Competitive Bidding, Fees And Auditor Changes: Additional Evidence

Abstract

The major research questions addressed in this study were: Do auditor changes result in lower audit fees? Are audit fees of auditor changers correlated with nonaudit fees? Do clients which obtain competitive audit engagement bids have lower audit fees? A sample of 106 firms, including both auditor changers and nonchangers, was used to test several hypotheses regarding audit fees, nonaudit fees, and competitive bidding. Our major conclusions were: (1) forms can effectively achieve lower audit fees by changing auditors, (2) firms which changed auditors achieved significantly lower total costs for nonaudit services than nonchangers, (3) there are very high correlations between audit fees and nonaudit fees (both scaled by total asset size), (4) firms which had competitive bids submitted for an audit engagement, versus those that did not, achieved significantly larger decreases in audit fees, and (5) choosing the lowest of the bids may not result in lower fees, on average, than firms that chose other than the lowest bid.