Auditing Section Research Summaries Space

A Database of Auditing Research - Building Bridges with Practice

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  • Jennifer M Mueller-Phillips
    Do Abnormally High Audit Fees Impair Audit Quality?
    research summary posted October 20, 2015 by Jennifer M Mueller-Phillips, tagged 04.0 Independence and Ethics, 04.02 Impact of Fees on Decisions by Auditors & Management, 06.0 Risk and Risk Management, Including Fraud Risk, 06.06 Earnings Management, 10.0 Engagement Management, 10.06 Audit Fees and Fee Negotiations, 11.0 Audit Quality and Quality Control 
    Title:
    Do Abnormally High Audit Fees Impair Audit Quality?
    Practical Implications:

    The study provides useful insight into current regulatory debates on the auditor’s economic dependence on the client and increases understanding to the reasons why previous research provides mixed evidence on the association between various fee metrics and the extent of earnings management. If the association between abnormal fees and the magnitude of discretionary accruals is conditioned on the sign of abnormal fees, examining the association without reference to the sign of abnormal fees most likely leads to observations of insignificant associations, as also reported in most previous studies. This study’s findings suggest that future research on similar issues should take into account the asymmetric nonlinearity in the fee-quality relation.

    Citation:

    Choi, J. H., J. B. Kim, and Y. Zang. 2010. Do Abnormally High Audit Fees Impair Audit Quality? Auditing: A Journal of Practice & Theory 29 (2): 115-140.

  • Jennifer M Mueller-Phillips
    Effect of Auditor Negotiation Experience and Client...
    research summary posted October 13, 2015 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.06 Audit Fees and Fee Negotiations 
    Title:
    Effect of Auditor Negotiation Experience and Client Negotiating Style on Auditors' Judgments in an Auditor-Client Negotiation Context.
    Practical Implications:

    The results show that the benefit of greater negotiation experience is contingent on client negotiation stylethere is a benefit to assigning auditors with greater negotiation experience to negotiate with a contentious negotiation style client, but not for a client with a collaborative negotiation style.  Thus, there are potential effectiveness and efficiency gains from matching auditor negotiation experience (an auditor attribute) with client negotiation style (a client attribute).  This study is also helpful to audit researchers when they design negotiation experiments, specifically with respect to whether the negotiation experience level of participants matters in the contexts they examine. This study also contributes to the literature on the effect on auditor judgments of negotiations with clients that vary in their negotiation style.

    Citation:

    Fu, H., H. T. Tan, and J. Zhang. 2011. Effect of Auditor Negotiation Experience and Client Negotiating Style on Auditors' Judgments in an Auditor-Client Negotiation Context. Auditing: A Journal of Practice & Theory 30 (3): 225-237.

  • Jennifer M Mueller-Phillips
    Effect of Client Reputation on Audit Fees at the Office...
    research summary posted February 20, 2015 by Jennifer M Mueller-Phillips, tagged 02.0 Client Acceptance and Continuance, 02.01 Audit Fee Decisions, 10.0 Engagement Management, 10.06 Audit Fees and Fee Negotiations 
    Title:
    Effect of Client Reputation on Audit Fees at the Office Level: An Examination of S&P 500 Index Membership
    Practical Implications:

    The results of this study are important for audit firms to consider when they choose their clients.  The evidence indicates that auditors can benefit from client’s reputation by using it for advertising audit quality. Promotion of audit quality via the presence of reputed clients in the portfolio enables the auditors to negotiate favorable audit pricing from their other clients.    

    For more information on this study, please contact Dr. Sharad Asthana.

    Citation:

    Asthana, S. C., and R. Kalelkar. 2014. Effect of Client Reputation on Audit Fees at the Office Level: An Examination of S&P 500 Index Membership. AUDITING: A Journal of Practice & Theory 33(1): 1-27.

