'Two Big' or Not 'Two Big'? - The Consequences of Appointing Two Big 4 Auditors on Audit Pricing in a Joint Audit Setting

Abstract

The aim of this paper is to use the uniqueness of the French audit environment to conduct an in-depth study of the audit pricing issues linked with the requirement to hire two independent auditors (joint-audit) and with long term audit mandates (6-year appointment). I use a model derived from Simunic’s (1980) seminal work to examine to what extent audit fees are influenced by the number of Big 4 joint auditors (zero, one, or two) and how a long-term audit mandate affects audit fees. After controlling for well-known audit client firm-specific drivers of audit fees (firm size, complexity, specific risk, and governance characteristics) and for auditor selection, the paper shows that the decision to hire two Big 4 auditors as joint auditors does not require the payment of a higher Big 4 premium compared to the choice of one Big 4 paired with a smaller auditor, other things being equal. The choice of two Big 4 auditors thus appears to be a rational economic choice for large and international firms. The paper also shows that the 6-year audit mandate can have a non-optimal effect on the audit fees and lead to the payment of higher fees during the second year of appointment.