The Effect of Office Changes within Audit Firms on Clients' Audit Quality and Audit Fees

2020 ◽  
Vol 39 (1) ◽  
pp. 71-99
Author(s):  
Carl W. Hollingsworth ◽  
Terry L. Neal ◽  
Colin D. Reid
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Additional Analysis ◽  
Audit Firm ◽  
Audit Firms ◽  
Audit Fee ◽  
The Impact ◽  
Audit Partner Rotation

SUMMARY While prior research has examined audit firm and audit partner rotation, we have little evidence on the impact of within-firm engagement team disruptions on the audit. To examine these disruptions, we identify a unique sample of companies where the audit firm issuing office changed but the audit firm did not change and investigate the effect of these changes on the audit. Our results indicate that companies that have a change in their audit firm's issuing office exhibit a decrease in audit quality and an increase in audit fees. In additional analysis, we partition office changes into two groups—client driven changes and audit firm driven changes. This analysis reveals that client driven changes are more likely to result in a higher audit fee while audit quality is unchanged. Conversely, audit firm driven changes do not result in a higher audit fee but do experience a decrease in audit quality.

Small Audit Firm Membership in Associations, Networks, and Alliances: Implications for Audit Quality and Audit Fees

2015 ◽  
Vol 91 (3) ◽  
pp. 767-792 ◽  
Author(s):  
Kenneth L. Bills ◽  
Lauren M. Cunningham ◽  
Linda A. Myers
Keyword(s):  
Audit Quality ◽  
Matched Control ◽  
Audit Fees ◽  
Discretionary Accruals ◽  
Audit Firm ◽  
Association Member ◽  
Big 4 ◽  
Audit Firms ◽  
Audit Fee ◽  
Control Samples

ABSTRACT In this study, we examine the benefits of membership in an accounting firm association, network, or alliance (collectively referred to as “an association”). Associations provide member accounting firms with numerous benefits, including access to the expertise of professionals from other independent member firms, joint conferences and technical trainings, assistance in dealing with staffing and geographic limitations, and the ability to use the association name in marketing materials. We expect these benefits to result in higher-quality audits and higher audit fees (or audit fee premiums). Using hand-collected data on association membership, we find that association member firms conduct higher-quality audits than nonmember firms, where audit quality is proxied for by fewer Public Company Accounting Oversight Board (PCAOB) inspection deficiencies and fewer financial statement misstatements, as well as less extreme absolute discretionary accruals and lower positive discretionary accruals. We also find that audit fees are higher for clients of member firms than for clients of nonmember firms, suggesting that clients are willing to pay an audit fee premium to engage association member audit firms. Finally, we find that member firm audits are of similar quality to a size-matched sample of Big 4 audits, but member firm clients pay lower fee premiums than do Big 4 clients. Our inferences are robust to the use of company size-matched control samples, audit firm size-matched control samples, propensity score matching, two-stage least squares regression, and to analyses that consider changes in association membership. Our findings should be of interest to regulators because they suggest that association membership assists small audit firms in overcoming barriers to auditing larger audit clients. In addition, our findings should be informative to audit committees when making auditor selection decisions, and to investors and accounting researchers interested in the relation between audit firm type and audit quality.

The impact of non-timely 10-Q filings and audit firm size on audit fees

2018 ◽  
Vol 33 (5) ◽  
pp. 503-516 ◽  
Author(s):  
Tiffany Chiu ◽  
Feiqi Huang ◽  
Yue Liu ◽  
Miklos A. Vasarhelyi
Keyword(s):  
Regression Model ◽  
Firm Size ◽  
Audit Fees ◽  
Audit Risk ◽  
Content Type ◽  
Audit Firm ◽  
Big 4 ◽  
Audit Firms ◽  
Audit Fee ◽  
The Impact

