Download or read book Evidence of Industry Scale Effects on Audit Hours Billing Rates and Pricing written by Simon Dekeyser and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a proprietary dataset consisting of all private firm audit engagements in 2000 from one Big 4 firm in Belgium, we investigate: (1) whether audit office industry scale is associated with a reduction of total, partner and staff audit hours and thus with efficiency gains triggered by organizational learning from servicing more clients in an industry; and (2) whether the extent of efficiency pass-on from the auditor to its clients depends on the audit firm's market power. We find that auditor office industry scale is associated with efficiency gains and a reduction of the variable costs (i.e., fewer total audit hours, partner hours and staff hours), ceteris paribus. Our results also suggest that, on average, realized efficiencies are entirely passed on as evidenced by a non-significant effect of auditor industry scale on the auditor's billing rate (or fee per hour). Furthermore, we find that the extent of the efficiency pass-on decreases with the market power of the audit firm in the industry market segment as we document a higher billing rate (fee per hour) for auditors with high market power (versus low market power). However, we find that the lower audit hours associated with auditor industry scale do not compromise audit quality.
Download or read book Auditor Industry Specialization and Evidence of Cost Efficiencies in Homogenous Industries written by Kenneth L. Bills and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the audit pricing effects when auditors specialize in industries conducive to transferable audit processes. Our results indicate that specialists charge incrementally lower audit fees in industries with homogenous operations and in industries with both homogenous operations and complex accounting practices. Moreover, we discover that audit quality is no lower for clients audited by these specialists offering fee discounts, consistent with our conclusion that the reduction in fees indicates cost efficiencies rather than lower quality audits. Our results are somewhat surprising given they suggest auditors pass along cost savings to the client in certain settings. However, further analysis indicates that the shared economies of scale only occur in a subsample of client firms with relatively high bargaining power. When considered in conjunction with prior research using a survivorship approach, our results indicate that certain industries lend themselves to specialization because auditors generate cost-based competitive advantages without compromising service quality.
Download or read book An Exploratory Study of the Effects of Product Differentiation and Economies of Scale on External Audit Fees written by Willie Earl Gist and published by . This book was released on 1988 with total page 234 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Audit Industry Specialization written by Keith A. Houghton and published by . This book was released on 2001 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: While auditing literature has investigated the main effect of auditor industry specialization on audit fees and planning decisions, the underlying processes explaining differential pricing between specialists and other auditors are largely unexplored. This study seeks to fill a portion of this gap by examining the interaction between auditor industry specialization and auditee risk. Using data derived from a sample of public sector audits, this study examines distinctions in how different auditors price risk. Building upon the differentiation between "premium" and "discount" specialists investigated in Houghton, Dolley, Jubb and Monroe (2000) and possibly found in DeFond, Francis and Wong (2000), the results of this study demonstrate that, in response to increased auditee risk, premium specialists price risk relatively less than other auditors. In contrast, discount specialists increase fees relatively more than other auditors. These results may reflect differences in the skill sets and work processes that underlie specialization for these two specialist sub-groups. The results are also consistent with increased competencies of premium specialist auditors in the audit of risky clients.
Download or read book The Effects of Firm Wide and Office Level Industry Expertise on Audit Pricing written by Andrew Ferguson and published by . This book was released on 2003 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the role of auditor industry expertise in the pricing of Big 5 audits in Australia. We test if the audit market prices an auditor's firm-wide industry expertise, or alternatively if the audit market only prices office-level expertise in those specific cities where the auditor is the industry leader. We document that there is an average premium of 24 percent associated with industry expertise when the auditor is both the city-specific industry leader and one of the top two firms nationally in the industry. However, the top two firms nationally do not earn a premium in cities where they are not city leaders. We further document that national leadership rankings are in fact driven by the specific offices where accounting firms are city leaders. Thus the overall evidence supports that the market perception and pricing of industry expertise in Australia is primarily based on office-level industry leadership in city-specific audit markets.
