Audit Independence

Building strong capacities in public accountability is key to controlling malfeasance in public expenditure. Even though most public entities in most countries are legally obligated to report on public expenditure and to detect incidences of malfeasance, differing governance arrangements regarding political democracy, the rule of law and civil liberties indicate differences in the priority given to, and in the results obtained through, public accountability initiatives, including those of the supreme audit institutions (SAIs). This article demonstrates how variations in governance enablers in different regions of the world produce differing results. It argues that on their own and without necessary investments in democracy and the rule of law, investments in accountability measures, including those of the SAIs, will not produce desired outcomes and thus will have little or no impact on the control of corruption. It also cites selected successful cases of civil society participation in the auditing of government programmes.

O Relatório de auditoria é o principal output do processo de auditoria. Este documento visa evidenciar o trabalho desenvolvido no decurso da Auditoria, mas sobretudo, a opinião do Auditor relativamente à credibilidade das demonstrações financeiras. Por conseguinte, este documento permite aumentar a confiança que os Stakeholders depositam na informação financeira e otimizar o seu processo de decisão. Pese a importância do Relatório de auditoria, a opinião do Auditor é, por vezes, influenciada por fatores inerentes à própria auditoria, mas, também, por fatores inerentes ao próprio auditor, como por exemplo, o seu nível de conhecimento e especialização, a sua reputação, a dimensão da empresa de auditoria e a própria dimensão da carteira de clientes. Na senda deste pensamento e seguindo a linha de investigação de vários estudos empíricos, neste artigo efetuamos um estudo com o intuito de aferir a influência da variável reputação e nível de especialização do Auditor sobre a modalidade de opinião emitida no Relatório de Auditoria. Para o efeito, aplicamos um inquérito por questionário a uma amostra de 33 Analistas Financeiros, 32 Investidores e 33 Analistas de Crédito. Os resultados demonstraram que os três grupos analisados consideram que os Auditores com maior nível de especialização têm mais propensão para emitir Relatório de Auditoria modificados. Relativamente, à variável reputação os resultados foram um pouco inclusivos, dado que a maioria dos respondentes optou por uma resposta neutra, ainda assim, cerca de 30% dos respondentes considera que os Auditores com maior reputação têm mais propensão para emitir Relatório de Auditoria modificados.

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This study examines the association between overseas and New Zealand governance regulatory reforms in New Zealand public companies' audit and non-audit fees. We state audit and non-audit fee models, and use temporal and IFRS indicator variables to relate the timing of the fee changes with the incidence of the overseas and local governance reforms. We find that audit fees increased in New Zealand over 2002-2006. Such increases associate reliably with the transition to and adoption of NZ IFRS and not with the overseas governance reforms in the United States and Australia, enacted earlier. Our results also show a decrease in non-audit fees over the same period but we find no IFRS effect for non-audit fees.

The adoption of businesslike boards of directors in the public sector has to be evaluated in terms of financial and non-financial outcomes. This paper investigates, using a structural equation model, the relationship of certain board characteristics with the performance of English NHS foundation trusts. Larger and more independent boards do not harm performance. Having a woman chairing the board is related to better service quality. Boards seem to be more concerned about service quality issues than about financial problems.

as soon as possible after acceptance. Copyediting, typesetting, and review of the resulting proof will be undertaken on this manuscript before final publication of the Version of Record (VoR). Please note that during production and pre-press, errors may be discovered which could affect the content.

Purpose This paper aims to provide insights into how the New Zealand Office of the Auditor-General (NZOAG) legitimised the selection of topics for performance audit in the New Zealand public health sector over a 10-year period, 2003-2013, by fulfilling the key actors’ “taken for granted beliefs” of the dual roles of the NZOAG: its independence and accountability. Design/methodology/approach This paper uses evidence gathered from interviews with representatives of the District Health Boards, the Ministry of Health (including Health Advisory Committee members) and NZOAG staff, along with publically available documentary evidence over a 10-year period. The authors draw on Suchman’s (1995) authority on institutional legitimacy to inform the research findings. Findings The New Zealand Auditors-General (NZAGs) get inputs from various sources such as their own audit teams, parliamentary deliberations, the Ministry of Health, the District Health Boards, media and public concerns and complai...