Purpose Prior studies suggest that non-timely 10-Q filings indicate higher potential risks than non-timely 10-K filings. Furthermore, larger audit firms tend to be more risk-averse and conservative about reporting. Inspired by these research streams, this paper aims to investigate the influence of non-timely 10-Q filings on audit fees and the impact of audit firm size on this association. Design/methodology/approach The cross-sectional audit fee regression model used in this study is similar to that used in prior audit fee research (Simunic, 1980; Francis et al., 2005; Hay et al., 2006; Wang et al., 2013). The model includes the following five major characteristics that would influence auditors’ fee decisions: auditee size (LNAT), complexity (REIVAT, FOREIGN, SEG), financial condition (LOSS, ROA, GROWTH, ZSCORE), special events (ICW, RESTATE, INITIAL, GC) and auditor type (BIG4). To examine the effect of non-timely 10-Q filings on audit fees, the variable NT10Q is included in the audit fee model. Findings The results indicate that when both non-timely 10-K and non-timely 10-Q filings are included in the regression model, only non-timely 10-Q filings are significantly associated with higher audit fees, suggesting that the presence of non-timely 10-Q filings signals more serious underlying problem than non-timely 10-K filings in the audit fees decision processes. In addition, we find that audit fees for firms audited by Big 4 auditors are 26.4 per cent higher when those firms file non-timely 10-Q reports, whereas there is no significant association between non-timely 10-Q filings and audit fees for firms audited by non-Big 4 auditors. Practical implications As no attention has been paid to the investigation of the impact of non-timely 10-Q filings on audit fees, with the aim of filling the gap of this specific research area, this study examines the association between non-timely 10-Q filings and audit fees and the influence of audit firm size on this association. Originality/value The contribution of this paper is threefold: first, it is the first study to examine the association between non-timely 10-Q filings and audit fees. The results show that non-timely 10-Q filings are a better and earlier indicator of audit risk than non-timely 10-K filings. Second, the results reveal that the relationship between non-timely 10-Q filings and audit fees is affected by audit firm size. Specifically, Big 4 auditors tend to charge higher audit fees in the presence of non-timely 10-Q filings, reflecting that they are more sensitive to audit risk than smaller audit firms are. Third, an examination of the quarterly effect of non-timely 10-Q filings on audit fees indicates a stronger effect from the first quarter’s non-timely 10-Q filings, compared to the second or third quarter.

scholarly journals Additional Evidence On The Large Audit-Firm Fee Premium As An Indication Of Auditor Quality

2011 ◽  
Vol 13 (4) ◽  
pp. 21 ◽  
Author(s):  
Daniel T. Simon
Keyword(s):  
Audit Quality ◽  
Strong Relationship ◽  
Audit Fees ◽  
Accounting Firms ◽  
Audit Firm ◽  
Audit Firms ◽  
Auditor Quality ◽  
Audit Fee ◽  
Big Six ◽  
Big Eight

<span>Several studies of the U.S. market for audit services have found evidence of a large audit-firm fee premium. This premium has been interpreted as an indication that large audit firms (typically defined as the Big Eight, now the Big Six), considered as a group, receive higher fees than non-Big Eight firms and thus are perceived to provide higher quality audit services. A common interpretation has been that there is a strong relationship between audit firms size and audit quality. That is, the observed Big Eight fee premium has been interpreted as evidence that this group of large auditors, as a whole, is perceive to provide higher quality audits. Using larger samples than previous studies, this paper decomposes the large auditor fee premium into a separate fee premium effect for each auditor. The results suggest that the observed fee premium is attributable to a subset of large auditors, and therefore it is possible that not all of this group of large audit firms are perceived as offering significantly different audit products, at least when differential audit fees and used as a measure of product differentiation. In addition, when observed audit fee premiums are related to other proxies for auditor quality, there is confirming evidence that large accounting firms are not perceived as a homogeneous group with respect to audit quality.</span>

scholarly journals Independence, Time Budget Pressure, Audit Fee and Workload on Audit Quality as The Impact of Covid-19

2021 ◽  
Vol 3 (4) ◽  
pp. 67-76
Author(s):  
Ida Ayu Budhananda Munidewi ◽  
Ni Made Sunarsih ◽  
Ida Ayu Made Widyantari
Keyword(s):  
Linear Regression ◽  
Sampling Method ◽  
Audit Quality ◽  
Time Budget ◽  
Audit Fees ◽  
Audit Firms ◽  
Audit Fee ◽  
One Year ◽  
The Impact ◽  
Time Budget Pressure

This study aims to determine the effect of independence, time budget pressure, audit fees, workload on audit quality as the impact of Covid-19 pandemic on audit firms registered in IAPI Bali. The population of this research are all auditors in 16 audit firms registered in IAPI Bali. This research involved 114 respondents selected by a purposive sampling method with criteria of one-year minimum of service in audit firms. The data were analyzed with multiple linear regression. The results showed that independence has a positive significant effect on audit quality; time budget pressure, audit fees and workloads have no significant effect on audit quality.

