Size of Audit Fees and Perceptions of Auditors'Ability to Resist Management Pressure in Audit Conflict Situations

Using a multi-factor ANOVA design and forty-nine bankers as subjects, this study examined the effects of audit fee size, management advisory services, audit firm size and competition on perceptions of the auditors'ability to resist management pressure in an audit conflict situation. It postulates that size of the audit fee is a major explanatory factor regardless of the provision of management advisory services, audit firm size or level of competition. Results supported the hypothesized effects of these variables and, in particular, that size of audit fee affects perceptions of the auditors'ability to resist management pressure regardless of the other variables.     

An examination of contextual factors and individual characteristics affecting technology implementation decisions in auditing

While computer-assisted audit techniques (CAATs) have the potential to increase efficiency and effectiveness of audit engagements, research in this area suggests that such techniques are under-utilized in public accounting. We propose that this condition is due to performance evaluation pressure and the use of budgets for multiple purposes, which result in the misalignment of firm and individual employee goals. We apply technology acceptance and budgeting theories to test this contention as well as potential organizational strategies for reducing the impediments to technology acceptance in the audit profession.Results from an experiment with experienced auditors suggest that firms have the ability to influence the implementation of new technology by using longer-term budget and evaluation periods and by communicating the approval of remote superiors regarding the software. In the absence of such firm interventions, the individual characteristics of the auditor (risk-aversion and perceptions of budgetary pressure) determine implementation decisions. Specifically, risk-seeking individuals are more likely to implement technology regardless of budget pressure perception, but for risk-averse individuals the decision to implement is positively related to perceived budget pressure.     

Is the effect of industry expertise on audit pricing an office-level or a partner-level phenomenon?

Several studies report an audit fee premium for auditor industry expertise measured at the office level. We extend this line of research by examining whether there is a fee premium for auditor industry expertise measured at the partner level. Using Australian data, we show that the coefficient for partner-level industry expertise is highly significant and economically important. This is consistent with industry knowledge or expertise residing in the human capital of individual engagement partners. Inconsistent with prior research, we show that there is no auditor industry expertise fee premium at the audit office level when partner-level expertise is controlled for. Consistent with prior research, we find little evidence of a fee premium at the national level. The results suggest that the auditor industry expertise fee premium is mainly a partner-level phenomenon, casting doubt on the belief that industry knowledge or expertise is distributed across engagement partners within an audit office.     

会计师事务所规模与审计定价——基于中国本土事务所的经验研究

会计师事务所规模与审计收费之间的关系取决于产品差异化、声誉投资、市场势力等三个因素与规模效应之间何者相对占优。对我国A股上市公司2007～2008年数据检验发现,无论是以业务收入、注册会计师人数还是从业人员人数度量事务所规模,事务所规模与审计收费之间都呈显著的正向关系。这表明,大事务所可以收取更高的审计费用。同时,在我国审计市场,规模效应相对于其他三个因素可能不占优势。     

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.     

会计师事务所的属性重要性与审计收费——基于中国会计师事务所综合评价前百家信息的证据

审计收费是对事务所的审计师团队努力的回报,而审计师团队有多种不同重要程度的属性,因此有必要把会计事务所作为一个拥有多个属性重要性的系统,具体考察其对于审计收费的影响。本文根据中国注册会计师协会年度会计师事务所综合评价前百家信息,具体考察了会计事务所的属性重要性对审计收费的影响。研究表明,事务所中的CPA的教育结构、CPA的经验(年龄)结构和事务所综合规模对审计收费具有显著正向影响。事务所其他属性与审计收费未发现存在显著相关性。     

Linkages between organizational goals,strategies, and the budget process

This case is ideally suited to integrate organizational goals and strategies with budgeting, feedback, and variance analysis. It demonstrates the interplay between the budget process and organizational goals and strategies. The case is also useful in integrating accounting concepts with concepts which students have studied in management or organizational behavior courses. It suggests that the way that managers respond to variances is affected by the environment in which the firm operates and the product(s) manufactured by the firm. This case is based upon an actual situation in which a firm experienced rapid growth through acquisition. Integration of the budget process with organizational goals and strategies enhances the students' interest and their understanding of the role of budgets in the planning and control process. The case demonstrates that budgets are part of a “big picture,” and can be traced and related to managerial goals and strategies. Further, the case allows students to develop an understanding and appreciation of variance analysis. The case has been used successfully with undergraduate cost accounting students and with participants in a 2-week executive-education program. The students find the case interesting and are eager to participate in the discussion.     

