Do firms pay for audit risk? Evidence on risk premiums in audit fees after direct control for audit effort

Niemi, Lasse

doi:10.1111/j.1099-1123.2002.tb00004.x

Cited by 96 publications

(75 citation statements)

References 37 publications

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“…As audit fees are the only publicly available data in this regards, they tend to be used by researchers as a proxy for audit cost. In studies examining the real cost of audits, access to proprietary data provided by audit firms, such as audit files and logs of audit hours spent on client files, can provide invaluable material to researchers (Niemi, 2002).…”

Section: The Use Of Proxies To Operationalise Audit Quality and Auditmentioning

confidence: 99%

Joint Audit: Issues and Challenges for Researchers and Policy-Makers

Ratzinger‐Sakel

Audousset-Coulier

Kettunen

et al. 2013

Accounting in Europe

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The publication of the European Commission Green Paper, "Audit Policy: Lessons from the Crisis" in October 2010, has stirred up a lively debate on the role of joint audits. This literature review identifies and evaluates, for the benefit of future research and regulators, existing evidence about joint audits. We find limited empirical support to suggest that joint audits lead to increased audit quality, but some empirical support to suggest that joint audits lead to additional costs. Overall, this paper indicates that joint audit should be seen as a mechanism that is embedded in a broader institutional context, and not be considered in isolation from other factors that might impact the audit market. The results indicate that various country-level characteristics are simultaneously at play. While joint audits can potentially enhance the audit market competition by allowing smaller audit firms to maintain larger market shares, the related impact on audit quality has not yet been clearly demonstrated and thus provides a promising avenue for future research.3

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Section: The Use Of Proxies To Operationalise Audit Quality and Auditmentioning

confidence: 99%

Joint Audit: Issues and Challenges for Researchers and Policy-Makers

Ratzinger‐Sakel

Audousset-Coulier

Kettunen

et al. 2013

Accounting in Europe

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“…Among them, Ebaid (2011) considers that the auditor must give a special attention to the manner in which the client applies the corporatist governance principles (the organizational structure, the constitution of the managing board and the changes within). The IFAC code (2010) emphasizes however the importance of noticing the significant modifications in the activity of the client, and as regards the juridical framework applied by the Client, Niemi (2002) analyzes its impact on the company activity through the occurrence of the eventual litigations. At the same time, the auditor must analyze as well the evolution of the business environment where the company is integrated, the eventual financial problems that the company is confronted with, the suspicions regarding the occurrence of errors and of financial frauds, changes from the financialaccounting, information and internal control system (Porter et al, 2003).…”

Section: Background Factors That Influence the Auditor's Decision To mentioning

confidence: 99%

The Influence of the Client’s Background on the Auditor’s Decision in Acceptance the Audit Engagement

Mironiuc¹,

Chersan²,

Robu³

2013

CIBIMA

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In financial auditing the auditor can accept a new engagement or not, based on the client's background, with a major impact on the audit risk. This study aims to indentify and analyze the influence of the background factors that lead the auditor to the clients' acceptance. For obtaining the research result, in the study a sample of 100 companies was considered. These companies were the first 100 multinationals included in top 500 Fortune, from 2011, and which were audited by Big 4 audit companies. The study develops three work hypotheses regarding the influence of some financial and non-financial factors to the auditor's acceptance of a new audit engagement. For testing the hypotheses, there were proposed as factors some financial variables (return ratios, financial leverage) and non-financial variables (activity field, auditor). The research results were obtained by using quantitative methods for data analysis. In the study the data were processed with the statistical software, SPSS 19.0. The research results show that the auditor's decision regarding the acceptance of the audit engagement is significantly influenced by the client's prestige, reflected through the position occupied in Top 500 Fortune, the specialization of the auditor in a specific activity field and by the client's financial performance and his ability to continue as a going concern in a predictable horizon of time.

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“…There are many other factors which determine a higher or a lower level of the fees charged by the auditor from his clients. The literature about the factors that influence the audit fees is voluminous (Simunic, 1980, O'Keefe et al, 1994Ezzamel et al, 1996;Moizer, 1997, Craswell and Francis, 1999, McMeeking, 2000, Niemi, L., 2002, Cobbin, Ph. E., 2002, Nikkinen, J, Sahlström, P., 2004, Carson, E., Fargher, N., 2007, Boo, E., Sharma, D., 2008, Hay, D., Knechel, W.R., Ling, H., 2008, Zaman, M., Hudaib, M., Haniffa, R., 2011, Fukukava, H., 2011.…”

Section: Audit Fees -General Frameworkmentioning

confidence: 99%

“…Although most of the studies identify a fees raise in case of the "risky" clients, it is still unclear if this raise is due to the auditor's work volume increase or it can be considered a premium due to higher probability of subsequent litigations, generating additional costs for the auditor (Bell, Landsman, & Shackelford, 2001;Lyon & Maher, 2005;Niemi, 2002).…”

Section: Influence Factors Of the Audit Feesmentioning

confidence: 99%

“…Based on this study, the empirical evidence proves that the audit fees influence the auditor's opinion regarding the testing of the going-concern assumption. Moreover, Niemi (2002) considers that fees pay the auditor for the effort at emitting the audit opinion, and the amount of fees contains in this case a risk premium directly proportional to the audit and market risk of the client.…”

Section: Work Hypotheses Formulationmentioning

confidence: 99%

See 1 more Smart Citation

A Circular Causality Analysis on the Determinants of the Audit Fees within the NYSE-Quoted Companies

Chersan¹,

Robu²,

Carp³

et al. 2012

CIBIMA

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According to the International Standards on Auditing, audit fees are the amount that remunerates the financial auditor's activity, the certification of financial statements. The Profession Code states that these fees should be calculated in an objective way and the auditor's independence shouldn't be influenced by them. This study aims to identify the determinants of the audit fees, by testing the existence of a circular causality in the connection between audit fees and the financial performance of a NYSE-quoted company. The analysis is based on a sample of the first 100 companies (NYSE quoted) of the Top 500 Fortune, except for the companies in the investment funds and insurances field. In the study there were tested and validated the following working hypothesis: "the level of the audit fees is mainly influenced by the company's capacity to continue its activity", "the prestige of the audited company contributes to the decrease of the audit fees" and "the reduced fees level, paid by the customer audited by one of the Big4 companies in this exercise, contributes to the future prestige increase". For data analysis there were used linear regression analysis (simple and multiple) and the variance analysis (ANOVA). Research results indicate the existence of a circular causality, bidirectional, on the level of the relationship between audit fees and financial performance. For data processing, in the study there were used statistical software SPSS 19.0 and AMOS 16.0.

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Do firms pay for audit risk? Evidence on risk premiums in audit fees after direct control for audit effort

Cited by 96 publications

References 37 publications

Joint Audit: Issues and Challenges for Researchers and Policy-Makers

Joint Audit: Issues and Challenges for Researchers and Policy-Makers

The Influence of the Client’s Background on the Auditor’s Decision in Acceptance the Audit Engagement

A Circular Causality Analysis on the Determinants of the Audit Fees within the NYSE-Quoted Companies

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