An Empirical Investigation of Price Competition and Industry Specialisation in NHS Audit Services

Abstract

The NHS audit market is regulated by the Audit Commission (AC) and has unique features. We develop a model for audit fees that includes rigorous analysis of the type of auditor. Poor financial standing does not give rise to higher audit fees. Despite regulation the study supports the existence of a Big Five price premium on the audit fee, but only one firm has a premium. We found no premium due to industry specialisation. The removal of performance audit from AC regulation will require improved audit fee reporting and control.

External audit in the National Health Service in England and Wales: A study of an oversight body’s control of auditor remuneration

“…This analysis of data follows the analyses of Francis and Simon (1987) and Basioudis (2002b) in the private sector and Basioudis and Ellwood (2005) in the public sector. 10 Hypothesis 2 refers only to the audit fees charged by Big 5 and second-tier firms (that is, District Auditors are not included for testing this hypothesis):…”

Auditing models for the detection of qualified audit opinions in the UK public services sector

“…However, profitability ratios (e.g., operating margin, return on assets, return on equity) have been traditionally used in past studies that examined the performance of organisations in the US hospital industry (Chu et al, 1991;Zeller et al, 1996;Watkins, 2000;Eldenburg and Krishnan, 2003;Eldenburg et al, 2004). Basioudis and Ellwood (2005) also examined whether the generation of profits or losses had an impact on audit fees in the UK NHS sector. As Pizzini (2006) points out, while the non-profit organisational form eliminates conflicts between donors and residual claimants (Fama and Jensen, 1983a) it does not eliminate agency problems between donors and other internal agents, namely managers (Fama and Jensen, 1983b).…”

“…Baber et al (1987) examine the structure of audit fees in the years surrounding a change in auditor, while Roberts and Jones (1990) examine the determinants of auditor change in the public sector. Clatworthy et al (2000Clatworthy et al ( , 2002 and Basioudis and Ellwood (2005) examine auditing pricing in the UK NHS, while Beattie et al (2002) examine the relation between fee premium, industry specialisation, and size of auditor in the UK voluntary charity sector. Other studies such as the ones of Deis and Giroux (1992), and Krishnan and Schauer (2000) examine the association between auditor size and audit quality in the case of independent school districts and non-profit entities respectively.…”

Analysis of Audit Fees for Nonprofits

“…To our knowledge, prior nonprofit research exclusively focused on audit pricing in Anglo-Saxon countries, these being the United Kingdom, England, and Wales (Basioudis & Ellwood, 2005;Beattie et al, 2001;Mellett et al, 2007;Xue & O'Sullivan, 2013), and the United States (Ellis & Booker, 2011;Vermeer et al, 2009). To our knowledge, prior nonprofit research exclusively focused on audit pricing in Anglo-Saxon countries, these being the United Kingdom, England, and Wales (Basioudis & Ellwood, 2005;Beattie et al, 2001;Mellett et al, 2007;Xue & O'Sullivan, 2013), and the United States (Ellis & Booker, 2011;Vermeer et al, 2009).…”