TY - JOUR

T1 - Leaving a joint audit system

T2 - Conditional fee reductions

AU - Holm, Claus

AU - Thinggaard, Frank

N1 - Campus adgang til artiklen / Campus access to the article

PY - 2014

Y1 - 2014

N2 - Purpose: The authors aim to exploit a natural experment 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 a 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: Comapnies 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.Orginality/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.

AB - Purpose: The authors aim to exploit a natural experment 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 a 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: Comapnies 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.Orginality/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.

KW - Competition

KW - Bargaining power

KW - Audit fee

KW - Fee change

KW - Fee determinants

KW - Joint audit

KW - Fee discount

U2 - 10.1108/MAJ-05-2013-0862

DO - 10.1108/MAJ-05-2013-0862

M3 - Journal article

VL - 29

SP - 131

EP - 152

JO - Managerial Auditing Journal

JF - Managerial Auditing Journal

SN - 0268-6902

IS - 2

ER -