Audit quality and feesevidence from Spain

  1. Isidoro Guzmán-Raja 1
  2. Mariano González-Sánchez 2
  3. Enrique Rúa-Alonso-DeCorrales 3
  4. Juan Francisco Sánchez-García 1
  1. 1 Universidad de Cartagena
    info

    Universidad de Cartagena

    Cartagena de Indias, Colombia

    ROR https://ror.org/0409zd934

  2. 2 Universidad Nacional de Educación a Distancia
    info

    Universidad Nacional de Educación a Distancia

    Madrid, España

    ROR https://ror.org/02msb5n36

  3. 3 Universidad CEU San Pablo
    info

    Universidad CEU San Pablo

    Madrid, España

    ROR https://ror.org/00tvate34

Mostrar afiliaciones +
Revista:
Revista española de financiación y contabilidad

ISSN: 0210-2412

Año de publicación: 2021

Volumen: 50

Número: 4

Páginas: 469-492

Tipo: Artículo

DOI: 10.1080/02102412.2021.1919959 DIALNET GOOGLE SCHOLAR lock_openAcceso abierto editor

Otras publicaciones en: Revista española de financiación y contabilidad

Objetivos de desarrollo sostenible

Resumen

This empirical research uses panel data methodology to find the main factors determining Spanish audit quality. on a sample with more than 60,000 audited companies from 2013 to 2018. Prior to analysing the quality of the audit, we have adjusted the best possible model to the audit fees behaviour in order to extract the abnormal fees. Our dynamic model shows that audited company’s size, the previous year’s audit fees, the years with the same audit firm, the auditor’s opinion, the auditor rotation, the concentration or dedication to the client and the client sector are explanatory factors of audit fees. Further, we find evidence that audit quality improves with number of hours billed for audit work and decreases with sector concentration of auditor and, a novel multiplicative effect, the auditor size by abnormal audit fees, in such a way that the surcharge (abnormal fees) of the big audit firms contribute negatively to improve the audit quality.