The aim of this study is to analyze the characteristics of the auditing firms operating in Turkey and analyze the relationship between the firm characteristics. In this study, using data obtained from the 2014 transparency reports of audit firms operating in Turkey, the following variables were analyzed with correlation analysis method;

Recent papers have investigated how assurance increases the credibility of, and confidence in, sustainability disclosure. However, there is debate about the quality of this process. As part of this debate, the authors examine, firstly, whether the provision of audit and sustainability assurance services by the same practitioner affects the quality of the assurance, focusing on a trade-off between the knowledge spillover effect and the economic dependence effect. Secondly, the authors also examine whether the industry specialization of the assurance provider could moderate the above relationship, reinforcing the knowledge spillover or reducing the economic dependence effects. Using international data from the period 2007-2016, evidence supports that the provision of audit and sustainability assurance services by an incumbent auditor produces knowledge spillover, leading to higher assurance quality. Results also find that industry specialization increases the provider's knowledge of matters on which sustainability assurance is given and enhances the impact of joint provision on assurance quality. The analysis is further extended to explore this evidence in contexts characterized by higher agency costs, by a country's greater stakeholder-orientation, a country's greater rate of demand for assurance, and countries where assurance is non-mandatory.

This study investigates why auditors leave public accounting and the consequences of auditor departures. We find that both individual auditor demographics and audit competency are associated with a departure decision. Specifically, female, young, or non-Big 4 auditors, or those with better educational backgrounds have a higher likelihood of departing public accounting. Audit partners or managers or those with higher audit competency have a lower likelihood of departure. In terms of consequences, we find that the audit firm is more likely to lose clients whose incumbent auditor departs and it tends to lower audit fees for clients that stay with the audit firm. However, the audit quality of such clients does not change after their auditor's departure. Interestingly, audit quality decreases for clients whose departed auditors later become corporate executives. Our study provides insights that should be of interest to the audit profession, audit firms, and regulators.

External auditors occupy a unique position in the business community when they perform an audit for clients. The auditors are called upon to attest to financial statements and to safeguard the interest of various parties. However, in recent years the audit practice because of several scandals has been undermined. This empirical study shows that several factors affect on audit independence in Iran. The results show that there is a huge difference between auditors and bankers on audit independence. The author has come to the conclusion that for solving this problem well-established corporate governance can improve audit independence.

This chapter summarises the analysis of the preceding chapters. Whilst different countries use different models for their audit, some continuities do emerge. The audit explosion has led to the advance of both financial and performance audit. Inspection however remains an infrequent feature of the audit landscape. Many countries have a localised system of local audit in which the role and influence of audit is variable. Furthermore, the audit of local government lacks a clear democratic role at the moment.

The paper aims to investigate auditors, auditing firms and other external factors that affect quality of information technology audit in Vietnam. We conducted 2 types of data collections including direct and on survey. For direct survey, we sent directly to auditors at the training classes organized by State Securities Exchanges Commission. An online survey was established and Google doc link was provided to the Big4 and non-Big4 auditors. We received 138 survey responses in that 90 auditors came from Big4 and 48 auditors from non-Big4 firms. The data are analyzed using a factor analysis and compare means approaches to illustrate the potential IT audit quality factors and identify differences between two groups of auditors. The results show that independence and accounting knowledge and audit skills are the most important factors. And since external auditors perform many assurance services, the independence is critical. The result also shows that the auditors need to have enough competent and professional skills when conducting an audit, especially within an IT environment that requires high quality. The findings suggest a similar pattern of two groups in the context of Vietnam and some factors of auditors and auditing firms appear to have a statistically significant impact on quality of IT audit.

In recent years, substantial changes have been implemented to the audit regimes for local authorities in several countries. Following the abolishment of the Audit Commission, a unique regime for the audit of local authorities has emerged in England, with external audit now fully conducted by private sector audit firms. Auditor appointments for the vast majority of local authorities are now managed by a new organisation, Public Sector Audit Appointments Limited (PSAA). Drawing on the determinants of audit credibility developed by Funnell, Wade and Jupe (2016), this paper examines how local authority stakeholders in the transformed landscape of local public audit in England perceive audit credibility, including the role of PSAA and other audit stakeholders. Findings show that the impact of current arrangements is positively perceived by stakeholders in relation to auditors' technical competence and independence, at least in the short term, however significant concern is found amongst stakeholders regarding the usefulness of local public audits. Compared to Funnell et al. (2016), we ascribe these differences to the different context of audit in English local government and suggest the relative weighting of determinants of audit credibility are contingent. This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made.

