Audit fee stickiness. Issue 1 (2014)

• Record Type: Journal Article
• Is Part Of: Managerial auditing journal. Volume 29:Issue 1(2014)
• Page Start: 2
• Page End: 26
• Publication Date: 2014
• Subjects: Auditing, Internal -- Periodicals; Management audit -- Periodicals; 657.45
• DOI: 10.1108/MAJ-08-2013-0915
• Languages: English
• ISSNs: 0268-6902

Abstract

<abstract> <title> <x xml:space="preserve">Abstract</x> </title> <p> <bold>Purpose</bold> – This study aims to contribute to the understanding of audit pricing and the competitiveness of the audit fee market by examining audit fee stickiness. <bold>Design/methodology/approach</bold> – The authors explore the price behavior of audit fees in response to changes in the variables that are usually seen as their determinants, such as size, complexity, and risk in order to examine audit fee stickiness and the competitiveness of the market for audit services. <bold>Findings</bold> – The authors find that audit fees are sticky, i.e. audit fees do not immediately or fully adjust to changes in their determinants. Audit fees also respond to changes leading to an increase more quickly than they respond to changes leading to a decrease. The difference between positive and negative fee adjustments declines over periods longer than one year and is no longer significant when four‐year periods are considered. <bold>Research limitations/implications</bold> – The study is limited to companies in the USA from 2000 to 2008. Future research should examine this issue in other settings and periods. <bold>Practical implications</bold> – The results suggest that the audit market is competitive, at least in the medium term. <bold>Originality/value</bold> – The study helps to explain why the audit fee model does not fully explain the level of audit fees; why audit fees are more likely to be too high than too low; and why auditor switches are commonly associated with larger changes in audit fees. The findings provide evidence that may be useful to managers and audit committees when managing their audit fees, auditors when considering the risks and opportunities associated with changes in the determinants of audit fees, and regulators concerned with the competitiveness of the audit market.</p> <ack> <title> <x xml:space="preserve">Acknowledgements</x> </title> <p>The authors appreciate the helpful comments received from Mike Bradbury, Steven Cahan, Elizabeth Carson, David Emanuel, Michael Ettredge, Neil Fargher, Claus Holm, Kerry Jacobs, Karla Johnstone, Robert Knechel, David Lont, Shane Moriarity, Greg Shailer, Mark Wilson, and the participants at the Quantitative Accounting Research Symposium in Auckland, New Zealand, the 2011 Accounting and Finance Association of Australia and New Zealand Annual Conference, and in seminars at the Australian National University, Nanyang Technological University, Singapore, and the University of Western Australia.</p> </ack> </abstract>