Involvement of Component Auditors in Multinational Group Audits: Determinants, Audit Quality, and Audit Fees

Carson, Elizabeth; Simnett, Roger; Thürheimer, Ulrike; Vanstraelen, Ann

doi:10.1111/1475-679x.12418

Cited by 26 publications

(19 citation statements)

References 64 publications

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“…Working from existing municipal audit fee models, H1 predicts that entity size is positively correlated with per capita audit fees within small Connecticut municipalities. Beginning with the seminal work of Baber et al (1987) and Rubin (1988) and continuing to the work of Carson et al (2004); Carson & Fargher, 2007; Carson et al, 2021 which spans the decades, research on audit fees has had associations with auditee size. The hypothesis was tested using a one‐way ANOVA, with the town size as the independent variable, and per capita audit fees paid as the dependent variable.…”

Section: Resultsmentioning

confidence: 99%

Audit fee determinants in small municipalities: Further evidence from Connecticut small towns

2023

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Guided by a call for research on small entities using innovative methodologies, this study is the first to analyse small municipality audit fees on a per capita basis. The research utilises a complete dataset of all 92 Connecticut municipalities that meet the study criteria and does not rely on samples or survey results. The measure of per capita was utilised to account for differences between town populations allowing for a more accurate comparison of audit fees and audit fee determinants across municipalities of differing populations. Consistent with the premise that auditee characteristics are an important consideration in audit fees, we find that when examining audit fees on a per capita basis in the subset of small municipalities: (1) smaller towns pay considerably more for audit services than larger towns, (2) towns with an ethics committee oversight function and best practices financial reporting practices have lower per capita audit fees than those that do not and (3) audit firm size, audit firm tenure and existence of audit/finance committee oversight have no significant impact on per capita audit fees. The results of this study help fill a void in the audit literature by providing insights into audit fee determinants in small municipalities by considering the added feature of a per capita analysis. The authors also sought to provide additional information for consideration in the International Auditing and Assurance Standards Board (IAASB) efforts to streamline standards for auditing of less complex entities.

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Section: Resultsmentioning

confidence: 99%

Audit fee determinants in small municipalities: Further evidence from Connecticut small towns

2023

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“…Research, however, suggests that the involvement of a component auditor be recognised as an additional criterion that may be indicative of complexity (and unique to a group setting) (Burke et al, 2020; Carson et al, 2021). Complexity in group audits may arise from coordination and communication challenges between group and component auditors (Downey & Bedard, 2019; Downey & Westermann, 2021) and cross‐cultural differences and language barriers between group and component auditors (Downey et al, 2020; Saiewitz & Wang, 2020).…”

Section: Responses To Specific Questionsmentioning

confidence: 99%

Comments of the AFAANZ auditing and assurance standards committee on proposed international standard on auditing ISA for LCE

Coram

Garg

et al. 2022

Accounting & Finance

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| 4221 3. We believe that the authority may lead to confusion as to the applicability of the standard in that it will likely contribute to a disconnect between what is perceived to be a less complex entity and entities scoped into the standard. We recommend that the IAASB consider placing less emphasis on global prohibitions and place more emphasis on qualitative characteristics and jurisdictional discretion. (Question 3b) 4. We do not believe that the authority itself informs audit report users of the scope of the proposed standard and recommend that this be addressed by other means (e.g., education). (Question 3d) 5. We believe that the role of legislative and regulative authorities is appropriate. (Question 3e) 6. We do not agree with the use of specific prohibitions and believe that greater emphasis should be placed on jurisdictional discretion, and a greater focus be placed on principlesbased qualitative criteria. (Question 4a) 7. We broadly agree with the qualitative characteristics specified, but recommend, following comments in response to other questions, that the criteria be expanded to include circumstances for which the auditor needs to refer to the full suite of standards and the need to use a component auditor. (Question 4b) 8. We suggest that the approach employed in developing the ED-ISA for LCE is problematic in that it is based on the material contained in the extant suite of standards. This approach gives rise to the potential for key issues not included in the extant suite of standards, but critical to the achievement of reasonable assurance in an audit of less complex entities, being omitted from the standalone standard. (Question 7a) 9. We believe that the material on professional scepticism, relevant ethical requirements and quality management is incomplete and does not fully reflect the unique circumstances in which an audit of a less complex entity is undertaken. (Question 7c) 10. We believe that Parts 1, 3 and 6 of ED-ISA for LCE can be improved. We also believe that ISA610 (Using the work of an Internal Auditor) should not be excluded from the standard. (Question 9) 11. We broadly agree with the approach taken with regard to auditor reporting in that specific reference is made to the auditing standard with which the auditor's opinion is formed. We caution, however, that an unintended consequence may be that users incorrectly infer meaning from the use of the standalone standard and may perceive that a lower level of assurance is provided. We suggest that a broad education program would be necessary to address this potential unintended consequence. (Question 10a) 12. We agree with the approach to include a specified format and content of an Auditor's Report as a requirement. (Question 10b) 13. We do not believe that ED-ISA for LCE in its current form will meet the needs of stakeholders. We do not, however, discount the possibility of a revised standalone standard achieving the goal of meeting current challenges associated with audits of less complex entities. (Question 17b) 14. We bel...

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“…The Big 4 firms clearly dominate the very large client segment, where they audit just over 90% of clients and collect just over 98% of the audit fees. This is unsurprising as the largest clients tend to have complex organisational structures, overseas operations, and therefore require auditors with sufficient resources and a global network (Carson et al, 2022). In addition, the Big 4 firms audit about two-thirds of the next largest group of clients and receive 82.2% of total audit fees in this market segment, with the remainder shared equally between the Large and Medium Non-Big 4 firms.…”

Section: Audit Market Competitionmentioning

confidence: 99%

The audit market for listed Australian companies from 2012 to 2018: A state of play

Carson

Thürheimer

et al. 2022

Australian Journal of Management

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Motivated by recent regulatory scrutiny of auditing in Australia, we provide an overview of the audit market for Australian listed companies from 2012 to 2018. Using descriptive analyses, we explore audit market competition, the provision of non-audit services (NAS), and audit firm tenure. We find that the Australian audit market is highly segmented. Big 4 firms increasingly dominate the larger client segment, while Non-Big 4 firms focus on medium and smaller clients. Auditor-provided NAS fees represent a relatively small fraction of audit fees for smaller clients, but a relatively high fraction for larger clients. We further observe that the share of total revenue from NAS of Big 4 firms increases over time. Finally, a relatively small percentage of clients has long audit firm tenure, and that long tenure is more common in the larger client segments. We discuss the implications of these findings and research opportunities that emerge. JEL Classification: D40, L11, M42, L84

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Involvement of Component Auditors in Multinational Group Audits: Determinants, Audit Quality, and Audit Fees

Abstract: We study what determines the involvement of component auditors in multinational enterprise (MNE) group audits and the association with audit quality * UNSW Sydney;

Cited by 26 publications

References 64 publications

Audit fee determinants in small municipalities: Further evidence from Connecticut small towns

Audit fee determinants in small municipalities: Further evidence from Connecticut small towns

Comments of the AFAANZ auditing and assurance standards committee on proposed international standard on auditing ISA for LCE

The audit market for listed Australian companies from 2012 to 2018: A state of play

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