€ Ver financiación

Información de financiación

Financiadores

  • Instituto de Contabilidad y Auditoría de Cuentas
    • IDT-ASEPUC-ICAC-2019

Referencias bibliográficas

  • Abbott, L. J., Parker, S., Peters, G. F., Raghunandan, K. (2003). An empirical investigation of audit fees, non-audit fees, and audit committees. Contemporary Accounting Research, 20(2), 215–234. https://doi.org/10.1506/8YP9-P27G-5NW5-DJKK
  • Alexeyeva, I., Svanström, T. (2015). The impact of the global financial crisis on audit and non-audit fees: Evidence from Sweden. Managerial Auditing Journal, 30(4/5), 302–323. https://doi.org/10.1108/MAJ-04-2014-1025
  • Arellano, M., Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equation. The Review of Economic Studies, 58(2), 277–297. https://doi.org/10.2307/2297968
  • Bae, G. S., Choi, S. U., Rho, J. H. (2016). Audit hours and unit audit price of industry specialist auditors: Evidence from Korea. Contemporary Accounting Research, 33(1), 314–340. https://doi.org/10.1111/1911-3846.12145
  • Basioudis, I. G., Papakonstantinou, E., Geiger, M. A. (2008). Audit fees, non-audit fees and auditor going-concern reporting decisions in the United Kingdom. Abacus, 44(3), 284–309. https://doi.org/10.1111/j.1467-6281.2008.00263.x
  • Beardsley, E. L., Lassila, D. R., Omer, T. C. (2019). How do audit offices respond to audit fee pressure?: Evidence of increased focus on non-audit services and their impact on audit quality. Contemporary Accounting Research, 36(2), 999–1027. https://doi.org/10.1111/1911-3846.12440
  • Bronson, S. N., Ghosh, A., Hogan, C. E. (2017). Audit fee differential, audit effort, and litigation risk: An examination of ADR Firm. Contemporary Accounting Research, 34(1), 83–117. https://doi.org/10.1111/1911-3846.12238
  • Butterworth, S., Houghton, K. A. (1995). Auditor switching: The pricing of audit services. Journal of Business Finance and Accounting, 22(3), 323–344. https://doi.org/10.1111/j.1468-5957.1995.tb00877.x
  • Cabal-García, E., De-Andrés-Suarez, J., & Fernández-Méndez, C. (2019). Analysis of the effects of changes in Spanish auditing regulation on audit quality and its differential effect depending on the type of auditor. Spanish Accounting Review, 22(2), 171–186. https://doi.org/10.6018/rcsar. 382241
  • Cano Rodríguez, M., Sánchez Alegría, S. (2012). The value of audit quality in public and private companies: Evidence from Spain. Journal of Management & Governance, 16(4), 683–706. https://doi.org/10.1007/s10997-011-9183-4
  • Cano-Rodríguez, M. (2010). Big Auditors, Private Firms and Accounting Conservatism: Spanish Evidence. European Accounting Review, 19(1), 131–159. https://doi.org/10.1080/09638180902989426
  • Carcello, J. V., Hermanson, D. R., Neal, T. L., Riley, R. R., Jr. (2002). Board characteristics and audit fees. Contemporary Accounting Research, 19(3), 365–384. https://doi.org/10.1506/CHWKGMQ0-MLKE-K03V
  • Carson, E., Fargher, N., Simon, D. T., Taylor, M. H. (2004). Audit Fees and Market Segmentation – Further Evidence on How Client Size Matters within the Context of Audit Fee Models. International Journal of Auditing, 8(1), 79–91. https://doi.org/10.1111/j.1099-1123.2004.00159.x
  • Chan, P., Ezamel, M., Gwilliam, D. (1993). Determinants of audit fees for quoted UK companies. Journal of Business Finance and Accounting, 20(6), 765–786. https://doi.org/10.1111/j.1468-5957.1993.tb00292.x
  • Choi, J. H., Kim, J. B., Zang, Y. (2010). Do abnormally high audit fees impair audit quality? Auditing: A Journal of Practice and Theory, 29(2), 115–140. https://doi.org/10.2308/aud.2010.29.2.115
  • Cullinan, C. P., Du, H., Zheng, X. (2016). Size variable in audit fee models: An examination of the effects of alternative mathematical transformations. Auditing: A Journal of Practice & Theory, 35(3), 169–181. https://doi.org/10.2308/ajpt-51460
