Disclosure Of Audit Fees Research Articles

The Effect of Audit Fee Disclosure Regulation on Audit Fees: Korean Evidence

[Purpose]This paper examines how audit fees change in response to mandated audit fee disclosure in Korea. [Methodology]We use the difference－in－differences approach by comparing changes in audit fees of listed firms who are required to disclose the fees with changes in the fees of unlisted firms who are exempt from the requirement between 1999 and 2002. [Findings]Difference－in－difference analyses show that audit fees of listed firms increase following the disclosure mandate relative to the fee of unlisted firms. Additional analyses show that the overall increase in audit fees is driven by the decrease in negative abnormal audit fees (i.e., reduction in undercharges), not by the increase in abnormal audit fees. Lastly, cross－sectional analyses reveal that the increase in audit fees after the adoption of the disclosure requirement is smaller for larger firms and firms audited by big N auditors, but more pronounced for initial audit engagement. [Implications]This study adds to the literature on how disclosure affects contracts between audit firms and clients by showing a clear causal link between audit fee disclosure and audit fees. We also provide regulatory implications by documenting the consequences of the disclosure regulation.

AUDIT FEES AND COMPANIES’ ACCESS TO FINANCE

This paper aims to study the impact of audit fees on companies' ability to access finance by reducing their capital constraints. This study employs a dataset of listed non-financial Indonesian companies from 2016 to 2020. Unlike previous studies, which mostly examined this phenomenon in developed economies, this paper focuses on a country with a two-tier corporate governance model where the capital market is not a major source of financing and the disclosure of audit fees is still voluntary. In such a setting, the decision to disclose audit fees is in the hand of the companies' management, and various motivations behind the decision will differently impact different users of financial information. This paper focuses on whether the information related to audit fees is a good signal for capital providers. Following the limited attention theory, this study argues that capital providers will consider the information about audit fees as a more reliable proxy for audit efforts that subsequently affect their investment decision. The hypothesis is that audit fees are negatively associated with companies' financial constraints. The findings indicate that capital providers see higher audit fees as signals of high-quality audits that enhance the credibility of financial statements and positively impact companies' access to finance. 
 
 Key Words: Audit Fees, Capital Constraint, Access to Finance, Audit Quality, Limited Attention Theory

Political Connection And Gender Diversity To Audit Fees

Introduction: Audit fee is one of the factors that results in reduced audit quality. Audit fees are rewards provided by companies to public accountants for audit services provided. Purpose: this study to investigate political connection and CEO gender affect the size of audit fee paid to public accountants by the company. Method: This study uses secondary data in the form of the annual report of company going public in 2015-2018 and using a purposive sampling technique with a total of 407 company data companies. The variables used in this study are audit fee as the dependent variable while for the independent variables used in this study are political connection, CEO gender. Analysis techniques data used in this study are multiple linier regressions with classical assumption test Finding: The results show that political connections can increase audit fee Originality: the results show that CEO gender has no effect on audit fees Limitation: Disclosure of audit fees in the annual report is still voluntary, so there are still many companies that do not meet the sample criteria. The variable used is limited to the gender of CEO Directors without involving the gender of the board of commissioners and audit committee.

Determinants of audit fees in quoted financial and non-financial firms

Regulators have ensured the compulsory disclosure of audit fees in the financial statement to overcome abnormal fees and instill credibility in the financial report since audit pricing is contingent upon audit quality. However, discrepancies between audit fee dimensions are evidenced in the abnormal audit fees, resulting in accounting scandals. Hence, this study assessed the determinants of audit fees in quoted financial and non-financial firms by building a model underpinned by agency theory (Mitnick, 2006) and economic theory of product differentiation (Beath & Katsoulacos, 1991). Secondary data were utilized from companies’ annual reports between 2009 and 2018 using the purposive sampling technique. Furthermore, Breusch-Pagan Lagrangian multiplier (LM) test and the Hausman test indicated the consistency of the models. The static panel regression estimations showed that auditee size, risk, auditor size, reputation, engagement lag, and International Financial Reporting Standards (IFRS) implementation significantly affect audit fees in both sectors. This study concluded that the three dimensions largely determine audit fees. This study instructively proposed that assurance clients should devise an outline of guidelines and practices to guide activities in the sectors by monitoring the variables that impact audit fees

Mandatory audit fee disclosure and price competition in the private client segment of the Belgian audit market

This study empirically examines whether mandatory audit fee disclosure affects audit pricing and price competition in the private client segment of the Belgian audit market. We expect price competition between auditors to intensify after mandatory public disclosure of audit fees because transparency of audit fee information is likely to increase client bargaining power and/or increase competitive pressure. Using a data set including both pre- and post-disclosure audit fees of private clients, we observe that subsequent to mandatory disclosure of audit fees, clients with positive (negative) abnormal audit fees experience a downward (upward) fee adjustment. Consistent with increased price competition following mandatory audit fee disclosure, clients with negative abnormal audit fees are better able to mitigate the upward fee adjustment if they have higher bargaining power or have an auditor facing stronger competitive pressure. These effects are largest in the initial disclosure year, suggesting anticipatory price adjusting behavior by audit firms.