External auditors for NHS trusts give an independent opinion on the trust's financial statements. They also review aspects of the arrangements that trusts have put in place to ensure the proper conduct of their financial affairs, and to manage their performance and use of resources. Special accountabilities attach to the use of public money and the conduct of public business. Practice that is approved by the UK Parliament.

Prior governmental research implies a positive relation between auditor specialization and audit quality, but the effect of specialization on audit fees is mixed. However, no single governmental study investigates the effect of auditor specialization on both audit quality and audit fees. Also, prior studies focus on either large-or small audit firms and often employ indirect proxies for audit quality. We study the effects of auditor specialization on perceived audit quality and audit fees. Our data represent both Big 5 and smaller audit firms and include three market-based measures of specialization. We survey 241 Florida local government finance directors and find that specialization is positively associated with perceived audit quality but not with audit fees. We also find that Big 5 auditors, often used as a proxy for higher audit quality in prior research, are not uniformly associated with increased perceived audit quality but consistently charge higher audit fees. Our results confirm a relation between measures of audit firm specialization and audit quality and raise questions regarding audit firm size and audit quality

This paper explores the value of financial statement auditing in the public sector. The study applies theory about auditing from the private sector as well as the public sector to explore ways in which public sector auditing can be expected to be valuable. It shows that there are a number of complementary explanations that can be applied to examine the value of public audit, including agency, signaling, insurance, management control, governance and confirmation explanations. The evidence from research and history is generally consistent with the agency and management control explanations. There is some support for the signaling and insurance explanations, while research evidence suggests that governance has differing impact in the public sector compared to the private. The confirmation hypothesis is also potentially relevant. Reviewing the history of the development of public sector auditing functions shows that at least some developments were consistent with explanations such as agency theory and management control. Auditing in the public sector is an area where more research is valuable. The paper concludes with a discussion of issues for further investigation.

An increase in audit queries and recurring audit issues every year show that the public sector auditees are taking a longer time or are reluctant to take action on audit recommendations. This study examines the relationship between attitudes and six reference groups namely auditors, follow-up audit, accountability index, Auditors General's Dashboard, the Audit Committee and the media, with the intention of auditees to implement the audit recommendations. Data are gathered through a survey of 226 Malaysian public sector auditees who have the responsibility to implement audit recommendations. This study shows that the auditees’ attitude, the media, the Audit Committee and the accountability index have influenced the intention of auditees to implement the audit recommendations. However, when the analysis is based on the actual implementation of audit recommendations, by ignoring the element of intention, the study finds slightly different findings. It is found that accountability i...

The setting-up of the Malaysian Audit Oversight Board (AOB) in 2010 under the Securities Commission Amendment Act 2010 has extended the role of regulators into the statutory audit domain for public listed companies. Although the auditing profession in Malaysia has International Auditing Standards as prescribed minimum level of quality in the delivery of audit assurance services, self-regulation by the profession alone appears inadequate to ensure the delivery of quality audit services. With co-regulation, auditors now are monitored not just by the profession but also by a new statutory body with considerable regulatory powers to sanction auditors where quality of the audit process has been found wanting. This study solicits the opinions of auditors on their expectations of what the new regulator can achieve. Based on interviews with a sample of 30 auditors, the study finds that the majority believe that audit quality will be taken to a new level following AOB's remit of registration of auditors, compliance inspection with International Standard on Quality Control (ISQC), monitoring of financial statement quality, and its power of sanctions. A review of AOB's early years' inspection confirms these expectations.