  • Dechow, P. M., Sloan, R. G., Sweeny, A. P. (1995). Detecting earnings management. Accounting Review, 70(2), 193–226. sseriga.free.fr/course/uploads/FA%20-%20PM/Dechow_et_al_1995.pdf
  • Dekeyser, S., Gaeremynck, A., Williekens, M. (2019). Evidence of industry scale effects on audit hours, billing rates, and pricing. Contemporary Accounting Research, 36(2), 666–693. https://doi.org/10.1111/1911-3846.12460
  • Duréndez Gómez-Guillamón, A. L., Maté Sánchez-Val, M. (2012). The geographical factor in the determination of audit quality. Spanish Accounting Review, 15(2), 287–310. https://doi.org/10.1016/S1138-4891(12)70046-8
  • Firth, M. (1997). The provision of NAS and the pricing of audit fees. Journal of Business Finance and Accounting, 24(3&4), 511–525. https://doi.org/10.1111/1468-5957.00118
  • Francis, J., Stokes, D. (1986). Audit prices, product differentiation and scale economies: Further evidence from Australian market. Journal of Accounting Research, 24(2), 363–393. https://doi.org/10.2307/2491141
  • Francis, J. R., Yu, M. D. (2009). Big 4 office size and audit quality. The Accounting Review, 84(5), 1521–1552. https://doi.org/10.2308/accr.2009.84.5.1521
  • Fuentes, C., Sierra-Grau, E. (2015). IFRS adoption and audit and non-audit fees: Empirical evidence from Spanish listed companies. Spanish Journal of Finance and Accounting, 44(4), 387–426. https://doi.org/10.1080/02102412.2015.1075341
  • Gandía, J. L., Huguet, D. (2020). Audit fees and cost of debt: Differences in the credibility of voluntary and mandatory audits. Economic Research, 33(1), 3071–3092. https://doi.org/10.1080/1331677X.2019.1678501
  • Garcia-Blandon, J., Argiles-Bosch, J. M. (2017b). The interaction effects of firm and partner tenure on audit quality. Accounting and Business Research, 47(7), 810–830. https://doi.org/10.1080/00014788.2017.1289073
  • Garcia-Blandon, J., Argiles-Bosch, J. M. (2013). Audit firm tenure and qualified opinions: New evidence from Spain. Spanish Accounting Review, 16(2), 118–125. https://doi.org/10.1016/j.rcsar.2013.02.001
  • Garcia-Blandon, J., Argiles-Bosch, J. M. (2017a). Audit partner industry specialization and audit quality: Evidence from Spain. International Journal of Auditing, 22(1), 98–108. https://doi.org/10.1111/ijau.12107
  • Ghosh, A., Pawlewicz, R. (2009). The impact of regulation on auditor fees: Evidence from the Sarbanes-Oxley Act. Auditing: A Journal of Practice and Theory, 28(2), 171–197. https://doi.org/10.2308/aud.2009.28.2.171
  • Gómez-Aguilar, N., Ruiz-Barbadillo, E., De Fuentes-barberá, C., García-Benau, M. A. (2004). Audit quality and the going-concern decision-making process: Spanish evidence. European Accounting Review, 13(4), 597–620. https://doi.org/10.1080/0963818042000216820
  • González-Díaz, B., García-Fernández, R., López-Díaz, A. (2015). Auditor tenure and audit quality in Spanish state-owned foundations. Spanish Accounting Review, 18(2), 115–126. https://doi.org/10.1016/j.rcsar.2014.04.001
  • Gul, F. A., Tsui, J. S. L. (2001). Free cash flow, debt monitoring, and audit pricing: Further evidence on the role of director equity ownership. Auditing: A Journal of Practice and Theory, 20 (2), 72–84. https://doi.org/10.2308/aud.2001.20.2.71
  • Heras, E., Cañibano, L., Moreira, J. A. (2012). The Impact of the Spanish Financial Act (44|2002) on audit quality. Spanish Journal of Finance and Accounting, 41(156), 521–546. https://doi.org/10.1080/02102412.2012.10779734
  • Hillison, W., Kennelley, M. (1988). The economics of nonaudit services. Accounting Horizons, 2, 32–40.
  • Hoopes, J. L., Merkley, K. J., Pacelli, J., Schroeder, J. H. (2018). Audit personnel salaries and audit quality. Review of Accounting Studies, 23(3), 1096–1136. https://doi.org/10.1007/s11142-018-9458-y