Download or read book Evidence on Audit Quality Differences Across Big N Audits written by Anwer S. Ahmed and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide evidence on the determinants of the choice of an industry specialist auditor and the effect of this choice on cost of equity for a sample of firms that are audited by Big N auditors. We find that firms with more severe conflicts of interest between managers and shareholders are more likely to use an industry specialist auditor. Furthermore, we document that firms that use an industry specialist auditor have a significantly lower cost of equity after controlling for firms' endogenous decision to use an industry specialist auditor.
Download or read book An Investigation of the Relationship Between Audit Fees and Auditor Reputation written by Timothy A. Pearson and published by . This book was released on 1990 with total page 230 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Impact of Economic Bonding on Audit Quality written by Joost van Buuren and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study we examine the effect of auditor economic bonding (financial dependency on a client) on audit quality. We consider financial dependency as either abnormally high fees in relation to expected hours or vice versa. We consider audits to have credence goods properties where the client has limited ways to assess audit quality that is (likely to be) delivered. This setting provides opportunities for different auditor business strategies. We base our results on a unique, proprietary dataset of audit fees, audit hours, materiality, risk assessments, error detection and auditor reporting decisions taken from the working papers of 681 audit engagements with 2,209 engagement-year observations over the period 2006 to 2011. First, we predict and find that high effort audit engagements (i.e., abnormal high audit hours) are associated with a higher probability of detecting audit differences than low effort audit engagements. Simultaneously, we predict and find that financial dependency on a client lowers the audit quality achieved by high effort as reflected by waiving proposed audit differences. Moreover, our results suggest that auditors facing high independence threats are more highly associated with overstated earnings than when independence threats are low. Consequently, the findings suggest that the negative effects of financial dependency, i.e. economic bonding threats, are a result of the auditors' business relationship with a given client and how the auditor responds to competitive markets.
Download or read book Partner Industry Specialization and Audit Pricing in the United Kingdom written by Khairul Mohd Kharuddin and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the effects of audit partner industry specialization on audit pricing in the UK market. The mandatory disclosure of the name of the engagement partner in the auditor reports of UK public listed companies took effect from April 2008. Given that the identity of the audit partner is now observable to users of financial statements, it can be argued that there may be an incentive for partner-level differentiation in auditing products, and hence, audit quality. This research examines whether auditor industry expertise in the UK is driven by firm, office, or partner level expertise. The fee premium observed in the study is a joint product of firm and partner level of industry expertise with the highest premium occurring when the client is also audited by an industry leading partner. This finding lends support to the argument that industry expertise is uniquely attributable to the individual audit partner's human capital in terms of their knowledge and experience from leading audit engagements in a particular industry. It also provides evidence that some fee premiums earned by audit firms and documented in prior literature are most probably the product of the individual audit partner's expertise. Full paper available at https://doi.org/10.1016/j.intaccaudtax.2019.05.005.
Download or read book Differential Effects of Market Concentration on Oligopolistic and Atomistic Segments written by Hongkang Xu and published by . This book was released on 2016 with total page 104 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the first essay, I divide the local audit market into the oligopolistic segment and atomistic segment and examine whether the differential effect of audit market concentration on audit fees, audit quality, and auditor switch in these two segments. I find that the market concentration raises the audit fees, but lowers the audit quality in the oligopolistic segment. In contrast, the market concentration lowers audit fees, but raises the audit quality in the atomistic segment. Moreover, I find that market concentration reduces the probability of auditor switch in both oligopolistic and atomistic segments. My findings reveal that audit market concentration only reduces the competition among oligopolistic segment. In contrast, the atomistic segment becomes more compressed and more competitive in a highly concentrated market. I also examine the nonlinear association between the auditor's market share and audit quality. I find that the relation between the market share and audit quality is an inverted U-curve. The second essay examines (1) the effect of real activities manipulation (RAM) on the audit report lags, (2) the impact of RAM on the audit fee and audit quality of industry experts, and (3) the linkages between accrual-based earnings management (AM), RAM, and audit fees. I find that RAM is associated with longer audit report lags. I also find that industry specialist auditor charge higher audit fees and make a more constraining influence on AM when their clients engage in aggressive RAM. However, I do not find that RAM affects the association between AM and audit fees.