This study provides further evidence with respect to findings reported by Stein et al. (1994) and O'Keefe et al. (1994) on the demand for the various grades of professional labor audit hours. These studies found that demand for audit hours was a function of three sets of client factors: size, complexity, and risk. However, contrary to what might be expected, they did not find that auditor learning had a significant effect. Using a data set consisting of 75 audits of publicly-held companies obtained from four international accounting firms, we test the generalizability of their findings to our more diverse data set and further examine the effects of auditor learning on audit hours. We find the results reported by Stein et al. and O'Keefe et al. generalizable to our data set, indicating their findings to be robust and our samples comparable. Although perhaps not of economic significance, the data also tends to suggest differential auditor learning across various staff levels in a complex relation. That is, the ability to observe learning is dependent on auditee size. There appears to be some learning for partners, managers, and seniors in audits of smaller auditees. However, given the limitations of our data set and consideration of economic significance versus statistical significance, the evidence is not convincingly strong in support of auditor learning on repeat engagements. We recommend further investigation as to whether both an auditor tenure indicator variable and a auditor tenure by auditee size interaction variable simultaneously considered in the model are an appropriate specification of the audit production function to capture auditor learning in a cross-sectional analysis.

The abolition of the Audit Commission in England and Wales removes the ‘protector of the public purse’. The oversight body and its audit practice are largely replaced by the private sector regime and audit firms. We analyse the audit market for health service foundation trusts, an area of local public audit that operates without oversight from the Commission. We find evidence of premiums paid to some Big4 firms and that the presence of specialist public service auditors results in fee discounts. The firms limit their liability and assurance of audit quality is reduced under new audit regimes and governance structures.

The objective of this thesis is to revisit the notion of audit quality and investigate how it is related to auditor size and the structure of the auditing industry. Specifically, I propose a model of audit firm competition where both audit quality and auditor size are endogenous and predict how market characteristics, namely market size and investor protection regime, affect the structure of the auditing industry and differences between Big-4 and Non-Big-4 audit quality and fees. I show that Big-4 audit firms compete mostly on audit value (i.e., quality and price) through investments in audit technology, the level of which is increasing in both market size and investor protection. Consistent with my predictions, empirical results for the U.S. audit market, where investor protection is held constant across local markets, confirm that the audit industry is characterised as a natural oligopoly dominated by the higher quality Big-4 audit firms. More importantly, I find that Big-4 audit value is increasing in market size. In particular, Big-4 audit quality, relative to Non-Big-4 audits is constant in market size while Big-4 audit fee premium is decreasing in market size. I also present detailed hypotheses adapted to a crosscountry setting to empirically evaluate the impact of investor protection regimes on characteristics of the audit industry and the audit product. Although I leave to future research actual empirical testing, preliminary evidence reviewed from other studies generally supports my hypotheses. My thesis has direct policy implications as it provides key insights about the audit industry, how audit firms compete and how the industry evolves. Taken together, my results imply that the audit industry is naturally concentrated yet remains overall competitive. That is, Big-4 audit quality and fees are not adversely affected, thus far, by the high level of auditor concentration and Big-4 market power. Accordingly, recent concerns about high auditor concentration, although warranted, may be overstated.

Prior literature finds higher audit fees after the adoption of International Financial Reporting Standards (IFRS). We add to this research by documenting that the post-IFRS increase in audit fees is persistent, and not a short-term effect driven by transitional costs. In addition, early adopters have higher audit fees and this difference continues after IFRS adoption. Next, we consider the effect of increased effort required under IFRS on marginal pricing. Our results find lower (higher) marginal pricing post-IFRS for PwC and Deloitte (EY), suggesting that they have a relatively higher (lower) fixed and lower (higher) variable cost structure.

and economy audits to performance audit of Australian and State public sector entities in 1979 initiated a potential challenge to the substantive independence of successive Auditors-General. A challenge which reflects deeper controversy over the independent role of the Australian National Audit Office (ANAO) as government's financial watchdog (Funnell, 1995). The challenge refers to the unresolved nature of the Commonwealth Auditor-General's (CAG) mandate on effectiveness issues when carrying out performance audits. 1 The source of the conflict arises from variances between Australian practice and the internationally accepted content of performance auditing. The international literature includes audits of economy, efficiency and effectiveness within the ambit of performance auditing (INCOSAI, 1986).

