A Study on Auditor Change and Initial Audit Fee Discount
Asian Tax Journal Vol. 11 No. 2 (2010), pp. 103-132
Abstract
This study investigate whether firms in financial distress try to switch to a lower quality auditor and initial－year audit fee discounts happen more frequently in the sample of switching to a lower quality auditor compared to switching to a higher quality auditor. This paper also examine the effect of the fee dependence to a specific client and non－audit service provision on the initial audit fee discount. The empirical result shows that firms who have bad financial conditions generally are more likely to switch to a lower quality auditor rather than to a higher quality one. We also find that initial engagement discounting is more likely in the case of switching to a lower－quality auditor than in the case of switching to a higher－quality one. It was found that more than fifty percent of downgrade sample(switching from a higher－quality auditor to a lower－quality auditor) discount their audit fees. In addition, the greater the fee dependence to a specific client is, the more initial audit fee discount happen. However, there is no relation between non－audit fee provision and initial audit fee discount.
Keywords
- auditor change
- initial audit
- audit fee discount
- audit quality
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