  • Jaramillo Jaramillo, M., García Benau, M. A., Zorio Grima, A. (2012). Factores que determinan los honorarios de auditoría: Análisis empírico para México. Revista Venezolana de Gerencia, 17 (59), 387–406. https://doi.org/10.31876/revista.v17i59.10906
  • Krishnan, G. V., Zhang, Y. (2014). Is there a relation between audit fee cuts during the global financial crisis and banks’ financial reporting quality? Journal of Accounting and Public Policy, 33(3), 279–300. https://doi.org/10.1016/j.jaccpubpol.2014.02.004
  • Ley Sarbanes-Oxley Act of 2002. U.S. Inter-Affairs International Division. Retrieved December 11, 2019, from http://interamerican-usa.com/articulos/Leyes/Ley-Sar-Oxley.htm
  • Lim, C., Tan, H. (2010). Does auditor tenure improve audit quality? Moderating effects of industry specialization and fee dependence. Contemporary Accounting Research, 27(3), 923–957. https://doi.org/10.1111/j.1911-3846.2010.01031.x
  • Lisic, L. L., Myers, L. A., Pawlewicz, R., Seidel, T. A. (2019). Do accounting firm consulting revenues affect audit quality?: Evidence from the pre- and post-SOX eras. Contemporary Accounting Research, 36(2), 1028–1054. https://doi.org/10.1111/1911-3846.12424
  • López-Corrales, F. J., Pedrosa Rodríguez, M. A. (2020). Los honorarios de auditoría y la crisis financiera global: Evidencia empírica para las pymes españolas. Revista De Contabilidad Y Tributación, 452, 193–230.
  • Low, L., Tan, P. H., Koh, H. (1990). Determination of audit fees: An analysis in the Singapore context. Journal of Business Finance and Accounting, 17(2), 285–295. https://doi.org/10.1111/j.1468-5957.1990.tb00561.x
  • Mareque, M., Barajas, A., & Lopez-Corrales, F. (2018). The impact of union of European Football Associations (UEFA) financial fair play regulation on audit fees: Evidence from Spanish football. International Journal of Financial Studies, 6(4), 92, 1–30. https://doi.org/10.3390/ijfs6040092
  • Mayhew, B. W., Wilkins, M. S. (2003). Audit firm industry specialization as a differentiation strategy: Evidence from fees charged to firms going public. Auditing: A Journal of Practice and Theory, 22(2), 33–52. https://doi.org/10.2308/aud.2003.22.2.33
  • Monterrey Mayoral, J., Sánchez-Segura, A. (2007a). Rotación y dependencia económica de los auditores: Sus efectos sobre la calidad del resultado en las compañías cotizadas españolas”. Investigaciones Económicas, XXXI(1), 119–159. fundacionsepi.es/investigacion/revistas/paperArchive/Ene2007/v31i1a4.pdf
  • Monterrey Mayoral, J., Sánchez-Segura, A. (2007b). Un estudio empírico de los honorarios del auditor. Cuadernos de Economía y Dirección de la Empresa, 32(32), 81–110. https://doi.org/10.1016/S1138-5758(07)70092-0
  • Moon, J. R., Jr., Shipman, J. E., Quinn, T. S., Whited, R. L. (2019). Do clients get what they pay for?: Evidence from auditor engagement fee premiums. Contemporary Accounting Research, 36 (2), 629–665. https://doi.org/10.1111/1911-3846.12445
  • Musah, A., Anokye, F. K., Gakpetor, E. D. (2018). The effects of IFRS adoption and Big 4 audit firms on audit and non-audit fees: Evidence from Ghana. Accounting and Management Information Systems, 17(3), 330–352. https://doi.org/10.24818/jamis.2018.03002
  • Myers, J. N., Myers, L. A., Omer, T. C. (2003). Exploring the term of the auditor-client relationship and the quality of earnings: A case for mandatory auditor rotation? The Accounting Review, 78(3), 779–799. https://doi.org/10.2308/accr.2003.78.3.779
  • O’Keefe, T., Simunic, D., Stein, M. (1994). The production of audit services: Evidence from a major public accounting firm. Journal of Accounting Research, 32(2), 241–262. https://doi.org/10.2307/2491284
  • Palmrose, Z. V. (1986). The effect of nonaudit services on the pricing of audit services: Further evidence. Journal of Accounting Research, 24(2), 405–411. https://doi.org/10.2307/2491144