The effect of audit firm size on audit prices: A study of the Australian Market

The effect of audit firm size on prizes is a complex function of competition in the market for audit services, product differentiation, and scale economics to large firms. In this study, a competitive market is supported in Australia with product differentiation to Bif Eight accounting firms. Specially, Big Eight accounting firms have significantly higher audit prices than non-Big Eight firms. This results holds for ‘large’ and ‘small’ auditees. A test is also made of price cutting in the Australian market. Price cutting is defined as lower initial audit fees than continuing engagement fees for a comparable audit. Test results do not evidence price-cutting behavior by accounting firms. There is in fact weak evidence that initial audit fees are higher than continuing engagement fee levels. Higher initial fees suggest that accounting firms may recover at least some of the audit start-up costs immediately.     

Agency costs and product market competition: The case of audit pricing in Greece

Jensen and Meckling (1976) argue that agency costs are not dependent on product market competition. However, elsewhere in the economics literature, theoretical analysis and empirical research have indicated that product market competition reduces agency costs by reducing the marginal cost of eliciting effort from agents. We investigate the relationship between product market competition and audit fee, as an example of agency cost. Taking advantage of a proprietary data set for Greek audit firms, we find that the audit fee and audit hours are inversely associated with client firm product market competition. We conclude that audit effort, as an agency cost, is reduced where competitive forces reduce the need for shareholders to bear the costs of monitoring agents.     

Audit market structure,fees and choice in a period of structural change: Evidence from the UK – 1998–2003

This paper presents evidence on audit market concentration and auditor fee levels in the UK market in the crucial period of structural change following the PricewaterhouseCoopers’ (PwC) merger and encompassing Andersen’s demise (1998–2003). Given the current interest in auditor choice, analysis is also undertaken at the individual audit firm level and by industry sector. There is evidence of significant upward pressure on audit fees since 2001 but only for smaller auditees. Audit fee income for top tier auditors (Big 5/4) did not change significantly while the number of auditees fell significantly, consistent with a move towards larger, less risky, clients. A decomposition analysis of the aggregate Big 5/4 concentration ratio changes over the period identifies the impact of four distinct consumer-based reasons for change: leavers; net joiners; non-par auditor switches; and (only for the audit fees measure) audit fee changes. Andersen’s demise markedly reduced the level of inequality among the top tier firms but PwC retained its position as a ‘dominant firm’. On switching to the new auditor, former Andersen clients experienced an initial audit fee rise broadly in line with inflation, with no evidence of fee premia or discounting. They also reported significantly lower NAS fees, consistent with audit firms and auditees responding to public concerns about perceptions of auditor independence. There is no general evidence of knowledge spillover effects or cross-subsidisation of the audit fee by NAS. The combined findings provide no evidence to indicate that recent structural changes have resulted in anticompetitive pricing; the key concerns remain the lack of audit firm choice and issues concerning the governance and accountability of audit firms.     

项目审计工时的影响因素研究综述

审计市场竞争的加剧使审计项目的成本管理越来越受到关注。有的学者以项目审计工时衡量审计成本,试图探索影响项目审计成本的各种因素。本文归纳和分析了学术界对项目审计工时影响因素模型的研究成果,发现项目审计工时主要受客户特征的影响。其中客户规模和经营复杂性与项目审计工时显著正相关,风险因素与项目审计工时之间的相关性则受到风险指标、客户行业、工时类型等因素的影响。关于事务所的规模和品牌、行业经验、审计年限、非审计服务和审计技术方法等特征与项目审计工时之间关系的研究结果存在许多分歧,需要在今后的研究中进一步验证。     

会计师事务所合并与审计定价——基于2003—2009年十起合并案面板数据的研究

会计师事务所合并究竟是会提高还是会降低审计收费,取决于合并后事务所声誉及市场势力提升所带来的审计溢价与规模效应所导致的审计成本降低两方面孰者相对占优。文章以我国2003—2009年间十起事务所合并案为对象,利用其上市公司客户在事务所合并前后各2年的面板数据,检验了事务所合并对审计定价的影响。结果发现,事务所合并后,其审计收费显著提高。对所有事务所客户审计费用的横向比较也印证了上述结论。研究还发现,事务所合并后第一年审计收费的提升较第二年更为明显;就稳定客户数据而言,本土事务所之间合并对审计定价的影响不如涉及"四大"的合并显著;此外,新设合并与吸收合并对审计定价的影响没有显著差异。     

