Audit Market Competition: Auditor Changes and the Impact of Tendering

Abstract

Increased competition within the external audit market and the recent phenomenon of audit tendering has renewed interest in the factors influencing auditor changes. In this paper, a questionnaire instrument is used to elicit perceptions of the factors which influence auditor-client realignments in this new environment and to indicate the relative influence of economic and behavioural factors. Positive, statistically significant associations were found between unsolicited approaches and the consideration of either a change in auditor or the conduct of a competitive tender. Fees are both the most frequently cited reason for considering auditor change and the most frequently cited factor influencing the selection of a new auditor. The chemistry of the relationship with senior audit firm personnel was ranked as more important than service issues in new auditor selection. Several significant associations between the reasons for change and both company size and type of change are identified. In particular, smaller companies, and companies changing from a non-Big Six firm, were more likely to change due to the need for a wider range of services and the influence of third parties. Findings indicated that 55% of auditor changes were effected by means of a tender, with the incumbent auditor having only an 18% chance of retaining the client. The various stages of the tender process appear to be dominated by the finance director, with audit committees having a restricted role. Tenders resulted in significant fee reductions in the year of change.

Auditor Concentration and Market Shares in the Us: 1988–1999 a Descriptive Note

“…Several writers (Bedingfield & Loeb, 1974;Eichenseher & Shields, 1983;Lynn, 1988;Beattie & Fearnley, 1998) have concluded that audit fees are an important factor in a company's decision to change auditors and then in a company's consideration of its new auditor. It appears that accounting firms are aware of the importance of audit prices, and studies (DeAngelo, 1981a;Simon & Francis, 1988;Ettredge & Greenberg, 1990) show that firms sometimes 'lowball' their fees in order to obtain an audit.…”

The Value of Management Letters to Unlisted Companies

“…In the case of listed companies the securities market generally has a preference or attaches some form of premium to a company being audited by a Big 5 audit firm (Beattie & Fearnley, 1998). In the case of unlisted companies the Big 5 audit firms can rely less on their reputation to impress their clients but instead have to demonstrate in a more observable way that the audit they perform is superior to that of a non-Big 5 audit firm.…”

An Empirical Study of Auditors Switching, Corporate Governance and Financial Performances of Malaysian Public Listed Companies (PLCs)

“…Nevertheless, there are argumentsin the inadequacyof explaining the reasons and rationale for the remarkable statistics of auditor switching. This is because they neglect the behavioural factors and present only partial explanation regarding auditor switching (Beattie &Fearnley 1998). Moreover, corporate governance mechanisms influence company's auditor switching determination (Lin & Liu 2010).…”