The Impact of Regulation on Auditor Fees PDF Download

Author: Aloke Ghosh
Publisher:
ISBN:
Category :
Languages : en
Pages : 45

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Book Description
We examine changes in fees paid to auditors around the Sarbanes-Oxley Act (SOX, 2002). Audit fees are expected to increase after SOX due to both increased audit effort and potentially increased auditors' legal liability. Our results indicate an economically large increase in audit fees following the enactment of SOX. Controlling for size of the auditor, auditor's opinion, and client characteristics, we find that audit fee levels went up approximately 74 percent in the post-SOX period. In contrast, non-audit fees declined significantly over the same period. Total fees went up during this period because the increase in audit fees offset the decline in non-audit fees. Our conclusions remain unchanged when we use audit fee change regressions. Additionally, we find that the Big 4 audit firms increased audit fees by 42 percent more than their smaller counterparts. Further, we find that while small and large audit firms discount fees on initial engagements to attract new clients for the pre-SOX period, only small audit firms continue of offer fee discounts for the post-SOX years. Our results remain robust even after a battery of sensitivity analyses.

Author: Christiane Strohm
Publisher: Springer Science & Business Media
ISBN: 3835091158
Category : Business & Economics
Languages : en
Pages : 247

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Book Description
Christiane Strohm investigates the effects of the Sarbanes-Oxley-Act and the revised 8th EU-Directive on auditing. She shows that there is a difference in the communication and safeguarding effects of a regulation, depending on the precision of its wording and that safeguarding effects also depend on auditors' monetary incentives and on perceived costs of litigation.

Author: Alexei Lubimov
Publisher:
ISBN:
Category :
Languages : en
Pages : 119

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Book Description
The dissertation consists of three studies examining three different regulatory issues that affect the auditing profession. The first study has two main foci. First, the study investigates the impact of Sarbanes-Oxley Act (SOX) on the Big 4 fee premium. Second, the study investigates the relationship between the size of an audit client and annual fee change. The results show that in the post-SOX environment, clients of non-Big 4 firms have experienced greater increases in audit fees than the clients of the Big 4 firms, resulting in a diminishing Big 4 premium. This is consistent with the notion that non-Big 4 clients had to make significant adjustments to meet post-SOX quality requirements by increasing their effort (and consequently audit fees). The results also show audit firms' large clients experience the largest percentage increase in audit fees. This is consistent with the theoretical view of consumer surplus, where the large clients, with more resources, have greater levels of consumer surplus, which is being captured by the audit firms. The study contributes to our understanding of the impact of SOX on audit fee premium and the economics of audit market competition in different client segments. The second study is focused on three main areas: 1) the relationship between audit fees and audit market concentration on a country level; 2) the effect of a country's litigation regime on the relationship between audit fees and market concentration and 3) the inter-relations between competition, fees, and quality in the market for audit services. The study is motivated by the current debate in the United States and the European Union about the possible problems associated with the current oligopolistic structure of the audit market.

Author: Benito Arrunada
Publisher: Springer Science & Business Media
ISBN: 1475767285
Category : Business & Economics
Languages : en
Pages : 203

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Book Description
This book focuses on market mechanisms which protect quality in the provision of audit services. The role of public regulation is thus situated in the context defmed by the presence of these safeguard mechanisms. The book aims to contribute to a better understanding of these market mechanisms, which helps in defining the con tent of rules and the function of regulatory bodies in facilitating and strengthening the protective operation of the market. An analysis at a more general level is provided in the three chapters making up Part 1. In the four chapters of Part 2, on the other hand, this analysis is applied to a particular problem to determine how those non-audit services often provided by auditors to their audit clients should be regulated. Finally, Chapter 8 contains a summary of the analysis and conclusions of the work. The conclusion with regard to non-audit services is that their provision generates beneficial effects in terms of costs, technical competence, professional judgment and competition and, moreover, need not prejudice auditor independence or the quality of these services. This as sessment leads, in the normative sphere, to recommending a legislative policy aimed at facilitating the development and use of safeguards provided by the free action of market forces. Regulation should thus aim to enable the parties-audit firms, self-regulatory bodies and audit clients-to discover through competitive market interaction both the most efficient mix of services and the corresponding quality safeguards, adjusting for the costs and benefits of each possibility.

Author: Imene BenSlimene
Publisher:
ISBN:
Category :
Languages : en
Pages : 33

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Book Description
The diversity of regulations that govern statutory audit in European countries provides the opportunity to analyse how audit regulation affects audit fees. This study is the first to analyse empirically the joint effect of audit regulation and auditor expertise on audit fees for the institutional setting of 14 European countries by using a sample of 4,293 European firms for the period from 2003 to 2011. I analyse four attributes of audit regulation, namely terms for annual renewal of the mandate, nature of the auditors' liability, whether the state requires joint audits and whether it imposes restrictions on the provision of non-audit services. The main results show that using an industry specialist auditor results in higher audit fees. Moreover, three regulatory attributes--auditor liability, annual renewal of the mandate and joint audit--play a significant role in determining audit fees. Fees are higher when the auditor's mandate may be renewed or terminated each year, and when the auditor's liability is tort. Mandatory joint audit has also a positive impact on audit fees.