Impact of firm’s specific factors on audit fee of quoted consumer goods firms

2020 ◽  
Vol 4 (1) ◽  
pp. 47-55
Author(s):  
Wasiu Ajani Musa ◽  
Ramat Titilayo Salman ◽  
Ibrahim Olayiwola Amoo ◽  
Muhammed Lawal Subair
Keyword(s):  
Consumer Goods ◽  
Audit Quality ◽  
Audit Fees ◽  
Ordinary Least Squares ◽  
P Value ◽  
Chi Square ◽  
Ifrs Adoption ◽  
Audit Fee ◽  
Specific Factors ◽  
The Impact

Greater pricing presume on audit service has been put by the regulations of the auditing and accounting practices for the disclosure of audit fees, since audit fee is directly related to audit quality. However, the audit fees perceived by the client is often different from the amount charged by the auditors. Hence, this study investigated the impact of firm-specific characteristics on audit fees of quoted consumer goods firms in Nigeria using a purposive sampling technique. Secondary data were obtained from annual reports of the companies for the period from 2009-2016. The empirical result from Breusch-Pagan Lagrange Multiplier Test (BP-LM) produced a chi-square value of 13.94 with p-value of 0.0001 indicating that pooled ordinary least squares (OLS) will not be appropriate for the study. The Hausman test showed a chi-square of 23.55 with a p-value of 0.001 indicating that the null hypothesis is strongly rejected. Thus, the only estimate from the fixed effect model was interpreted to explain the relationship between firm-specific characteristics and audit fees of quoted consumer goods firms in Nigeria. The result revealed that auditee size, auditee risk, auditee profitability and IFRS adoption are the firm specific characteristics that impact on audit fees with only auditee size and IFRS adoption being positively related to audit fees while the other factors are negatively related to audit fees. Based on this finding, this study concluded that the firm’s specific factors are the major drivers of audit fees in Nigeria consumer goods firms. This study recommends among others that companies should implement corporate governance principles that address issues relating to board independence and committee sizes to guide activities in the consumer goods sector since profitability behave negatively with audit fees.

Fee Discounting and Audit Quality Following Audit Firm and Audit Partner Changes: Chinese Evidence

2014 ◽  
Vol 90 (4) ◽  
pp. 1517-1546 ◽  
Author(s):  
Hua-Wei Huang ◽  
K Raghunandan ◽  
Ting-Chiao Huang ◽  
Jeng-Ren Chiou
Keyword(s):  
Earnings Management ◽  
Audit Quality ◽  
Audit Fees ◽  
Audit Firm ◽  
Audit Fee ◽  
Significant Attention

ABSTRACT Issues related to low-balling of initial year audit fees and the resultant impact on audit quality have received significant attention from regulators in many countries. Using 9,684 observations from China during the years 2002–2011, we find that there is a significant initial year audit fee discount following an audit firm change when both of the signing audit partners are different from the prior year. The evidence is mixed if one or both of the signing partners from the prior year also moves with the client to the new audit firm. We find evidence of audit fee discounting in our analysis of fee levels, but not in our analysis of changes in audit fees from the prior year. Sanctions for problem audits and greater earnings management are more likely when there is an audit firm change that involves two new signing partners together with initial year audit fee discounting.