The desire and demand for value for money audit (VFM) in the public sector is significant because the confidence of the populace is gradually fading away due to inability of public servants at all levels to ensure transparency and accountability in public spending. Some prior studies have ascribed this to a lack of patriotism, and sheer display of incompetence and systemic inaptitude, others attributed this to weak control measures and ineffective value for audit, resulting to misappropriation, fraud, and stealing of public funds. Consequently, this study examined public sector engagements, from the perspective of value for money audit. The research approach adopted for the study was content analysis. The study revealed that if properly carried out, value for money audit has the capacity to enhance reduction in costs of governance, misappropriation and theft of public fund, assist government in redirecting scarce public resources to priority areas and restore public confidence in th...

According to the International Standards on Auditing, audit fees are the amount that remunerates the financial auditor's activity, the certification of financial statements. The Profession Code states that these fees should be calculated in an objective way and the auditor's independence shouldn't be influenced by them. This study aims to identify the determinants of the audit fees, by testing the existence of a circular causality in the connection between audit fees and the financial performance of a NYSE-quoted company. The analysis is based on a sample of the first 100 companies (NYSE quoted) of the Top 500 Fortune, except for the companies in the investment funds and insurances field. In the study there were tested and validated the following working hypothesis: "the level of the audit fees is mainly influenced by the company's capacity to continue its activity", "the prestige of the audited company contributes to the decrease of the audit fees" and "the reduced fees level, paid by the customer audited by one of the Big4 companies in this exercise, contributes to the future prestige increase". For data analysis there were used linear regression analysis (simple and multiple) and the variance analysis (ANOVA). Research results indicate the existence of a circular causality, bidirectional, on the level of the relationship between audit fees and financial performance. For data processing, in the study there were used statistical software SPSS 19.0 and AMOS 16.0.

The pricing of audit services is a complex function of many variables. Prior research has proposed various approaches and models to identify some of these factors. This paper provides a description of one such model. Studies based on this model, or modifications of it, have been performed in Australia, Canada, Hong Kong, India, Ireland, Malaysia, New Zealand, Singapore, the United Kingdom and the United States of America. This thesis reports the findings of a similar study of 104 companies over the period 19911992 conducted in South Africa .. The analysis indicates that there is an approximately linear relationship between audit fee and a company's total assets or sales. In addition, management advisory services, number of reports in addition to those required by the Companies' Act, the level of inventory and. debtors in relation to total assets and audit delay, are significant determinants of audit fees. Unlike overseas studies, audit firm size, auditor specialisation, the ...

The purpose of this paper is to evaluate the extant Anglo-American literature on 'performance auditing for the public sector', in order to identify the socio-economic and political themes that influenced the emergence of public sector performance auditing. The paper also seeks to develop an understanding of the role and practice of performance auditing in the public sector. Common catalysts for change appear to rest in the influence of the local governmental senior auditor (e.g. Auditor General), the existence of public sector reform and changes in standardisation generally. The traditional role of the public sector auditor has undergone significant change over time. In particular, the scope of the public sector audit now exceeds the expectation that the auditor only check for regulatory and procedural compliance. It is now expected that the auditor enhance accountability in the management of public sector resources. The perceived objectives of performance auditing (economy,...

We investigate the extent to which auditors of U.S. companies reduce fees on initial audit engagements ("fee discounting"). We hypothesize that rivalries among sellers, in terms of client turnover and price competition, are more intense among small audit firms. The data support this hypothesis. New clients account for 34 percent of all clients for small audit firms, but only 9 percent of all clients for large audit firms. We theorize that differences in client turnover rates between large and small audit firms can be explained by the market structure of the audit industry, which consists of an oligopolistic segment dominated by a few large audit firms and an atomistic segment composed of many small audit firms. We further hypothesize and confirm that fee discounting is more extensive in the atomistic sector, and our results confirm this hypothesis. Our analysis of audit fee changes indicates that clients who switch auditors within the atomistic sector receive on average a discount of 24 percent over the prior auditor's fee. However, clients who switch auditors within the oligopolistic sector receive on average a discount of only 4 percent. Given that price competition is known to be less intense in oligopolistic markets than in atomistic markets, we believe that market structure theory can explain why fee discounting is lower when larger audit firms compete for clients.