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

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.

Does Fee Disclosure Type Matter? Evidence from Price Adjustment in the Audit Market of Taiwan

ABSTRACT While mandatory audit fee disclosure makes fee information transparent, there have been concerns about the impact of price adjustment on audit quality. Taking advantage of a regulatory change in Taiwan that required public companies to disclose audit fee but allowed two alternative disclosure forms (amount disclosure or range disclosure), this study investigates the impact of the fee disclosure form on price adjustment and the influence of such adjustment on audit quality. Using a dataset including audit fees under the two disclosure forms, we find that, for overcharged companies, the downward adjustment is larger for amount disclosure companies than range disclosure companies and such downward adjustment increase discretionary accruals in amount disclosure companies but not for range disclosure companies. Our study helps understand the impact of different fee disclosure forms on price adjustment and audit quality, which should be of interest to regulators and financial statement users in Taiwan and beyond.

Public Disclosure of Audit Fees and Bargaining Power between the Client and Auditor: Evidence from China

Before the public disclosure of audit fees was mandated, it was unlikely for an audit client to have accurate information about how much other companies were charged by their auditors. Public fee disclosure decreases the cost of auditees' access to audit fee information for the auditor's portfolio of clients and is thus likely to increase the relative bargaining power of auditees over auditors when they negotiate audit fees. Using both proprietary and public audit fee data before and after public fee disclosure was mandated in China, we provide evidence consistent with the preceding conjecture. We find that public fee disclosure reinforces the magnitude of audit fee decreases for overcharged clients and weakens auditors' ability to raise audit fees for undercharged clients. These findings suggest the existence of unintended consequences of public fee disclosure regulation, the original rationale of which was a concern about audit pricing practices that could undermine auditor independence.

Analysis of Audit Fee Disclosures and Factors Influencing Size of Audit Fees among Nasdaq Omx Baltic Listed Companies

The paper analyses what is the level of audit fee disclosure among the companies listed in Nasdaq OMX Baltic and what are the factors influencing the amount of audit fee. Analysis revealed that 43.94Â % of listed companies had disclosed and 31.82Â % of the companies had never disclosed their audit fees during all analized period of 2008““2013. Even in 2013, when such disclosure became compulsory according to IFRS requirements, 36.36Â % of companies retained their undisclosure practices. The factors having direct impact on audit fee of Baltic listed companies are firm size, risk and audit by Big 4 audit company. Reverse impact on the size of audit fee is determined by belonging to the industry, firm“™s profit and the change of an auditor.

Auditor-provided non-audit services in listed and private family firms

Purpose – The aim of this paper is to provide evidence on the extent and the consequences of the provision of non-audit services (NAS) by statutory auditors to German family firms. Design/methodology/approach – The study analyzes hand collected fee data of 368 listed and private family firms in Germany. It employs univariate tests, ordinary least squares and two-stage least squares regressions to investigate potential threats to perceived auditor independence and knowledge spillovers between jointly provided NAS and audit services. Findings – Incumbent auditors are shown to be a significant source of various types of NAS to family firms. There is weak evidence on threats to perceived auditor independence and support for reciprocal knowledge spillovers between the services. While listed and private family firms do not differ in regard to the proportion of NAS fees, comparative findings suggest that key threats and benefits of jointly provided services are more prevalent among private than among listed family firms. Research limitations/implications – The study suffers from limited data availability and is restricted to the initial year of mandatory audit fee disclosure of private firms in Germany. Particularities of family firms and the German setting, as well as differential results for listed and private family firms, suggest fruitful avenues for future research. Practical implications – The study addresses the current issues in audit regulation. Regulatory bodies should consider that key threats and benefits of auditor-provided NAS decrease with stronger exogenous restrictions. Attempts to restrict jointly provided services in the EU suggest family firms to reconsider their reliance on auditors as a trusted source of NAS. Originality/value – This study is the first to provide evidence on the extent and consequences of auditor-provided NAS in family firms based on fee disclosure. It is also among the few studies that investigate private firms in a code law country and complements prior evidence from Germany that is restricted to listed firms. More generally, it contributes to limited evidence at the intersection of audit and family business research.