  • Jennifer M Mueller-Phillips
    Fee Pressure and Audit Quality
    research summary posted November 10, 2014 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.06 Audit Fees and Fee Negotiations, 11.0 Audit Quality and Quality Control, 11.08 Proxies for Audit Quality 
    Title:
    Fee Pressure and Audit Quality
    Practical Implications:

    The results of this study are important evidence that a large proportion of audit engagements during the Recession were characterized by positive fee pressure, and that fee pressure was associated with lower audit quality during the Recession. The results suggest that auditors who experienced fee pressure from clients during the Recession were not able to maintain or increase audit effort in line with client risks due to pressure on fees. These results should be of interest to the PCAOB who expressed concern that audit fee pressure may have had negative effects on audit quality during the Recession.

     

    For more information on this study, please contact Mike Ettredge.  

    Citation:

    Ettredge, M., E. E. Fuerherm, and C. Li. 2014. Fee pressure and audit quality. Accounting, Organizations and Society 39 (4):247-263

  • Jennifer M Mueller-Phillips
    How Much Does IFRS Cost? IFRS Adoption and Audit Fees.
    research summary posted September 14, 2015 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.06 Audit Fees and Fee Negotiations, 15.0 International Matters, 15.02 IFRS Changes – Impacts 
    Title:
    How Much Does IFRS Cost? IFRS Adoption and Audit Fees.
    Practical Implications:

    The authors document and quantify audit fees as a significant cost associated with mandatory adoption of IFRS. The empirical results concerning small firms also inform discussions on the appropriateness of mandated IFRS regulations for small to mid-sized entities. Given the emphasis of auditing in the proposed roadmap for U.S. convergence to IFRS, the results will be of particular importance to U.S. firms, auditors, and regulators. On a broader level, the authors document variation in the costs of IFRS adoption that provides insight into the significant variation in the net benefit observed in previous studies. For instance, the authors find evidence that certain IFRS requirements have higher compliance costs than others, which explains the significant heterogeneity in compliance costs during the adoption of IFRS. 

    Citation:

    De George, E. T., C. B. Ferguson, and N. A. Spear. 2013. How Much Does IFRS Cost? IFRS Adoption and Audit Fees. Accounting Review 88 (2): 429-462.

  • Jennifer M Mueller-Phillips
    Non-Timely 10-K Filings and Audit Fees
    research summary posted December 1, 2014 by Jennifer M Mueller-Phillips, tagged 02.0 Client Acceptance and Continuance, 02.01 Audit Fee Decisions, 10.0 Engagement Management, 10.06 Audit Fees and Fee Negotiations 
    Title:
    Non-Timely 10-K Filings and Audit Fees
    Practical Implications:

    A practical implication from the findings for public companies is that as they consider the costs associated with non-timely filings, they also need to include in their calculations future costs arising from heightened risk assessment by auditors. The results also highlight the fact that there are significant differences in the market for audit services of accelerated and non-accelerated firms, and reinforce the view that there are differences between the two types of firms in terms of the consequences associated with internal control weaknesses.

    For more information on this study, please contact Kannan Raghunandan (raghu@fiu.edu).

    Citation:

    Wang, C., K. Raghunandan, and R. A. McEwen. 2013. Non-Timely 10-K filings and audit fees. Accounting Horizons 27 (4): 737-756

  • Jennifer M Mueller-Phillips
    On the Benefits of Audit Market Consolidation: Evidence from...
    research summary posted March 31, 2016 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.06 Audit Fees and Fee Negotiations, 11.0 Audit Quality and Quality Control, 11.07 Attempts to Measure Audit Quality 
    Title:
    On the Benefits of Audit Market Consolidation: Evidence from Merged Firms.
    Practical Implications:

    The study results are important to audit firms and audit clients as they show audit efficiency benefits (lower audit hours and improved audit quality) post-merger. Although a merger with an international Big 4 firm may bring some reputational improvements, mergers with domestic Big 10 firms create improvements in audit efficiency. Audit firms interested in merging in the Chinese market should consider the benefits of local expertise and higher fees in a merger transaction. These results provide further insights into mergers and acquisitions and the benefits of economies of scale when performing audits.   

