Securities and Exchange Commission filings and audit fee data in the 1970s, before the passage of the Foreign Corrupt Practices Act, we provide evidence that audit fees were higher for clients that disclosed paying bribes. This evidence is consistent with an audit market where auditors assess business risk at the client level, then pass their expected costs to the client in the form of higher audit fees.     

How do auditors respond to low annual report readability?

We show that increased audit effort is associated with lower annual report readability to compensate for a perceived increase in the risk of financial misstatement for United States (US) firms. In particular, we find that lower annual report readability is associated with longer audit delays and higher audit fees for Form 10-K for US auditors, suggesting that auditors spend more effort auditing clients when annual reports have lower readability. We also find that low readability increases the likelihood of auditors using more explanatory language in unqualified audit reports.