Audit Fees and Investor Perceptions of Audit Characteristics

ABSTRACT:We investigate how audit fee disclosures affect investor perceptions of audit characteristics. We find evidence that when audit fees are presented to investors with supplementary contextual information indicating that the fees are low, average, or high (as compared to industry averages), investors perceive audit quality and auditor effort as being low, average, or high, respectively. When not provided with any additional information concerning the audit fee (similar to the present state of disclosures), investors assess audit quality and auditor effort as being average. Surprisingly, we find that while investors perceive auditor independence as low, average, and high when fees are presented as high, average, or low, respectively, investors not provided with any relative fee information assess auditor independence as low, similar to the investors who are presented with high relative fees. This latter finding provides important insight regarding investors' current perceptions of auditor independence, particularly in the absence of relative or comparative audit fee information.Data Availability: Contact the authors.

Is the Audit Fee Disclosure a Leading Indicator of Clients' Business Risk?

SUMMARYThis study hypothesizes a link between observed audit prices and future reported changes in clients' economic condition. As predicted, results from a traditional audit fee model, estimated using a large sample of U.S. public company engagements spanning from 2000 to 2007, reveal a significant inverse relation between audit fees and the one-year-ahead change in a measure of clients' operating performance. Additional analysis indicates that the relation extends to more forward-looking changes (up to five years ahead) and is stronger for negative versus positive changes in performance. Results also indicate that audit fees reflect future changes in clients' earnings that are unaccounted for by analysts' forecasts. In contrast, the findings reveal little evidence of a relation between audit fees and future changes in clients' solvency, including bankruptcy status. Collectively, the study's results provide initial evidence suggesting that the audit fee disclosure is a leading indicator of the operating performance dimension of clients' business risk.Data Availability: Data are available from public sources cited in the text.

Honesty and Intermediation: Corporate Cheating, Auditor Involvement and the Implications for Takeoff

We examine self-enforcing honesty in firm-investor relations in an imperfect public information game. Minimum firm size requirements and moral hazard limit ability to raise outside capital, yielding a floor on personal wealth required to enter entrepreneurship. Credible auditing could create efficiency gains. We propose mandatory disclosure of audit fees and an interpretation of international differences in shareholding patterns. We endogenize auditor-firm collusion and extortion by auditors. We embed our game-theoretic analysis in a general equilibrium model to generate unique equilibria that trace the impact of the distribution of wealth on the existence of the market and consequences for development.

Audit Opinion and Disclosure of Audit Fees

Dye (1991) suggests that when audit fees are disclosed, auditor independence will he improved because there are no quasi-rents to influence audit opinion and the public could assess the independence of the auditors. According to DeAngelo (1981a), however, disclosure of audit fees is irrelevant to the issuance of audit opinion because transaction costs, which give rise to quasi-rents, could not be affected by disclosure of audit fees. This paper examines this controversy by investigating the issuance of a going concern modified audit opinion before and after the disclosure requirement of the Securities and Exchange Commission (2000). The results show that financial statements issued after the disclosure requirement are more likely to be associated with a going concern opinion than those issued before the disclosure requirement. These results are robust to various sensitivity tests, including the control for the effect of economic factors, auditor reporting conservatism, and auditor reporting accuracy. In addition, it is found that firms before (after) the disclosure requirement are more (less) likely to receive a going concern opinion if audit fees were (were not) disclosed. Hence, this paper provides evidence to suggest that disclosure of audit fees is associated with enhanced auditor independence, and thus supports Dye's (1991) theory.

Auditor Fees Around Dismissals and Resignations: Additional Evidence

This paper offers new findings on the relation between auditor dismissals and resignations and audit fees. Unlike the prior research, which studies the fees of auditors after an auditor change, we focus on audit fees before an auditor change. Our evidence shows that incumbent auditors charge unusually higher fees at least one year prior to an auditor change event. The existence of unusual fee adjustments by incumbents may serve as a precursor of such events. In the case of dismissals, we reason that if clients perceive the presence of unusually higher audit fees as an indication that their costs are excessive, this should prompt a switch in auditors. We find evidence consistent with this view. For resignations, we interpret unusually higher incumbent fees not as a sign of client-perceived excess but as a signal by auditors that resignation companies reflect higher levels of audit risk or liability, which incumbents capture as additional fees. Eventually, however, the additional fees are insufficient, and the auditor resigns. While our results are based mostly on the audit fee disclosures after Sarbanes-Oxley, we control for and find similar results for periods not dominated by the legislation. Our results are similar for each of the Big 4 firms.