  • Raffournier, B., Schatt, A. (2018). The impact of International Financial Reporting Standards (IFRS) adoption and IFRS renouncement on audit fees: The case of Switzerland. International Journal of Auditing, 22(3), 345–359. https://doi.org/10.1111/ijau.12139
  • Ratzinger-Sakel, N., Schönberger, M. (2015). Restricting non-audit services in Europe-The potential (lack of) impact of a blacklist and fee cap on auditor independence and audit quality. Accounting in Europe, 12(1), 61–86. https://doi.org/10.1080/17449480.2015.1035290
  • Reichelt, K. J., Wang, D. (2010). National and office-specific measures of auditor industry expertise and effects on audit quality. Journal of Accounting Research, 48(3), 647–686. https://doi.org/10.1111/j.1475-679X.2009.00363.x
  • Reynolds, J. K., Deis, D. R., Jr., Francis, J. R. (2004). Professional services fees and auditor objectivity. Auditing: A Journal of Practice & Theory, 23(1), 29–52. https://doi.org/10.2308/aud.2004.23.1.29
  • Rose, A. M. (1999). Audit pricing and the role of multinational factors: A study of the Hong Kong and Malaysian markets. Advances in International Accounting, 12, 129–155.
  • Ruiz-Barbadillo, E., Gómez-Aguilar, N., Biedma-López, E. (2006). Long-term audit engagements and opinion shopping: Spanish evidence. Accounting Forum, 30(1), 61–79. https://doi.org/10.1016/j.accfor.2005.03.007
  • Ruiz-Barbadillo, E., Gómez-Aguilar, N., Carrera, N. (2009). Does Mandatory Audit Firm Rotation Enhance Auditor Independence? Evidence from Spain. AUDITING: A Journal of Practice & Theory, 28(1), 113–135. https://doi.org/10.2308/aud.2009.28.1.113
  • Sierra-García, L., Ruiz-Barbadillo, E., Orta-Pérez, M. (2019). Analysis of the influence of the internal audit function on audit fees. Spanish Accounting Review, 22(1), 100–111. https://doi.org/10.6018/rc-sar.22.1.354351
  • Silva, A. S. V. C., Inácio, H. C., Vieira, E. F. S. (2020). Determinants of audit fees for Portugal and Spain. Contaduría y Administración, 65(4), 1–24. https://dx.doi.org/10.22201/fca.24488410e.2020.2039 Not StartedCompletedRejected
  • Simunic, D. (1980). The pricing of audit services: Theory and evidence. Journal of Accounting Research, 18(1), 161–190. https://doi.org/10.2307/2490397
  • Simunic, D. (1984). Auditing, consulting and auditor independence. Journal of Accounting Research, 22(2), 679–702. https://doi.org/10.2307/2490671
  • Turpin, R. A. (1990). Differential pricing on auditors’ initial engagements: Further evidence. Auditing: A Journal of Practice and Theory, 9(2), 60–76.
  • Whisenant, S., Sankaraguruswamy, S., Raghunandan, K. (2003). Evidence on the joint determination of audit and non-audit fees”. Journal of Accounting Research, 41(4), 721–744. https://doi.org/10.1111/1475-679X.00121
  • Wines, G. (1994). Auditor independence, audit qualifications and the provision of NAS: A note. Accounting and Finance, 34(1), 75–87. https://doi.org/10.1111/j.1467-629X.1994.tb00263.x
  • Xiao, M., You, J. (2009). Private benefits of control, growth opportunities and investor protection. China Journal of Accounting Research, 2(1), 123–145. https://doi.org/10.1016/S1755-3091(13)60011-8
  • Xu, Y., Carson, E., Fargher, N., Jiang, L. (2013). Responses by Australian auditors to the global financial crisis. Accounting & Finance, 53(1), 301–338. https://doi.org/10.1111/j.1467-629X.2011.00459.x
  • Yang, R., Yang, Y., Liu, M., Wu, K. (2018). Corporate risk disclosure and audit fee: A text mining approach. European Accounting Review, 27(3), 583–594. https://doi.org/10.1080/09638180.2017.1329660
  • Zhang, T., Huang, J. (2013). The risk premium of audit fee: Evidence from the 2008 financial crisis. China Journal of Accounting Studies, 1(1), 47–61. https://doi.org/10.1080/21697221.2013.781766
Fuente de los datos: Dialnet