Audit fees via an indirect payment channel and professional skepticism

Abstract

Purpose This paper aims to examine the merit of an indirect payment system for audit fees, a system where an intermediary collects fees from the auditee and then pays this audit fee to the auditor. Design/methodology/approach Big 4 auditors and professional analysts in South Korea participated in an experiment and survey to investigate whether the change in the payment channel (from direct to indirect) of audit fees positively impacts auditors’ decision-making. Findings The authors find evidence that the indirect payment of audit fees is positively associated with professional skepticism. Research limitations/implications This paper, by highlighting the potential for alternate auditor payment channels to improve the quality of auditor judgments, motivates future research in this area. Practical implications Qualified by the need for further research, the potential merit in an indirect payment system may have implications for audit regulators. Social implications An indirect payment channel has the potential to improve public perceptions of the audit function, thereby elevating society’s confidence in auditor opinions and improving the effectiveness and efficiency with which scarce resources are distributed within society. Originality/value This study is one of the first that looks into a systematic change in audit fee payment channel and how an indirect payment system of audit fees impacts professional skepticism.

Effect of Audit Fees, Auditor Competency, Professional Ethics and Professional Skepticism on Audit Quality

“…The auditor's professional skepticism is needed to make decisions about how much and what type of audit evidence should be collected (Arens et al, 2008). Previous research related to audit fees on professional skepticism was conducted by Kim et al (2018) shows that audit fees are high, auditors can expand audit complexity to produce quality audits. Darafni et al (2017) and Basuki et al (2020) related to auditor competence on audit quality shows that the higher the auditor's competence, the higher the attitude of professional skepticism effect audit quality.…”

“…This study will use a mediating variable, namely professional skepticism which is thought to be able to mediate audit fees, auditor competence, and accounting professional ethics on audit quality. Research conducted by Kim et al (2018); Basuki et al (2020); and Cahyadi and Rikawati (2019) show that the existence of audit fees, auditor competence, and accounting professional ethics will be able to increase professional skepticism of auditors in order to produce quality audits. Then, the research results of Mardijuwono and Subianto (2018); Puspitasari et al (2019); and Sujarwo (2020) show that professional skepticism possessed by auditors can improve the quality of audits carried out.…”

Ethical Decision Making Among Auditors in Indonesia: Examination on State Professional Skepticism and Auditor Independence

“…On the other hand, to pursue their commercial interest, auditors are motivated to continue a relationship with their clients to obtain more benefits from this economic bond (e.g. audit contract renewal) (Church, Jenkins, McCracken, Roush, & Stanley, 2015;Kim, Kim, Pae, & Kim, 2018). As such, the need to satisfy multiple stakeholders creates conflicts for the auditors and most of the time, it is difficult to reconcile and satisfy the different needs and interests of all stakeholders.…”