Un estudio empírico de los honorarios del auditor

The new regulation requiring the disclosure of audit fees split by type of services since 2002, has allowed us to undertake an empirical analysis of the level and composition of the fees in the Spanish market. Our analysis provides new relevant evidence on the market for professional services and the existing level of competition. We analyze their determinants as well as the possible joint assessment of the fees for audit and consulting services. Our results show that knowledge creation in certain activities is applied to create value via the provision of other services (knowledge spillovers). However, it does not seem possible to characterize the ways in which economies of scope are shared between the auditor (in terms of higher revenues) and the client (in terms of lower prices), as this appears to depend on the extent of competition in the market. Furthermore, we could not obtain evidence documenting the existence of lowballing. Finally, we found that the fees charged for consulting services do not differ significantly across big audit firms (who seem to have similar price strategies), but audit fees are significantly lower in the case of small firms. Our results are robust in the presence of different models and alternative specifications

Determinants of audit fees for French quoted firms

PurposeThis study seeks to contribute to the international literature by researching the factors influencing audit fees in France, where law requires a joint auditing process involving two separate auditors for firms that publish consolidated financial statements.Design/methodology/approachSince, 2003, the disclosure of audit fees has been compulsory in France, but numerous firms decided to voluntarily disclose their audit fees for the year 2002. An attempt is made here to elucidate the amount spent on audit fees in 2002 in a sample of 127 French (non‐financial) firms.FindingsThe main finding is that audit fees depend on firm size, firm risk, and the presence of two of the Big Four firms. When two Big Four firms audit company accounts, the fees charged (adjusted for company size) are significantly lower in comparison with those paid in the other cases. These results appear not to have been influenced by the share of fees paid by the companies to the main auditor.Originality/valueThis study is original because the French law requires a joint auditing process involving two separate auditors.

A Review of Australian Audit Pricing Literature

This paper provides a review of the extensive contributions made to the audit pricing literature by researchers utilizing Australian data. Recent United States [hereafter US] regulatory requirements under the Sarbanes Oxley Act (Section 102) have mandated disclosure of audit fees. As such this is a useful occasion to review the existing Australian audit pricing research, since the audit fee disclosure advantage once enjoyed by Australian researchers has now effectively dissipated. Beginning with the origins and genesis of audit pricing research in Australia, this review then discusses the key contributions to the literature over time. It concludes with some brief discussion of potential research directions.

The Effects of Auditor Dismissals and Resignations on Audit Fees: Evidence Based on SEC Disclosures Under Sarbanes-Oxley

This paper assesses the effects of auditor dismissals and resignations on audit fees and, in particular, whether companies pay more or less for their audits around these events. We also test the hypotheses that the fee discount around a dismissal can be explained by the benefits of auditor incumbency and the fee premium around a resignation varies in relation to the additional audit effort and litigation risk of the incoming auditor. We base our study on a comprehensive sample of audit fee disclosures made by SEC registrants during fiscal years 2000 to 2004, so that our study period includes auditor changes before and after the Sarbanes-Oxley (SOX) legislation. For dismissals, we find that not only does the successor auditor discount fees, and in a way that supports our discounting hypothesis, but also that fees are discounted one year before the auditor change by the incumbent auditor, consistent with the view that the threat of a dismissal may influence fees. For resignations, fees are higher one year before and after the event indicating that both the incumbent and incoming auditor charge a premium around a resignation, possibly because the new auditor needs to cope with greater than normal litigation risk and/or audit effort. SOX appears not to have affected discounting around a dismissal, but the fee premium around a resignation increases following the legislation, consistent with our resignation hypothesis. We also find that non-audit fees are discounted around a dismissal, and this result too appears to be unchanged by SOX.

The Pricing of National and City-Specific Reputations for Industry Expertise in the U.S. Audit Market

The pricing of Big 5 industry leadership in the U.S. audit market is investigated using audit fee disclosures for the 2000–2001 fiscal years and the joint nationalcity framework in Ferguson et al. (2003). There is a significant fee premium of 19 percent on those engagements where Big 5 auditors are both the nationally top-ranked auditor and the city-level industry leader in the city where the client is headquartered, indicating that national and city-specific industry leadership jointly affect auditor reputation and pricing. However, there is never a premium in any tests for auditors that are national industry leaders alone without also being city-specific industry leaders, indicating that national leadership by itself does not result in a premium. The evidence is mixed with respect to city-specific industry leaders alone that are not also national industry leaders. While there is a premium of 8 percent in the primary tests, this result is inconclusive as it does not hold in all sensitivity analyses.