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

Abstract

In the first theoretical paper on joint audits, Deng et al. predict that the audit fees for joint audits will be lower than those from single audits. However, the prediction depends on the combination of audit firms involved in the joint audit and on their technology efficiency as well as on the liability involved. This paper is the first to empirically test the predictions. Our findings from Denmark do not indicate any general difference in audit fees when two audit firms -regardless of combination and technology efficiency -conduct the statutory audit compared to a single Big audit firm. The results indicate the existence of fixed coordination costs in joint audits. We do, however, find higher audit fees in Big-Small joint audits when the Small audit firm has a share of less than 25 per cent. This may reflect free-riding concerns.

Joint audit, political connections and cost of debt capital

“…Similarly, Gonthier‐Besacier and Schatt () find that, when two Big 4 firms audit company accounts, the fees charged are significantly lower in comparison with those paid in joint audits where one or two small firms participate. The opposite result is documented in a different setting by Holm and Thinggaard (). They use the data for the whole population of non‐financial Danish companies listed on the Copenhagen Stock Exchange in the five‐year period surrounding the abolition of joint audits in 2005.…”

“…However, adding a firm with lower technological efficiency to form a joint audit will reduce the overall audit quality. Prior research on joint audit generally finds that: (i) earnings management is lower in firms audited by Big 4 auditors than in firms audited by non‐Big 4 auditors (Francis, Richard, & Vanstraelen, ), although Bédard, Piot, and Schatt () find evidence of less earnings management in joint audits involving two Big 4 auditors than in firms using one Big and one small auditor; (ii) there is lower reporting quality in joint audits involving two Big audit firms than in the audits of firms using one Big and one small audit firm (Marmousez, ); (iii) there are no discernible effects on financial reporting quality between joint and single audits (Lesage et al, ); and, finally, (iv) there is wide variation in audit fees overall (André, Broye, Pong, & Schatt, ; Audousset‐Coulier, ; Holm & Thinggaard, ; Zerni, Haapama, Jarvinen, & Niemi, ).…”

Board characteristics, auditing characteristics and audit report lag in African Central Banks

“…The results of the study conducted by Lesage et al (2012a, b) show that joint audits do not increase either costs or audit quality. However, the findings of Zerni et al (2012) and Holm and Thinggaard (2016) show that the joint audit has an effect on audit quality, as well as on ARL. In the case of CBs, the study by Arda et al (2018) shows that about 20% of auditing in CBs is done through the joint approach.…”

Mengungkap Korupsi Melalui Bukti Audit Menjadi Bukti Menurut Hukum

“…Beberapa peneliti (Butcher, Harrison, & Ross, 2013;Cohen & Leventis, 2013;Holm & Thinggaard, 2016) berargumentasi bahwa bukti dalam persepsi hukum dan bukti audit terdapat kesamaan dalam tujuannya yaitu menyajikan bukti-bukti yang dapat meningkatkan keyakinan mengenai kebenaran atau kesalahan setiap pernyataan/asersi atas suatu masalah. Keyakinan (assurance) dibentuk atas pertimbangan (judgement profesional) dari informasi yang tersedia.…”