Leaving a joint audit system: conditional fee reductions

Abstract

Purpose – The authors aim to exploit a natural experiment in which voluntary replace mandatory joint audits for Danish listed companies and analyse audit fee implications of using one or two audit firms. Design/methodology/approach – Regression analysis is used. The authors apply both a core audit fee determinants model and an audit fee change model and include interaction terms. Findings – The authors find short-term fee reductions in companies switching to single audits, but only where the former joint audit contained a dominant auditor. The authors argue that in this situation bargaining power is more with the auditors than in an equally shared joint audit, and that the auditors' incentives to offer an initial fee discount are bigger. Research limitations/implications – The number of observations is constrained by the small Danish capital market. Future research could take a more qualitative research approach, to examine whether the use of a single audit firm rather than two has an effect on audit quality. The area calls for further theory development covering audit fee and audit quality in joint audit settings. Practical implications – Companies should consider their relationship with their auditors before deciding to switch to single auditors. Fee discounts do not seem to reflect long-lasting efficiency gains on the part of the audit firm. Originality/value – Denmark is the first country to leave a mandatory joint audit system, so this is the first time that it is possible to study fee effects related to this.

Paying for Joint or Single Audits? The Importance of Auditor Pairings and Differences in Technology Efficiency

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“…But the absence of single audit cases makes France an unsuitable subject for an empirical test of single versus joint audits. Mandatory joint audits were required for listed companies in Denmark from 1930 to 2004, but the provision was abolished for the auditing of financial reports after 1 January 2005 (Holm & Thinggaard, ). The Danish change in 2005 from a mandatory to a voluntary joint system led to statutory audits conducted as single audits or joint audits.…”

Exploring the association between the content of internal audit disclosures and external audit fees: Evidence from Sweden

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“…Two meta-analyses (Hay, 2013;Hay et al, 2006) have shown convincing results indicating that client size is the most important determinant of audit fees. The size of the company was operationalized by using the natural logarithm of total assets at yearend (ASSETS) (Firth, 1997;Holm & Thinggaard, 2014;Niemi, 2002).…”

Civil and common law influences on the Danish auditor's responsibilities in relation to fraud

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