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The Effect of Two Auditors and Non-audit Services on Audit Fees: Evidence from a Small Capital Market

Research output: Working paperResearch

  • Accounting Research Centre - ARC
  • Department of Business Studies
This paper adds to the scarce evidence on the determinants of audit fees in European countries outside the UK. The paper examines audit fees paid by companies listed on the Copenhagen Stock Exchange in 2002. This is the first year in which the Danish Financial Statements Act has required disclosure of both audit fees and other fees paid to the auditor on a consolidated group level. Until 1.1. 2005 special Danish legal provisions require listed companies to be audited by two independent auditors. We have especially focused on the influence of this joint auditor effect on the pricing of audit fees. Our results indicate that the requirement to have two independent auditors reduces total audit fees, most likely because of competitive pressure, but only in the segment of larger companies. We have applied the core audit fee determinants model which has evolved in international research with generic proxy variables for client size, complexity, risk profile and auditor size contributing to the level of audit fees. Our findings indicate similarities with respect to the determining factors, but again a distinction has to be made between segments of large and small companies. In the small Danish companies client size and complexity in a formal technical sense is decisive which might indicate that audits of such companies involve a relatively large proportion of accessory accounting service immanent in the audit service. In the generic large company decisive factors besides client size are complexity of substance and general client risk thus indicating that the typical audit of such a large company to a greater extent is planned considering risk and materiality. In contrast to most prior international research, no general Big Four effect could be established by analyzing Danish data. However, our results indicate that PWC is low balling in the segment of large companies and highballing in the segment of small companies. Finally our results confirm international findings of a positive association between other fees and audit fees.
Original languageEnglish
Publication statusPublished - 2004

    Research areas

  • Audit Fees, Audit Fees Determinants Model, Client Size, Complexity, Risk Profile, Danish Listed Companies, Two Auditors, Other Fees, Big Four

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