A financial statement is a crucial matter since its quality is declining. This research developed and tested a theoretical model which identified factors directly or indirectly contributing to the financial statement quality, namely audit committee and internal audit; meanwhile, external audit and corporate governance were considered as antecedent factors having impact on the report. The objective of the research is to gain insight on such factors. The objective of the research is to gain insights on factors that affect such reports. The findings showed consistent evidence supporting the theoretical model. They also showed how AC and IA simultaneously and partially impacted the quality of financial statements (QFS). AC and IA directly or indirectly affect the quality of the financial statement. They also have indirect effects through CG and EA in enhancing the quality to 77%. 

We empirically evaluate the degree to which Big 4 auditors achieve economies of scale resulting from investments in audit technology at the local U.S. office level and, more importantly, determine how this affects audit pricing differences between Big 4 and non-Big 4 auditors. Focusing on the U.S. audit market for small to medium sized public companies, we argue and find that, relative to non-Big 4 auditors, Big 4 audit firms benefit from economies of scale at the local office level. In turn, this results in decreasing Big 4 audit fees in local market size, relative to non-Big 4 audit fees (i.e., decreasing Big 4 premium). Our results are consistent with Big 4 audit firms engaging in greater audit technology investments at the local office level in order to enhance audit efficiency, as argued by Sirois and Simunic (2010). Overall, our results support the view that the U.S. audit market remains competitive, despite the high level of market concentration.

Purpose While recently introduced EU regulation on the statutory audit of public interest entities (PIEs) aims to improve audit competition and quality, its success and impact depends on the definition of a PIE applied across the various EU Member States. In the UK, even though little is known about their auditing choices, these changes will not apply to most private companies despite their importance to the wider economy. The purpose of this paper is to provide an in-depth analysis of the private company audit market and examine the lobbying behaviour of the accounting profession around the definition of a PIE in the UK. Design/methodology/approach Using a large panel of independent private company audits in the UK and a textual analysis of submitted comment letters to a government consultation on the new regulation, this paper presents a comprehensive analysis of the audit market for private companies by measuring supplier concentration using four different measures of market shar...

After the Big 6 merger exercise in 1998, PriceWaterhouseCoopers (PWC) has become the industry market leader that provides high quality audit services. Consequently, it has acquired a greater capacity to develop expertise and provide better quality audit services. It is expected that PWC charges fee premiums in return on investment for the capacity building. This study investigates how audit fee (AF) premiums and how it relates to auditors' industry specialisation and reputation. The study utilises data of 679 Bursa Malaysia listed companies in 2001 and 796 in 2005. AF premiums are calculated using the Simunic (1980) AF model. Industry specialisation is determined based on the number of audit clients at 20% threshold. Results indicate PWC obtains highest average AFs, hence, maintains its industry leadership. Results show that PWC does not charge AF premiums over and above the amount charged by the Big 5/4 regardless of whether they are industry specialists or not, except on smaller clients.

Performance measures and rewards are becoming commonplace in public sector organizations. This paper studies the implementation of performance-related pay (PRP) mechanisms in the boards of directors of the Foundation Trusts (FTs) of the National Health Service (NHS) in England and analyzes whether their remuneration is linked to organizational performance using qualitative and quantitative analyses (structural equation model). FTs operate in a favorable context for implementing PRP to remunerate executive directors. Our results show that many FTs have not implemented PRP and hardly any report having payed bonuses. However, most of them disclose that they carry out some kind of performance appraisal. These results indicate both reluctance to and difficulties in adopting PRP in public sector entities. Results also suggest that executive directors of NHS FTs are stewards in an "odd" kingdom that uses performance ratings to evaluate organizations, blaming directors when ratings are bad, but with no rewards when good performance is achieved.

We empirically evaluate the degree to which Big 4 auditors achieve economies of scale resulting from investments in audit technology at the local U.S. office level and, more importantly, determine how this affects audit pricing differences between Big 4 and non-Big 4 auditors. Focusing on the U.S. audit market for small to medium sized public companies, we argue and find that, relative to non-Big 4 auditors, Big 4 audit firms benefit from economies of scale at the local office level. In turn, this results in decreasing Big 4 audit fees in local market size, relative to non-Big 4 audit fees (i.e., decreasing Big 4 premium). Our results are consistent with Big 4 audit firms engaging in greater audit technology investments at the local office level in order to enhance audit efficiency, as argued by Sirois and Simunic (2010). Overall, our results support the view that the U.S. audit market remains competitive, despite the high level of market concentration.

