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Differences in audit pricing between voluntary and mandatory audits

Differences in audit pricing between voluntary and mandatory audits Despite the extensive research on the determinants of audit pricing in both public and private settings, there is a lack of research about the differences in audit fees between voluntary audits and mandatory audits. The purpose of this paper is to address this gap.Design/methodology/approachFirst, a theoretical framework is developed to justify differences in audit pricing between voluntary and mandatory audits. Next, using a sample of Spanish private small and medium enterprises (SMEs) running from 2009 to 2014, the authors empirically test whether the fees charged for voluntary audits differ from those charged for mandatory ones. The authors also examine whether the premium observed among large auditors is persistent in the SME setting, and whether this premium differs depending on whether the audits are voluntary or mandatory.FindingsAlthough a preliminary analysis does not report significant differences in pricing between voluntary and mandatory audits, additional analyses using samples restricted by company size show that voluntary audits are charged with a premium. The authors observe a premium related to large auditors, and find no significant differences in the audit pricing of Big 4 auditors depending on the mandatory/voluntary nature of the audit, but the premium associated with Middle-Tier auditors disappears in the voluntary setting.Originality/valueThis paper contributes to the previous literature by introducing the examination of differences in audit pricing between voluntary and mandatory audits. As far as the authors know, this is the first study to examine the differences in audit pricing between voluntary and mandatory audits. It also elaborates on studies on audit pricing in SMEs. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Academia Revista Latinoamericana de Administración Emerald Publishing

Differences in audit pricing between voluntary and mandatory audits

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References (53)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1012-8255
DOI
10.1108/arla-01-2016-0007
Publisher site
See Article on Publisher Site

Abstract

Despite the extensive research on the determinants of audit pricing in both public and private settings, there is a lack of research about the differences in audit fees between voluntary audits and mandatory audits. The purpose of this paper is to address this gap.Design/methodology/approachFirst, a theoretical framework is developed to justify differences in audit pricing between voluntary and mandatory audits. Next, using a sample of Spanish private small and medium enterprises (SMEs) running from 2009 to 2014, the authors empirically test whether the fees charged for voluntary audits differ from those charged for mandatory ones. The authors also examine whether the premium observed among large auditors is persistent in the SME setting, and whether this premium differs depending on whether the audits are voluntary or mandatory.FindingsAlthough a preliminary analysis does not report significant differences in pricing between voluntary and mandatory audits, additional analyses using samples restricted by company size show that voluntary audits are charged with a premium. The authors observe a premium related to large auditors, and find no significant differences in the audit pricing of Big 4 auditors depending on the mandatory/voluntary nature of the audit, but the premium associated with Middle-Tier auditors disappears in the voluntary setting.Originality/valueThis paper contributes to the previous literature by introducing the examination of differences in audit pricing between voluntary and mandatory audits. As far as the authors know, this is the first study to examine the differences in audit pricing between voluntary and mandatory audits. It also elaborates on studies on audit pricing in SMEs.

Journal

Academia Revista Latinoamericana de AdministraciónEmerald Publishing

Published: Aug 22, 2018

Keywords: Voluntary audit; Audit fees; Big 4 premium; Middle-Tier auditors; SMEs; Auditoría voluntaria; Honorarios de auditoría; prima Big 4; auditores medianos; pymes; M42

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