Download or read book Audit Market Measures in Audit Pricing Studies written by Marek Kacer and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Mechanical correlation bias is inherent in audit pricing studies when independent variables (X) are derived from firm level audit fees (Y); a form of endogeneity which appears not to have been addressed fully in the extant literature. Such variables are endogenous by construction leading to biased estimates, since (mechanically) X determines Y and Y determines X. After reviewing the extant auditing/accounting literature where mechanical correlation obtains (together with the remedies advocated to alleviate the associated bias), we employ mathematical derivations and simulations to quantify the bias associated with a range of mechanically correlated market competition and industry specialist variables. Since auditor market competition variables are important to regulators and antitrust authorities, we analyse the mechanical correlation issue with regard to an extant study which introduces a novel measure of audit market competition (derived from audit fees). The study provides evidence that smaller incumbent auditors are pressured into offering lower fees when competing against a large local audit firm. However, when the current client's audit fee is 'decoupled' from this new competition measure to mitigate bias, it is statistically insignificant in our multivariate regression analysis. Additionally, we employ auditee sales and total assets to construct proxies for competition variables (which are not mechanically correlated) and find them to be statistically insignificant. We conclude with suggestions of how to address the issue of mechanical correlation in future studies.
Download or read book The Effect of Audit Firm Industry Specialization on Audit Fees written by Xiu Mao and published by . This book was released on 2007 with total page 158 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study seeks to determine the relationship between industry specialization and audit fees in the U.S. audit market.
Download or read book How Do Audit Team Industry and Client Specific Experience Impact Audit Effort and Fees written by Christine Contessotto and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior research into the effect of different types of experience on audit effort and fees has been conducted at the individual, office or firm level, with an implicit assumption that the team working on each audit is invariant or irrelevant to audit effectiveness or efficiency. An important motivation for team level research is that within team variation may provide evidence on the how the structure of an audit team can influence the conduct and pricing of an audit. Using team level data provided by two mid-tier firms, we find that audit team industry and client-specific experience each have a unique effect on effort and fees. Specifically, team level industry experience is associated with the use of lower ranked auditors and marginally lower audit fees, while team level client-specific experience is associated with higher hours and fees. Our results indicate that audit teams with industry experience enjoy cost savings, some of which are passed on to their clients while audit teams with client-specific experience incur additional effort, perhaps due to increased effort in response to identified risks or by providing value-added services, which their clients are prepared to pay for.
Download or read book Switching Costs and Market Power in the Auditing Industry written by Qiang Guo and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study provides novel evidence on the magnitude of switching costs in auditing. We use a discrete choice approach to infer switching costs from clients' auditor choices. The demand estimation reveals that switching costs matter and that they differ by the direction with switching from non-Big 4 to Big 4 auditors being associated with the greatest switching costs. Counterfactual analyses of forced auditor switches indicate that switching costs are substantial, amounting to 682 million US dollars (14.2% of audit fees) when aggregated across all clients. Counterfactual analyses of voluntary auditor switches show that the audit market would become highly dynamic and more concentrated if switching costs were removed. Furthermore, clients would gain consumer surplus of up to 306 million US dollars (5.4% of audit fees) in this scenario. Overall, our study documents the important role of switching costs to understand audit market dynamics.
Download or read book The Effect of Audit Firm Structure on Audit Fees written by Penpilai Premchun and published by . This book was released on 1998 with total page 242 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Audit Firm Industry Specialization as a Differentiation Strategy written by Brian W. Mayhew and published by . This book was released on 2002 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines IPO assurance fees to assess the use of industry specialization as a differentiation strategy by audit firms. Theory suggests that as an audit firm's share of a client industry increases their costs will decrease and their service quality to that industry will increase. In this setting, the impact of industry specialization on fees is indeterminate. We extend existing theory by considering both the supply and the demand for industry specialization. We conclude that the market for audit services is generally price-competitive, suggesting that auditors will be forced to share cost savings with clients. However, when an audit firm is able to differentiate its services from competitors it should be able to earn a modest premium. We test and find support for our conjectures using U.S. IPO audit fee data from 1991 to 1997.
Download or read book Immediate and Lagged Effects on Audit Fees Following a Change of Auditor written by Phillip Edward Cobbin and published by . This book was released on 2000 with total page 518 pages. Available in PDF, EPUB and Kindle. Book excerpt:
