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The Impact of Fair Value Measurement on Audit Fees: Evidence from Financial Institutions in 24 European Countries
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Business Administration.ORCID iD: 0000-0001-5804-9454
2016 (English)In: International Journal of Auditing, ISSN 1090-6738, E-ISSN 1099-1123, Vol. 20, no 3, 255-266 p.Article in journal (Refereed) Published
Abstract [en]

The purpose of the study is to investigate the relationship between fair value measurement and audit fees. Using a sample of 177 banks from 24 European countries over the period 2008–13, we find that high uncertainty fair value assets are positively related to audit fees. The result is consistent with the suggestion that more complex estimates require greater audit effort. To provide more insight into the impact of fair value measurement on audit fees, we examine this relation under institutional settings with different strength of regulations. The results suggest that the strength of a country's institutional setting is positively related to effort spent on evaluation of higher uncertainty fair value inputs. The finding is consistent with the prediction that auditors expend more effort in more strongly regulated settings due to higher potential litigation costs. Finally, we find that the total proportion of fair-valued assets does not affect audit fees. The result can be attributed to the composition of the total proportion of fair-valued assets which is dominated by low uncertainty (Level 1) inputs.

Place, publisher, year, edition, pages
2016. Vol. 20, no 3, 255-266 p.
Keyword [en]
Audit fees, banking industry, fair value measurement, IFRS 7V
National Category
Business Administration
Research subject
Business Studies
Identifiers
URN: urn:nbn:se:umu:diva-126697DOI: 10.1111/ijau.12075ISI: 000391138400005OAI: oai:DiVA.org:umu-126697DiVA: diva2:1034766
Available from: 2016-10-13 Created: 2016-10-13 Last updated: 2017-11-29Bibliographically approved
In thesis
1. Essays on Audit Fees and the Joint Provision of Audit and Non-Audit Services
Open this publication in new window or tab >>Essays on Audit Fees and the Joint Provision of Audit and Non-Audit Services
2017 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This thesis examines the factors affecting audit and non-audit fees and the effects of the joint provision of audit and non-audit services on auditing.

The first essay focuses on environmental factors. Using data for Swedish listed companies over a six year span, including pre-crisis, crisis and post-crisis periods, the essay investigates whether changing economic conditions affect the level of fees paid for audit and non-audit services. The finding suggests that auditors increase their risk premium for auditing during a financial crisis andtend to charge higher audit fees as a response to lower risk levels in the post-crisis period. On the other hand, a significant reduction in non-audit fees suggests that companies are less willing to invest in consulting services during thecrisis and post-crisis periods.

The second essay also studies the effects of environmental factors on audit pricing. Using data for financial institutions in 24 European countries, the study examines whether the level of effort spent on the evaluation of fair values is higher for more uncertain fair values.The result suggests that an increasing level of complexity and risk requires greater audit effort. Furthermore, the results showthat the strength of a country’s institutional setting is positively associated with the effort spent on the evaluation of high uncertainty fair value estimates. The finding implies that auditors spend more effort in stronger regulated countries, possibly due to higher potential litigation costs.

The third essay focuses on the factors related to an individual audit partner. Based on the data of publicly listed Swedish companies, it investigates whether partner special competencies are reflected in the prices charged for auditing. The findings show that partner industry expertise and client-specific expertise are associated with higher audit fees. A further finding isthat female partners are considerably under-represented among specialists. However,the under-representation of females among higher qualified partners does not seem to negatively affect their possibilities to earn higher fees.

The fourth essay investigates how the joint provision of audit and non-audit services affects perceived knowledge spillover and audit efficiency. The essay makesuse of survey data from a large sample of Swedish auditors and finds that the levels of communication and trust are positively associated with knowledge spillover. The result further suggests that the information gained from the provision of non-audit services can reduce auditors’ effort (time) spent on different audit procedures, thereby increasing audit efficiency.

Place, publisher, year, edition, pages
Umeå: Umeå universitet, 2017. 58 p.
Series
Studier i företagsekonomi. Serie B, ISSN 0346-8291 ; 99
Keyword
audit fees, non-audit fees, crisis, fair value measurement, banking industry, engagement partner, industry expertise, public company expertise, tenure, gender, non-audit services, knowledge spillover, audit efficiency
National Category
Social Sciences
Identifiers
urn:nbn:se:umu:diva-141463 (URN)978-91-7601-782-1 (ISBN)
Public defence
2017-12-01, S213h, Samhällsvetarhuset, Umeå, 13:00 (English)
Opponent
Supervisors
Available from: 2017-11-09 Created: 2017-11-06 Last updated: 2017-11-09Bibliographically approved

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