Audit fees, non-audit fees and auditor going-concern reporting decisions in the United Kingdom

The accounting profession has come under increased scrutiny over recent years about the growing number of non-audit fees received from audit clients and the possible negative impact of such fees on auditor independence. The argument advanced is that providing substantial amounts of non-audit services to clients may make it more likely that auditors concede to the wishes of the client management when difficult judgments are made. Such concerns are particularly salient in the case of reporting decisions related to going-concern uncertainties for financially stressed clients. This study empirically examines audit reports provided to financially stressed companies in the United Kingdom and the magnitude of audit and non-audit service fees paid to the company’s auditors. We find that the magnitude of both audit fees and non-audit fees are significantly associated with the issuance of a going-concern modified audit opinion. In particular, financially stressed companies with high audit fees are more likely to receive a going-concern modified audit opinion, whereas companies with high non-audit fees are less likely to receive a goingconcern modified audit opinion. Additional analyses indicate that the results are generally robust across alternative model and variable specifications. Overall, evidence supports the contention that high non-audit fees have a detrimental effect on going-concern reporting judgments for financially stressed U.K. companies.

Auditor's engagement risk and audit fees:the role of the audit firm alumni

This study explores the effect of the association of audit firm alumni with their alma mater on audit prices. The tests indicate that there is a moderate reduction of up to 21% in the level of audit fee when alumni (i.e., former employees) of the incumbent audit firm sit on the client board of directors which is consistent with the engagement risk theory. This suggests that there is an 'alumni effect' in the market for audit services. The findings hold only in the large company segment of the market. The results are robust to different model specifications and alternative samples. The sample comprises all executive and non-executive directors who run the UK quoted companies and are simultaneously ICAEW qualified chartered accountants. The study's implications for the accounting profession and the regulators are also discussed. © 2007 The Author Journal compilation © 2007 Blackwell Publishing Ltd.

Big 4 audit fee premiums for national and office-level industry leadership in the United Kingdom

The pricing of Big 4 industry leadership Is examined for a sample of U.K. publicly-listed companies, and adds to the evidence from the Australian and U.S. audit markets that city-specific industry leadership commands a fee premium. There is a significant fee premium for city-specific industry leaders relative to other Big 4 auditors, but no evidence that either the top-ranked or second-ranked firm nationally commands a fee premium relative to other Big 4 auditors, after controlling for city-level industry leadership. We also test for Big 4 fee premiums relative to non-Big 4 auditors and the U.K. data suggest a three-level hierarchy based on audit fee differentials: (1) Big 4 city-specific industry leaders have the largest fees; (2) other Big 4 auditors (noncity leaders) and second-tier national firms have comparable fees that are lower than Big 4 city leaders but larger than third-tier firms; and (3) third-tier accounting firms have the lowest fees.

An empirical investigation of price competition and industry specialisation in NHS audit services

The NHS audit market is regulated by the Audit Commission (AC) and has unique features. We develop a model for audit fees that includes rigorous analysis of the type of auditor. Poor financial standing does not give rise to higher audit fees. Despite regulation the study supports the existence of a Big Five price premium on the audit fee, but only one firm has a premium. We found no premium due to industry specialisation. The removal of performance audit from AC regulation will require improved audit fee reporting and control.

External audit in the National Health Service in England and Wales:a study of an oversight body's control of auditor remuneration

In the National Health Service (NHS) in England and Wales an oversight body, the Audit Commission (AC), defines the scope of the external auditors’ work, appoints the auditors and has oversight of their fees and audit quality. This heavily regulated audit regime mitigates some of the deficiencies observed in high profile corporate failures. Independence, it has been argued, is influenced by the total auditor remuneration paid by the client. In this study we examine total auditor remuneration in a regulated market which seeks to ensure audit independence and audit quality. In particular we undertake rigorous analysis of auditor remuneration by the type of auditor: We place emphasis on the differentiation between private sector firms and the AC’s in-house auditors (District Audit). Individual private audit firms charge premiums (up to 16%) for particular audit work in identified locations, but no premiums were found when we examined total auditor remuneration. The regime appears to permit efficient operation of the audit market while safeguarding both audit independence and standards.

The Audit Commission:guiding, steering and regulating local government

How does the non-executant state ensure that its agents are fulfilling their obligations to deliver nationally determined policies? In the case of elected local government in England and Wales, this function is carried out by the Audit Commission (AC) for Local Authorities and the Health Service for England and Wales. Since being established in 1983, it is the means by which local authorities are held to account by central government, both for its own purposes and on behalf of other interested stakeholders. Although the primary function of the AC is to ensure that local authorities are fulfilling their obligations, it does so by using different methods. By acting as a regulator, an independent expert, an opinion former and a mediator, the AC steers local authorities to ensure that they are compliant with the regulatory regime and are implementing legislation properly.

Audit committees in Scottish local authorities 1998-2005

During the last 15 years corporate governance has become increasingly prominent in the public sector. The Audit Commission's 1993 report on probity in local government recommended the establishment of audit committees. However, progress on this was slow, as demonstrated by a survey of Scottish local authorities by the authors in 1998. Recent major changes in government in Scotland at both a local and national level have prompted councils to improve the accountability, openness and integrity of their operations. One major aspect of this exercise was the formation of scrutiny committees to provide objective scrutiny of the process and audit committees were the most common vehicle for this. This article explores recent developments in Scottish local government and their impact on audit committees. The article also reports the results of a 2005 survey of Scottish local authorities and compares these with the 1998 survey. This indicates a significant growth in the number of audit committees in Scottish councils and although the level of their perceived effectiveness is patchy, they are a more important feature of local government than they were in 1998.

Audit accountability and government, White and Hollingsworth

Audit accountability and government, Fidelma White and Kathryn Hollingsworth, Claredon Press, 1999. 221 pp. £45.00