    Citation:

    Gong, Q., O. Z. Li, Y. Lin, and L. Wu. 2016. On the Benefits of Audit Market Consolidation: Evidence from Merged Audit Firms. The Accounting Review 91 (2): 463488.

  • Jennifer M Mueller-Phillips
    Reconciling Archival and Experimental Research: Does...
    research summary posted February 16, 2015 by Jennifer M Mueller-Phillips, tagged 08.0 Auditing Procedures – Nature, Timing and Extent, 08.11 Reliance on Internal Auditors, 10.0 Engagement Management, 10.06 Audit Fees and Fee Negotiations 
    Title:
    Reconciling Archival and Experimental Research: Does Internal Audit Contribution Affect the External Audit Fee?
    Practical Implications:

     The results of this study are useful to managers, boards of directors, and audit committees to benchmark their own organizations and determine areas in which they may be able to realize cost savings.  Standard setters for external auditors could consider these results in terms of whether external auditors are appropriately relying on specified characteristics of the IAF when making their reliance decisions.  Client companies and their auditors might both find it worthwhile to examine whether external auditors could make better use of financial work performed by internal auditors on which the external auditors might later rely.  Finally researchers may wish to consider the results of this study when examining the external auditor’s reliance decision or when performing other audit fee analyses, especially considering whether proxies used in this study would be appropriate control variables or experimental variables of interest with respect to the contribution of internal auditing.

    For more information on this study, please contact David A. Wood.

    Citation:

    Prawitt, D. F., N. Y. Sharp, and D. A. Wood. 2011. Reconciling archival and experimental research:  Does internal audit contribution affect the external audit fee. Behavioral Research in Accounting 23 (2): 187-206

  • Jennifer M Mueller-Phillips
    Size Variables in Audit Fee Models: An Examination of the...
    research summary posted August 31, 2016 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.06 Audit Fees and Fee Negotiations 
    Title:
    Size Variables in Audit Fee Models: An Examination of the Effects of Alternative Mathematical Transformations
    Practical Implications:

    The authors’ results indicate that the complexity associated with auditing more subjectively valued assets may affect audit fees in a manner that is not fully captured by the traditional log transformation. Based on their findings, the authors also suggest that future audit fee studies assess alternative mathematical transformations of client size variables.

    Citation:

    Cullinan, C. P., H. Du, and X. Cheng. 2016. Size Variables in Audit Fee Models: An Examination of the Effects of Alternative Mathematical Transformations. Auditing: A Journal of Practice and Theory. 35 (3): 169-181.

  • Jennifer M Mueller-Phillips
    The Impact of Mandatory IFRS Adoption on Audit Fees: Theory...
    research summary posted November 25, 2014 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.06 Audit Fees and Fee Negotiations, 15.0 International Matters, 15.02 IFRS Changes – Impacts 
    Title:
    The Impact of Mandatory IFRS Adoption on Audit Fees: Theory and Evidence
    Practical Implications:

    This study should be of interest to regulators and policy makers. IFRS adoption influences audit complexity and financial reporting quality, which have countervailing effects on audit fees. On the one hand, IFRS are generally believed to be superior to local accounting standards; hence the adoption of IFRS potentially improves financial reporting quality. This reduces audit risk and thus audit fees. On the other hand, IFRS are comprehensive, fair-value oriented, and principles-based. Using them generally requires accountants and auditors to make more complex estimates and use greater professional judgment. In other words, IFRS adoption increases the complexity of audits, which can increase audit fees. Our results suggest that, on average, the effect of audit complexity dominates the effect of improvement in financial reporting quality, leading to an overall increase in audit fees in the post-IFRS period. Moreover, our cross-country analysis sheds light on how the institutional features of different countries, including legal environments and characteristics of pre-IFRS domestic accounting standards, affect the audit fee increase associated with IFRS adoption.

    For more information on this study, please contact Xiaohong Liu.

    Citation:

    Kim, J.-B., X. Liu, and L. Zheng. 2012. The impact of mandatory IFRS adoption on audit fees: Theory and evidence. The Accounting Review 87 (6): 2061-2094.

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