Audit market concentration, audit fees, and audit quality: A cross-country analysis of complex audit clients

Gunn, Joshua L.; Kawada, Brett S.; Michas, Paul N.

doi:10.1016/j.jaccpubpol.2019.106693

Cited by 52 publications

(51 citation statements)

References 42 publications

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“…and order') is most widely used in empirical cross-country auditing research (27 studies). Based on the existing evidence, these regulatory features mostly exhibit a positive and significant impact on audit fees.More contemporary research has also considered general audit market attributes and their impact on audit pricing (e.g.,Asthana et al, 2015;Choi et al, 2008;Choi et al, 2019;Gunn et al, 2019). For example, these studies find that the percentage of Big4 auditors in an audit market, Big4 dominance and market concentration tend to positively affect audit fees.…”

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confidence: 99%

Importance of country factors for global differences in audit pricing: New empirical evidence

et al. 2021

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In recent years, we have seen an increasing interest in the country‐level differences in audit environments as they might have a pervasive impact on how financial statement audits are conducted around the world. We contribute to this emerging stream of research in three important ways. Firstly, we provide a comprehensive synthesis of country‐level determinants that have been employed in previous multinational auditing research. Secondly, we document economically significant differences in the overall levels of audit pricing between countries, which we interpret as a compelling evidence that audits are conducted differently in different countries. Lastly, we explain these pricing differences between countries with a large set of country variables identified in our synthesis of prior multinational auditing research. We find not only that economic and regulatory characteristics explain the most of the differences in audit pricing between countries but also that differences attributable to sociological characteristics seem to be important in the conduct of audits. As auditing as a service and profession has become increasingly globalized, our study should be of interest to a wide range of readers including researchers, practitioners and regulators.

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confidence: 99%

Importance of country factors for global differences in audit pricing: New empirical evidence

et al. 2021

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“…Other researchers have controlled for auditor tenure (TEN), financial leverage (LEV), return on assets (ROA) and the natural logarithm of audit fees (LAF). In this case, I follow the approaches of Garcia-Blandon et al (2019) and Sun et al (2020) for auditor tenure, Hay et al (2006) and Hoitash et al (2007) for financial leverage, Cameran et al (2016) and Chi et al (2017) for return on assets, and Ghafran and O’Sullivan (2017) and Gunn et al (2019) for the natural logarithm of audit fees. Financial distress is represented by three variables, FD 1 , FD 2 and FD 3 , which refer to the existence of negative net income, the appearance of negative working capital and the simultaneous presence of negative net income and negative working capital, following the study of Habib et al (2013).…”

Section: Sample and Methodologymentioning

confidence: 99%

The effect of the financial crisis on audit quality: European evidence

Kyriakou

2022

IJAIM

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Purpose This paper aims to examine the impact of the recent financial crisis on audit quality by analysing discretionary accruals. Design/methodology/approach This study considers a sample of German, French, Italian and Spanish non-financial firms from 2005 to 2013 to investigate the auditor’s independence. It uses a cross-sectional and time-series ordinary least squares regression model to control for other predictors of the auditor’s independence when the financial crisis produces a decrease in audit quality. Findings The proportion of the non-financial firms having lower audit quality was higher during the financial crisis. In addition, during the crisis auditors were less likely to provide a higher audit quality for these non-financial firms. The level of audit quality returned to normal levels during the post-crisis years when the crisis had ceased. Originality/value These findings contribute to the literature on the impact of economic and financial changes on audit quality. In addition, this research finds that the Big Four accounting firms provide a higher audit quality in different circumstances from non-Big Four accounting firms, and that audit quality decreased during the crisis and returned to normal in the post-crisis period.

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“…In the aftermath of the mergers of the 1980s and 1990s and the collapse of Arthur Andersen, the audit markets around the world have become more concentrated (an indicator of reduced competition), resulting in increased concern among regulators and audit clients regarding the consequences of this phenomenon's effect on competition, audit pricing, and audit quality (Gunn et al, 2019; Newton et al, 2013). The main concern of regulators and audit clients is lower competition levels and the fact that auditors could exercise their market power, leading to higher audit prices (Velte & Stiglbauer, 2012; Zhang et al, 2019).…”

Section: Background and Hypothesis Developmentmentioning

confidence: 99%

“…The main concern of regulators and audit clients is lower competition levels and the fact that auditors could exercise their market power, leading to higher audit prices (Velte & Stiglbauer, 2012; Zhang et al, 2019). Moreover, increased audit fees have been attributed to the complexity and expansion of accounting and auditing requirements, the costs of qualified accounting firm personnel, stricter independence requirements, and weak legal regimes (Choi et al, 2019; Gunn et al, 2019).…”

Section: Background and Hypothesis Developmentmentioning

confidence: 99%

“…Some prior studies have found a positive association between overall audit market concentration and audit fees(Carson et al, 2012;Eshleman & Lawson, 2017;Feldman, 2006;Huang et al, 2016), while others have found evidence of a negative association between market concentration and audit fees(Bandyopadhyay & Kao, 2004;Dunn et al, 2013;Pearson & Trompeter, 1994).3 The world's audit market is considered an oligopoly because of the dominance of four accounting firms (the Big 4). According to economic theory, pricing decisions in an oligopoly may not lead to higher prices like in monopoly pricing, falling instead somewhere between the pricing of perfect competition and a monopoly(Gunn et al, 2019).4 Since the fiscal year of the South African companies varied, we classify all companies from South Africa as audited during the non-busy period. The statistics are as follows: 31.3% (June), 17.83% (December), 17.4% (February), and 16.83% (March).5 Eierle et al (2021) studied audit fees in 27 countries, while Gunn et al (2019) studied 28 countries.…”

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confidence: 99%

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The effect of mandatory audit firm rotation and the auditing and reporting standards on the auditor competition and audit fees relationship: Evidence from emerging markets

et al. 2022

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This research investigates whether auditor competition is associated with low audit fees and whether a country's implementation of mandatory audit firm rotation requirements as well as strong auditing and reporting standards weaken the negative effect of auditor competition on audit fees. Using 41,811 firm‐year observations from 10 emerging markets—specifically China, India, Malaysia, Pakistan, the Philippines, Poland, Russia, South Africa, Thailand, and Turkey—we find that auditor competition has a decreasing effect on audit fees. We also find that firms from countries with mandatory audit firm rotation requirements and strong auditing and reporting standards have higher audit fees than firms from countries with weak auditing and reporting standards and no mandatory audit firm rotation requirements. In the former countries, the negative relationship between auditor competition and audit fees is weaker than that for firms in the latter countries. Our results are robust to various specification tests, such as those for endogeneity issues, and alternative measures of country‐level institutional features. This study presents significant implications for regulators by providing evidence that both mandatory audit firm rotation requirements and the strength of auditing and reporting standards play an essential role in enhancing audit quality by curbing the negative effect of audit competition.

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Audit market concentration, audit fees, and audit quality: A cross-country analysis of complex audit clients

Cited by 52 publications

References 42 publications

Importance of country factors for global differences in audit pricing: New empirical evidence

Importance of country factors for global differences in audit pricing: New empirical evidence

The effect of the financial crisis on audit quality: European evidence

The effect of mandatory audit firm rotation and the auditing and reporting standards on the auditor competition and audit fees relationship: Evidence from emerging markets

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