Banks’ audit committees, audit firm alumni and fees paid to audit firm

Abstract

Purpose This paper focuses on bank audit committees and examines whether audit committee members who are former auditors are associated with the acquisition of audit and non-audit services from their former employers. Design/methodology/approach The study empirically examines a sample of large banks that are included in the S&P Composite 1500. Findings The paper reports significantly lower audit fees and a higher proportion of non-audit fees to total fees when the audit committee chair is an alumnus of the incumbent audit firm. Moreover, additional analysis reveals that these findings are stronger for banks with more earnings management. Research limitations/implications Overall, the findings indicate that audit firms might consider banks using their alumni as audit committee chairs to be less risky or easier to audit, thus requiring relatively less effort from the auditors. The reduced effort required to audit clients with audit firm alumni on their audit committees then has the effect of reducing the audit fees charged. Alternatively, their auditing experience and cognitive proximity might influence the assessment of the need for auditing or the ability to negotiate lower audit fees on the part of audit firm alumni. Originality/value This paper provides empirical evidence of the association between audit firm alumni in influential positions on an audit committee and fees paid to those audit firms in the banking industry. The findings contribute to the literature by suggesting that banks with affiliated former auditors chairing their audit committees not only have significantly lower audit fees but also a higher proportion is spent on non-audit services.

The association between voluntary disclosure in audit committee reports and banks’ earnings management

“…Fourth, this study targets banks’ audit committees, a rarely studied topic due to the peculiarity of the banking industry (Ittonen et al , 2019). However, in light of the important role banks play in society and in our economy, their governance and the practices of key factors such as the audit committee warrant further attention.…”

Audit committee voluntary disclosure describing external auditor oversight: Does it reflect higher audit quality?

“…The coefficient of Size (.66, p ‐value <.01) suggests that audit firms charge higher audit fees for larger banks due to the additional work to be performed and increased complexity (Ittonen et al., 2019). The coefficient of ACMeeting (.03, p ‐value <.01) implies that banks whose audit committees meet more tend to have higher audit fees.…”

Audit pricing and corporate whistleblower governance: evidence from Australian financial firms

“…A Pearson correlation matrix (untabulated) shows a negative and significant correlation between audit fees and our whistleblower governance proxies ( WBG1 and WBG2 ). The correlations between audit fees and the control variables are found to be consistent with that evident in prior related research (Hay et al ., 2006; Ettredge et al ., 2014; Ittonen et al ., 2019; Mitra et al ., 2019). For instance, we find a negative and significant correlation between AFEE and our control variables ( SIZE , ROA , SECURITEIS , COM_LOAN , CAP_RATIO , NON_AUD_FEE , BIG4 , CEO_TENURE , BD_SIZE , BD_IND , AUD_IND and RISK_IND ).…”