Leaving a joint audit system: conditional fee reductions

2014 ◽  
Vol 29 (2) ◽  
pp. 131-152 ◽  
Author(s):  
Claus Holm ◽  
Frank Thinggaard
Keyword(s):  
Audit Quality ◽  
Theory Development ◽  
Future Research ◽  
Research Approach ◽  
Content Type ◽  
Audit Firm ◽  
Audit System ◽  
Interaction Terms ◽  
Audit Firms ◽  
Audit Fee

Purpose – The authors aim to exploit a natural experiment in which voluntary replace mandatory joint audits for Danish listed companies and analyse audit fee implications of using one or two audit firms. Design/methodology/approach – Regression analysis is used. The authors apply both a core audit fee determinants model and an audit fee change model and include interaction terms. Findings – The authors find short-term fee reductions in companies switching to single audits, but only where the former joint audit contained a dominant auditor. The authors argue that in this situation bargaining power is more with the auditors than in an equally shared joint audit, and that the auditors' incentives to offer an initial fee discount are bigger. Research limitations/implications – The number of observations is constrained by the small Danish capital market. Future research could take a more qualitative research approach, to examine whether the use of a single audit firm rather than two has an effect on audit quality. The area calls for further theory development covering audit fee and audit quality in joint audit settings. Practical implications – Companies should consider their relationship with their auditors before deciding to switch to single auditors. Fee discounts do not seem to reflect long-lasting efficiency gains on the part of the audit firm. Originality/value – Denmark is the first country to leave a mandatory joint audit system, so this is the first time that it is possible to study fee effects related to this.

Investigating the impact of audit features on money laundering

2020 ◽  
Vol 23 (4) ◽  
pp. 913-930
Author(s):  
Shaban Mohammadi ◽  
Nader Naghshbandi ◽  
Zahra Moridahmadibezdi
Keyword(s):  
Money Laundering ◽  
Audit Quality ◽  
Screening Method ◽  
Audit Fees ◽  
Statistical Population ◽  
Content Type ◽  
Quality Audit ◽  
Auditor Tenure ◽  
Audit Fee ◽  
The Impact

Purpose The purpose of the present study is to investigate the impact of audit features, including audit quality, audit fees and auditor tenure on money laundering in Iranian stock companies. Design/methodology/approach This research is descriptive-correlational and applied in terms of purpose. To evaluate the audit features, variables including audit quality, audit fee and auditor tenure were used. The statistical population of this study includes all companies listed in Tehran Stock Exchange and the research period from 2012 to 2018. A sample of 150 companies was selected by the screening method. In this study, logistic regression and Eviews 10 software were used for data analysis and hypothesis testing. Findings The results showed that variables including audit quality, normal audit fee and auditor tenure have a significant effect on money laundering. Originality/value Observing money laundering rules and regulations for businesses involves is a critical issue. In auditing the financial statements of the business units subject to these laws, the auditor reviews their actions to obtain reasonable assurance of guaranteeing the money laundering laws, evaluates their effectiveness and gains approval of managers regarding observing laundering regulations. In this regard, the auditor is required to report definitive or suspected money-laundering cases or its certain or suspected evidence to the relevant authorities. Although the law prohibits the auditor from disclosing such matters to the client, it is not necessary. It seems that even if the auditors perform non-audit functions, they should report money laundering or suspicious operations and transactions.

Does Audit Fee Homogeneity Exist? Premiums and Discounts Attributable to Individual Partners

2011 ◽  
Vol 30 (4) ◽  
pp. 249-272 ◽  
Author(s):  
Stuart D. Taylor
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Data Availability ◽  
Audit Market ◽  
Homogeneity Assumption ◽  
Audit Firms ◽  
Audit Fee ◽  
Using Data ◽  
The Individual ◽  
Made In

SUMMARY This paper investigates the implied assumption, made in many audit fee determination studies, that, within a given audit firm, all partners produce a statistically identical level of audit quality and earn a statistically identical level of audit fees. This is referred to as the “homogeneity assumption.” However, this is contradicted by the individual auditor behavioral literature, which shows that different individual auditor characteristics can have an impact on audit quality. Given the fact that audit partners differ in their quality, this paper hypothesizes that different audit partners will be able to earn differing levels of fees. This hypothesis is tested by estimating an audit fee model using data from 822 Australian publicly listed companies for the year 2005. Australia is an ideal audit market for this research, as the disclosure of the name of the audit engagement partner in the audit report is mandatory. The empirical results indicate that individual audit partners earn individual audit fee premiums (or discounts) that are not explainable by the audit firms of which they are members. Data Availability: All data have been extracted from publicly available sources.

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.

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