The Importance of Audit Firm Characteristics and the Drivers of Auditor Change in UK Listed Companies

This paper explores the importance of audit firm characteristics and the factors motivating auditor change based on questionnaire responses from 210 listed UK companies (a response rate of 70%). Twenty-nine potentially desirable auditor characteristics are identified from the extant literature and their importance elicited. Exploratory factor analysis reduces these variables to eight uncorrelated underlying dimensions: reputation/quality; acceptability to third parties; value for money; ability to provide non-audit services; small audit firm; specialist industry knowledge; non-Big Six large audit firm; and geographical proximity. Insights into the nature of 'the Big Six factor' emerge. Two thirds of companies had recently considered changing auditors; the main reasons cited being audit fee level, dissatisfaction with audit quality and changes in top management. Of those companies that considered change, 73% did not actually do so, the main reasons cited being fee reduction by the incumbent and avoidance of disruption. Thus audit fee levels are both a key precipitator of change and a key factor in retaining the status quo

A Test of Audit Pricing in the Small-Client Segment: A Comment

This study is the second to provide a richer test of the association between auditor size and audit fees by using three audit firm size classes in the small-client segment of the U.S. audit market. The finding of a Big 8 (now Big 6) price premium is consistent with Francis and Simon [1]. However, this price premium exists only with respect to local/regional firms. Francis und Simon showed that the Big 8 price premium exists with respect to both second-tier and local/regional firms. The present study also provides evidence of a second-tier price premium over local/regional firms. The results imply product differentiation to both Big 8 and second-tier firms. Plausible reasons for differences in results between the two studies are given.Yeshttps://us.sagepub.com/en-us/nam/manuscript-submission-guideline

The international firms as new entrants to the statutory audit market: an empirical analysis of auditor selection in Greece, 1993 to 1997

This paper investigates choice of statutory auditor in Greece in the five years subsequent to the 1992 liberalization of the audit market. We analyse auditor choices by 205 companies which, by 1997, represented almost 90% of companies listed on the Athens Stock Exchange. We find that the level of shareholdings by foreign shareholders is positively associated with choice of a Big Six versus any other auditor both immediately after liberalization in 1993 and still in 1997, indicative of the role of the Big Six in providing audit credibility in the eyes of international investors. In addition, Big Six auditors strengthened their position in the finance sector and, outside the finance sector, among larger companies over the period studied. We also find that in both 1993 and 1997 Big Six firms were distinguished specifically from the second-tier international firms, consistent with the view that, in post-liberalization Greece, companies by their choice of auditor appear to be distinguishing Big Six firms from all others but not between second-tier international firms and local auditors. These findings shed light on the hitherto unresearched area of which companies Big Six auditors target in order to gain market share when they are new entrants in an environment radically changed by regulatory reform. In addition the research extends the auditor name brand reputation debate by its finding that, in post-liberalization Greece, second-tier international firms appear to be distinguished from the Big Six but not from the local audit firms.