Auditor's Engagement Risk and Audit Fees: The Role of Audit Firm Alumni |
| |
| Authors: | Ilias G Basioudis |
| |
| Institution: | The author is from the University of Aston. He gratefully acknowledges financial support for this project from the Research Board of the Institute of Chartered Accountants in England and Wales (ICAEW). He is grateful for comments on prior versions of this research given by participants at the 2000 American Accounting Association (AAA) Northeast annual meeting, the 2000 International Symposium on Audit Research (ISAR), the 2001 British Accounting Association (BAA) conference, the 2001 European Auditing Research Network (EARNet) symposium, the 2002 AAA Auditing Section meeting, the 2002 BAA National Auditing conference, the 2002 AAA annual meeting, and research seminars at City University Business School, Warwick Business School, and Aston Business School. |
| |
| Abstract: | 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. |
| |
| Keywords: | auditor's engagement risk audit fees audit firm alumni executive and non-executive directors |
|
|