Studies of audit fees have focused on the audit market and on the organisational costs related to the production of audit. Audit is, however, an activity that is oriented towards the principal of the organisation, and could therefore be expected to vary according to the relationship between the agent and the principal, and vary according to the organisation of the principal. This is the governance issue of auditing. We hypothesize that audit fees are used mainly as a signalling device by agents and as a means of reducing conflict among agents when communicating to principals, be they citizen, the mass media or interest group. The model is tested on data from Swedish municipalities, thus extending the study of audit fees to political organisations. The test results supported the ordinary propositions of organisation and markets, as well as the proposition of the principal, thus suggesting that audit could be managed without managing auditors.

SUMMARY We respond to calls for research into the effect of the decline in the number of Big N firms on market power and consequential impact on competition (U.S. Department of the Treasury 2008; European Commission 2010; U.K. House of Lords 2011) by analyzing the change in Big N audit fee premium over the Big 6, Big 5, and Big 4 periods, and across different client segments. Using a large sample of Australian publicly listed companies over the years 1996–2007, we find that while premiums paid to Big N auditors have increased significantly for the Big 4 and Big 5 periods compared to the Big 6 period, the growth has not been shared equally across all client segments. In particular, while the largest global clients pay some of the highest premiums, the increase in premiums for this group in the Big 4 period has been lower than those experienced by other clients. We also observe that premiums paid to industry specialists have declined relative to the Big 6 period, but fee discounts off...

Concerns have been raised about the impact of the PricewaterhouseCoopers (PwC) merger on the structure of and competition in the audit and assurance services market in Australia. The market share of publicly listed companies for audit firms for each industry category pre-and post-merger is examined in this paper to ascertain levels of auditor concentration. Using the approach outlined by the Australian Competition and Consumer Commission a decrease in the level of competition is identified. However, when using another generally accepted concentration measure, the Herfindahl Index, the merger is found to not necessarily decrease competition. In fact, for a number of industry sectors a more equitable spread of clients between the main audit firms was achieved.

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This study is the second to provide a richer test of the association between auditor size and audit fees by using three audit firm size classes in the small-client segment of the U.S. audit market. The finding of a Big 8 (now Big 6) price premium is consistent with Francis and Simon [1]. However, this price premium exists only with respect to local/regional firms. Francis und Simon showed that the Big 8 price premium exists with respect to both second-tier and local/regional firms. The present study also provides evidence of a second-tier price premium over local/regional firms. The results imply product differentiation to both Big 8 and second-tier firms. Plausible reasons for differences in results between the two studies are given.

This study provides further evidence with respect to findings reported by Stein et al. (1994) and O'Keefe et al. (1994) on the demand for the various grades of professional labor audit hours. These studies found that demand for audit hours was a function of three sets of client factors: size, complexity, and risk. However, contrary to what might be expected, they did not find that auditor learning had a significant effect. Using a data set consisting of 75 audits of publicly-held companies obtained from four international accounting firms, we test the generalizability of their findings to our more diverse data set and further examine the effects of auditor learning on audit hours. We find the results reported by Stein et al. and O'Keefe et al. generalizable to our data set, indicating their findings to be robust and our samples comparable. Although perhaps not of economic significance, the data also tends to suggest differential auditor learning across various staff levels in a complex relation. That is, the ability to observe learning is dependent on auditee size. There appears to be some learning for partners, managers, and seniors in audits of smaller auditees. However, given the limitations of our data set and consideration of economic significance versus statistical significance, the evidence is not convincingly strong in support of auditor learning on repeat engagements. We recommend further investigation as to whether both an auditor tenure indicator variable and a auditor tenure by auditee size interaction variable simultaneously considered in the model are an appropriate specification of the audit production function to capture auditor learning in a cross-sectional analysis.

