Determinants of Fee Cutting on Initial Audit Engagements

Ettredge, Michael; Greenberg, Ronald I.

doi:10.2307/2491224

Cited by 226 publications

(137 citation statements)

References 10 publications

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“…This level of importance is broadly consistent with the growing body of evidence documenting price cutting on initial audit engagements (Simon & Francis, 1988;Ettredge & Greenberg, 1990;Pong & Whittington, 1994;and Gregory & Collier, 1996).…”

Section: Auditor Changessupporting

confidence: 76%

Audit Market Competition: Auditor Changes and the Impact of Tendering

Beattie

Fearnley

1998

The British Accounting Review

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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.

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Section: Auditor Changessupporting

confidence: 76%

Audit Market Competition: Auditor Changes and the Impact of Tendering

Beattie

Fearnley

1998

The British Accounting Review

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“…Previous studies (Craswell & Francis, 1999;Deis & Giroux, 1996;Ettredge & Greenberg, 1990;Francis & Simon, 1987;Sankaraguruswamy & Whisenant, 2009) find that auditors charge lower fees for initial audit engagements. Given that clients did not voluntarily choose to hire the designated auditor, and that there was no competitive bidding, we do not expect to find lowballing by designated auditors.…”

Section: Designated Auditor Feesmentioning

confidence: 96%

Does Regulator Selection of Auditors Improve Audit Quality? Evidence from Auditor Designation in Korea

Bae,

Kallapur,

Rho

2012

SSRN Journal

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Although the hiring and firing of auditors by clients is believed to create a fundamental conflict of interest, there is little research on the issue except for experimental evidence in Mayhew and Pike (2004). To provide evidence on the issue, in this paper we exploit the setting in Korea, known as auditor designation, wherein regulators selectively and episodically selected auditors for certain client firms. We fail to find that audit quality proxied by absolute discretionary accruals, audit hours, modified opinions, and the tendency to meet or beat benchmarks, is higher for designated auditors. Our results therefore question whether hiring and firing of auditors by clients is a threat to auditor independence.

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“…the firms change auditors to get cheaper auditing services (Beattie and Fearnley, 1995;DeAngelo, 1981;Ettredge and Greenberg, 1990;Hogan, 1997;Simon and Francis, 1988). Che Ahmad et al (2006) had empirically reported that there is a positive association between auditor choice among brand name and audit fees.…”

Section: Regression Modelmentioning

confidence: 99%

Internal corporate governance mechanisms and audit quality: Evidence from GCC region

Hassan¹,

Aljaaidi²,

Abidin³

et al. 2018

Int. j. adv. appl. sci.

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Using the suggestions of agency theory alone for predicting the auditor change behavior in the context of GCC countries is inappropriate because they were developed in countries with mature market-oriented economies. In this study, we examine the association of board of directors effectiveness (board of directors independence, size, financial expertise, meetings, nationality, international experience and CEO duality) and audit committee effectiveness (audit committee independence, size, financial expertise, meetings, nationality and international experience) with the incidence of auditor change among Gulf Cooperation Council (GCC) public listed companies for the period 2005-2010. We posit that using an integration framework of agency theory, managerial grid theory, and attractionselection-attrition has more explanatory power to predict auditor change behavior in GCC setting, taking into account economic and behavioral issues. The results show that only board of directors' effectiveness is significantly associated with the incidence of auditor change. This study finds out that the economic and the behavioral activities are related to the audit demand in the GCC. Moreover, the study suggests that regulators, especially GCC stock exchanges, should force companies to disclose all relevant information related to auditor change in a transparent and timely manner, and increase law enforcement to enhance good corporate governance practices. For companies, this study proposes that they should put more emphasis on enhancing the role and the quality of the board of directors and audit committee members, as they are involved in the decision of auditor change.

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Determinants of Fee Cutting on Initial Audit Engagements

Cited by 226 publications

References 10 publications

Audit Market Competition: Auditor Changes and the Impact of Tendering

Audit Market Competition: Auditor Changes and the Impact of Tendering

Does Regulator Selection of Auditors Improve Audit Quality? Evidence from Auditor Designation in Korea

Internal corporate governance mechanisms and audit quality: Evidence from GCC region

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