Author: United States Government Accountability Office
Publisher: Lulu.com
ISBN: 0359536395
Category : Reference
Languages : en
Pages : 234

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Book Description
Audits provide essential accountability and transparency over government programs. Given the current challenges facing governments and their programs, the oversight provided through auditing is more critical than ever. Government auditing provides the objective analysis and information needed to make the decisions necessary to help create a better future. The professional standards presented in this 2018 revision of Government Auditing Standards (known as the Yellow Book) provide a framework for performing high-quality audit work with competence, integrity, objectivity, and independence to provide accountability and to help improve government operations and services. These standards, commonly referred to as generally accepted government auditing standards (GAGAS), provide the foundation for government auditors to lead by example in the areas of independence, transparency, accountability, and quality through the audit process. This revision contains major changes from, and supersedes, the 2011 revision.

Author: Masoud Azizkhani
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
A mandatory audit firm's rotation policy has been adopted in many counties, including Iran, as a mechanism to improve auditor independence and in turn, audit quality. Proponents of this policy claim that its results are increased clients' audit costs. Using data from firms listed in Tehran Stock Exchange where the mandatory audit firm rotation was required from 2007, this study provides empirical evidence of the economic impact of this policy initiative on audit fees. We examine the impact of both voluntary and mandatory audit firm switch on audit fees for a sample of firms listed on TSE that covers 2006 to 2013. We find no relation between mandatory audit firm rotation and audit fee. Our results suggest that the mandatory audit firm rotation does no impact on audit costs. Other results also show that there is a positive association between voluntary audit firm rotation and audit fees.

Author: Magdy Farag
Publisher:
ISBN:
Category : Accounting
Languages : en
Pages : 142

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Book Description
The accounting profession has recently been affected by major financial reporting scandals and regulatory changes. The Sarbanes-Oxley Act of 2002 made changes to several engagement-specific characteristics with the ultimate aim of improving auditor independence. Accounting research is currently investigating these recent regulatory changes and how they affect the accounting profession. Although the entire accounting profession has been affected by these regulations, most accounting research focuses only on Big-audit firms. This study examines the effect of recent regulatory changes on Second-Tier audit firms. Agency theory focuses on the relationship between the principal and the agent. The agent has certain obligations, which he fulfills for the principal by virtue of the economic contract. The important concept in the agency relationship is the selection of the appropriate governance mechanism between the principal and the agent that will ensure an efficient alignment of the principal's and the agent's interests. Therefore, agency theory is an appropriate framework to demonstrate and explain the effect of recent regulations on audit firms. Audit firms are expected to assist the principal (stockholders) in monitoring the agent (management) of the firm. I address four research questions that are motivated by agency theory. First, I examine whether clients of Second-Tier audit firms incur higher audit fees subsequent to the recent accounting regulation. My second research question is whether quality of audits provided by Second-Tier audit firms is expected to improve due to recent regulations and rulings, especially in the post-SOX period. Third, I investigate whether clients of Second-Tier audit firms experience a higher cost of capital compared to clients of Big-audit firms. Finally, I address the question of whether there is a relationship between clients of Second-Tier audit firms and the backdating of executive stock options (ESOs). I expect a positive relationship between concentration and audit prices of Second-Tier audit firms. Additionally, audit quality is expected to increase due to recent regulations, but it is possible that Second-Tier audit firms may not be able to provide high quality audits in their efforts to increase their market share. I further predict that firms that are audited by Second-Tier audit firms are subject to larger financing costs measured by cost of debt and equity. I also expect that Second-Tier audit firms' clients exercise backdating of ESOs more often than Big audit firms' clients. The findings of this dissertation will contribute to our understanding of previous audit and financial accounting research from the perspective of Second-Tier audit firms. The investigation of Second-Tier audit firms and their clients will provide us a better understanding of why some firms are more likely to hire a Big-audit firm versus a Second-Tier audit firm. We will also have a better insight on issues raised by backdating of ESOs, and whether the quality of the audit provided can mitigate such irregular behavior.

Author: Jennifer L. Kao
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
For the past 20 years, researchers have viewed the pricing of audit services as a function of supply and demand, much like other commodities or services traded in the marketplace. The audit-pricing model, originally proposed by Dan Simunic (1980), has been used to explore various aspects of auditing, such as the determinants of auditor changes, low-balling of audit fees and implications of litigation against audit firms. Simunic and Stein provided a comprehensive summary of relevant research literature in these areas in an article titled "The Auditing Marketplace: Exploring the Economics of Auditing Services in the Real World" (CAmagazine, Jan/Feb 1995, p. 53).

Author: Richard M. Frankel
Publisher: Forgotten Books
ISBN: 9780666794659
Category : Business & Economics
Languages : en
Pages : 94

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Book Description
Excerpt from The Relation Between Auditors' Fees for Non-Audit Services and Earnings Quality This paper provides empirical evidence on the relation between non-audit services and earnings quality. We test hypotheses concerning: (1) the association between a firm's purchase of non-audit services from its auditor and earnings management, and (2) the stock price reaction to the disclosure of non-audit fees. In the past decade there has been a dramatic increase in the proportion of fee revenue auditors derive from non-audit services, yet we know little about how non-audit services are related to earnings quality.1 Concern about the effect of non-audit services on the financial reporting process was a primary motivation for the Securities and Exchange Commission (sec) to issue revised auditor independence rules on November 15, 2000. The rules require firms to disclose the amount of all audit and non-audit fees paid to its auditor. About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.