In the context of austerity-inspired reforms to public audit in England we investigate the extent to which audit firms mitigate management bias in public sector financial reports. A substantial body of literature finds that both public and not-for-profit managers manage 'earnings' to report small surpluses close to zero by managing deficits upwards and surpluses downwards. Under agency theory, auditors acting in the interests of their principal(s) would tend to reverse this bias. We exploit privileged access to pre-audit financial statements in the setting of the English National Health Service (NHS) to investigate the impact of audit adjustments on the pre-audit financial statements of English NHS Foundation Trusts over the period 2010-2011 to 2014-2015. We find evidence that auditors act to reverse management bias in the case of Trusts with a pre-audit deficit, but find no evidence that this is the case for Trusts with a pre-audit surplus. In the case of Trusts in surplus, these findings are consistent with auditors' interests being aligned with management, rather than principals.

To promote auditor independence and audit quality in English NHS Trusts the Audit Commission regulates auditor rotation, fees and the appointment of its own and private sector auditors. NHS sanctioned departures from GAAP, some of which allow the financial breakeven target to be achieved, have been criticised by the Audit Commission as detrimental to financial discipline. In this paper, we investigate the association between abnormal accruals and the achievement of financial breakeven in NHS hospital Trusts over the period 1998-2005. We also investigate the association between abnormal accruals, audit fees and the Trusts audited by public and private sector auditors. We find evidence that abnormal accruals are used to achieve financial breakeven and they differ across different types of auditor. We also identify a negative relationship between abnormal accruals and NHS Trust star ratings. These findings raise questions about the 'quality' of NHS audit where compliance with NHS-specific regulations overrides the wider GAAP-based requirement for financial statements to show a true and fair view and they warrant reconsideration of the nature of audit in NHS Trusts.

The objectives of this study are to examine the effect of non-audit services on audit fees, to investigate the relationship between non-audit fees and the issuance of qualified audit opinion, and to analyse the proportion of non-audit fees to total fees paid by a client to its auditor. The regression analysis reveals a significant positive relationship between audit fees and non-audit fees, which is contrary to the theory available in the literature. Further tests are done and alternative explanations are provided. The results obtained from the t-test suggest a significant relationship between non-audit fees and qualified audit opinions. The outcomes indicate that on average audit opinions are dependent on the amount of non-audit fees. Finally, the descriptive analysis presents a worrying development about the ratio of non-audit fees to total fees. The study suggests ways to improve the independence issues in Malaysia.

The objectives of this study are to examine the effect of non-audit services on audit fees, to investigate the relationship between non-audit fees and the issuance of qualified audit opinion, and to analyse the proportion of non-audit fees to total fees paid by a client to its auditor. The regression analysis reveals a significant positive relationship between audit fees and non-audit fees, which is contrary to the theory available in the literature. Further tests are done and alternative explanations are provided. The results obtained from the t-test suggest a significant relationship between non-audit fees and qualified audit opinions. The outcomes indicate that on average audit opinions are dependent on the amount of non-audit fees. Finally, the descriptive analysis presents a worrying development about the ratio of non-audit fees to total fees. The study suggests ways to improve the independence issues in Malaysia.

This paper investigates the impact of the PricewaterhouseCoopers (PwC) merger in Australia on existing and potential clients of the new merged firm. From prior theory it is expected that some existing clients may have an incentive to switch away from a newly merged firm as the same larger firm now audits close competitors once audited by separate firms. Prior theory also suggests that another group of potential clients should be attracted to the newly merged firm where the merger enhances or creates industry specializations. The expectation is that in both of these instances there will be increased switching activity associated with the newly merged audit firm. Contrary to expectations, a significantly lower level of switching behaviour was observed for the newly merged firm compared with that of the other Big 5 firms, suggesting that an advantage of enhanced specialization may not be the attraction of new clients but the retention of existing clients. When comparing the nature of the switches, some support was found for the view that the switches to the new firm were likely to be in enhanced areas of specialization, but no evidence was found to suggest that close competitors would switch away from this firm. The greater rate of retention of clients compared with other Big 5 firms was not associated with a more competitive audit pricing policy.

We wish to thank Linda Bamber, Michael Bamber, and Randal Elder for their helpful comments on an earlier draft of this paper. We also acknowledge the constructive suggestions of an anonymous referee. Studies that investigate the supply-side determinants of audit fees include Palmrose [

We wish to thank Linda Bamber, Michael Bamber, and Randal Elder for their helpful comments on an earlier draft of this paper. We also acknowledge the constructive suggestions of an anonymous referee. Studies that investigate the supply-side determinants of audit fees include Palmrose [