An Interview Study to Understand the Reasons Clients Change Audit Firms and the Client's Perceived Value of the Audit Service

Abstract

SUMMARY Audit firms are concerned that clients perceive the audit service as a commodity, with little value added, resulting in clients switching to firms that offer lower fees. However, the auditing literature lacks qualitative insight from clients on the reasons that they change audit firms and their perceptions of the value of audit services. To better understand the client's perspective, we conducted interviews with 20 financial managers who participate in audit firm appointment decisions. Our results suggest that the quality of the auditor-client relationship is the key determinant of auditor switching and audit value. Interestingly, price becomes an important factor only when the auditor-client relationship is mismanaged (e.g., when clients perceive that their auditor is not available to them).

How Client Identification and Client Commitment Uniquely Influence Auditor Objectivity

“…Audit firms may achieve this by: (1) encouraging members of the audit team to treat client personnel with dignity and respect, as this fair interpersonal treatment is likely to be returned by the client; (2) encouraging client management to treat the audit team with dignity and respect to further foster mutual dignity and respect; (3) using transparent billing procedures with clients; and (4) improving client perceptions of auditor availability by informally checking in with the client throughout the year (Fontaine, Letaifa, and Herda 2013;Herda and Lavelle 2013). These and similar efforts will likely enhance auditor-client social exchange relationships, which can in turn increase auditor objectivity.…”

Attributes Influencing Clients' Auditor Choices: The Expectation Gaps between Auditors and Board Members

“…However, when asked to rate the importance of various audit firm characteristics independent from their current audit firm, the three most important characteristics were integrity of the audit firm, technical competence of the audit firm, and the quality of the working relationship with the audit partner (Beattie and Fearnley 1995). Similarly, financial managers deem audit value and the working relationship as key determinants of auditor changes (Fontaine, Letaifa, and Herda 2013). However, all of these prior studies have used (executive) managers as survey participants.…”

Audit firm, retain or rotation? (client and audit firm perspectives)

“…Thus, the production and supply of a particular good or service, or lack of it can be considered as a logical consequence of mechanisms that exist in the market and the value of the good or service reflects the views of consumers (Wallace, 1987). Fontaine, Ben Letaifa, and Herda (2013) indicate that owners are more likely to rotate audit firms when they understand that the audit firm mismanages the auditor-client relationship. Specifically, owners are more likely to rotate firms when they understand that their auditor is not available to them.…”

“…Thus auditors are purposed to increase theoretical understanding of how audit quality is generated through the fundamental characteristics in a betrothal. Four main reasons of Fontaine et al (2013) for rotation emerged from their interviews: audit fees, extra billings, business knowledge, and relationship issues.…”