Does CEO duality constrain board independence? Some evidence from audit pricing

This study examines whether CEO duality affects the association between board independence and demand for higher quality audits, proxied by audit fee. The findings show that there is a positive association between board independence and audit fees. This result is consistent with findings of Carcello et al. (2002) that more independent boards demand higher audit quality and effort. However, this positive association is only present in firms without CEO duality, thus suggesting that CEO duality constrains board independence. The results support recommendations against CEO duality by showing that dominant CEOs may compromise the independence of their board of directors. Additionally, evidence is provided that board size (the number of directors on the board) is positively associated with audit fee pricing. This is consistent with prior studies that indicate that larger board sizes are associated with inefficiency and negative firm performance.     

Going big,going small: A perspective on strategies for researching audit quality

This paper updates how archival audit research has evolved since the summary in Francis (2004) of what we knew then about audit quality. The paper describes an evolution from “going big” and asking basic questions about the audit market, institutions, and audit quality, to “going small” with a focus on smaller units of analysis (offices, partners, and engagement teams) as the key to understanding audit quality. I used to believe that audit firm differences, and differences across offices within firms, were the most important audit-related sources of variation in quality, and that differences in people and audit teams were relatively unimportant. However, the evidence in Cameran, Campa, and Francis (2022) using UK partner data convinced me otherwise. I now believe the behaviors of partner-led engagement teams are just as important (and maybe more important) than audit firms and offices in understanding audit quality. However, to learn more about partner-led teams means going inside the black box of audit firms, which requires proprietary data from audit firms and research access to their professional staff. I conclude with an example of collaborative research with audit firms.     

Pricing and supplier concentration in the private client segment of the audit market: Market power or competition?

This study differs from prior audit-pricing studies as (1) it focuses on the issue of price competition in the (small) private client segment of the audit market and (2) addresses the questions of whether and how the audit-pricing model changed in that market between 1989 and 1997. Given the significant increases in market concentration and two big audit firm mergers in that period, we try to assess whether price competition (market power) has increased (decreased) or decreased (increased). We use Belgian data on privately owned companies from 1989 and 1997 for our analyses. We find that audit fees are significantly associated with the incumbent auditor's market share both in 1989 and 1997. Our results are in line with prior studies on public client samples and hence do not support prior assumptions that there are no price premia charged by large auditors in the small client segment of the audit market. As to the evolution of audit pricing in the private client segment of the Belgian audit market between 1989 and 1997, we find that the impact of various audit fee determinants changed significantly and report evidence supportive of increased price competition.     

Auditor's Engagement Risk and Audit Fees: The Role of Audit Firm Alumni

Abstract:  This study explores the effect of the association of audit firm alumni with their alma mater on audit prices. The tests indicate that there is a moderate reduction of up to 21% in the level of audit fee when alumni (i.e., former employees) of the incumbent audit firm sit on the client board of directors which is consistent with the engagement risk theory. This suggests that there is an 'alumni effect' in the market for audit services. The findings hold only in the large company segment of the market. The results are robust to different model specifications and alternative samples. The sample comprises all executive and non-executive directors who run the UK quoted companies and are simultaneously ICAEW qualified chartered accountants. The study's implications for the accounting profession and the regulators are also discussed.     

Fee pressure and audit quality

This study investigates the association of audit fee pressure with an inverse measure of audit quality, misstatements in audited data, during the recent recession. Fee pressure in a year is measured as the difference between benchmark “normal” audit fees and actual audit fees. We find fee pressure is positively and significantly associated with accounting misstatements in 2008, the center of the recession. Our results suggest that auditors made fee concessions to some clients in 2008, and that fee pressure was associated with reduced audit quality in that year.     

Audit and non-audit fees and capital market perceptions of auditor independence

This study provides evidence on whether auditor independence-in-appearance, proxied by earnings response coefficients, is related to the non-audit fee ratio (non-audit to total fees from a client) or client importance (total fees from a client as a percentage of the total revenues of the audit firm). The results from large samples over the period 2001–2006 show, contrary to popular belief and the findings of some prior studies, that there is no evidence of a relation between perceived auditor independence and the non-audit fee ratio. However, perceived auditor independence is negatively associated with client importance, consistent with the economic theory of auditing. Our paper adds to the literature by examining the relative importance of non-audit fee ratios and client importance as determinants of independence-in-appearance.     

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.