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    Client Acceptance and Engagement Pricing following Auditor...
    research summary posted January 17, 2017 by Jennifer M Mueller-Phillips, tagged 02.0 Client Acceptance and Continuance, 02.01 Audit Fee Decisions 
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    Title:
    Client Acceptance and Engagement Pricing following Auditor Resignations in Family Firms
    Practical Implications:

    This study contributes to the auditor-client realignment literature by examining whether auditors’ client acceptance and pricing decisions vary with firm ownership structure, which was not investigated before. It also documents a significant association between the identity of the successor auditor and firm ownership structure following the resignation of the incumbent auditor. This is important given the potential consequences of auditor changes to both auditors and their clients. 

    Citation:

    Khalil, S. and M. Mazboudi. 2016. Client Acceptance and Engagement Pricing following Auditor Resignations in Family Firms. Auditing: A Journal of Practice and Theory 35 (4): 137 – 158. 

    Keywords:
    client acceptance, audit pricing, auditor resignations, and family firms.
    Purpose of the Study:

    The authors of this paper extend current research by examining whether firm ownership structure is associated with client acceptance and pricing decisions following the resignation of the incumbent auditor. More specifically, the authors test whether the identity of the successor auditor (Big 4 or non-Big 4) and the change in audit fees following auditor resignations in family firms are significantly different from those in non-family firms in the U.S. They further investigate whether the aforementioned results hold when the identity of the CEO managing a family firm and the percentage of shares held by the family members are accounted for. Finally, the authors examine whether the likelihood of financial restatements in family firms over the two-year period following the incumbent auditor resignation is significantly different from that in non-family firms. 

    Design/Method/ Approach:

    The authors analyze results obtained using a sample of auditor resignations over the post-SOX period 2004-2012.

    Findings:
    • The authors find that Big 4 auditors are more likely to serve as successor auditors following auditor resignations in family firms as opposed to non-family firms.
    • The authors find that the likelihood of having Big 4 auditors serving as successor auditors is higher in family firms managed by a family member or by a professional manager. This implies that big 4 auditors perceive family firms as being less risky than their non-family counterparts following auditor resignations, irrespective of whether a family member is involved in management or not.
    • The authors find that the change in audit fees following auditor resignations in family firms is significantly smaller than that in non-family firms after controlling for a wide battery of variables that affect the change in audit fees. 
    Category:
    Client Acceptance and Continuance
    Sub-category:
    Audit Fee Decisions