An Examination of Factors Driving Big 4 Audit Fee Premiums: Evidence from India's Audit Market

Jacob, Joshy; Desai, Naman; Agarwalla, Sobhesh Kumar

doi:10.2308/acch-52347

Cited by 14 publications

(24 citation statements)

References 36 publications

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“…This is different from the markets in developed countries, where most of the previous studies have been conducted that are dominated by Big-4 auditors and can be considered oligopolistic. A recent study about the Indian audit market showed that Big-4 in India might not be providing higher audit quality, as evidenced in developed countries, even though they charge a premium in India (Jacob et al, 2019).…”

Section: Control Variablesmentioning

confidence: 99%

“…Even in the cases where audit firms are found guilty of not performing their duties diligently, it is usually only the individual auditors who are in charge of the particular audit who are punished. The overall audit firm, on the other hand, does not suffer significant adverse outcomes (Jacob et al, 2019). Thus, with this study, we seek to examine the impact of audit partner rotation on audit quality in a regulatory environment, where litigation risks are low.…”

Section: Introductionmentioning

confidence: 99%

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Audit partner rotation, and its impact on audit quality: Evidence from India

Mohapatra

Dayanandan

Kuntluru

et al. 2021

Cogent Economics & Finance

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Using multiple indicators of audit quality, the study examines the impact of audit partner rotation on audit quality in India based on 1,694 firm years for the period of 2011-2017 when the institutional set up for audit partner rotation was voluntary. The empirical results indicate that the audit partner rotation had no significant impact on audit quality as measured by discretionary accruals and going concern audit opinion. The study finds that other factors like loss year, size of the firm, value, leverage have a statistically significant impact on audit quality. The empirical results also indicate an inverse relationship between audit fees and audit partner rotation implying, price-cutting of the audit. The findings are important to regulators regarding the significance of audit partner rotation in enhancing audit quality.

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Section: Control Variablesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Audit partner rotation, and its impact on audit quality: Evidence from India

Mohapatra

Dayanandan

Kuntluru

et al. 2021

Cogent Economics & Finance

View full text Add to dashboard Cite

show abstract

“…3. It is theoretically and empirically difficult to distinguish one role from the others (Knechel et al, 2013;Jacob et al, 2019). Therein, we take the following steps to investigate how traditional auditors' roles would affect the association between audit effort and clients' stock return performance.…”

Section: Discussionmentioning

confidence: 99%

Do audit efforts increase the future equity value of client firm?

이¹,

Choi

Ryu

2021

MAJ

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Purpose The purpose of this study is to examine the association between additional audit efforts and clients’ future equity value. The study hypothesizes that auditors’ additional audit efforts directly increase clients’ stock return performance. Additionally, this study expects that the additional audit effort lowers the likelihood of audit failure and improves accounting information quality, thereby indirectly increasing clients’ future equity return performance. Design/methodology/approach The regression and portfolio return tests are conducted using observations from 2003 to 2016. This study uses the abnormal audit hours as a proxy for additional audit effort using mandatorily disclosed audit hour data from Korean listed firms. The study also conducts mediation analyses to examine the causal intermediate steps that link audit effort to client equity return performance. Findings The paper documents a significant and positive association between abnormal audit hours and clients’ subsequent years’ stock return performance and Tobin’s Q. This finding is accentuated for clients audited by Big N auditors or with greater demand for superior audit service. This finding is robust after controlling for various proxies of accounting quality. The portfolio return tests also find evidence that investors cannot fully perceive the value of audit efforts. A battery of additional tests does not alter the main findings. Practical implications The results provide implications for investors and policymakers by emphasizing the importance of audit efforts in value-creation. Moreover, this study’s findings suggest that auditors’ assurance, insurance and information roles are all the important drivers of this value-creation. Originality/value This study highlights a prominent feature of audit effort that enhances the value of auditees.

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“…In Egypt, audit firms can be classified into two main categories; national and national audit firms affiliated to one of the Big4. It is expected that audit firms affiliated to one of the Big4 audit firms will charge their clients fee premiums because of their reputation, higher audit quality and their ability to indemnify losses for their clients' stakeholders (Hay et al, 2006;Jacob et al, 2019). Additionally, according to the "deep pocket" hypothesis, Big4 audit firms are wealthier than non-big4 audit firms and they have a lot of clients and so less dependent on their clients (Caneghem, 2010).…”

Section: Control Variablesmentioning

confidence: 99%

“…In this section, an audit related control variable, audit quality (AUDIT_QUALITY) is added to the OLS regression model to show its impact on next year audit fees. Accordingly, the following OLS regression model is developed: Jacob et al (2019), AUDIT_QUALITY has a significant positive impact on next year audit fees (Sig. = 0.000) (table 11).…”

Section: Additional Analysismentioning

confidence: 99%

Current Year Audit Opinion and Next Year Audit Fees: Does Family Ownership Matter?

بدوى¹

2021

المجلة العلمیة للدراسات والبحوث المالیة والتجاریة

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The paper aims to investigate the association between current year audit opinion and the pricing of the next year audit mission and whether this relationship differs with different nature of ownership (family -nonfamily) in the Egyptian setting. Using a sample of 358 firm-year observations from the Egyptian Stock Exchange (EGX hereafter) over the period 2016-2019, ordinary least square (OLS) regression models are estimated to test the research hypotheses and conduct sensitivity and additional analyses. The author didn't find significant association between current year audit opinion and next year audit fees. However, if the auditor issues a qualified audit opinion for a family firm, he will ask for a fee premium for the next year audit mission. Results are robust to alternative measures of next year audit fees and current year audit opinion. The paper uses the current year audit opinion as an input to the next year audit pricing decision. The paper responds to previous calls to investigate the relationship between audit fees and type of audit opinion and the impact of family ownership on audit fees. In addition, this study uses three alternative measures of next year audit fees and an alternative measure of current year audit opinion. Finally, this study adds evidence to the corporate governance literature in developing countries.

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An Examination of Factors Driving Big 4 Audit Fee Premiums: Evidence from India's Audit Market

Cited by 14 publications

References 36 publications

Audit partner rotation, and its impact on audit quality: Evidence from India

Audit partner rotation, and its impact on audit quality: Evidence from India

Do audit efforts increase the future equity value of client firm?

Current Year Audit Opinion and Next Year Audit Fees: Does Family Ownership Matter?

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